Markets Do Not Bottom on Fridays

Markets are pricing in a definite rate cut in September, buttressed by today’s weak NFP numbers.

And we are beginning to price in nearly 6 rate cuts from now until March of 2025.

Either way, we are pricing in significant Fed rate cuts and that’s interesting because the only reason we’d do that is if the Fed thought we were heading for recession. Look at the banks, hammered down 10% in the past week, which should not happen as their treasury holdings rise and the economic environ, based on recent data, is fine.

Heading into the weekend, we venture into the specter of a war between Iran and Israel, which is not being reflected in the oil markets. We have seen a massive rise in the VIX index, up as much as 60% earlier today, suggestive of a panic into puts as asset managers scramble to hedge. Intraday, markets looked like it wanted to bottom and then traders remember today is Friday and markets don’t bottom on Friday and black Monday can in fact loom.

Thus far, we have massive damage in various industries OFF THE HIGHS and the technicals are very weak. Our mean reversion algorithms in Stocklabs are now “clustering” indicative of a momentous change in the candor of the tape. If forced to bet, I’d venture we have some more downside left. Bear in mind, the valuations in the semis were extremely overvalued but now they’ve moderated to the point that they are cheaper than last year.

Look at the losses.

Off from 52 week highs:

$SMH down 24%
$KWEB down 21%
$JETS down 20%
$IBIT down 19%
$XME down 11%
$QQQ down 11%
$KRE down 10%
$IWM down 8.5%

If you are buying here you’re assuming the economy is not heading into a recession and that the margin call infused selling will exhaust itself and we’ll quickly ramp higher. If you’re selling here, you’re thinking where there is smoke there is fire and the reason why all of this is happening is because the economy is much weaker than the umbers suggest, akin to what the CEO of $W said yesterday during his call, comparing the present credit environ in home good buying to the financial crisis of 2008.

The magnitude of this decline cannot be minimized. We have BIG ARROW MOVES lower in every facet of the market with exception to consumer staples and gold. The old man stocks are rallying, as money rotates out from $NVDA and into $MDLZ.

We have an utter collapse in interest rates, with the US 10yr at 3.84% down 13bps.

WTI is down 3%.

VIX is +15%.

And the fucking NASDAQ is down 2.5% with the Russell even worse at down 3.6%.

This is what nightmares are made from, the sort of panic you’d hoped to skip out from and always knew it was coming. The good news in all this is there is violence in the tape, wild and erratic movements that lend itself to capitulation. What you want to see in a bottom is apathy and then panic, leading to very violent moves in stocks that had nothing to do with the overvalued condition of $NVDA and other tech stocks. Everything is being sold and it’s a Friday with war looming in the balance and there is $809b in margin debt fueling the kindling for these fires.

Unfortunately, I decided to NOT HEDGE yesterday, out of all days. I sit here a mere mortal like you taking blows down 185bps and I dare not move. I am scared to buy and scared to sell. I might hedge on a bounce, but nothing too big. The tape reminds me of capitulation; but it could get worse before it gets better.

I shed 1.63% today, white knuckling 25% inverse ETF swing trades in an attempt to smooth over the losses. At my lows, I was down 2.3% and then we ripped 10 green candles in the close and now sit here and wait for $AMZN and $AAPL to report quarterly results.

I did not hedge into the close because high beta stocks were routed for 5% and if the earnings are good tonight, we’ll go right the fuck up tomorrow. If trying to ascertain my true feelings on the tape, you’ll have a hard time nailing me down because I change with the winds of the market. I have convictions and like things under normal circumstances but I don’t view anything about this timeline to be normal and because of that I am almost always on guard for risk.

A younger Fly would be in a car racing for the sun, with dynamite in tow. But as I get older and realize the true nature of things, I carefully curate my positions and try to make sure my ego doesn’t meld into financial advice, the things I’ve learned along the way.

My hunch is for a bounce. Let’s see.

It wasn’t supposed to be this way, but it is. We have a bonafide rout on our hands and we cannot stop the selling. The SOX is down 6% for the session, NASDAQ down 2.3% and the Russell down 3.4%. The regional bank index is off by 4.5% and the volatility index is up a rather genteel 11%.

The impetus is multi faceted, but mostly fears of war with Iran, Kamala up in polls and a general disdain for stocks and people forced to liquidate due to margin calls.

Margin debt in the US stands at $809b, +15% from last year.

I’ve been patient with trying to give this market a chance to bounce but the selling has been relentless, unending momentum sharply to the downside. It would BEHOOVE you to believe this is a one off event and how the US 10yr plunging below 4% is a good sign. In fact, secular and consumer staples and utilities are strong, alongside treasuries, in a classic risk off tape. Do not misconstrue the old bull market for this new bear, as it’s claws scratch away at your face cleaving out your eyeballs leaving you to toil about the market without your senses, off balance and staggering towards a cliff.

