The Lows Have Been Retested — What Next?

I did warn you about the retest the lowFAGS. I don’t quite understand what the fuck their problem is — but they’re malicious when it comes to market sell offs and always need the lows to be retested.

Here we are now, retesting like good little monkeys.

According to my handy stock market almanac, when the lows are retested, especially on a morning gap down, apathy and misery circumvent the market, which often leads to bottoms. The issue I have with buying now is the specter of a weak close. There are several ways this can play out.

The best case scenario us morning bottom, followed by a furious face ripping rally.

Worst case is tepid rally, followed by a full face collapse at 3pm.

Either way, you have no business buying in size here. The technicals are weak. If you insist on buying, do so in moderation and try to avoid getting raped in momentum stocks — sort of like me in these fucking shippers this morning.

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Futures are lower by more than 400. The session was doomed to begin with, starting with the overnight session. Things went from bad to worse this morning, following some downgrades in the semis and the CAT earnings miss.

While earnings are important, the key to stopping any market squall is psychology. As of this moment, there is a mania about to set hold in the marketplace. If this persists, anything could happen: shattered windows, broken elevators, men without wings flying in the air.

I made two errors yesterday and for that I am deeply regretful this morning.

Because I’ve been managing some personal affairs, I have been busy, and at times, unable to trade. I didn’t stop out of CPHI, which I should not own in the first place. Secondly, I sold my Nasdaq hedge, SQQQ. There was a third mistake, which was going long 6 shippers, but we won’t talk about that now. Overall, I think my measured tone, heading into today 65% cash, has been good. However, after speaking to a few dozen Exodus members during live conferences, I get the feeling that, at times, you ignore my cash position and instead barrel into my picks with full retarded vigor.

You can’t keep behaving the way you do and think you could get away with it.

Best thing you can do before a trading day like this is to prepare. Have yourselves a hearty breakfast. I suggest listening to WQXR- classical NY, two 6 minute soft boiled eggs, a piece of toast, and some earl grey tea with a teaspoon filled with local honey. If you’re unable to be a gymFAG and build muscles, the least you can do it eat well and good.

Here’s the problem with stocks — the fucking SOX.

In order to stocks to bottom, the semis needs to stabilize and recover. But it’s real hard to do that in the middle of a trade war with China.

Welcome to the new paradigm.

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I was doing some diligent research into Exodus to examine the extent of the recent sell off. First, let me explain what Exodus does for those unfamiliar. It is a measurement tool for greed and fear, juxtaposed against price action, that provides actionable intelligence thru predictive analytics. In other words, the AI watches and measures how traders respond to pain and greed thresholds, via sophisticated grading system, and then draws conclusions based on historical precedence.

I feel like I’m not communicating that well enough. I’ve had a punitive day, barely enough time to sit down and relax over a boiling cup of black coffee. Throughout the trading day, I cowered behind my 65% cash position, taking on new positions in the degenerate shipping sector.

What can I say? I’m a glutton for pain.

And here’s the point.

I went back to look at the stress levels in Exodus back in the most stressful time for stocks, perhaps ever — February of 2009, when the SPY bottomed at 666.

And now.

The big difference between then and now, of course, is that was end of world trading action — total and complete capitulation — the annihilation of western finance. This drop is methodic, yet relentless. These minor drops only make it worse, as it provides the weak with too much hope and keeps marginal players in the game. The only way we can truly bottom, once and for all, is for a hair razing decline to the downside, one that halts trading, and fucking breaks machines — men accidentally falling out windows, and buses crashing into fire hydrants.

Until that happens, I’m staying 50%+ cash.

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Stock prices continue to weaken and because I’ve taken a more conservative and sanguine view of the price action, absolute morons are giving me shit on the Twitter. This is a key tell in the pain being felt out there — weaker men in ugly cloth folding under the pressure, mountains of sell orders and small rivulets of income to withstand the barrage. This makes for a venomous combination and I wouldn’t be surprised to see some brand of falling off the cliff pin action, and soon.

Bear in mind, all charts look like this now. How does one buy into that?

As of August 2018, margin debt stands at record levels, more than $650 billion.

How does that juxtapose against previous market calamities? Poorly.

