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Wednesday, February 21, 2024

Monday Melt-Down, The Fallen (Big Chart Review)

What a disaster!

Once again we are in a market that environment that reminds me of the Simpsons episode where Homer jumps over a gorge, crashes, is taken up by a helicopter (Ben) smashing against the wall along the way only to fall all the way from the top again.  Pain, pain and more pain every time we try to get long.  Today we finished near 11-year lows on the Dow and S&P, so much for that decade of savings…. 

I said this morning that we had a "wall of worry" to climb this week and we didn't get very far up it before falling off a market cliff of our own.  Fortunately, as I mentioned in the morning, we went pretty bearish into Friday's close and I said at the end of the morning post "we’re certainly not going to be impressed by anything under 1.25% today."  It's very important to have a trading plan and we peaked out right at the open, well below our 1.25% target.  My opening comment at 9:36, despite the "rally" was:  "AAPL and the Qs not doing too well this morning.  Financials up 3% already, SKF below $180 .  We need a nice move in the Transports to shut up those Dow Theory people but this is a very weak morning move so far.  Dollar is strong and that’s keeping us down (stocks are a commodity) but weak is weak so, like I said, roll up the long puts when you can and no need to cover the other half with short puts until we pass 1.25% at least."

Nonetheless our F play went well as an agreement with the UAW was announced at 9:44 giving us a quick trip to $1.90 before pulling back to a 10% gain on the day.   We bottom fished a little on UNH and X but I said to members at 11:39: "Watch out if $7.40 breaks on XLF, that can drop us 5% fast in the financials.  Hopefully it will hold."  XLF finished the day down 3.5% but we ended up deciding it may be a little overdone.  We shorted FAS and that went well but then we tried to day-trade them to the upside and that led to two aborted attempts to go long as we were trying to catch a wave up that never came.  It was all over at 2:34 when CNBC broke a rumor that AIG had lost $60Bn and had an emergency need for Federal aid.  I'm not sure whether this is true (I doubt it), but obviously they would be mainly write-downs, not operating losses.  If this is not true, the whole CNBC organization should be investigated as they also tanked the markets last week with a Goldman Sachs rumor that GS denied the next day.  With earnings coming up, I'm not even sure AIG will be able to respond to their allegations during the quiet period but, if you lost money today, why not ask your Congressman to find out how the timing of these rumors seems to coincide every week with market rallies that they kill.

At 2:52, I warned members: "Be careful with SKF, if this AIG thing gathers steam they could rocket back to the mid $200s easy.  Not worth taking a chance overnight!  We’ll see what happens when S&P retests 750 but that was now a general failure of 2.5% rule on the retest so down we go most likely.  Good idea to consider mattress layer here if you are fully covered on DIA longs, perhaps Apr $71 puts at $4.17 with a stop at $4."  SKF finished up $10 from there at $202 and the extra DIA puts made a quick 10% – every little bit helps on a day like today but we took the opportunity to cash out our Friday DIA puts and move to a more bullish spread, hoping that CNBC is once again full of crap and that we get a bounce tomorrow.  We even picked up some AIG into the close as fun play at .46

Things are getting really, really bad.  Last week, we were looking for what's left to short and I suggested that the Qs and the DAX were both outperformers due for a fall and the Qs got whacked for 3.5% today while the DAX fell 2 % in Europe, underperforming the FTSE and the CAC as I expected with still a very long way to fall.  The EWG, which I recommended shorting in Friday's post, dropped an entire 5% today while the QID (ultra-short QQQQ) March $65s, gained 46% today off our Friday selection.  These are the ways you need to protect your virtual portfolio – we need to identify the stocks or sectors that will underperform the market and use them as a bearish balance to our bottom fishing plays, where the bottom seems to get lower and lower every single day.

Of course our expectations were more than fulfiled on the OIH and XLE shorts and they still have room to fall but I've also noticed that the XLU (utilities) are still outperforming but broke critical resistance at $26 today so we can use that as a stop line to get short at $25.60 or just go for the fairly cheap March $24 puts at .55 with the same stop point, looking for .75 or better.  Antother ETF holding up better than it's siblings is the MDY – the S&P Mid-Caps, which are outperforming the broader index by 5% over the past 3 months as well as the Russell small caps.   IF the S&P continues to fall, we can chase it down with June $60 puts at $2.35, which we can stop at $2 or if S&P cracks back over 745.

I'm also watching the $146 line on copper, which is the 50 dma and if that can't hold, then the global economy is truly grinding to a halt so we can make that our line in the sand as an indicator, along with oil at $37.50 (right there now) and $18 on the DBC, which I never thought we would see in the first place.  The DBC has a healthy helping of crops, along with oil and industrial metals and if that index can't pull it together – then any sign of a recovery you think you see is very likely an illusion.  Keep in mind we are now 55% bullish – these are just in case we need to flip

We were under no illusions that things were looking good the last time we ran a Big Chart Review on the 9th.  At the time I said: "Sadly, the only real improvement over Jan 23rd is the CAC coming back over the 50% line (almost right on it now) and the FTSE, which crossed above 40% off it’s highs and is, surprisingly, the World’s leading index from that perspective, off just 37% from the 2007 top.  Sadly the FTSE is the only major index that is less than 40% off and the Dow is closest at 41% but we are a long, long way from feeling better about this market."  That was over 1,000 Dow points ago, at 8,270!  Let's see how far we have fallen since:


    2 Week 2007 % 50% Nov 60%
Index Current Move High Loss Down Low Down
Dow 7,114 -1,166     14,021 49% 7,011 7,449 5,608
Transports 1,450 -292       3,114 53% 1,557 1,418 1,246
S&P 743 -125       1,576 53% 788 741 630
NYSE 4,633 -842     10,387 55% 5,194 4,607 4,155
Nasdaq 1,387 -204       2,861 52% 1,431 1,295 1,144
SOX 189 -40          549 66% 275 167 220
Russell 394 -76          856 54% 428 371 342
Hang Seng 13,175 -594     32,000 59% 16,000 11,814 12,800
Shanghai 266 2          588 55% 294 172 235
Nikkei 7,186 -783     18,300 61% 9,150 7,406 7,320
BSE (India) 8,843 -740     21,200 58% 10,600 8,316 8,480
DAX 3,936 -699       8,151 52% 4,076 4,034 3,260
CAC 40 2,727 -384       6,168 56% 3,084 2,838 2,467
FTSE 3,850 -429       6,754 43% 3,377 3,734 2,702

What a disaster!  All the US indexes, except the Dow, are below the 50% line. as os every index we follow except the FTSE, which may become our next short if we can't retake the 50% mark.  We are still off our November intra-day lows but the closing lows are the worst since 1997.  Things are now so bad I had to add a 60% off column, a line which the Nikkei and the SOX have already crossed.  Also notice we are still a ways above our November lows, especially in Asia and a further failure in the US market can send Asia spiraling back down to critical levels. 

I wish I had something optimistic to say here but I don't.  I do think it's ridiculous that the government has committed $9Tn worth of assistance to the markets since those November lows and investors are just as scared today as they were when BSC and LEH were failing.  The global GDP is down 5%, not 60% and perhaps we need some rotation into sectors that work but this is not the Great Depression Part II – yet!  Of course, as I've been saying since last year – we do have an ongoing crisis of confidence and the new boss seems to be the same as the old boss and the markets won't get fooled again.

We're going to have to see results this time and although I respect the process the administration is going through, trying to make sure they get things right, I'm not sure we can take much more waiting.



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