- March Madness continues. I haven’t watched a single game in the college basketball tournament, as I’ve been watching March Madness unfold in the markets and the Middle East for the last 20 days.
- As someone once said, it’s easy to start a war and harder to end a war. In a world where people expect immediate results, Amazon overnight delivery, or to get rich overnight with one ODTE options trade, it should be put into context what is happening in the Middle East. Iran was the last of the worst regimes, and nobody should have expected this to be easy or completed overnight.
- War or any military operation never goes exactly to plan, as the number of variables, despite plans, is always unknown.
- As a political science/economics major, I tend to draw on some of the history I learned. History often repeats itself.
- Markets shift between “containment” and “escalation” during wartime or military operations. I highlighted this right after the war in Iran started. There have been a few periods of containment and more periods of escalation recently.
- One of the market themes I reiterated over the last 6 months has been the overweighted positioning into risk assets – notably equities. Retail and institutional inflows have been persistent and large, even with leverage. Each 1% dip was “a generational buying opportunity.” The markets stomached a lot of noise while moving sideways in a range. The Iran war persists despite being told “We won,” “It’s nearly over,” and failing to convince investors with the TACO comments, and now has several key markets breaking.
- The bond market is under severe stress. Rates are moving higher when one would think that if equities are under pressure, isn’t the bond market a likely safe hiding place? It’s moving up with crude/gasoline prices spiking, which is inflationary. It’s also a liquid global market, and when markets are under pressure, investors look for liquidity regardless of price. There will come a time when the equity markets decline enough to shift money to bonds.
- Gold and metals have a narrative of being a safe hiding place, yet gold is also like bonds, an easy liquidity asset. Add that inflows into gold and metals have been at higher levels over the last 6 months, which has people trapped higher. At times of stress, funds and investors will look for liquidity, selling anything not nailed down.
- The equity markets are possibly just now starting to break down under the range from October. The Mag7 basket is down nearly 11% YTD vs. the S&P down 4.3% and the Nasdaq-100 down 4.5%.
- Equity market sentiment has been breaking down. After holding the 50% midpoint level several times since November and bouncing back, it failed this time and is currently at 30%. Mildly oversold perhaps, but a year ago it hit 10% bulls. Sentiment in itself is not a trigger, but a condition. It might spend a period of time lower with failed bounces to the 50% level. That occurred in 2022, with a step-down in the main indexes with exploitable bounces that I captured well.
- Regarding price action, the S&P and Nasdaq 100 are concerning, with the November lows breaking or near a break. Those who bought higher might be looking at losses that might motivate them to sell. Nothing motivates sellers more than lower prices. And for the buy-the-dip people, realizing that dips don’t bounce back as hoped will discourage them from hitting the green buttons as quickly as they have over the last year.
- The DeMark signals on the daily time period for the S&P generated multiple sell signals, resulting in nominal pullbacks that were frustrating yet informative, as they showed how strong the trend was from the April lows to the peak in late October. Weekly exhaustion 13 signals were triggered for both the S&P and the Nasdaq 100 in late October. The last daily Sequential sell Countdown 13 was on January 12th, and the Combo sell Countdown 13 was on January 28th. Since then, the index is down about 6.5%. What is different now is that, besides support levels breaking with the S&P, there is a downside DeMark Sequential on day 5 of 13 and Combo on day 7 of 13.
- Yesterday, I discussed some thoughts on capitulation taken from my experience. That hasn’t happened yet.
- Chuck Norris died today. Someone years back created the Chuck Norris Trading Facts, It’s great. h/t Rob P.
- I will send out sign-ups for the new Big Picture note as soon as Dino, my programmer, finishes all the processes. It’s a new monthly note with one to two interim update notes as needed. I will be posting an interim note on Sunday. Some have said it’s my best work and the people who have praised it are the caliber of investors I have the highest respect for. I’ve priced it very low for what you’re getting, and I have a 2-year plan with a discount, too.
