Investor Positioning Is Way Off Going Into Wednesday’s FOMC
No pivot. Powell raises rates. Conditions continue to tighten. Risk comes off. That is where we end up Wednesday. All the talk of a pivot fails to take into account what the ECB did recently with a 50bp hike and a fairly cautious statement following. It fails to take into account every speech that Powell has given this year stating that they will keep going until the job is done. It fails to take into account that central bank action with respect to facilitating backstops for banks can function independently of monetary policy. A point I'm sure Powell will make on Wednesday. In fact, if you look at the proactive stance the Fed is taking towards attempting to mitigate the banking crisis, it directly reflects their desire to do so with the understanding that by taking such a stance it won't interfere with their inflation fight. The perfect decision on Wednesday would be a 50bp hike. It would tighten policy to the point that the bond market would have no choice but to rally for fear of over-tightening, allowing bank balance sheets to breathe, while showing the markets that the Fed has the utmost confidence that the current banking situation is very well contained. Powell being the bureaucratic version of the Cowardly Lion from the Wizard Of Oz, of course, will go with a 25bp hike because it falls exactly into a middle ground type of decision. Investors are bidding up stocks presently with wishes of a pivot, thinking that the banking crisis will force Powell into a policy error. While a pause in rate hikes or a cut would be initially greeted by a barnstorming rally, it would create a great deal of fear in the markets as they would naturally demand more in the days and weeks to follow. It would also create absolute bedlam in the bond market, as rates would spike, recognizing that a hyper-inflationary cycle is now a possibility. With all of this said, here is how investors are approaching Wednesday's event, bearing in mind that last week saw a record spike in SPY inflows among other signs of bullish QE driven euphoria. The put/call ratio cratered today, closing near 1 year lows, as investors have no choice but to hitch their wagon to the QE horse, in hopes of a fruitful ride ahead. Unfortunately, the ride ahead will be anything but fruitful as we close out this week. The cart is about to flip, injuring riders who will walk away dazed and despondent. Plan accordingly. We remain bearish after having liquidated our long positions in late January, moving to a net short...
The Confidence Game In The Nasdaq That Has Everyone Convinced
There is a confidence game taking place on Wall Street right now. Most everyone is presently convinced that lower interest rates are generally a bullish signal for equities, growth equities especially. Irrespective of how those lower interest rates are derived or whether they are subject to illiquid conditions while piling on record amounts of short interest prior to the run in bonds makes little difference. Lower interest rates mean that it's safe to buy growth equities. We saw an example of this in real time today, as the Nasdaq started the day going significantly lower, but the appeal of lower rates on the day caused a stampede into tech names by the close, reversing the earlier losses. At the same time, investors are beginning to believe that tech has become a flight to safety trade, as rates have cratered and the reversals, almost daily this week, have been very convincing in nature. The fact that the markets have only recently started playing this confidence game, with this week having the added bonus of lower interest rates to drive home the point that tech is generally safe is a precursor to chaos in the sector. This is the manipulation of psychology in the markets at work in real time. The attempt by the market to create paths of least resistance before the statistically significant moves take place. The only way to do this is to convince investors that a certain reality is concrete. They can't lose or have a very small chance of loss. Risk is seemingly minimal. Investors piled into growth today, being manipulated into thinking they are now safe because rates have recently tanked, while technology continues to demonstrate relative strength on a consistent basis. The market is going out of its way to drive this point home as demonstrated by the last 3 days of trading in the Nasdaq 100. Similar to mid-February before the Nasdaq began to descend in earnest, what we have seen in mid-March are 3 days in a row of closes at or near the daily highs, with the opening tick being near the lows. This is the confidence game of the markets at work. This the market attempting to convince investors it is safe to step back into the water at the worst possible time. Markets don't go out of their way to put together patterns like this without intention. Guaranteed that this intention doesn't involve handing bags of cash to the average investor who believes that growth HAS to go up when rates drop while believing in the growth safety trade mirage that has emerged in recent days. Another trap...
QE Is A Selling Opportunity As We Head For 3700
In late March 2020, when the entirety of the investment world determined that the next Great Depression was imminent as a result of a raging pandemic, I put out a note that in the strongest terms possible detailed why it was time for investor to go all in on equities based on investors, at the time, underestimating the powerful effects of QE going forward. This isn't 2020. In March of 2023, as the Fed embarks on another round of QE that is effectively equivalent to about $600 billion in this latest bank rescue, QE is a strong sell. The reasons are simple: Now that the Fed has demonstrated that they are willing to embark on QE again, the market is naturally going to make demands of them that will scale further than at any point in the past. By embarking on another round of QE, the Fed will be forced to hike rates further and for longer than the market is currently giving it credit for. I expect the 2 year to reverse sharply this week following the CPI, which I expect to come in well ahead of estimates on Tuesday morning. The credibility of the Fed is now front and center, having ramifications that are especially crucial for the treasury market. I expect that as Fed credibility becomes a concern, the selling of treasury securities will accelerate further creating burden and stress as a result of higher rates. We have all been waiting for something to break as a result of the speed at which the Fed hiked rates. Now that we have seen the first dominoes to fall, expectations should be for further dislocations to take place, with it becoming increasingly evident that with every bailout to come, the Fed further strains its credibility, further compromising QE, which in turn accelerates inflation. A vicious cycle? Absolutely. It's not that simple this time. A simple press of the QE button will only exacerbate the selling. By the time CPI hits on Tuesday, investors will realize the position the Fed and the markets find themselves in isn't easily solvable. Expecting 3700-3750 this week, with new lows on the SPX likely by month end. We added to our short positions on March 7th, before all hell broke loose in the markets. Plan on adding to shorts should the markets gives us the opportunity tomorrow morning. Things are about to get wilder than most can imagine. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click...
