Markets Surge Off Evergrande Non-Event — All Eyes on FOMC

This wasn’t hard to forecast. We live in an era of bailouts. There wasn’t any tangible pressure on high yield or even junk. As a matter of fact, the LTSA index is at record highs. This does not mean the markets are great and will keep going up — but it does mean we are NOT on the verge of a systemic collapse due to Evergrande — who of course will be bailed out if needed.

I sold out of my leveraged ETF positions at the open and switched to mostly stocks, up 150bps with 55% cash. We have the FOMC talking at 2:30pm and they’ll be talking taper — so this can hurt markets if words are now to the liking of those with the levers.

Presently there is a lot of sideways movement after the initial burst higher. The Dow is +350, Nasdaq +100 and I suspect we will remain range-bound until Powell gets on the mic.

NOTE: We have been in an extremely oversold range in Stocklabs for a week and our Intelligence algos suggest higher prices lie ahead. This is not a holy grail — but data based upon our technical readings during previous tapes similar to this. Whether this plays out like before is up for debate.

We had a nice move going around 2:45pm but it dissipated into the final half hour — as people got flat ahead of Asian trade which I still believe will be a non-event.

We are now coiled tightly and anticipation is in the air and most want to see Evergrande dealt with one way or another this week — which should pave the way for a clear and concise and resolute direction for stocks.

For the session, I closed +45bps with 32% cash, heavily long in all 3x upside ETFs.

There is a big move coming in markets — as we tightly coil and cavort into the close. All eyes will be on Asia tonight, with specific notice into the shares of Evergrande and Sunac — as CDS for both scams run higher the world will look on to see if Xi will backstop it all and take control of the situation or let it fester and collapse his fucking banking system.

Clearly, he’d be a fucking lunatic if her permitted FREE MARKET CAPITALISM take hold in his command economy. This is why, and this goes without saying, I am directionally very long — but with cash reserves, into what I suspect will be a fork in the road for the markets in 2021.

I am about 40% cash, +50bps, reticent to buy now and reticent to sell now — patiently waiting in the tall grass for a zebra to eat.

My friends at Zerohedge are still trying to scare you out from your shares, as the Evergrande non-story just won’t go away. I suspect either tonight or tomorrow we will have resolution in China and be done with it. Meanwhile, investors are on edge and I suspect it’s more of a seasonal thing more than anything else. People love to find reasons to panic and I’d be lying if I didn’t say I am bemused by all of the youngsters out there hoping and dreaming the Fed and the cabal are losing control.

I’ve traveled down this road innumerable times and the Empire always wins, so take it from me and stop betting on collapse.

We had collapse last year March. The entire world was shut down. And then we had the best rally known to man.

Biotechs are best in show today, as customary in bounces. I am not playing individual stocks on this move because I want to ensure no mistakes are made. I am playing this via ETFs and using Stocklabs to time my buys. I still hold more than 50% cash and I didn’t sell this morning and I wasn’t scared we’d reverse down, since that’s what all the cash is for — buying into the blood.

All day long I heard people say “this is it — this is the big one” based upon an event in China that has been telegraphed for months. Fuck off — this is not how black swans work. This is not Lehman or Bear — this is a giant Nothingburger.

How do I know? Because it is.

This is drama for the cannon fodder. Go ahead and confuse yourselves and trade both long and short. Let me show you my charts.

Inside Stocklabs, the % of large cap stocks collapsed to just 8.5% at the session lows. The RARE Hybrid 12 mo OS signal flashed too and then we bounced like a motherfucker into the close — posting 9 or 10 straight candles in a row.

The last time Stocklabs ranked less than 10% of large caps bullish was 7/19. See the results?

Moreover and this goes without saying, initiating shorts with the VIX +35% for the day is fucking retarded. We can gap down tomorrow, of course. But are we likely to collapse the open based off news that can be neutralized with one presser from the CCP?

No.

I added to my upside ETFs today, holding more than 55% cash and I will deploy it all tomorrow, should be drop again.

As we speak, investors are being packed tightly into train cars en route for VIX camp. I understand it’s quite wonderful and all of the people onboard the train have been assured by the train drivers that “VIX CAMP IS GREAT — free food and showers and a nice warm bed to sleep in, in addition to ample opportunities for work.”

Markets are shattered lower, with the NASDAQ off nearly 400 and everyone I know believes this is it — the end.

My only problem with this train of thought is the fact that, pardon me, but every single banking crisis since 2008 has been met with feverish central bank rigging. Oh, I bet you forgot when capital flows out of China were cause for pain and the Yuan was called into question and people sold down Asian stocks as if they were valueless.

Perhaps we are early in this rout and it is September, so there is room to breathe lower. But I am a veteran by now in trading market crashes and this does not have the hallmarks of true panic yet and I have PTSD from a decade plus of rigging, so pardon me as I express my wariness when I glance at your puts and your bulking VIX calls and see fire in your future, for the Chinese are not a free market and the Chinese are not going to permit $300b in debt go unattended — wreaking havoc on their banking system.

