SAAS Sector Approaching Bear Market — Panic Ensues

My favorite sector and leadership for high growth tech, the SAAS sector, is being completely dismantled. As I said earlier, I sold out of my last two SAAS stocks and have been taking losses on them all week. Granted, drawing down 10% on my portfolio is painful and it hurts me to see the carnage — but it could’ve been far worse if in fact I had held onto some of those names.

For the day, the best SAAS stocks in the market are lower by more than 5% — approaching -20% over the past two weeks.

There is heavy rotation out of growth and into utilities and low growth old man stocks. I can bored you with some Sharpe screens, but what’s the point?

I am going to show you something and it won’t make me look good. It will only demonstrate the importance of stop losses and how to avoid small holes turning irreversible large. Learn from my wisdom you fucking idiots.

Here are the stocks I sold recently and their prices and where they’re trading now.

HUBS $131.65 — $126.68
ZEN $61.61 — $60.21
TEAM $82.19 — $77.75
SOXL $133.35 — $119.71
NOW $181.80 — $172.38
TWLO $73.53 — $70.77
SQ $88.91 — $78.25
BL $51.28 — $43.63

Hence the term, “The Fly wins all the time, even when he’s losing badly.”

Today’s high profile losers.

The second you begin to truly believe this time is different and we’re heading much lower, BUY.

Hard to hedge while in the thick of a heart stopping decline. However, I am raising more cash — stopping out of HUBS and ZEN for 8-11% losses.

I am now 65% cash in my retarded trading account, long idiot ETFs like YINN and TNA. Who knows what should expect next — probably disastrous downside pin action and more.

Well, we’re diving now, so we might as well enjoy the long shadow being cast upon us now, embrace in the agony of others and hope to dear God the air of quiet death doesn’t come for us too.

Aside from dealing with the Chinese trade war issue, Trump and Co. have to deal with WTI shooting higher to $75. However, and this should not come as a surprise to you, this is GOOD for America. Granted, you’ll pay more at the pump. But at this point, because the US is such a big producer of oil, having skyrocketing WTI prices is now a net positive for the country, so fucking deal with it.

On the pressing issue of the moment, the USD/CNY cross. It appears the Chinese are out of control, devaluing the renminbi whenever they eat a snack or take a sip of tea.

Sec. Mnuchin warned them to cut the shit out this morning.

“As we look at trade issues there is no question that we want to make sure China is not doing competitive devaluations,” Mnuchin said to the media outlet. “The renminbi has depreciated significantly during the year … We are going to absolutely want to make sure that as part of any trade understanding we come to that currency has to be part of that.”

I’m getting into the bearish mind here and simply laying some thing out so you can worry more.

Higher WTI
Trade war
Higher rates
Trouble in emerging markets
USD continues to strengthen
Elections loom

Did I miss anything?

How bad is the recent sell off?

For starters, this is the second time in over 8 years Exodus is showing an oversold signal for 4 consecutive days. Our stress levels are being tested daily and are now exhibiting levels that have always led to rallies. The fact that we’re not rallying is what’s causing the disruption in the matrix. People are getting uneasy. But you haven’t seen nothing yet.

Presently, just 43 stocks with market caps over $1b are down by 20% or more over the past two weeks.

Right behind that are over 300 stocks down between -10 and -20%.

And behind that are over 500 names down between -5% and -10%.

The total population of stocks with market caps over $1b is ~2,300. With a little push and some depraved selling, the bears can fix 40% of relevant stocks down 10% or more the past two weeks. Such pain and misery will be relayed via financial networks, leading to a wide array of asshats foretelling doom and great recessions — calls for the Fed to slow down, culminating in heart attack flash crashes that will surely set in a permanent bottom for the duration of 2018.

In short, I’m optimistic — because it’s a high probability bet. However, I am keenly aware that humans behave badly under duress and will quickly move to cash if my positions began to flag. You should ignore all present losses and manage your accounts for today’s value, not what it was 2 weeks ago.

Trump is angermented over the Fed weaponizing interest rates. Good luck seeking change there.

US Pres Trump: Doesn't Like What The Fed Is Doing.
'I Think We Don't Have To Go As Fast On Rates'
'We Don't Have A Problem Of Inflation'

— LiveSquawk (@LiveSquawk) October 9, 2018

The main problem with stocks is small caps, evidenced by weakness in Russell. It should be noted, the Exodus Quant saw this coming and is position in $100b+ stocks.

The manner of this decline is deleterious and bound to hurt the bullish feelings of optimistic traders. To get a true bottom, we require panic and then apathy. This decline is different from the others, because of its stubbornness.

I stepped in at the bell and bought YINN, hoping for a sharp rebound at the open. I use the word ‘hope’ deliberately because no one really knows when the selling will stop. The only thing we can control is the methods and manners of playing the market. I choose to do it carefully and with discipline; but when I buy the blood, as is the case now, I do it with zeal.

This is where the weak get fleeced. The people caught in cannabis stocks will be blockchain’d to death, as Felicia the margin clerk hits the bid on all of your positions to cover Fed calls — wiping out the entirety of your equity.

