That was a solid punch to the liver at the close there yesterday, slicing through 4550 support. Its gut check time. Now we are looking at rock hard 4500 support as the last line of defense. I added more SPX longs yesterday, looking to hold into the middle of February. No longer looking to play for a few days move. Looking for a bigger move up towards 4800+.
Here's the logic. Either I am right and it V bottoms soon and I ride it up to new all time highs. Or I am wrong and it keeps going down. There isn't much edge gained from holding on if it goes down and being exposed to the left tail and cutting off the right tail by selling on a move to 4700. If I am going to expose myself to potential big losses, the only way to have a long term edge is to expose myself to potential big gains. So hold it for 3-4 weeks and let the chips fall where they may.
Its a weakening market and it seems like most investors are seeing what I am from a longer term view: tightening fiscal and monetary policy while stocks are at bloated valuations. A terrible combination, but after such a monster bull market in US stocks, especially SPX and Nasdaq, if you see this as similar to 2000 and 2015, the market was consolidating for months near the top, chopping in a narrow range before finally rolling over and going into a waterfall decline. In 2000, the SPX made a top in March, and hovered near the top until September before finally entering a downtrend. In 2015, the SPX made a top in March, and hung around those levels in a narrow range until the waterfall decline in August.
The Fed still hasn't fired their first rate hike bullet, and QT is still several months away. There is still a while to go before the tighter monetary policy seeps into corporate earnings and financial conditions. There is time to play the range, buying when pessimism rises near the bottom of the range (like now), and selling near the top of the range when greed takes over and sidelined investors pile back in.
Based on hedge fund positioning data from prime brokers, long/short hedge funds have been decreasing their net exposure since late November, and with the January purge of tech stocks, most of the data are showing their exposure near 52 week lows.
Dark pool data is showing above average buying (DIX > 45 the last 2 days). Smart money is accumulating.
The biggest negative out there is the continued weakness in the bond market, but with 10 year yields getting close to 2%, and Bunds around 0%, short term, I only see downside to perhaps 1.95% 10 year yields. If bonds stop going down, selling pressure from risk parity will dissipate. Also, January is a weak buyback month, so its contributed to some of the weakness. After tech earnings, corporate buybacks will get back to their normal levels in February.
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16 comments:
What do you make the huge intra-day reversal? I am still long Feb calls and dont want to react but this feels quite different from the last couple years
I bought some SPX calls into this big drop, it's getting panicky out there, gut feeling is that we're very close to a bottom.
thanks
The chance that we are at a near term bottom is high. Also interesting that many of the most beaten down tech names fared very well today with many actually up decent for the day. This tells me near term the sell-off is done. All the best on the longs @marketowl. I am as long as I have been in a while for will trim as we move up - not going to hold everything for a big move. Always been early and while it hurt last few years, not going to change it now. Disclosure - long spy, qqq, iwm and arkk calls. Also ewz calls but that is a long term position to jan 2024
Agreed, I have a tendency to be early as well. And if we had bottomed yesterday, I would have been more confident about 4800+ by middle of February, but I think it may take longer to get there, but I still think we make new all time highs within 2 months. I will start trimming my position from 4700 to 4740, and will let a bit ride for a higher move towards 4800+.
And good to see that the tech liquidation is mostly done, the tech names usually lead on the upside and the downside. Monthly options expiration gamma forces seems to have pushed the market even deeper in to the red into the close. All I can do now is just hang on, and let it play out over the next few weeks.
Too many people think bounce. I'm always only put man. Bloodbath waterfall comes with No signals and No reasons.
I can win if all of them(bulls and bears) are wrong.
Hell awaits, season of the abyss.
good you are short soong. I have certainly gone too long too soon on this dip despite being cautious. wondering how to navigate this
I will reduce long SPX and sell calls on a bounce, hopefully to 4580. I want to give myself room to add again if there is another leg lower. Put/call ratio is at 1.12 now. Its been between .60 and .88 since the selloff started. If we close at that put/call ratio, it would be the highest since March 2020. There is serious hedging going right now, as well as liquidations. It could continue for another day, but it looks like the puke day is finally here, and hopefully it can bounce.
i almost bought more short term calls SPX down 60 but decided to wait. looked like easy money but there is something called risk management also
Yeah, I almost bought more near the lows but I'm already loaded up long so I decided to wait for a bit lower price and it just blasted off the 200 day MA.
Sold that off. Looks like the only way is down. How quick things change.
major payne like damon wayans
@marketowl would you hold on to your longs? I guess it is time to hold if many are thinking of throwing in the towel. I have room to add but dont want to increase sizing now - fairly in the red
I am holding on, and not going to add. Anything can happen, but I see at most 100 point downside to 4300 for next week and potential to bounce up to 4580. It looks scary, but I'm hanging on.
Do you read much into it? Have always been wary of trying to time long with overstretched valuations and wondering if committed one more blunder. Seems people may head to exit on any pop again or may be not.
https://twitter.com/sentimentrader/status/1484640684212686850?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
I do look at COT positioning for ES and NQ futures. It does make me wary of holding this for more than a bounce. Expecting a bounce ahead of the FOMC meeting on Wednesday so hopefully it can get up to 4500-4520 and I'll sell and take my loss and look for a better entry.
Usually the futures positioning is a longer term indicator, so it just confirms what I already knew: we are in a topping phase and there will be a big waterfall decline after we chop in a range for a few months.
Didn't expect the selling to get this extreme so early in the topping phase, but usually the first big correction from a strong uptrend is a good buying opportunity (Apr/May 2000, Dec/Jan 2015, Feb/Apr 2018). All 3 of those were bad years, but you still had a multi-month rally off the bottom for each case.
Topping is a process, in most cases, you don't get a straight down move off the top, there is quite a bit of chop before you get a steady downtrend.
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