Worth noting:

Evergrande is due to pay $83.5 million interest on Sept. 23 for its March 2022 bond. It has another $47.5 million interest payment due on Sept. 29 for the March 2024 notes. The bonds would default if Evergrande fails to pay the interest within 30 days.

I’ve written that exact headline countless times since 2007. China is always collapsing, yet never actually collapsing. Today’s latest salvo into world ending financial apocalypse in the “this time is different” narrative is EvErGrAnDe — big dumb HK developer whose business is 100% fucked and so are their creditors. Wow, I guess China and HK will just let this one fall thru the cracks and collapse the entire country with it, yes?

Evergrande employs 200,000 people and has $300 billion in debt and its stock is at new lows and barreling to zero.

This did not happen overnight and people in the industry knew this was happening for months. Why is this important all of a sudden? Who fucking knows? Maybe now people felt like it mattered and now we’re all so scared, with Dow futures HAMMERED INTO DUST -600.

Nevertheless, I think it’s important to understand that this is too big to fail and China is more than likely to bail them out soon. In the interim, perhaps we can gin up some more fear in order to get the blood pumping, prepare for a seasonal September collapse followed by an October bump.

Early going both PUK and CS are hammered and I suspect if this drags out we’ll start to hear of exposure and who stands to lose, which I think is just about every major bank and insurance firm in the world.

The risk of shorting too heavily into these sort of squalls is we already knows how it ends: one giant bailout and massive rally to celebrate more central bank rigging.

Back in the early 2000s I recall people being very divided over the War on Terror, with most right wingers wanting to “turn the Middle East into a parking lot” and the left being very anti-war. The divisiveness was almost as bad as today. One thing is indelibly clear throughout history, spanning back decades and decades and decades, is people are often archly divided over important societal topics. I used to collect old newspapers and spent hundreds of hours reading the commentary from the 17 and 1800s and can tell you people in the United States were very much against the Revolutionary and Civil Wars. Why, Canada was a supporter of the very “Racist” Confederacy, citing Union imperialism as something of a wedge between the two young nations and preferred if the South had won the war.

Just last year we were very divided along racial lines and today we are very much divided on the most absurd and obscene thing imaginable: who is medicated and who isn’t.

I don’t pretend like others to think people will ever unite and push back against the evil and corrupt governments because as bad as they are — what is the alternative? Show me an alternative and perhaps I can support it. Until then, we degenerate and inflate and debase and degenerate and slip and fall and speed towards collapse.

This collapse I speak of might not happen in our lifetimes and it’s important to understand how these things play out, slow and methodical but almost assuredly final. Whatever replaces this system is bound to be worse and by the looks of all of the great many resets taking place, I think it’s safe to say people who were lucky enough to grow up and play ball in the streets during the 1980s were not only fortunate, but blessed.

Our world is very connected now and information is free — but we are very quickly heading towards some sort of dark and twisted upside down world where narcissists with God complexes pervert the truth and censor it and hide it and invert it all for some grim future where all kneel to idols and comply with government demands.

No and no.

With that, I bid you adieu for the evening. I have a vodka and tonic waiting for me and a full day ahead of feverish trading, as I attempt to recover from a rough start to September.

I did a lot of soul searching today and spent most of the day short — but switched to heavily long around 3pm, as markets stabilized and began to uptick.

I closed the session more or less where I started, +58bps, 40% cash, and long an array of upside ETFs intent to profit from what I view as an inevitable bounce.

We had strong penny stocks today, weak in almost everything else. There were small pockets of strength in so many different places. But I didn’t expect to catch lightening in a bottle via individual stocks, as the prevailing trends has been to fade rallies. You get into a stock +7% hoping for it to run another 3-5% and next thing you know you’re kicking out a 2.5% loss. The one’s that do run and rare and not too predictable — stocks like HLBZ and LGHL.

China stocks are in a bear market and we saw the hot commodity sector take a breather today. I was somewhat constructive because SAAS was solid most of the session and the afternoon buyers showed up with zeal.

Bottom line: I closed the week up, not too much, but up nonetheless. I am a streaky trader and can go on long periods of wins without drawdowns and I am hoping this is the beginning of many weeks of uninterrupted success. I felt in control and on top of the market for most of the day.

Have a good weekend.

The data is clear. Sell in the pre-market or as soon as the market opens and escape the hellscape of this chopped up tape.

Here is the hourly seasonal data for September, courtesy of Stocklabs.

While it’s true we are OS and I very much rely upon these mean reversion algorithms for my trading, my eyes do not lie when I view 0% breadth today in a sundry of industries.

Because of that, amongst other things, at the moment I an 78% cash and the rest short via inverse ETFs. This could flip on any uptick and I am not committed to selling short in an oversold tape. Nonetheless, and this goes without saying, trying to manage longs in a tape with just 16% of tera caps up for the day and about 50% of the pennies — it is hard. This has been brutal for anyone chasing momentum on an intra-day basis and it’s not too late to start practicing a more swing trading stratagem, whereby selling at the open is the preferred mode of management.

I think at some point we have a ripper in this tape — maybe a 3% day. But on a Friday following a week of chop and an array of industries at 0% breadth, I do not think it’s happening today.