Hey, it looks like communism is on the table. Recent polling data and betting markets has Kamala winning this fall, in spite of Trump visiting the black journalists organization in Chicago yesterday, describing in great detail how much of a friend he is to the black community. I am sure the blacks will spill out in droves this November to vote for him instead of the very obviously Indian Kamala Harris.

As such, markets have begun to price it in, with the $KRE leading to the downside, HAMMERED by 3.3% and the $IWM leading lower by 2%.

In case you’re wondering, the $IWM was up a mere 0.58% yesterday, which means all recent buyers are currently fucked. Perhaps Trump will do a better speech today to elucidate his fealty to “black jobs” and assuage Tyrone to campaign for him, in this most important election of all time. Out of all of the elections, this one, unlike all others, is most important. I’m afraid if Trump doesn’t “get in”, the country will become communist and all of the Marxists will draw from their lists, people like me and you, and summarily execute them. They’d be smart to get rid of me, since I will always be a thorn in their side, needling them whenever I get the chance. It’s just the sort of person that I am, altruistically agitating for the sake of causing trouble and trouble alone.

Moving on, market breadth has collapsed and it appears nothing but red is on my screen; but do not rule out an absurd 15 green candle afternoon spree out of nowhere just to fuck with you. It is because of this idea I have been quit tempered with hedges and sadly have not permitted them to fully blossom in all of their grandeur. Ideally, I’d like to short this market to zero, perhaps lower. The only way to stop them is to take all of their money, which is virtually impossible because they have all of the money. Even still, it’s fun to pretend.

Everything I did turned out to be wrong. Trading against a fully long portfolio I had an oversized $SQQQ position into yesterday’s close and was delighted to see my fortunes shine as $MSFT dove lower and my shorts increased in both size and girth. As time went on the fucking semiconductors went up and took the entire market with it. By the opening of trade I had losses of 35bps but maintained equanimity and vacillated between a tight range heading into the Fed.

Just before 2pm, I began to buy on market, having already closed out my $SQQQ for a horrendous 8.5% loss. The new longs I bargained into jumped higher and this success caused me to buy more and increase the size and girth of my holdings. After the Fed announced and Powell spoke we had a brief sojourn lower and so I bought more, leveraging myself to 155% equity.

Markets lit up and I greedily shone with excitement, feeling rather good about myself, content. I recall feeling somewhat intelligent, having cleverly navigated a tape that cooked me early. I was in fact doing the cooking now, roasting the testicles of the bears (PAUSE) and conjuring up thoughts in my mind of wanton success with markets shooting higher to the moon perhaps, maybe a bit further.

And then we CRACKED the fuck lower on news that Iran wants to attack Israel. At first I ignored it and then the candles got verbose, so I paid attention and bore witness to +135bps melting into +110bps and then +95bps and that irritated me because I wanted those gains. I thought to myself “hard to sell here after already giving back 50bps” and then we legged lower again, down to +75bps and then +55bps and then +40bps. I went to get some coffee and when I came back my gains had shrunk to just +28bps and then +10bps and then my friend called me and I took my eyes off the screen and during that time the stock Gods harangued me with the final dagger, sending me all the way lower and perhaps a bit more.

I closed down 65bps but it felt like I lost 50%. I had thoughts of completely quitting, furious with myself and the devils who could do such a thing to me, a fine person, both intelligent and empathetic, totally based. The NASDAQ closed +4.5% and I lost 0.65%, which could only mean I’m an idiot.

For the month the NASDAQ shed just 1.7% and I shed 1%, subpar, mediocre, nothing exceptional, dim trading.

We’re waiting for the FOMC to green light rate cuts, especially after better than expected results out from $AMD and the subsequent rally in the $SMH. Today’s +5.9% rally in the semis is a lot indeed, but not enough to negate the damage that was done in July. Overall the index is still lower by 6.9% for the month. The NASDAQ, barring a massive late day rally, will also close lower by about 2% for July.

It was a bad month for some, very good for those contrarians who bought the banks and the small caps. The Russell is higher by nearly 11%, $XLF +6.8% and the Regional Banks are up a staggering 19% for July. In other words, we are still very much in a bull tape, in spite of all of the doom and gloom broadcasted via the news.

Valuations aside, the recent downside in the markets were not supported by a fundamental concern. There was that $AMKR miss and collapse and the fear that maybe the semis had topped in their business cycles; but you can clearly see markets are NOT pricing that in today, post earnings in a number of companies.

Heading into August, I expect a mixed month, nothing to grandiloquent. We are in an election season and promises are being made and neither candidates offers dramatic change in the status quo, but simply a matter of optics and whether you’d prefer to hear a cackling Jamaican ramble on endlessly about coconuts or an aging tycoon talk about how wonderful he is and what a great job he’s doing for the country, while playing golf all day.