- The number of doom merchants on X and YouTube is increasing. I’m looking forward to peak doom when all of our indicators line up for a buying opportunity.
- And with that, I hope you all have a nice weekend, and you can relax with a little offline time.
Quick Market Views
Stocks: Very weak action. Breakdowns on the major indexes – see below. Breadth is very weak. NYSE down 2750 net issues, Nasdaq down 2200 net issues. S&P has 148 up and 354 down issues. Every sector is down except energy and fins.
Bonds: Rates are spiking as bonds sell off hard. 2’s up 10bps, 10’s up 12bps, 30’s up 10bps. There are upside DeMark Countdowns in progress with rates too.
Commodities: Crude is still under 100 the big round number up nearly 3%. Natural Gas is down 3%. Grains weak. Copper down 2%, Gold down 1%, Silver down 2.5%
Currencies: US Dollar Index is up 0.3%. Bitcoin is down 1.15%
Current Portfolio Ideas: +4.17% vs S&P -4.46% YTD
Changes: No changes. I have 10% cash. 50% net short.
Yesterday I recommended three put spread ideas with April 10th expiration: SPY 645-630ps paid $2.90 currently: $4.25, QQQ 580-565ps paid $3.25 currently: $4.75 , TSLA 365/350ps paid $3.15 currently: $4.70. Take gains as you wish. I think these have time and could move lower. When they double take off half.
The SPY and QQQ momentum indicators remain on sell, but given the volatility, I’ve held back on using them, as they whipped too often over the last month.
US INDEXES
S&P 500 Index daily with Sequential in progress below TDST support.
Nasdaq 100 Index daily with comments on the chart. Propulsion downside confirmed.
Dow Jones Industrial average with similar downside breakdown and DeMark Countdown in progress
IWM Russell 2000 similar situation
Current Portfolio
Bank of America flow show
Just a few highlights worth sharing from the Bank of America weekly Flow Show.
Adding to the chart that Michael Hartnett has shown in the past, he added Private Equity, which has peaked.
Higher oil prices have at times resulted in recessions. The longer crude oil stays elevated, the higher the odds.
The next chart I have is even worse.
The GLD monthly outflows look like the GLD tourists have left the island. Similar to Nantucket in September.
for March Madness and ice tea fans
I thought this was pretty clever and funny. I prefer neither. Arizona Iced Tea is loaded with sugar. I don’t know what exactly is in a Long Island Iced Tea, but mixing 10 different hard alcohols sounds nauseating.
Hedge Fund Telemetry ETF Percentage Price Oscillator Monitor
The PPO monitor (percentage price oscillator) force ranks ETFs by percentage above/below the 50-day moving average. This monitor and others are offered to Hedge Fund Telemetry subscribers on Bloomberg. Most ETFs are down today and below the 10, 20, and 50 day. The number of new 20 day lows is exceptionally high (highlighted in red – second from right column)
Index ETF and select factor performance
ETF with today’s performance with 5-day, 1-month, and 1-year rolling performance YTD. Seeing most down today, in last 5 days, and last month. The dispersion on YTD performance is wild. The 1-year rolling period is approaching the 1-year anniversary of the liberation day low.
Goldman Sachs Most Shorted baskets vs. S&P Indexes
This monitor has the S&P indexes and Goldman Sachs’ most-shorted baskets. Short baskets are leading the declines while Energy action remains the outlier.
DeMark Observations
Within the S&P 500, the DeMark Sequential and Combo Countdown 13s and 12/13s on daily and weekly periods. Green = buy Setups/Countdowns, Red = sell Setups/Countdowns. Price flips are helpful to see reversals up (green) and down (red) for idea generation. The extra letters at the end of the symbols are just a Bloomberg thing. Worth noting: Starting to see some buy signals but not nearly enough to turn bias
Major ETFs among a 160+ ETF universe.
If you have any questions or comments, please email us. Data sources: Bloomberg, DeMark Analytics, Goldman Sachs, Street Account, Vital Knowledge, Daily Sentiment Index, and Erlanger Research