We’re in a Small Capped Bear Market

Back in 2011, all of you thought the market was going back to the 2009 lows. I know this because I was here, dealing with the comments from crazy men typing furiously into keyboards. The market was unhinged heading into October of 2011, just like now. Then the rally happened.

I was 70% cash heading into October and had successfully navigated the correction. Then I stepped in.

I allocated 35% of my cash today, buying WNR, CLF, DECK and TEX. This is what I call “buying the blood” and it never feels right until it does.

Shortly thereafter, PANDEMONIUM BROKE LOOSE (extra Hulk Hogan)

Today over 500 stocks gapped higher by 10% or more. That’s ridiculous. 99% of those gains occurred in the final hour of trade. It’s not possible for this to occur, unless the buying was automated by some magical genie in a server rack. If you are short stocks here or long FAZ, you stand the chance to go from up nicely to negative $1 billion within minutes.

How negative was the mood just a week prior? Have a look.

INSANE S&P LOSING STREAK

Ever since May, the S&P has been down. With September’s 5.5% decline, followed by the 5.5% decline in August, we are now down for 5 consecutive months. The last time we had losing streaks like this was in 2002 and 2008 to 2009. In both cases, it led to a monstrous rally. Although I am bearish as a hairy human living alone in the woods, I need to be on guard (no Jerry) for an 8% rally in October.

 

The market has been grinding lower, led by the absolute destruction of basic materials, financials and tech shares. The leaders have been killed and people have pigeon holed themselves inside 80 year old man stocks. Coupled with the glaring fact that everyone is bearish, Zerohedge’s popularity is at an all-time high and I am 90% out of the market, something is astray, if I might so bold as to say so.

 

This just dawned on me, as I was doing some reading, thinking about the future. When thinking about stocks, I always lay out scenarios that might play out, then try to support them with historical precedence or hard facts.

 

The reality is, we are down 5 straight months and the news is as bad as it gets. Despite the bad news, we haven’t cracked lower. Instead, we are meandering around, grinding swing/momo traders into dust.

 

The real negative developments, aside from Europe, is the deterioration of China and the rise of Chinese CDS. What the fuck is that all about?

What to do, what to do?

 

Sound familiar?

Now let’s examine the internals of this bad market.

37.8% of stocks are down 20% for the year (1,629 of 4,306). That sounds really awful. But let’s dig deeper than a headline number.

18.1% of stocks with market caps over $10 bill are down 20%, YTD (107 of 590).

19.4% of stocks with market caps over $5 bill are down 20%, YTD (180 of 925).

51.3% of stocks with market caps under $1 bill are down 20%, YTD (1,133 of 2,206).

56.5% of stocks with market caps under $500 mill are down 20%, YTD (944 of 1,670).

60.5% of stocks with market caps under $250 mill are down 20%, YTD (714 of 1,180).

67.2% of stocks with market caps under $100 mill are down 20%, YTD (466 of 693).

72.4% of stocks with market caps under $50 mill are down 20%, YTD (302 of 417).

Do you see what’s going on here? Buying smaller cap stocks is inherently riskier than large capped. But these numbers are staggering. The vast majority of large cap stocks are holding up well, especially in comparison to small caps. For the most part, small caps do not have large institutional holders, lose a bunch of money, and have a weak, retail, oriented shareholder bases. The pain is always felt the worst here.

Were these small caps bought on Friday? Let’s have a look.

Friday’s rally, average and median returns

(sorted by market cap)

Over $10 bill: +1.54%/ +1.18%

Over $5 bill: +1.56%/ +1.18%

Under $1 bill: +1.83%/ +1.04%

Under $500 mill: +1.90%/ +1.03%

Under $250 mill: +1.74%/ +0.80%

Under $100 mill: +1.55%/ 0.67%

Under $50 mill: +1.24%/ 0.00%

Data provided by Exodus

Notice how the lower the market cap went, the lesser the gains? The higher average returns with market caps under $1 bill were coupled with a lesser number for the median, indicative of poor breadth and a few outliers that made up for the higher average returns. Looking at these numbers, I think it’s fair to say the best way to position for a bounce is with a portfolio of stocks between market caps of $5-10 bill, with maybe one or two small cap stocks for dicerolls.

“I think there was a reasonably good chance that, barring stabilization of the financial system, that we could have gone into a 1930s-style depression,” he says now in an interview with USA TODAY. “The panic that hit us was enormous — I think the worst in U.S. history.”

Is there a better actor than Daniel Day Lewis? Gangs of New York is a classic tale about a great city maturing and expanding outside of the old guard.

Immigrants were viewed as free loading vagrants, tossed back onto ships to fight our insane civil war. Politicans would encourage people to vote 4,5 even 20 times per election. And then there was the important matter of irish migrants vs the anglo-saxon gangs who hated them.

In many ways, the immigration issues in Gangs of NY are similar to what we face today with Mexico. The big difference was that we encouraged lots of immigration back then, for the war, for settlements, and for growth. Now we just need dish washers and people to man the lawn mowers.

This is an epic film, one of the best ever made.

Greetings and salutations,

I hope you enjoyed today’s trading session. It’s especially significant to me because it marks an epic upside call for Exodus. As I was telling you earlier this week, the last time Exodus enjoyed so many consecutive OS signals was during the market rout of 2011. That resulted in a 10% move to the upside, rather immediately.

As it stands now, every single oversold signal has been validated and successful.

LISTEN TO ME NOW. There are precisely 399 NASDAQS left in the tape, for the month of October alone. It will culminate to the point of extreme perversion, capstone and buzz-saw all of the bears to clown dust.

