Market Journal: Sucking in the Bulls
Today is glorious for bears. More macro unaware bulls are getting sucked into a "successful" undercut and recapture of the SPX 200dma leaving few hedged for what's to come.
Discussion
Bullish sentiment abounds on Xwitter today with a sharp reversal off the morning equity puke. Because we live and trade in a world of minute-to-minute market watching, every multi-hour bounce in equities feels like the start of a new rally. Bounces are the name of the game, especially in bear markets. Bounces provide the fuel for more downside as they suck in more bulls and weak shorts who panic cover at the first sign of upside. That is exactly what today is.
As discussed this morning, the market is in a window of weakness with breadth breaking down, CDXs breaking out, Israel-Hamas risk proliferating, and the Fed actively seeking higher rates and tighter financial conditions.
This week is a week to short & hold, not trade the chop.
Exhibits
Breadth is the key tell today: odious overall and in composition. VOL is down materially, but VVIX down less than VIX is the critical tell on that front. And FICC is bullish with USD, rates, and war hedges down on the day as a result of Ackman’s xweet that he’s out of his UST 30s short. CDXs are down, too. Very standard counter-trend bear market bounce today, and even weaker than last Monday’s.
Israel-Hamas remains critical to interpreting cross-asset market price action. There is a bit of relief seen in war hedges today, but gold is a key tell insofar as it’s really not down much. The market is likely misinterpreting Israel’s delay in invading Gaza, as A) it’s allowing Israel to free up the air force to take on Hezbollah in the north, and B) as discussed by Axios this morning it’s allowing the US to get into position for a wider conflict. Not bullish.