Monday, May 11, 2020

Evening Note

Quick note tonight... just a little thinking out loud...

Pre-market headline this morning read that the Saudi's will cut oil production by another 1 million barrels/day after a call from President Trump.

Take a look at brent crude/barrel when the cut was announced vs where it's priced as I type (lower than before the announcement):

Click to enlarge...

While, for now, all indications are that stock prices can still be verbally pumped by the powers that be, economic gravity seems to be making that harder to do for other asset prices.

Speaking of stock prices, I've noticed, and noted herein, some signs here and there of capitulation among the bears. Meaning, there's evidence that some of those who've either been betting against the latest rally, or have feared joining in, are thinking that they may be missing out on the next great move to all-time highs. 

And why wouldn't they? I mean, we have a committed Fed and the biggest dip since 2008 that has yet to fully un-dip. I.e., don't fight the Fed and, by all means, buy the dip! It worked beautifully throughout the last bull market.

Some of that evidence of capitulation comes in the form of a falling S&P 500 Volatility Index (VIX) along with a rapidly declining CBOE Equity Put/Call Ratio.

Here's how they look, along with the S&P 500 Stock Index, from the market bottom in March to today:  

Click each insert below to enlarge...

I mentioned earlier today that indicators that work during bull markets don't always work during bear markets, and vice versa. Or, in other words, any and all signaling (conventional or otherwise) must be considered within the context of the day.

Here's the same graph, but from the bottom of the initial selloff of the 2008 bear market to the ensuing relief rally's peak (coincidentally, that rally began in March and ended in May):

Here's 4 months later:


Here's the same scenario during the tech bubble bear market (same calendar-coincidence):

And, yep, here's 4 months later:


I have to tell ya, at this juncture, the similarities between our current experience and the tech bubble bear market (valuations, S&P 500 concentration, tech leadership, the above, etc.) are striking.

So, am I suggesting that history is for sure going to repeat? Absolutely not! Am I suggesting that times like these tend to have unsuspecting investors misinterpreting the signals, and that they (times like these) demand a cautious approach to investment management? Oh, absolutely!

Have a nice evening!

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