February Starts off in the Black

Gains abound and we can only pray to the Gods for more of the same. I have been buying the past hour, somewhat recklessly, but only the best stocks.

What does Fly mean the fucking best stocks?

Well, I am not chasing SAAS down the sewer hole and hoping for REKT stocks (hello fellow kids) to recover. I have acquiesced to the market and will base my portfolio around stocks that have been trending up. This includes foreign tech, banks, and commodity related names. The February Quant is out and nearly the whole damned thing is oils.

Who am I, a mere servant to the market, to argue what the market likes or doesn’t?

If you see above there I created a “MARKET MELTDOWN 2022” index inside Stocklabs, which includes all of the stocks destroyed and dragged in January. It was up 9.2% as an index yesterday, 250 stocks total. The fact we are still seeing gains today, following such an enormous day, is bullish. It’s also worth noting the positive breadth in tech yesterday was an outrageous 92%, the highest we have on record, going back to 1997.

What the fuck does it all mean?

Nothing at all. I am spewing meaningless facts to confuse you into believing it means something. Truth is, nothing is purely predictable, as each breath we take is unique and every set up, although similar, are also dissimilar. We are taking educated guesses based upon historical precedent that at times conforms and other times disconnects.

If you lost coin January, don’t beat yourselves up and do not think January will happen all year long. This is a great game, the finest there ever was, and each day is a challenge. If you don’t love doing this, just buy SPY and go fishing.

Think about the moat these bastards have on the vaccine biz — deploying militaries around the world to force its citizenry to take their product and continue to take their product in spite of the virus it is supposed to protect them from being entirely benign in 99.7% of the people it infects. Now imagine this vaccine also not protecting its customers the way it was originally advertised but the data doesn’t matter because the governments work tirelessly to get new customers for Pharma execs and the tyranny runs so deep and dark they’re set to introduce these wondrous medicines filled with incidental deaths and injuries to infants, who are in zero danger of serious illness of death.

Pfizer-BioNTech is expected to request "emergency use authorization" for the COVID vaccine for children 6 months to 5 years old on Tuesday, WaPo reports $PFE

— The_Real_Fly (@The_Real_Fly) February 1, 2022

And in spite of all that, look at the failed share prices of MRNA tech companies like MRNA, CVAC and BNTX.

Why, Bill Gates’ backed CVAC is down a mind-boggling 85% from its high and Moderna, wonderful Moderna, is down 65% from its highs, in spite of so much coercion to drive business directly to them.

Has there ever been a more controversial group of companies ever? It’s a Tale of Two Companies, with about half the people praising in sycophantic adoration the virtues of a “vaccine” that does nothing to stop the spread of a virus that kills very few outside those immune-compromised and the other half forevermore believing these companies are the spawn of Satan himself and should be stopped no matter what — at any cost — because they’re evil and such insidious entities cannot be permitted to breathe.

In total, MRNA related vaccine companies have lost ~$500 billion in market cap from the COVID hysteria highs.

NOTE: FOR A LIMITED TIME WE ARE ACCEPTING FREE TRIALS FOR Stocklabs. SIGN UP HERE.

I made 8.9% in my algo account, +2% in trading and +2.2% in Quant. For the month, I shed roughly 7.5% in trading and just 2.6% in the Quant — which is impressive all things considered. The end of day ramp is classic — fear converts into greed and cashes checks on the shorts until they acquiesce and absorb losses. The next phase of this rally will be perverse and might last much longer than you think.

Or we get get some fucked news out of Russia and down we go.

All things considered, this was precisely what the doctor asked for. I have a basket of stocks in Stocklabs of beaten down names, 250 of them. It was up more than 9% for the session. Tech lifted off by nearly 5% and a sundry of dead stocks rose from the ashes and posted double digit gains.

In all, almost 500 stocks lifted by 10% or more today.

I am fully invested and with a little leverage into tomorrow. I am this way due to a malady of mine called greed and it has shadowed me and haunted me ever since I found out the value of money.

I ended up buying some TNA, ZI, and YMM in spite of not wanting too. I was scared, but now feel brave with the winds behind the market’s sales. This is tragic comedy at all times, people are winning and losing — egos boosted and shattered. We are all in this for the same reason and often go off-track when the risk is too great and we cannot afford losses or because we permit our egos to interfere with the market trends.

