Ok so a lot of you have to be sitting here wondering why the fuck this market refuses to go down, why your tendies are burnt, etc. Well I want to kind of try and take a second to explain how I see things here from a macro and micro, and why I think the rug pull is coming on this bear market rally very soon.
Let’s start by going macro a bit.
For many, when the virus hit the ferociousness at which it gripped not only the markets but society as a whole caught a lot of people flat footed – like Ray Dalio’s fund ( www.ft.com/content/6addc002-6666-11ea-800d-da70cff6e4d3 ).
The market turned so quickly and violently as people rushed to sell everything that it created massive losses for the funds… thats right this is where we get to some brrrrrrrr’ing.
When we look at the reversal its a violent short squeeze due in part to fed liquidity action and the impact on balance sheets for big companies.
Basically they came in hard with the liquidity from the Fed, which was in the form of the corporate bond debt that they bought up. (See late march run ups in the corporate bonds market – $LQD) What few retail investors (fuck I learned this myself a few weeks back) realize is that companies like Apple, for example, who have a shit ton of “cash” on there balance sheet actually oftentimes have a balance of both cash and corporate debt ( markets.businessinsider.com/news/stocks/why-apple-sold-debt-despite-having-lots-of-cash-2019-9-1028503164 ), and its not just corporates that own these assets – hedge funds do too. This is what is traded with things like LQD. When the Fed stepped in they revved the fuck up on that printer just buying all that debt from any fucking seller that existed. This caused LQD to moon, and injected a fuck load more cash into the market which is where phase two of this craziness begins, when market sentiment peaked on the panic side, they pushed in hard, and forced a MASSIVE up bound short squeeze. Important to note that options volume has been down since that quad witching, but that’s somewhat normal. Interesting as well is how “orderly” this movement has seemed, both suppressing VIX while jumping 20% from the lows… an important number for….
Phase 3 – Reality Rug Pull
Now, you might have noticed that some of those same managers that have helped push us up to this close have started getting a lot more bearish (i.e. realistic) with their statements, folks like Janet Yellen and Jamie Dimon calling this a massive recession and possible depression just this week (Actually Ray Dalio just came out and called it “The Great Depression” as well – www.forbes.com/sites/alexandrasternlicht/2020/04/08/ray-dalio-were-heading-into-a-great-depression/#71cbd2a97c83 ). Consensus has shifted to a -30% 2Q GDP, meanwhile they are waiving a red curtain at the market frothing it up.
Today they got RIGHT where they wanted, a 20% retracement from the lows – i.e. a technical bull market.
Now this leads to the rug pull.
Lets dive in micro
Today was especially low volume actually. In fact it was the lowest volume day since March 5 on the NYSE (twitter.com/hmeisler/status/1247992863780208640?s=20) Part of this is because the market is waiting on a couple of news pieces, yes. But mainly they are leveraging this week which is the one week reprieve in earnings reports to top off their long returns from the dip before this upcoming rug pull.
Some Brief Amateur TA
I’m by no means a pro analyst here but I took a stab at analyzing what’s going on here:
Important notes from today:
- We challenged, unsuccessfully at close, the shooting star pattern established yesterday. If we had closed above the high, we would be still aiming bullish in the short run.
- Tomorrow and this weekend are critical.
As you can see we are approaching the intersection channel here between the simple lows and highs trend lines on the 180 day chart. Likely if we finish to the downside of that yellow line when they cross, we are good and should begin the technical down turn, which may not be super sharp but should exceed the lows as we continue through Q2.
One very intriguing note. Take a look at this chart. That’s yesterday’s daily candle, which formed a potential shooting star.
Some of you may have seen some talk about how yesterday (4/7) the daily chart showed a rare pattern known as a shooting star. Basically we needed to close below yesterday to fully confirm it, but instead we closed just below the previous high – which actually doesn’t invalidate the bearish pattern. How narrowly did we avoid closing over? By about 15 minutes.
Now Look at the 1m charts from today’s close. See the high candle? Look familiar? Today in the 1m charts we technically did have a completed shooting star that you can see pushed us down.
Now take a quick look at the RSI on a 15 day scale. As you can see we are topping into over bought territory… again right at the 20% technical bull market retracement. The water is frothy and that’s just how the MM want it.
The Rug pull will have likely they are waiting on either (a) something like Boris dying to push the market sentiment down or (b) a final run up (maybe, and small) on the OPEC news tomorrow back to 275-280 before pulling the rug.
If I could wager a guess, I believe that we see a really big sell off into the long weekend, and provided we don’t come up with a cure over it or have some other excessively large amount of good news
Next week the market cannot hide from reality. Earnings reports for Q1 begin to be released, including Delta Airlines, which will be viewed as a bellweather in this market – especially after Buffet sold his stake. The blood will be in the water. I see two ways for it to play out from there either a slow bleed to the new lows like 2008, or we violently snap back down as the market stops being able to run from the economic realities at hand.
TL;DR – The market has been squeezing you dry for the last few weeks, this is NOT a bull market now – thinking so is just recency bias. All the forces add up to this run being an epic short squeeze followed by an epic rug pull reversal. This is fake liquidity that has propped the market up. HOLD YOUR PUTS, roll them back as we go down.
SPY 210p 6/19
EDIT: OH! One really important bit! Ha – I think that OPEC+ is likely priced in as far as the big money is concerned. Essentially the amount of cuts discussed don’t do too much to ease the fact that demand is zilch – theres oversupply right now and there will be even with a production cut. We have been expecting this for weeks, its a moving target. I genuinely think as well theres a chance the Saudis say fuck you and decide to curb stomp US shale but thats a whole ‘nother thing.
Oh well would you look at that! Bloomberg now has us at 100% chance of recession. twitter.com/davidinglestv/status/1248020033155952641?s=21
Well well well look at that, we are now squarely in the “Greed” on the Fear/Greed index now: twitter.com/DavidInglesTV/status/1248042055948853248?s=20
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.