There’s nothing telling me to buy into this shit. The cannabis stocks I got lured into on Friday and stopped out of the same day are all sharply lower today. In a desperate attempt at having fun, I stepped into 6 shippers today, 5 of which are now below my basis. Be careful barreling into a market like this — for you might find yourself barreling towards a god damned waterfall with sharp rocks at the bottom of the pass.

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This is a bit unfair, as I made some purchases this morning in Exodus and only now get to tell you about them. One of them is up 65% from my purchase price and I don’t want you chasing in after me. So take these buys with a grain of salt.

I bought two tranches of shipper stocks, each 5% of total portfolio.

First tranche.

ESEA ($2.10)
EGLE ($5.28)
EDRY ($12.43)

The second tranche.

TOPS ($2.62)
PXS ($1.54)
ANW ($1.29)

Here is the news, Trump pulling out of 144 year old postal treaty that gave China super low shipping rates. Those days are, essentially, over. I believe this isn’t being digested by the market yet and higher prices are just around the bend.

President Trump plans to withdraw from a 144-year-old postal treaty that has allowed Chinese companies to ship small packages to the United States at a steeply discounted rate, undercutting American competitors and flooding the market with cheap consumer goods.

The withdrawal, announced by the White House on Wednesday, is part of a concerted push by Mr. Trump to counter China’s dominance and punish it for what the administration says is a pattern of unfair trade practices. The White House, in a statement, said “sufficient progress has not been made on reforming terms” of the postal treaty and that it would begin the withdrawal process while seeking to “negotiate bilateral and multilateral agreements that resolve the problems.”

The Universal Postal Union treaty, first drafted in 1874, sets fees that national postal services charge to deliver mail and small parcels to countries around the world. Since 1969, poor and developing countries — including China — have been assessed lower rates than wealthier countries in Europe and North America.

Here are the movers in the sector.

Separately, the BDI rates have been steadily improving since 2016. I don’t want to make a fundamental case for the shippers just yet, however. That would make me cringe. This is a trade.

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This is precisely what you don’t want to see in a tape — bullish open followed by sharp turn downward. It leaves nothing to be desired, a sense of apathy that turns good men evil.

We find ourselves in the midst of a very classic October sell off, a time of year when previous market crashes were made famous. Everyone is familiar with 1987 and 1929 market meltdowns — both occurring in October. What many do not know is they occurred when markets were already in a weakened state, sort of like now. Investors gave into their inner fears and stampeded for the exits, causing a crescendo of selling that made headlines.

Now I’m not implying that could happen here; but we really cannot remain oversold forever and eventually something has to give.

In spite of the tone, I’m optimistic we’ll bounce soon and will be looking to deploy my cash shortly, praying to the Gods for a bounce.

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Axios is reporting from their sources, Trump has no plans to end the trade war with China, at least not until they’ve suffered more. Now saddled with the worst performing market in the world to date, China seems to be on the losing end go this war of trade. After all, with very little importation of American goods into China, roughly $115b in 2017, China has much to lose.

Just a little back of the envelope math here, at $520b of Chinese imports into the country at a 25% traffic, US consumers also get dinged with a potential $130b+ in high costs for their cheap Chinese wares. In other words, that shit you buy in Target for $19.99 might now retail at $25.

The bottom line, as per Axios.

All signs suggest the trade war between the U.S. and China is just getting started. I’ve asked sources close to Trump whether he’s ever expressed any private concerns over whether his tariffs could backfire due to Chinese retaliation against American consumers or companies. Nobody I’ve spoken to has heard Trump express anything along these lines. He’s all in.

Nasdaq futs are only -4 now, up from -50.

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I had two pounds of ground beef lying around, so I whipped up some white trash Salisbury steak. When I was a wee lad, I always liked the Salisbury steak teehee dinners. I’d eat the steak and the brownie, toss away the fucking corn niblets and then complain to my mother about being hungry again. My version of this white trash classic is a little more developed, festooned with extraordinary ingredients, burgundy wine, and a homemade beef stock. Alas, Le Fly is a man of distinguished qualities, food, drink, tobacco, stocks — all the very best.

As for markets, prepare to be fleeced. Nasdaq futures are down by 50. My quant portfolio has been manhandled this month, in line with the broader market — but my active portfolio has gone higher — due to timely trades and also aggressive defensive posturing. Heading into tomorrow’s bloodbath, Le Fly is 65% cash. Find solace in knowing that Le Fly, a man of distinguishable qualities and super genetic material, will be fine at the opening bell. While you might be cast asunder, crushed under the weight of your own incorrible hubris, I shall be fine.