Here Is The Call Going Into Tomorrow’s Job Report
We are in for a string of hotter than expected economic reports, starting with the jobs reports tomorrow morning. At least, that is what the bond market is suggesting if you are to take into account that the short end of the curve has gone vertical in recent weeks. Of course, there are many who seem to attribute the recent rate surge to the markets getting their panties in a bunch over "seasonal blips" in recent economic reports. This type of dismissive optimism has kept the markets elevated, despite the fact that yields are commanding a much lower floor for equities presently. With that said, the dismissive optimism of the past few weeks is about to turn into reluctant acceptance that there is a good chance we are now facing a second leg of inflationary pressures. Tomorrow begins the trek down to the 3700 range, which is where the markets are likely to end up right as the March FOMC meeting kicks off a little less than two weeks from today. There is a confluence of support beginning at SPX 3750 down to 3630. All of these support levels will be hit in the weeks ahead. It will be enough, however, for the SPX to move down to around the 3700-3750 mark by the 21st of March. Expecting a hotter than expected NFP number tomorrow and I expect that today's volatility will only be expanded upon to the downside into the end of this week. We remain short after adding to our short exposure on Tuesday. Goodnight. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should...
Intra-Week Market Update Preview: Going Over The Various Data Points Today That Suggest The Next Leg Down Of This Bear Move Has Arrived
After nailing the market reaction to Powell today, we discuss the ramifications of what occurred in today's market, including numerous macro indicators that are strongly suggesting the next leg down has arrived. We go over these macro indicators, as well as discussing the potential downside targets for the S&P in the weeks and months ahead. What follows is an excerpt from tonight's note. In the February 5th edition of Turning Points when I put out the call to take off all of our long exposure while taking on the first leg of our short positions, I presented numerous data points demonstrating the potential trouble that lie ahead for the markets. Today rivals early February in terms of the importance of what has occurred following the first day of Powell's testimony. And similar to early February, adding to our short exposure this week will more than likely be a decision with high potential for positive expected value in the weeks ahead. I'm not going to be focusing on the indices here tonight, instead choosing to focus on five macro indicators that strongly suggest that the markets started their second leg down from the early February top today. To view the entirety of this weekend's note, you can subscribe by clicking here. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes,...
Here Is The Call As We Head Into The Powell Testimony Tomorrow
Remember Jackson Hole? I've highlighted the S&P price movement headed into Jackson Hole, as well as where we stand today in the below chart. As we headed into Jackson Hole, the sentiment with respect to Powell was unconcerned according to the put/call ratio. I've also highlighted the seemingly unconcerned state of the current investor population with respect to Powell's testimony tomorrow in the chart of the put/call below. Why does this matter? A consistent theme of the current Fed obsessed market has been that when the markets are unconcerned with Powell, downside becomes the predominant trend following his speech. When the markets are overly-concerned, a rally ensues. Despite the fact that economic data has come in hotter than expected following Powell's last public speech in early February, investors seem to be in the camp that he will go against his own word of being data dependent in his decisions, with investors primarily relying on Powell determining that the PPI, CPI and jobs are all seasonal blips. Additionally, tomorrow he is up against a group of fire breathing politicians who are being harassed by their constituents with respect to inflationary pressures compromising the earning power of the average American. Politicians want votes. Powell will be the punching bag. In the face of this, with increasingly obvious signs of a pickup in inflation and with no slowdown in the economy in sight, Powell will be reluctant to strike a dovish tone. All this while the markets have rinsed bears over the past few days via a short squeeze that leaves the market hollow, vulnerable and compromised into severe selling pressure should he strike a hawkish tone in a pattern that looks an awful lot like the early September peak following the August high. Last week's low of 3928 is up for grabs this week. Look for the 3700 range to arrive at some point prior to the late March FOMC. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11...
Market Flat Line
There is a lot to the technical picture right now that most seem to be missing, while placating themselves with largely irrelevant, ill-timed and incoherent data points that are misguided, for lack of a better term. Here is the most obvious example from just today with AAPL. This is endemic in the markets presently. Important market averages and individual names are casually moving beneath their 200 day moving average as if it isn't there. Basically, this is the markets version of shocking a patient who is in cardiac arrest with no response. AAPL is flat lining. It's not 1, 2 or 10 names/indices that doing this. It is everywhere. By the end of this week, the S&P 500 should join the flat liners, although it is, at least, trying to put up a fight. I expect that by tomorrow that fight will be over, with the S&P moving beneath 3900 to end this week. Getting short and only adding to shorts since the beginning of February, after being heavily net long since October was not as difficult as it may seem if you are observing the correct price levels. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding capital markets or other financial information, is obtained from sources which...