Thursday, July 14, 2022

Morning Note: Shaking Loose the Sellers...

I'm thinking about what folks are thinking about this morning. 

Rewind two or three months and, as I recall, the sentiment vibes I was picking up during discussions with clients and acquaintances leaned somewhere between sanguine and optimistic. I.e., "It's ugly out there, but the market always comes back." And/or "Is it time to buy?"

The classic example was a conversation I mentioned in a video commentary back then. The prior evening the gentleman I was chatting with told me that his sister and his brother in law were urging him to buy Apple and Google; promising him that they represented huge buying opportunities at those "low prices." He asked me what I thought. I replied 

"When your sister and your brother in law tell you they can't take it anymore and are getting out of the market for good, that's when you buy Apple and Google, with both fists!"

I.e., much of the time (but not necessarily every time, mind you), bear markets end on the sourest, the most dire of sentiment among investors. Once the market shakes out that proverbial last seller, well... imagine what happens on the tiniest spark of good news. I.e., when the sellers are at least ostensibly all gone, the next transactions will occur at only the behest of buyers. And when those bids for stocks are presented to what are, by definition, the most stubborn of sellers, well... imagine the upside move in prices under that scenario...

Clearly, we're not there yet by our calculations, but I will say that sentiment reads lower right here than it did when I gave my friend that advice a couple of months ago. I.e., the vibes I'm picking up today are beginning to lean toward worry and pessimism. And, again, while we anticipate lower lows before this is over, I suspect we'll witness a few more of those sharp bear market rallies (despite the shellacking equity futures are taking as I type this morning), followed by falters that bring further disappointment to those who thought we were there (shaking more of those holdout sellers out of the tree) along the way.

The good news is, we will ultimately get there...

By the way, the latest read from our own fear/greed index was +30... +100 is as pessimistic/scary (and, thus, as bullish) as it gets. Looking at its components this morning, unless the futures commitment of traders reports notably change vs last week (we get that data tomorrow), it looks like we're about to jump to +40.

Stay tuned...

Asian equities were mixed overnight, with 8 of the 16 markets we track closing higher.

Europe's a bloody mess so far this morning, with 15 of the 19 bourses we follow trading down as I type.

Same goes for US stocks to start the session: Dow down 502 points (1.64%), SP500 down 1.52%, SP500 Equal Weight down 1.51%, Nasdaq 100 down 1.40%, Nasdaq Comp down 1.41%, Russell 2000 down 1.53%.

The VIX sits at 28.03 up 4.51%.

Oil futures are down 3.88%, gold's down 1.75%, silver's down 4.75%, copper futures are down 4.03% and the ag complex (DBA) is down 1.16%.

The 10-year treasury is down (yield up) and the dollar is up a huge 1.18%.

Among our 38 core positions (excluding options hedges, cash and short-term bond ETF), only 1, Dutch Bros, is in the green so far this morning. The losers are being led lower by silver, energy stocks, base metals miners, Nokia and Brazil equities.

“The poor and the rich quarrel with one another, and whichever side gets the better, instead of establishing a just or popular government, regards political supremacy as the prize of victory.”
--Aristotle  (HT Ray Dalio)

Have a great day!