Afternoon Ripper: Should Rally Tomorrow

Is Satan Claws finally here for Wall Street? I waited until 2:30ish to step in and I stepped in with vigor, 130% leveraged long and then I sold everything and then I bought for the overnight my typical blend of stocks near highs and hedged with TZA-UVXY. I closed +2.61% and now am green for December.

Believe me, it was tempting to just say fuck it and stay long and hope for the best. But, and this goes without saying, fuck this market.

On paper, we look good and should rally. If we rip in the morning, I will try my best to hold and close out my shorts. Either way, my bias is certainly long here, with 15% hedged short at 3x and 20% cash. The way I am positioned, I do not expect more than +35bps or -35bps in either direction and I am okay with that. Since Feb the market has been a mirage, a singular trick that continues to fuck with the minds of traders. I am content with extricating myself from that and sticking to a plan that works.

The market keeps beating you and saying sorry and you keep believing the market is a changed market, until your next beating. You keep remembering all of the good times and not looking at your bruises. You see the market shifting up now and you’re lured back into its web, thinking “this is it, this is the Satan Claws rally.”

Reminder: The IWM has rallied most frequently from 12-2pm for December.

What you really need to be concerned with here is how we close.

3pm to 4pm has not been a profitable endeavor for traders.

I too am tempted to long up. I am 100% cash and would love nothing more than to partake in a Santan Claws rally. However, I can see your bruises and would not like that to happen to me, so I am patient.

When the world burns, I’m usually drinking a martini, enjoying the scenery.

How’d I do it?

Pinned to high screen inside Stocklabs, little to no trading past 10:30am, resuming after 3pm, always hedged.

Today I stepped into the morning 10% TZA, 10% UVXY along my longs. I cleared it out, as I always do and now I wait.

There’s no point offering you predictions. I can offer you a system to avoid losses and I don’t even need or want you to join Stocklabs for it. Just hedge at the end of the day. There will come a day when there is no need to hedge and it might come soon. If you’re inside Stocklabs, you’ll know it. But until that day comes, HEDGE UP!

I thought it was time to sit down and give a more comprehensive analysis of what this market is showing us.

Is this correction merely letting air out of the bag before another run or is this decline a foreshadowing of something more materially wrong with the economy? See these aren’t just stocks with morons trading them, but real companies with employees and when they plunge in value, efficient market theory states there is something to it and it will be revealed in the future. The obvious questions are: is the soft lockdowns and restrictions around the world causing growth to slow? I don’t see how any friction doesn’t cause growth to slow, although we have yet to see evidence of this.

My other question is: the exacerbated losses in smaller capped names, -15% the past month vs -1.3% for mega-tera caps, suggests widespread carnage in the retail sector. If this is so, are we now seeing the last leg down accompanied by forced liquidations (margin calls) or, again, is the market trying to tell us, aside from monopolies, the economy is about to tailspin lower?

Another thing that has raised an eyebrow for me was a Mizhuo report essentially shitting on SQ, PYPL and AFRM for their buy now pay later schemes. We all traded through the credit crisis. I cannot think of a more credit UNTRUSTWORTHY person than the impulse online shopper. Mizhuo says more than half of the poors (people making less than $75k) missed at least 1 payment. This is how Countrywide Financial imploded, slowly, and then all at once.

53% of the poors have missed 1 BNPL payment $AFRM
pic.twitter.com/lJVllsTNkc

— The_Real_Fly (@The_Real_Fly) December 14, 2021

Some out loud thoughts.

If credit is becoming impaired and if the economy is about to tumble lower, shouldn’t we be concerned with auto-loans, notorious SHIT LOANS, and some of these fucking housing loans that have fueled this retardo housing boom?

Just last quarter the imbeciles at Zillow wrote down $304 million thanks to their “AI” auto-buy racket that caused them to bleed the fuck out in housing and cause the CEO to fire 25% of the workforce. Perhaps a company like CVNA could be a similar comparison, using their “AI” to buy cars.

In many respects, the rapid inflation we’ve been seeing has masked some of the problems in the economy, because with higher prices companies are enjoying higher profits and much of these costs are just now being passed down to Joe Public at the grocery store and we can only raise the minimum wage so high.

Out of all the sectors in the market, the one I am fixed on most is Application Software aka SAAS. They have been the darlings of Wall Street, being able to accurately predict sales and FCF growth down to a science, hammering into Fortune 500 companies with sophisticated sales tactics to annihilate their internal IT budgets in exchange for increasing the outsourcing of it. They have been extraordinary successful and a testament to this success can be seen in SHIT SOFTWARE company Salesforce.com being added to the Dow 30, truly an astonishing success considering how dreadful the product is.

Two things to consider when looking at SAAS valuations.

1. Never been higher.
2. Stocks are leading to the downside.

We are deflating valuations.

App Software stocks are trading 7x price to sales on a median scale. If we consider 2022 estimates, that number shrinks to 5.6x. From 2017 to 2020, App software valuations ranged from 4 to 5.3x, suggesting the sector needs to correct another 25-30% from already depressed levels.  Out of all the SAAS names out there I consider HUBS to be the best large cap company, vital to the industry, but also small enough to represent opportunity for tangible growth. Sporting 35-40% predictable and genteel sales growth and positive FCF, you cannot say Hubspot is a bad company without being branded a fucking liar. The stock is down 15% the past week, yet still trading at 27x sales.