There’s no news or narrative for me to weave, other than the obvious fact that there are more sellers than buyers. The fashion on Wall Street is now to sell, get scared, sell some more. If you over analyze these sort of things, you’ll trade yourself into the poorhouse. Stay defensive and don’t try to catch the bottom. Too hard and low probability for novices, such as yourselves.

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Digging into Exodus, I found the recent heart shattering drop, which by the way is being handled with excellent decorum, to be a very rare event, as far as recent history is concerned. Month to date, we’re down 7.5%. Since 1999, the only Octobers with similar declines were in 2000, 2008, and 2012.

Back in October of 2000, the market had already cracked asunder — and the world as we knew it crashed to pieces. I even wrote a book about it. In other words, the October crash came as no surprise in 2000 and markets were already in a grim mood.

Fast forward to 2008, a recent history that most of you could make allowances for, and the financial crisis was in full swing. I mean, the shit was in the fan and spewing everywhere. Worldwide, markets had already melted down. The pleasant experiences of the past 200 years of democracy was in the balance and capitalism, as we knew it, had failed. The banks had been bailed out and the people were readying themselves, outside the city gates, armed with pitched forks and eyes blazing with fury.

And then there was 2012, a year often glazed over as unimportant — but was supremely pivotal in keeping the EU together with Greek bank bailouts. The good news is, once markets bottomed in 2012 — they never looked back — charging forward and soaring in 2013, higher by 36%.

This is year 10 of the bull market, defined by net positive returns in the QQQs. We were up more than 30% last year and have YTD returns in the magnitude of 11%. The recent 7.5% slide in the market has been fast, but taken with a grain of salt — since most people are accustomed to brief interludes of loss followed up by long durations of gains.

Traders aren’t prepared for an extended pullback. We haven’t had one since 2008; and the only markets scares we had since then were mostly superficial and solved by Federal Reserve reassurances.

Is this time different?

Perhaps. Let’s keep an open mind to the fact that we’ve never been in a trade war with China, and certainly not during a time when the Fed was hiking rates as fast as they could. In other words, there are tangible risks to the economy, and the Fed, as always, is ignoring them and tightening credit — which further exacerbates the situation.

My hope is for a 2012 scenario and all will go back to normal soon. After all, the China trade issue could be solved with a conversation on the phone, a crisis to be averted just like the European bailout drama.

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This made my day.

The CEO of CLF, Lourenco Goncalves, went on an absolute rant this morning — saying shorts were gonna get hurt so bad by his share re-purchase program, they’d have to commit suicide to escape the pangs of despair.

“It’s unbelievable that this big banks has still employ this type of people, you should resign for your lack of knowledge of things, it’s not like that you don’t understand, you are very one of the best, it’s not like you don’t understand our business , you don’t understand your own business. You are a disaster. You are an embarrassment to your parents. With this being said, we are going to use money to reward the long-term shareholders. So, if the stock continues to go down based on these kids that play with computers and somebody else’s money, we are going to buy back stock. We are going to screw this guy so badly that I don’t believe that they will be able to only resign. They will have to commit suicide.”

Then he went after Mathew Korn from Goldman Sachs, who happens to have a hold on CLF — threatening him in all sorts of manners.

“Lisa, before you call the next question, are there a guy named Matthew Korn waiting in line to ask a question. He is – he calls himself an analyst and he works for Goldman Sachs.

Aww. Matthew Korn if you are on the call, [indisc] … why you don’t ask a freaking question? I will be happy to answer. Okay. Who is next Lisa?

…

With that, we are done and Matthew Korn from Goldman Sachs, you can run, but you can’t hide. I will see you at the Goldman Sachs Conference, very soon and bring your commodity desk guy because you owe me that for the last year. It will be easier for you if you have the commodity desk guy with you interviewing me. If you are alone, it will be a lot worse, it will be bad no matter what, but it will be a lot worse if you’re alone. Bring the commodity desk guys or girls with you because I promised you last year that I will take care of him, her next time and next time is coming. [indisc] I’ll see you guys soon. Thanks for joining me this call today, bye now.”

Boss, but the stock is probably a short.

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