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12/5/21
STOCKS – ROKU, TSLA, AMZN, SQ
MACRO – SPY, QQQ, BTC
- RTM: Global Market Deleveraging Event Is On The Horizon As Market Prepares For Faster Fed Taper
- RTM- Market Has Woken Up To The Reality
- RTM- Snapback From Oversold
- RTM: The Fed Is Tapering Into Slowing Growth Narrative Has Arrived
- RTM- Taper Still On And Is Not Going To Sit Well With Stocks
- RTM- Replay Of Live Session
FREE VIDEO: A Massive Deleveraging Process May Be Set To Begin For Global Markets
MICHAEL KRAMER OWNS SPY PUTS
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN TSLA
The S&P 500 fell by 1.2% the week ending December 3; it could have been worse if not for a near 80 bps rally off the lows in the final 15 minutes of the day. The rally coincided with a sharp move lower in the VIX, which probably suggests many traders closing out profitable put options and a short-covering rally ahead of the weekend.
S&P 500 (SPY)
From a bullish perspective, the 4,500 level did hold, and as I had noted throughout the day on Friday, that was a critical level, that once broken, will lead to a flush lower to about 4,360. There is a clear downtrend in the market, but a rally back to the trend at 4,600 can’t be ruled out. However, the S&P 500 is very far from even being oversold, and given the developing change in Fed monetary policy, the risk is further downside. As I have stated more recently, it seems highly likely that the highs for the year and potentially the next few months are in.
The change in Fed policy for faster tapering will lead to even tighter financial conditions, making it very difficult for the stock market to advance. I have been telling you for months that the Fed taper would tighten financial conditions and that, coupled with slowing earnings growth, would lead to multiple PE contraction. That is what is now happening. The faster the Fed tapers, the worse this experience will be.
Financial conditions have already tightened by nearly 13 bps over the last 21 weeks. While you will read in other places that financial conditions are still easy, which they are. It isn’t about the actual financial condition; it is about the absolute change in those conditions over time. The chart shows when financial conditions tighten by about 10 to 15 bps, it is accompanied by a market drawdown. The more the conditions tighten, the more significant drawdown.
As I talked about in my premium commentary this weekend, conditions based on several factors only tightened further this past week. Given the speed at which the bond and currency markets have re-priced and will re-price further, rallies in the equity market are likely to be sold relatively quickly as markets look to deleverage. All you have to do is look at the TLT/LQD ratio to see why the VIX is rising so sharply and why it may not be so quick to come back.
That means if you are “buying the dip,” you do so at your peril because the VIX is a critical component of why “buying the dip” has been such an easy trade. As I warned in October, the market dynamic for buying the dip has changed. (Should be free: Buying The Dip Is Dead)
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future results.