The trends have been inexorably lower. After this two day run, people will start to think that is changed and perhaps fish for beaten down stocks, until the next leg drops. How long until the next leg drops? That is anyone’s guess but I will remind you that Russia is still on the move, oil prices are high, and rates are high, as well as inflation.

How did Stocklabs do with this recent downturn?

Some hit some didn’t. The trade officially ends tomorrow and if I end up losing money on my TNA position — that’s ok. I acknowledge the recent downturn as being somewhat unique and the plagues of the current decline are more or less unstoppable. That being said, what goes down the most also goes up the most on bounces.

A collection of the hardest hit stocks of 2022

I’m up +130bps for the session and I should be up a lot more. Day is young.

I sold out of my trading account this morning, which was smartly long, for a gain of 70bps. If I do nothing for the rest of the day, I would have locked in a loss of 8.7% for January. Should I feeeeel good about that, given the carnage is so much worse in nearly every facet of the market sans commodities?

No, absolutely not.

The market is always going to fuck with people and it’s my job, your job too, to figure out how to extract money from it. It’s a pointless and thankless endeavor. People who do not trade will never understand the commitment needed to trade well. In January 2022 I did not trade will, so with about +300bps in gains since Friday I figured now was a good time to slow things down and go to cash.

It’s very likely the market will scream higher now, leaving me in the dust. It’s also possible that the idea of that happening can permeate my psyche and cause me to buy a rip, only to soon find myself bogged down and mired in one red candle after the next.

So I won’t do that.

What I will do, honestly, is take a more methodical approach, one not rooted in emotions, to this tape. What I mean by that is avoiding the allure of stocks down big in favor of those working now.

Mr. Johnson’s account zeroed out due to a leveraged bet in AFRM and seeks advice from Ms. Smith.

With just 1 day left in January, this month born from hades will easily go down as one of the worst in modern history. From COVID lockdowns to vaccine mandates to Russian military wares on the move steaming towards Europe, we have been frozen with fear and the thaw that is supposed to come from strong leadership vacantly missing, with empty headed Jim Biden at the helm.

Let’s survey the carnage and then formulate some ideas into February.

EV (electric vehicles) -34%
Gene editing -32%
Online retailers -28%
Solar -28%
Semis -25%
SAAS -25%
Cannabis -23%
Chinese Burritos -20%

On the upside

Major oils +18%
Drillers +12%
Foreign Banks +6.7%
Basic Materials Wholesale +6.5%
Broadcasting/TV +3.5%
US money center banks +3%
Regional Banks +1.5%
Consumer Staples +1%

The broadstrokes of the current trends is to be short anything losing money and high valuation and long FCF commodity related stocks and/or banks. I said this in 2008 and I will say it now — it is a fallacy to believe commodities will not get smashed to pieces if the overall economy turns down. The idea of oil going up at the same time GDP plunges is nonsense. The smaller capped stocks were already hammered in all of 2021 before the New Year crash, so this is simply adding insult to injury.

Here is the small capped index in Stocklabs, already BELOW the pre-covid highs.

So what’s next?

In January of 2008 I documented a rally in the bank stocks following a hard correction. It should amuse you to know that most people who were bearish and correct in 2008 lost all of their powder during some of the several fierce rallies that year, amidst almost non-stop government meddling in attempts to assuage the masses. You should expect more of that now, providing we descend lower.

So the Nasdaq finished down 11.9% for Jan 2008 and yet you’d never know inside the final two weeks of the month that happened. Luckily for you, I have been live blogging everything since 2007. So what happened next in 2008?

Feb: -4.8%
March +1.8%
April +8%
May +6%

And what about the bank stocks — the bubble asset class of that era?

XLF/Returns
Feb -11.7%
March -3.7%
April +7%
May -7%

Clearly you can see the pressure was still applied to the banks in spite of the market doing ok during that period. So what worked?

XLE (energy)/ Returns
Feb +9.3%
March -2.6%
April +10.4%
May +5.2%

Look familiar?

How about traditionally defensive areas like Utilities or Consumer Goods?

XLU (utilities/Returns)
Feb -4.1%
March +0.9%
April +5.1%
May +3.6%

Pretty good.

XLP (Staples/Returns)
Feb -0.8%
March +2.7%
April -0.7%
May +3%

How did tech do?

