Is It Friday Yet?
Just to recap the chaotic week, with funeral arrangements and travel for my aunt-in-law, I had a hard time looking at markets, particularly in the back half of the week. In the minutes available on Thursday, I did take off about a third of my speculative retail-favorite trades. I also started some small shorts on some current favorites that seem in dangerous territory, such as DB. All of this stuff is being done in pretty small size, as this doesn't seem like a great time to play hero.
As I said yesterday, I think this market is now better to buy, as there is a mess of support around here. Is it possible we just fall straight into the 4000s on SPX? Sure, it's possible but seems very unlikely. If nothing else, there's a lot of support between here and 5400. I'd be shocked if the bulk of this decline isn't already done. Then again, I'm surprised we're down here already.
What's going on? Again, to me, the real trouble lies in the yen carry trade and a very stressed options market. As for the yen, I'd like to think the move stops soon, but I admit the differential between a rate hiking Japan and a rate cutting US is tough.
As for the options market, the stress seems great. We have a record number of puts, out there, and Vixology's VIX mix is deeply bearish. Vol is badly scared, to the point we have backwardation across the curve (nearer-term vol is higher than longer vol.) That tends to not last, so you'd like to think a bounce is near. Hopefully that would be a longer-term bounce than the one-day wonder we saw last week.
Today has been ugly, but it's pretty focused in tech and to some extent procyclical areas like financials and industrials. One thing that's interesting is how orderly selling seems to be. There's not much volume and not much panic.
Because of the steady, orderly selling, I've ended up doing nothing, today. My current plan is to buy a fair amount tomorrow, though, ahead of CPI on Friday. Chances are that CPI shouldn't be too bad, and this market seems ripe for some short covering, if nothing else.
One issue with my plan is that in my mind, the stresses aren't about fundamentals, at least not US fundamentals. A good CPI report may make the options market happy, but like we saw with payrolls last week, that may not be enough. The yen continues to go in one direction, which isn't helpful. I don’t think fundamentals are the driver, here, nor are tariffs.
As for what to buy, I'd say the most obvious things are big tech. I particularly like MSFT and GOOG. I already own them but am fine with owning more. I'm also looking at buying more of the QARP (Quality At a Reasonable Price) that have served us so well, this year.
Again, I don't yet see a fundamental problem here, so the other side of this valley could see some nice appreciation. The problem is that it's hard to know just where the bottom of this valley is. I'm comfortable putting some money to work, but I'm not yet looking at buying particularly aggressive names. Hopefully that can come soon, but for now I just think it makes sense to put some money into reasonable names rather than sit in cash.
Right now, futures look ugly, again, with losses concentrated in big cap tech. I'm not in a massive hurry to buy tomorrow. Like today, I'll wait to see what develops. One way or another, though, I plan on investing some money ahead of the CPI event risk, so I can hopefully benefit from any volatility crush that may develop.