OPEC SLASHES 2 MILL BARRELS PER DAY; MARKETS MCPLUNGE

Once again fooled by The Devil. My damage isn’t too extensive, as I liquidated some of my longs at the opening tick and kept the UVIX. I’m off by 55bps and to be honest, I’d be better off in all cash rather than playing whack-a-mole with this piece of shit market.

OPEC plus rapes the US and slashes by 2 mill barrels per day
The EURO sinks (good, I am short euros)
Oil ticks up slightly
We are back on inflation watch

I added SQQQ to my hedges because according to the stock market rules book, we should MCPLUNGE today and tomorrow and for the rest of eternity, or until the inflation boogeyman is marginalized and we are accustomed to horrifying rates. Let’s remember back in 73-74 when the US has terrible inflation, markets rebounded after 74 and eventually we got used to never being able to afford a mortgage.

I suspect we are not there yet, which is why I’ve always felt the COVID lows was a nice comfy place to start.

Bottom line: in yesterday’s blog I predicted markets would rise and if they did not we would buy the dip. That will not happen if the euro is getting hammered and US rates are heading up. Who knows? The day is young and breadth is 45%. But for now, I’m cautious.

It seems rather nonsensical to be long here after 1500 points of FUCKERY. However, it’s quite rare for stocks to trade lower after such large moves and I suspect if we do trade down tomorrow morning — we will soon rebound and trade up.

Ergo, I am leaning heavily long with a 10% UVIX hedge in the event of nuclear bombings.

The situation in Ukraine is tense, for the Russians. Whatever the hell is happening over there, it seems I’ll never understand it. From an amateur point of view, it appears the Russians are giving up space in exchange for time, which is the essence of war. They are not engaging Ukraine forces and have opted to constantly withdraw and fall back to new defenses, whilst giving up hard fought gains. Pro Russian sources say this is being done in preparation for the reserves that were called up. However, I have a hard time understanding the logic of this and do not understand how Russian forces could be so bad at determining UKR troops movements. It seems, and again this is an amateur point of view, the Russian military command is bogged down by bureaucracy and their formations aren’t enough to withstand the American armed Ukrainians. Pro Ukrainians think they’ll go all the way to Crimea and that’s awfully stupid thinking. Either way, and I am strongly opinionated by this, the Russian setbacks are BEARISH for stocks because it only means Russia will escalate.

Moving on, I am short euros because we are now at parity with dollars and that psychological line might be enough to draw in a downward reversal.

Bottom line: I was +15bps in trading +300bps in my long only quant. I missed this rally and made just 1.15% yesterday. Because I am late, I am of course tempted to compensate for it by chasing. This is retarded level thinking and only works on true breakouts. The time to buy heavily was when people were shitting their pantaloons. We are not shitting anymore and many traders are instead ejaculating. I expect the rally to continue for the duration of this week and then possibly fade, especially if Putin nukes Kiev.

Last week it seemed most traders were on the precipice of suicide. Today, following two days of rally, the smugness has kicked in and we are once again heading back to record highs.

REMINDER:

The NASDAQ RETURNS

-30% YTD
-0.26% 3 mo
-4.7% 1 mo

The reality of this market is — the Fed is tight. More than that, the Fed is tethered to inflation. Each time we get market rallies — at the forefront of them are commodities which stokes inflation. The only way around this is to see unemployment rise and people fucked in the streets poor.

The market will always look one way in under the lens of short term. If we are trying to figure out a more longer term picture then it’s still very bearish.

Because of this and because my longer term view is still bearish, I shall not, at any time, be aggressive to the upside. In the few times I have, I have also regretted it. Missing out on rallies is part and parcel of making market calls and it’s ok to miss out, providing you don’t deepen the miss with a chase, only to see it fall again.

Into tomorrow, no idea — but the trend is now up. In the 4 times markets had corrected hard in September, two of them led to 15% rallies in October. It looks like this October is heading into that direction, which would demand a long bias. My sense is to have a long bias into tomorrow, but not at the extent where a down 150 NASDAQ open might APE RAPE me if I’m wrong.

Just before the trial of Twitter v Musk began, Elon changed his mind again and is now willing to proceed with the deal. This is humorous, especially since I am fairly certain the braintrusts inside Twitter did not see this coming. What they likely thought would happen was a long trial in which they’d win and then get to SEIZE Elon’s Tesla stock and ruin him. Instead, they get to lose their jobs once Elon gets in.

Musk is offering $54.20, the same price he offered many months ago.

Last night Elon had the audacity to propose an amateur way out of world war 3. This is what he said.

Ukraine-Russia Peace:

– Redo elections of annexed regions under UN supervision. Russia leaves if that is will of the people.

– Crimea formally part of Russia, as it has been since 1783 (until Khrushchev’s mistake).

– Water supply to Crimea assured.

– Ukraine remains neutral.

— Elon Musk (@elonmusk) October 3, 2022

pic.twitter.com/cGHSTdb9gv

— Elon Musk (@elonmusk) October 3, 2022

This got all of the Ukraine flag blue check marks choking up with rage, even drawing Zelensky and one of his cabinet members out to tell Musk to fuck himself.

