Monday Market Movement – Still Not Mattering

Nothing really matters…  

We keep saying it and it keeps being true. The indexes are up almost 1% for the same no reasons they were down 2.5% on Friday except down volume on SPY was 93,678,100 vs less than 50M in the chop leading up to it for the preceding two weeks. As you can see from the close-up chart of the S&P 500, we did a good job of working off the overbought (over 70 RSI) conditions but that doesn’t mean we’re out of the woods as there’s no real support until 7,200, which is roughly where the 50-day moving average will be when we test it.  

This is, of course, why we hedge. BECAUSE we have our hedges, we were able to sit back and relax in Friday, knowing our portfolios were protected all the way down to 6,000 (20% drop), which isn’t even on this chart anymore.  6,840 is – that’s the “Weak Retrace” line for our 5% Rule™ and it’s also the 200-day moving average – so that area should have strong support. 

So, in the shorter run, we were rejected at 7,600 and we’ve fallen to 7,400 and that’s 200 points and we divide that by 5 is 40 points so our goals for today are 7,440 (weak bounce – which we are checking at 8am), 7,480 (strong bounce), 7,520 (strong retrace) and 7,560 (weak retrace).  

The simplest way to explain the action is that, if we clear the strong bounce TODAY (you have to get it back as fast as it fell but lower volume is still a concern), then we’re probably out of danger but not really until we see the Strong Retrace taken back because THAT is the bottom of the bullish consolidation and, if you want to write Friday off as a one-time event – then why would we not be exhibiting a bullish consolidation?

Most people misread Friday’s volume. 93M SPY shares at $740 is $69B of notional value BUT that’s Buyers and Sellers matching up in the secondary market. The net cash flow is nearly zero. What moves prices is the imbalance: Motivated Sellers outnumbering willing Buyers, forcing price lower until enough Buyers step up. The Federal Reserve itself studies this exact mechanism:

Order Flow Imbalance amid thin liquidity drives amplified price moves.

SpaceX is a completely different animal. It’s a primary market event – $75B of genuinely new cash has to be raised, not just traded. The entire US equity ETF market absorbs about $25B of net new money per WEEK. SpaceX needs THREE times that in one shot! The money has to come from somewhere: MMF drawdowns, Bond Sales, or more likely – selling existing Equity Positions to free up cash. Friday’s selling was PROBABLY part of that process. Friday we will know more because the data has a 5-day delay, unfortunately.

Friday looked a lot like the market’s first attempt to raise cash for SpaceX the lazy way: sell the broad market.

SPY traded about 94M shares versus a 67M two-month average and that dropped to less than 50M recently – on a 2.6% down move, implying 90% above‑normal volume JUST to knock the index lower. BUT when you look at the actual flow data, there’s NO sign of a tidal wave of new money waiting to meet SpaceX.

Combined equity mutual fund and ETF flows have been roughly flat to modestly negative in recent weeks, while money market funds are still pulling in tens of billions and now sit on $7T.

In other words, Friday’s selloff was more likely Institutions trying to yank cash out of the S&P to fund a $75B IPO than some organic de‑risking and the tape showed how inefficient that is, because you still own less of a now‑cheaper index after raising your piddling amounts of cash (this is Basho’s pipes issue).

And yes, the Financial Media Cheerleaders are telling us “there’s $7 Trillion in Money Markets,” and the latest ICI data is actually closer to $7.9Tn but it’s mostly a cash‑management pool – about $4.8T institutional and $3.1T retail – NOT a dedicated war chest earmarked to chase the hottest IPO in history.

The marginal buyers of a $75B SpaceX deal are Hedge Funds, Crossover/Growth Funds, Sovereign Wealth Funds and Family Offices – not Grandma clipping 5% in a Government Bond Fund! That’s the mismatch: the cash exists but it’s in the wrong pockets and the pockets that want SpaceX have to find the CASH!!!

Friday looked like the dumbest way to do it: dump the indexes and it went badly because it crushed the value of what sellers still own. So the rational play this week is more surgical: trim the most liquid winners, cut ‘orphan’ positions that aren’t part of the new narrative, and hedge or finance the allocation rather than pound SPY again. If SpaceX really is pulling $75B out of the ecosystem the tell won’t necessarily be another index air‑pocket – it will be weird, idiosyncratic weakness in whatever managers decide is going to be their funding source.

We’re simply staying away from SpaceX and we’re not going to get panicked out of our perfectly good stocks just because traders are liquidating what they have to chase the next unicorn. We’ll keep following the evidence this week and we’ll look for opportunities in oversold names that are getting dumped to chase dreams of Martian mansions…  

Meanwhile, back in the real World – it is a dull, dull week with NO Fed speak (meeting next Wednesday) but lots of note auctions including $58Bn worth of 3-year notes tomorrow and $42Bn worth of 10-year notes on Wednesday and $25Bn worth 30-years on Thursday. That is IN ADDITION TO:

• • • 13-Week Bill: $89 billion auctioned on Monday
    • 26-Week Bill: $77 billion auctioned on Monday
    • 4-Week Bill: $85 billion auctioned on Tuesday
    • 8-Week Bill: $62 billion auctioned on Tuesday

That’s like 6 SpaceX’s worth of cash the United States is borrowing on your behalf THIS WEEK ALONE! No wonder we have liquidity issues! Of course, like the market, much of this money is rollover but about 44% ($125Bn) is new borrowing to fund Trump’s $2Tn annual budget deficit.  

CPI is, of course, a big deal on Wednesday and we have PPI  and Services on Thursday and Consumer Sentiment on Friday is the most important read of the week but we’ll all be distracted by SpaceX by then.  Also this week, I’ll be appearing on Bloomberg’s Money Talk at 7pm on Wednesday and we’ll be adjusting the Money Talk Portfolio tomorrow morning.

And that will bring us back to Earnings, which are now mostly consumer-facing but we do have ORCL, who we are long on, as well as ADBE and then there’s LEN, LOVE and RH – all of whom we care about. MTN will be interesting this afternoon and also MAMA, who our Members picked up at $2 a few years ago – now $15.35! 

Who needs data centers when we can buy meatballs?!?

It’s going to be a wild week – strap in and enjoy the ride!  

“The silicon chip inside her head

Gets switched to overload

And nobody’s gonna go to school today

She’s gonna make them stay at home