The fear is getting palpable. Its not extreme, but this is the first time since SIVB in March where you have stock investors face some real heat, and they are not used to it. Or prepared for it. On Thursday, there were some signs of fear and that we are close to a bottom: 1) Puking out of Treasuries as we broke the Oct. 2022 highs in 10 year yields. 2) Aggressive selling in retail favorite high beta names: TSLA, PLTR, COIN, etc. 3) Panic selling and stops triggered as BTC nosedived after Thursday's close. 4) 3 straight weak closes in SPX, with that highly touted 4400 support level broken convincingly.
Despite the high valuations and weakening economy, the SPX is still the strongest equity market in the world and still in an uptrend, so a V bottom is the most likely scenario once this market finds a floor. While the fundamentals are not favorable for a long term long, the technical strength for SPX on 3 month timeframe is undeniable. You don't get these explosive moves higher, going parabolic when you don't have sustained, underlying demand. The excuse for the coming rally will probably be bond yields that stop going higher amidst a weakening economy that will make investors think Goldilocks and a Fed that is done, not an early sign of an impending recession.
I expect bonds to find a bottom very soon, but the bounce off that bottom should be fairly weak, as there is still a ton of overhead resistance and underwater longs who will look to sell on rallies. I don't like to see so many bottom pickers as I have noticed in Twitter. The fixed income "experts" were mostly calling for 3.50%-3.75% 10 year by year end as recently as last month. So there hasn't been any washout in that asset class, even with the weakness and horrible price action.
This correction since the beginning of the month has been a classic example of the downside of trying to be cute with a position. Those that tried to micro-trade their short position to sidestep a bounce probably never were able to re-enter their short position and ended up with much less profit than if they just held the position to their target price / timeframe when the trade was entered. I've learned from past mistakes that microtrading a profitable position is usually counterproductive.
Once we do find a bottom in this correction, the potential upside over the next 3-4 weeks is to 4550-4600. If I do get long, I would look to exit about 3 weeks after entry. The thing about trading on the long side is that you can be late on your exits and not be punished. The window for a graceful exit with longs is always wider than for shorts in a bull market. My presumption here is that we remain in a bull market. These are bull market rules.
We could see some sharp selling today/Monday. The final stage of a correction is usually the scariest and incites the most fear. With this 30 point gap down in SPX, we are getting close to support around 4300-4325. I will be looking to cover all shorts into any intraday weakness today off the gap down. Lastly, while I am still short, I do not recommend shorting any bounces for the next 2 weeks, as you have V bounce risk.
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Covered most of individual stock shorts, partially covered index shorts in the morning session. Will cover remaining shorts next week ahead of Jackson Hole, preferably when there is one final move lower towards 4300-4325 area.
I trimmed too but only around 25pct. May be too cute but feel will get a better exit next week
I closed most of my individual stock shorts, and about half of my index shorts. I agree, most things that I look at are pointing to one more push lower next week. Nervousness ahead of Jackson Hole likely to keep buyers from coming in aggressively here.
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