We’re Bouncing Again

Once again markets bounce after looking into the abyss. It’s common to expect a sharp uptick following an opening collapse. It would BEHOOVE you to maintain net short after a morning drop. In my experience, markets bottom in mornings and top out in afternoons.

What happens next?

I am 95% cash, 5% TQQQ for a trade, up just 18bps for the session. I have an aversion to markets and have been hesitant to risk much, because during the few times I have — I was entreated with knives to the face.

I do not think the selling is over, far from it. We are flat for October, even though it feels like we are down 10%. Until we see rates collapse and the Euro recapture $1.00, I’d be wary about tilting too far long.

For November, however, I am extremely bullish and think we can see a 5% rally, at which point you’d be wise to escape stocks into what I consider to be the worst tape since 2008 and is sure to bring both pain and suffering into the winter and beyond. We will likely bottom in 2023, although news on the ground can change that opinion.

In short, policy dictates price and right now the Fed is restrictive, so there isn’t much magic left in the tape. If the Fed pauses, we will see a magnificent rally for a day, maybe two. But the after that, all eyes will be fixed to CPI and GDP data and if they don’t align to the new reality of up stocks, disappoint will once again settle in.

Stagflation is a pain in the ass and this isn’t gonna be as easy as prior crises, where we’d just print money and reflate out.