Extremely Bullish Price Action

We shot up as soon as markets opened in classic ‘fuck you’ fashion. This is why I often liquidate all opens, since trends are countermanded at a drop of a hat, only to later on resume.

My thesis heading into today was a down open. I got it and covered some my shorts and then followed up by selling my longs. I did this whilst replacing them with TNA for simplicity purposes.

The price action is bullish and I’ll try to refrain from meddling in my own affairs today. I’m keeping two hedges in place: short euros via EUO and short bonds via TMV.

The fact that the dollar is strong makes me uneasy about being too long, so I’ll likely keep my 75% cash position intact.

+85bps early going.

UPDATE: upon publishing this, we collapsed the open. Go figure.

After the morning drop, markets bottomed as they normally do around noon and proceeded to go higher for the balance of the day, up until the last 10 mins.

Was this a win? The NASDAQ fell 27. I’d say this was a fine day, when considering the NASDAQ just rose 5% over the previous two days. I tried to establish a mental ability to be net long — but failed. All of the data I could gather pointed to a down Thursday and down Friday. Seasonally, according to Stocklabs, both days are the worst days to be long. Of course this trend doesn’t mean it can’t rest or reverse — but it’s a trend nonetheless.

The three things I have been watching closely: CS, bonds, euro — all went lower. Ergo, I carried a net short position into tomorrow — based on the fear if they continue lower tomorrow the market might not be as forgiving as it was today.

I am most bearish on banks and healthcare and indifferent on energy. They look good and the narrative is strong — but they’re overbought here. I’d also like to note that the commodity trade has been a bust for months, which makes me call into question the validity of how dependent we are on Russian commodities. For every shortage panic we hear about, nothing ever happens.

I lost 22bps today, up around 1% for the week. My bias is to be short, so naturally it’s quite an achievement that I even have some gains all things considered. Even so, to be bearish the first few days of October was to be wrong. It felt fine shorting into holes during September but everything seemed to flip with the new month, psycho Wall Street style.

BOTTOM LINE: My bias keeps me going back to net short. My fear of traders buying morning dips keeps my short positions relatively small. This dichotomy has led to me trading small and hedged. The NASDAQ is lower 16% from July through August and now with a 5% uptick into October — color me skeptical in regards to chasing here.

This is an interesting set up. We bottomed out early morning and have been trending up in the face of what appeared to be a harsh revoke. As it was setting up, I closed out both UVIX and SQQQ positions and bought some GUSH. I am flat for the session — and have recently added TMV, more short euros via EUO and traded in and out of VLO for the session.

The reality is this.

Risk stocks are still down 2% for the session.
The US 10yr is +15bps
The Euro is down 1.18% v the strong dollar
CS is down 6.8%

Add to that the fact oil is bid higher, we have a developing narrative of inflation again, which we understand is a negative for stocks in the short term.

All of the things that red flag for a down market are present today — and it’s worth noting in spite of the recent hour or so rally — we are appreciably lower. There is a desire for markets to rally on all days by the PERMANENT BULL class of investor — but some days are just lower.

On a side note, after some studying of my entry and exits, I’ve decided to leg in smaller — at 2.5% of assets unless extremely confident in the position. My normal position sizes are 5% and I will at times increase it to 10% and on rare occasions higher. Generally speaking, my trades work — as proven by my returns. However, due to the volatile nature of these moves, coupled with the fact that at times my ideas are good but my timing off by a little, I’ve decided to leg in smaller at 2.5% with full intent of increasing to 5% by session end.

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.