I grew up a NY Mets fan, foisted onto me by my Grandfather who was originally a Brooklyn Dodgers and NY Giants fan. He grew up in Harlem, NYC and once shined shoes for the NY Yankees, including Babe Ruth; but for whatever reason chose to be a contrarian and root against them. He wasn’t a rabid fan, meaning he wanted to see the Yanks do well too and would watch all of their games in addition to the Mets; but he favored the Mets.

But that’s not how I was growing up or anyone else who rooted for the Mets in the 80s. I hated the Yankees to the point where if I met a Yankees fan I hated them too. The first thing anyone would ask each other when meeting one another as kids was “who do you like, Mets or Yanks?” When I met a Yankees fan I recall thinking “he looks like a Yankees fan” and then figured out reasons to hate his guts. Fellow Mets fans were of course favored and we were the insurgents in NYC since the vast majority of people were in fact fans of the Yankees.

It was a cruel business being a Mets fan in the early 80s because the team wasn’t any good. Yankee fans would gloat and condescend to us, make us feel like our team would never win and then we did in 1986 and then we really dialed up the hatred and venom on our neighbors who were Yankees fans. We’d remind them that their time was over and it was our time to shine and say whatever we could to make them feel bad. We did the same thing to them that they did to us, and it felt good to be on top.

Some of my friends never stopped that battle and to this day hate the NY Yankees. I stopped caring about baseball back in 2008 and sometimes wonder how retarded I was to waste so much of my time hating the Yankees. But then I recall how evil they were and how they deserved my hatred, because their team always won and got all of the money they needed to acquire top tier talent.

I can watch the Yankees today and even appreciate them from afar, as I am not into baseball anymore. My adult form of sports has switched to politics now and I’m once again a NY Mets fan, contrarian in the woods looking out into the city where the city folk are sipping on their fucking lattes and I hate their guts for it.

Before I get into $MSFT, the story of $CRWD is an interesting one in that it’s likely going to be a terrific buy soon. I know your plebeian emotions belies in justice and that Crowdstrike will be punished for their crimes; but none of that is going to hammer is corruptible Pax Americana, the death of an Empire edition.

They are as deep state as they come and they’ll be settling their suits soon and hire McKinsey to tighten up the ship and live happily ever after.

On the issue of $MSFT and it tanking in the after hours, the numbers aren’t bad at all.

Azure and other cloud services revenue growth of +29%, +30% constant currency vs +30-31% CC prior guidance
Intelligent Cloud segment revs of $28.5 bln vs $28.4-28.7 bln prior guidance.
More Personal Computing segment revs of $15.9 bln vs $15.2-15.6 bln prior guidance.

The other important number was out of $AMD and it hit and the stock is +4%. We have $ARM, $LRCX and $META coming tomorrow.

The initial reaction to Microsoft is tankage in $AMZN and $META but I suspect it’ll moderate. On the whole, the market is once again sickly and spread thin across defensive sectors and banks. We are in a rut and in order to extricate ourselves we’ll need some speed.

I finished the session down 19bps but made it all back in the after hours due to my gigantic 17% $SQQQ positions crossed against a leveraged portfolio at 151% equity. I cobbled together various defensive stocks and war time stocks just in case the Middle East heats up with the escalatory action in Lebanon.

Shares of $AMKR are down 20% today post earnings and that’s probably the reason why the $SMH is off by 3%. If you didn’t know, and you probably didn’t because you’re stupid and lazy, Amkor designs, tests, and packages wafers. If you think about the semiconductor industry you have to think about the entire supply chain. The silicon is mined and sent to a foundry to create wafers. The wafers are then inspected and tested for quality, packaged and sent to another foundry where chips are created. Those chips are sent to places like $NVDA and $INTC and they’re sold to various other companies. So a company like $AMKR, although small, is often viewed as a forward looking indicator in the semis and there are several companies that posses this distinction, one of which used to be $KLIC because they make the gold bonding on many of these chips and when they warn this means the entire sector is about to suck.

See if you actually read stuff and didn’t just look at charts like fucking morons you’d know things, possess a modicum of intelligence.

Another semi miss last night was $LSCC, also down nearly 10%. This is less important but the overall fear now is “have the semis topped?”

We will find out soon with earnings coming out of $AMD tonight and $LRCX, $QCOM and $ARM tomorrow morning.

The $SMH is now down 11% for July, down 20% since the highs. There isn’t anything remotely interesting about this technical set up and has the flavor of doom written across it.

A catalyst, such as BETTER THAN EXPECTED results, could be the impetus to reserve this trend. But it’s always riskiest and scariest to sojourn into fear during these vantage points and you need to possess complete conviction in the idea that in spite of the valuations and the trends these stocks will inexorably trade up based upon whatever theory you have. I do not have such convictions and would prefer to play the outskirts of this battle, instead of being in it and getting my hands dirty.