The Ever Shifting Narrative Shifts Again

Equities start the day lower as the ever shifting narrative shifts again. You know what’s frustrating? Other than snow on Monday and 60 degrees on Tuesday? Going from a bull to a bear, something I’ve done recently. It’s that being a bear is the frustrating part, I think my reasons for switching sides were sound (global slowdown, earnings recession, tighter financial conditions, Fed at the start of a tightening cycle), it’s that the market doesn’t care what you think, it doesn’t operate under the notion that any of what I just mentioned matters. It will always do its best to frustrate / punish the maximum number of people at once and whoa nelly is it doing that right now. The prevailing narrative to end 2015 was “slow growth but we’ve had that for awhile so the market is fine”. Then 2016 shows up and the bottom drops out, all the fears get magnified and recession calls become voracious (thankfully I wasn’t in this camp). But you know what?  The negativity down at 1,850 was too much, it was too chicken little, it caught very smart people leaning the wrong way (including me) and now it’s hammering all of them plus more.  Should I capitulate and say “I was wrong, it’s not a cyclical bear market”? Not yet, but I’m close.  My favorite trend measure is the 10 month MAVG so take a look at it here. It back tests really well, there are very few head fakes, so to me it represents the best way to look at the big picture.  If we break back above the 10 month, and hold a retest, then I was wrong about switching camps. I will show up here, admit it, and tell myself “you are an idiot”.  Until then it’s entirely possible we are seeing a counter trend rally and eventually the malaise will return and markets will grind lower.  Big rallies can happen in a bear market, it’s not unusal (old link, but still relevant). Anyway, it’s weird, I’ve been writing these recaps for about 6 years and never once took the bearish side. 6 years. Never once called the market a bubble or spouted a bunch of “the Fed is evil” blather. So what happens when I finally switch sides?  This.. Ugh. Is Game of Thrones back yet? I feel like Jon Snow right after the last pow wow with his Night’s watch bros…

After the open I was filled with outrage from the moment the bell rang. Wait..why so angry Michael? Was it the continued bounce in energy? The fact that the market only goes up now? The odd strength from Utilites and Telcos? Nope, none of those, I was outrage at this. I mean…I’m speechless here. You are telling me that baseball hats with curved brims are now DAD HATS?   Like only a DAD would wear a baseball cap how it was meant to be worn? I’m angry, I might write a letter to someone, I’m just don’t know who to address it to. Anyway, we rallied from the overnight lows because the market is STILL washing out everyone who was a bit too bearish on the lows.  Energy was once again the bigger winner and if you own any of these single digit names like TDW or WLL or SWN you are seeing CRAZY moves lately. Your favorite name moved +15% on a Friday? Sure, no sweat, Monday might bring +25%. Bespoke even looked at how single digit stocks have moved sincethe Feb 11 low and it is out of this world.  Why are they moving like this? Because NO ONE OWNS THEM. Look at the last BAML fund survey, they even said “contrarians would go long stubborn short positions in Energy, EM, Materials.” Losers were Tech and Consumer (primarily NFLX and NKE). By lunch we were grinding around on the highs, 2,006, up about 0.3% as the squeeze continued.

We sold off after lunch but bounced in the final hour to close at 2,001, up very slightly on the day. So I guess the big question is this:  where can the market go now? You know the least crazy answer might just be “nowhere”. We spent the better part of last year going sideways and it’s not out of the realm of possibilities that we do it again. Selloffs down to 1,900 when fear takes over and rallies up to 2,000 when hope trumphs. Rinse and Repeat. The economy / earnings aren’t good enough for new highs yet they aren’t bad enough for new lows. Now those facts can change, so we need to be vigilant with the data, but for now it looks like the market has found a range.  

Final Score:  Dow +40bps, S&P500 +9bps, Nasdaq -19bps, Rus2k +113bps

News Highlights:

I have two awesome GoPro type videos to end with tonight

The first is a nice compilation of near death experiences.   All sorts of scary stuff

The second is just plain scary period.  Some guy climbing down a building using no ropes.  Ugh

Have a good night