SMH (semis/returns)
Feb +1.4%
March +0.6%
April +6.4%
May +6.8%

Bonds?
TLT (treasuries/returns)
Feb -0.8%
March +1.8%
April -2.8%
May -3%

And now let’s view all of these sectors during the worst part of 2008, October.

QQQ -15.5%
XLF -21%
XLE -19%
XLU -13%
XLP -12.6%
SMH -16%
TLT -2%

Nothing was safe, aside from treasuries.

TLT

So what happened?

The contained pressure in the banks became systemic and resulted in plunging GDP and fears that the end of western finance was upon us. Short sellers made a field day and all of those energy bulls were cast into the fires, as oil descended from a high of $140 into the $30s.

Does this correction compare?

Probably not, since shares of MTTR plunging do not have a ripple effect in the economy. Thus far, nothing in this correction can be viewed as a systemic threat. We are seeing inflation, just like in early 2008, and those related stocks are surging while the bubble asset, this time in tech and biotech, are deflating. Fairly straightforward stuff.

Oil, 2008

The allure is to buy all of the cheap stuff because it’s marked down and on sale. This seems like a good idea but if judging by previous dislocations in asset classes might turn out to be a frustrating toil. Just like your money would’ve been better off not buying bank dips in 2008 — it might be worthwhile to avoid tech “value traps” still trading at 30x sales today.

Granted this is clickbait — but we certainly did enjoy quite the meltup today. I want to walk you though the emotions I had today, for the sake of posterity.

I entered today down 10% for the month, feeling awful about it, not just because I lost money but also because I have a trading room of reprobates who often use my picks as their own. I have been careful for weeks and this is the reason I was down 10% and not 25%, which could easily have been my fate if I was fully invested and/or aggressive with my allocations.

The morning was faded fast and I sold as soon as I could, locking in a +28bps gain. I read a comment out of Fed’s Kashkari, who basically was appeasing traders with comments such as “we will not raise by the spring if shit is fucked up.”

I ended up taking starter positions in LABU, WCLD and TNA — 5% to start and when they dipped I added 1% to them a piece. I normally just double down, but I was scared to allocate too much. Then this news hit and it spooked markets.

US Officials: Russia's Military Buildup Near Ukraine Has Expanded To Include ‘Supplies Of Blood, In Key Indicator Of Military Readiness’ – RTRS

— The_Real_Fly (@The_Real_Fly) January 28, 2022

I want you to think about that presser. Of course medics carry blood with them. That much is moot. This was released on purpose as part of a psyop to instill fear into those opposing Russia. In other words, shit is about to get real — Vlad the Impaler is sending blood to the Ukraine. Markets soon after nose dived, especially after I walked my fucking dogs. My gains had been +55bps into the walk and when I returned I was flat.

Over the next hour we went straight down in an i-shaped pattern — registering 6 red candles in a row. I was besides myself with angst and I looked at my already down account deepen with crimson — off at the lows of -1.2%, in spite of being 65% cash.

I was tempted more than once to hedge via UVXY — but I held off because I saw the breadth in Stocklabs was indicating EXTREME bearish sentiment so I paced my office and game planned what my account might look like if we dropped 4% today and how I would use my cash reserves to attempt to salvage it.

Then we soon reversed and registered one green candle after the next and when we got back to the pre-dog walk highs, I allocated another 20% into the market and ended the session +2.1%, closing up nearly 1% for the week.

I didn’t hedge because these type of ramps usually last for several days if not weeks. We are extraordinarily oversold and to be honest — I really do live or die by the tools I have created so I might as well err on the side of my creation than fade it and risk missing out.

FACT: Since summer of 2021, Monday has been the only day of the week with net returns for the IWM.

The Fed sent out Kashkari today to suggest the Fed might do nothing this spring and it was met with a buying program that eventually was sold, only to get bought right back and here we are at session highs +1.4%. I had sold all by 9:35am but am now back in some LABU, WCLD and TNA. The purpose of my investments isn’t to make money per se. The point of me buying now against my better judgement is to satiate the fear of missing out.

Being scared is one thing. But missing out on an oversold rally is an entirely different thing that I am not mature enough to endure.

Back in 2008-2009 I did a series of these cartoons and many were lost when Youtube deleted our channel. You can still find many of them at our new channel here.

This is a short one and I was really just testing it out. I’ll likely do many more, now that the bear market is back.

Enjoy.