See the problem?

Hubs p/s valuation

If HUBS stock did nothing for 12 months, by next year after all of their sales were tallied, the PS ratio would be 20x, still substantially higher than traditional levels.

Application software stocks, as a whole, are lower by 17% over the past month.

I used to justify the higher valuations with platitudes, such as “well the market is paying up for quality.” Truth is, we are in a bubble. We are not only in a bubble, we are in a terrible bubble, supported wholly by central bank rigging. I say “rigging” because that’s exactly what it is.

Chicken little the sky is falling.

Since 2009, barring the 2020 Coronavirus interlude, betting on decline has been a losers bet. The 2020 drop was forecasted early with the drop in leveraged loans. These declines in the shit-tier loan portfolios helped me short stocks with ease during the 2020 drop.

Charts for HYG (high yield debt) and SRLN. Weak, but not notable.

People like to malign debt because, on occasion, it caused crisis. Truthfully, without financing to the moon, the world would never have advanced so fast technologically and we’d still be using CDs to hear our music. With $18t in corporate debt publicly traded, we have $7 trillion in cash. Back in 1993, we had $255b in debt and just $24b in cash, or 10% of debt. We are at 40% debt coverage in corporate America, not due to chance, but by innovation and massive value creation, funded using debt.

Pardon for that sidebar. On the issue of what the fuck is happening in stocks, I have no choice but to conclude, without seeing signs of credit weariness in banks and/or credit, this decline should be treated as a plebeian liquidation that will pass. I am open to suggestion and can change my mind with new information.

It was. a race to CRASH THE FUCKING CLOSE again and this time I was tricked into believing the great Big Titted Santa Claus rally was going to happen. I was lulled into the warmth of a hot mug of hot chocolate, happy and content to apply wanton amounts of risk. I stepped in fully long while +18bps and my gains quickly increased to +90bps. I was feeling quite successful and accomplished.

And then this shit happened.

I had to swallow my pride and change my plan, ditching many of my great stocks and in their stead 20% weight in TZA-UVXY to hedge. I closed exactly where I was before I started buying, up on the day and happy about that, but pissed the fuck off by all of these Greek curses and abhorrent tapes that causes me to feel violated when trading.

It didn’t have to be like this. But you fucking bastards had to vote for Hunter Biden’s dad.

We have a fucking vacuum here and the margin clerks will be out in force by 3pm. If forced by gunpoint to buy, look at some metals or just fucking wait until after 3:30pm.

I am still 100% cash, waiting in the tall grass.

The IWM is extending its losses for December to almost 2%. However thr damage is far more extensive in sectors like SAAS, off by 11% for December, or how about this?

The gagillion dollar questions are:

Is Fly up today and if so what does he think will happen next?

As a point in fact, I am up. Thanks for asking. I was hedged via TZA and UVXY, even has some NUE to elevate me to an austere +0.23%. While not much, it certainly does beat your horrendous losses.

At any rate, I sense you do the same thing today that I’ve been doing for months. Let’s buy stocks near session highs, maybe 2 really down stocks to add beta, and then hedge it with about 15% of assets in a leveraged ETF because that 15% is really x3 and offers good coverage.

Off to walk the fucking dogs.

Big fucking surprise. I closed +0.69%, 34% cash, hedged my longs with TZA-UVXY. I do the ETFs so I can sell them at 4am if needed. If I did options, I’d be subjected to market hours.

A dreadful tape, but do not expect the bottom to drop out. You should expect chop. We are in a furious circle jerk on the IWM since Feb. During the month of December, nothing happens.

We are down 0.96% on the IWM for December. We might spike tomorrow or perhaps the open is faded and we rally from there. Either way, my bet is for middling action of the very ominous nature. We are likely to heave over and give way in early 2022, so be ready to get net short and burn this fucker down to the ground.

Out of 5,465 stocks tracked inside Stocklabs, the average % from 52 week highs is -34%. If you’re uncomfy with averages due to outliers, even though with a data set as large as 5,465 it should not matter, the median return from 52 week highs is -27%.

So what the fuck is going on?

Total collapse is certainly a possibility, if only the damn bond market would follow suit. The whole market is lulled to sleep by the price action in about 10 stocks, a clever aesthetic thanks to BIG MONOPOLY IN BIG TECH to make it all look all right. But nothing is all right and Jim Biden’s retarded administration is only making things inexorably worse.

We are blessed with low rates and a technological advantage over our manufactured enemies that keeps the dollar as currency reserve and prevents us from full collapse. We can still panic, which would first be viewed in JNK, HYG and SRLN, although I doubt it. When we look the very worst is when we do the very best. Nevertheless, this is a piece of shit tape and you should expect it to get worse next year — followed up with a deterioration of the overall economy.

All booms end sometime. Given all of the backdrops, I don’t see why we should’ve recess next year.

Fuck this shit. I faded the open. Closed out my 15% weighted TZA position and now I’ll wait until late afternoon.

I’m up 77bps and do not feeeeeel like the market wants to be kind. Lots of arrows in the sky now I can barely see the sun.

100% cash.