We will take it to the bears with extra vigor and tenacity, to repay them for all of their trespasses over the course of the past 3 months. Full compliment.

Ready the guns #fullcompliment #blacksails

A video posted by the_real_fly (@the_real_fly) on Mar 29, 2015 at 5:48pm PDT

Finally and in closing, I am here to remind you that the iBC Conference is happening this October 24th, a date which shall live in infamy for centuries to come. Don’t miss it. As a reminder, if you upgrade any of our premium services to annual, you will be admitted for free. The VIP ticket, however, is not up for negotiation.

Good day to you.

NOTE: Fuck Carl Icahn.

You do the math.

Bad jobs markets equals no more Fed speeches menacing us with rate hike suggestions.

Today’s’ price action was capitulation. It also lured a fresh set of bears into the fray.

The perfect trap.

Up we go. Prepare to behead the heads of your enemies.

Top picks: BIDU, GG, SHAK, CLX, TWTR, AMCX

Bank stocks are suffering a miserable death today, thanks to a flattening yield curve, spurred on by the deflationary vortex we find ourselves in. On the other hand, gold and silver stocks are soaring.

Look, Janet Yellen is the Stalin, the Mussolini of our times. She is a deranged psychotic, who is incapable of empathy. Her band of morons at the Fed, all learned men but morons nonetheless, are trying to remain relevant by raising rates. Otherwise, what is their job description, exactly?

The truth is, the 19 trillion in national debt is the real problem here, the reason we’re bogged down, unable to invest in infrastructure projects. Unfortunately, there’s no way out from it, short of defaulting.

Maybe something will pop up, some unforseen avenue of growth, that will help us crawl out from under this burden. But, it’s not only our burden. Almost every single developed nation in the world is plagued with mountains of debt, record amounts. A massive restructering of the debt will need to be ironed out, one day. By that time, I intend to be living on  a different planet, unexposed to the wrath that will be gripping your planet.

Until that day happens, enjoy these 250 point down days, for they will feel like up days compared to what’s coming.

It’s as if the people on the television are fucking slow and have never seen this before.

I am going to talk to you like you were a child. Nod your head if you understand me (extra Macke).

The US cannot decouple from the global recession, just like how China could not escape our wrath in 2008.

Raising rates with 19 trillion in debt and much lower than expected inflation data makes zero sense. Basing the whole “raise rates now” campaign on “get it over with already” or “raise now to cut later” is juvenile and reckless.

10 yr treasury yields are below 2%. There is clearly a big problem here, but the Fed is tone deaf. This new Fed, led by Yellen, is not capable of responding to markets like Bernanke, which makes them dangerous.

We are very oversold, almost too much. The text book says rates cannot go higher; ergo, this sell off is childish and should be bought. The only problem with that position is the lack of credibility Yellen and her idiot governors have conjured up in recent months.

When cooler heads prevail, this market will turn on a dime and rally.

Bad news is now bad news, apparently. S&P futures are now off by 17, NASDAQ by 40, following a weaker than expected jobs report. Consensus was looking for 203k jobs created in September and just 142k were made.

I don’t get it. Don’t you fuckers want slightly weaker numbers in order to get the Fed off the rate hike speech tour? No you don’t. You just want to sell stocks for any reason whatsoever. If we added 1 billion jobs in September, you’d still sell off the market. Sick bastards.

On a separate but related note, credit suisse is out with some research today discussing the current market mood and they’ve declared it to be one of ‘panic’. Well news fucking flash, assholes from Switzerland. No kidding.

Look, the markets are in crash mode. Commodity related sectors fell by 40% over the past 3 months. Global markets are in turmoil. The dollar is surging, causing our exporters a great deal of pain. Of course the economic data was worse than expected. That’s the whole fucking point of this great exercise in futility. The market was telling you this for months. What is supposed to happen now is simple:

The Fed will shut the fuck up and reverse their decision about rate hikes. Should the data get worse, they should consider another round of QE. Look at he bond yields. No one is pricing in a rate hike, but deflation.

Gold is soaring, up 1.7%. European markets have given up their huge gains and our futures are seemingly crashing through the floor boards.

Happy fucking Friday.

September Average Workweek 34.5 vs 34.6 Briefing.com consensus; Prior 34.6

08:30
ECONX
September Nonfarm Private Payrolls 118K vs 200K Briefing.com consensus

08:30
ECONX
September Hourly Earnings +0.0% vs +0.2% Briefing.com consensus; Prior +0.3%

08:30
ECONX
September Unemployment Rate 5.1% vs 5.1% Briefing.com consensus; Prior 5.1%

08:30
ECONX
September Nonfarm Private 142K vs 205K Briefing.com consensus; Prior revised to 136K from 173K

NOTE: Futures are plunging on the bad jobs report, down 100. Does that make sense? Do you want a rate hike or not?

That might souund a bit counterproductive to the well being of the average citizenry. Then again, Wall Street has never been a place that cared about the average, un-monied, man.

The Fed has their guns pointed right at us. Should tomorrow’s jobs report exceeed the anticipated 203,000 new jobs created, a Fed rate hike might become a reality.

On the other hand, if by chance we should miss that number, perhaps miserably, the trolls over at the Fed will have no choice but to stand down and proceed to playing games of bridge, instead of contemplating a rate hike.

Futures are higher by 0.6%, ahead of the open. But that’s rather meaningless, since everything hinges on tomorrow’s numbers.

As an aside, both Europe and Asian markets are having productive sessions.