You got greedy, damned greedy; now it’s time for you to pay the price for those transgressions.

Listen to me now. The dips should be avoided, up until the very last minutes of the day. Gone are the days of late day buy programs. We sell into strength and then sell MOAR into weakness. Everything you enjoyed about the market this summer has been whisked away, gently, just like your gains.

Le Fly is 50% cash, getting hammered in whatever is left in his trading account. But I had the foresight to avoid leaning hard into this weakness and will, at some point, make an epic trade of grandiose proportions.

In short, avoid intra day action and play for an opening rip.

It looks like all of those Xmas presents you were planning to buy might need to be shelved for quite some time. According to Mike Wilson, analyst at Morgan Stanley, the end of cycle game is here, thanks to sharply rising interest rates. Moreover, he believes there is a consensus opinion of, get this, a republican sweep this November — which in turn would be both inflationary and bad for trade.

What in the fuck is he talking about?

Mike Wilson, equity strategist at Morgan Stanley, said in a note that the rise in interest rates has signaled the possibility for end-of-cycle risks, which would cap stock market gains and lead to intramarket rotations.

“We think this creates a tipping point that explains many of the performance themes this week and lays the groundwork for something of a regime change that is very much in line with our overall outlook for the S&P 500, as well as our style and sector recommendations,” Wilson wrote in a note.

Wilson has previously said that he believes a multiyear bear market is already here and stock market gains will be limited with the S&P 500 trading in a range of 2,400 to 3,000 over the next several years.

“Yields are rising but growth will likely slow next year, which means portfolios need to shift,” he wrote in a note.

“If the market begins to believe that a Republican sweep is likely to occur in the midterms, the likelihood of a tax cut extension, infrastructure spending and continued focus on trade protectionism all rise. We view these potential policy paths as inflationary and likely to add to the deficit, providing upward pressure on rates,” he wrote.

If you take a deep breath and grab a hold of your senses, you’ll see that rates haven’t gone anywhere for the past decade.

The idea of what Mike is trying to push is that rates are becoming too attractive for investors and with growth slowing, in spite of nothing pointing to growth slowing, investors will sell their FANG stocks and buy TLT. This is idiot tier thinking of the 33rd degree. Whenever markets dislocate and go lower, we get notes like this — telling us the end of days is here. In this case, however, end of cycle.

It looks like the small respite we were expecting to enjoy this morning is, instead, going to be more pain. The pain threshold is really pushing the ram against the wall. Very soon, this pain might trans morph into outright panic and then mania — providing true discounts, all the while ruining an otherwise fine year for stocks.

This is the other side of the blade that I love and hate so much. I hate it because it makes life difficult and could become scary. I love it because if timed right, it provides a unique opportunity to buy shares cheaply.

Lots of cross-currents to deal with and opinions are being formed. Everyone is trying to make sense of the simple fact that Wall Street the Show is now performing Act 3 — the tragic decline. Soon this act will be finished and the recovery will be underway.

I find myself in a unique position this evening — super defensive because of my methods, but mentally bullish AF. This is a discipline that most of you can’t relate to, having grown up in the weeds from poor families and surviving off cheese crackers most of your adult lives. It’s important to have beliefs and passions, but more important to adhere to the rules. Rules and laws are what separate western might from the savage east. We must always remember to sell our stocks when they go down; but if afforded a position to buy panics — do so with great vigor.

At the close of trading, I placed 10% of my account in TNA, which is equal to having a 30% position in insanity. My cash position in my trading account is now 50%, which provides me with a very beautiful cash position to draw from, if and when the unwashed masses decide to create a mania and reduce their account values to zero.

Over in my quantitative account, naturally, I am 100% invested. As a matter of fact, I am 120% long, as 20% went to a margin purchase of SPY.

In conclusion, you’re young and mostly stupid people, unable to grasp simple concepts. I’m an anomaly and have always been one and will survive any and all market squalls. All you have to do is sit back, relax, and watch Commodore Fly produce magic acts for the masses and then cash in and pretend it was all you.

Good nite.

Anyone else remember the great SAAS crash of 2014? I sure do — it nearly ruined me and killed me simultaneously. Here we are again, with technical levels mightily below normal corrections, the lowest since that dark and grim time.

In a hand picked index concocted by myself of the best SAAS stocks in the market, that index is now lower by 15% over the past two weeks.

Unfortunately, I got shaken out of most of my SAAS plays — because they reached my pain threshold. I’m not in the business of riding stocks lower just to fulfill some lack of confidence or ego gene that needs to be reassured. If I miss out on a run, it is because I planned poorly for it. Better luck next time.

I will, however, buy into the rebound aggressively, removing the risk of buying into a downward spiraling tape.

Make no mistake, we are severely OS. However, these types of markets often cause manias and broken elevator trading action, with calls from the finance media for a supreme flush out to crush an annihilate the unwashed pleb from the field of battle.

BONUS: Our tech algos are most oversold in Exodus history, including financial crisis.