I have admiration for what Musk has achieved but I’m not a fanboy and do not place him on a pedestal. I also do not believe he’ll make substantive changes once inside Twitter, since people like Musk (elite) tend to become assuaged by people who really control things.

Nevertheless, it makes for fun theatre.

Quick update.

Stocklabs was oversold last week and today we just went overbought on the mean reversion algos. In the past OB was very bullish because we were in a bull market. The data is still encouraging. However, given we are in a bear market, I have my suspicions that the inverse of what used to be true is our new reality.

Yesterday I was apprehensive to trust the rally because I have trust issues on the long side, with stocks down 40% for the year. I viewed the chances of a busting loose at 30% and positioned for chicanery. Fortunately I was able to extricate myself almost entirely from the market today at breakeven, extending my streak of missing out on monster bull runs inside a bear market to 90%.

With the NASDAQ up 300 today, you might be tempted to short. I alluded to previous bad Septembers and how October can go either way this weekend.

Well, the NASDAQ is now up greater than 5% for October and it’s looking like we might be entreated to one of those sharp rally months of October, one that could perhaps grant SOXL +50%.

With breadth at 90%, it’s hard to sell it down here. However, at the same time, I’d be reticent and am reticent to chase, since chasing is what clowns often do and I don’t feel like slipping on a banana peel, sliding all the way down into the sewers and beyond.

I’ll likely scalp with ETFs today and position the same way at the end of the day as I did yesterday.

The action today was bullish save the last hour. I’d like to offer feedback based on today’s action, but it seems the market collectively has amnesia and simply resets every day. It is not possible to base tomorrow on today. Ergo, one must forecast out into the future by way of crystal ball to ascertain a palpable trading stratagem.

My gains for session.

My gains were 50bps at the open and I doubled them by way of intra-day trades. I closed the session in a slightly bearish bias, with TMV, UVIX and TZA positions, only offset by a long gold and a few stocks — mostly cash. My thoughts are uncertain. Following large declines, historically, markets are 50-50 for October, even in bear markets. We would be 100% within our rights to surge here and totally fuck bears. At the same time, this isn’t exactly an encouraging environ for longs.

If you’re watching tonight, keep an eye on EUR/USD and GBP/USD crosses, WTI/Brent, and US 10yr yields. If the dollar weakens and oil ramps into OPEC meeting this Wednesday and bond yields come down — we might rally hard. Just know that any reflation of markets is often led by commodities, which is exactly what the Fed is trying to stop.

My raw commodity index in Stocklabs was higher by 1.36% today and has been basing out for months. It actually looks like it’s ready to bust loose. If so, forget about peak inflation and prepare to be raped further by the FOMC.

In lighter news, the first annual RACE TO ZERO contest inside Stocklabs is underway, with impressive results. It’s not too late to join. Winner of this contest takes home $1,000 in fiat.

SIRS

A remindoooor for your perusal.

The last two times the SPY moved up like this, the following day stocks were thrashed against the rocks — traders got their eyebrows punched clean off their face.

Today’s market looks wonderful. How will it look tomorrow is the question.

Markets always obsess over several key metrics during every crisis. Back in 2008, we obsessed over banks and oil. During 2022, we are looking at CS, and obsessed over interest rates and the dollar. In order to sustain this rally, we need euros to gain against dollars and we need bond to recover, or at least stabilize. If those things happen and we are not entreated to a horrific series of earnings warnings, we should rally 5% in October, maybe more.

On the other hand, since we are so oversold and since losses are so great, should the CS crisis metastasize, which often happens during bank runs, and yields keep climbing because of inflation — we could very well get rocked for 15% in October.

5% up, 15% down.

As for me, 85% cash, 5% UVIX, 10% BITO. I will begin to position for tomorrow after 3pm.

All of the things necessary for a sharp rally are present.

Harsh decline in CS reversed and went higher.

Large drop in US futs turned up and rallied.

Oil ripping

Bond yield collapsing

Dollar finally weak

Natural gas plummets

Over the weekend Ukraine went on another offensive and made gains in Kherson. It appears Russia is having a difficult time coping with US weapons and a motivated Ukrainian army. The market, for whatever reason, is more or less pricing in an end to hostilities. I don’t see it that way. The more success Ukraine has on the battlefield the more Russia will escalate in order to negate it. We are at least 1 year away from this war ending, since both sides won’t quit and both sides have plenty of men and equipment left to wage war. Therefore, pricing in a collapse in gas seems pre-mature, especially since there is no gas for Europe and 21% of their energy needs are from gas.

Or is the market pricing in the end of gas altogether? If there is no demand for gas, since the pipeline is broken, perhaps Wall Street views gas as the “persona non grata” for the energy markets now. We have bids in oil, uranium and coal — but not gas.

At the open of trade, I was drugged up on some cough pill Mrs Fly attempted to kill me with last night — so I just sold everything. Good thing since I was heavily short, but ended up 50bps thanks to a quick morning drop and I had 10% in GUSH.

The Quant for September is out and it’s off to a fast start, +300bps.

My opinion on stocks is simple: news aside this looks good. The mechanics of the market are working in favor of a continued rally. I just don’t like the willful ignorance of natural gas being down, or perhaps I am missing something here.