Text Book Oversold Bounce

Equities start the day higher on a text book oversold bounce. I tend to write that sentence a lot in the middle of these “Let’s blow up the stock market” moves because they happen frequently. Down 2.5% on Monday? You bet your tootsies that futures will be higher overnight. But all it does is invite selling, no one is going to chase the market after being beaten into submission. You know how they say the “stock market is not the economy”….I hear that phrase tossed around a lot in financial circles. It never really hit home until the past month or so. I mean this is an epic disconnect in the United States right? We have PMIs still in the 50s, a strong to very strong labor market, consumer confidence near 100, housing prices that are steadily rising, home sales that are steadily rising, positive GDP, rising retail sales, and rising industrial production. Take a look at the Big Four Indicators on Doug Short’s website….none of those look all that ugly do they? Recession end bull markets, period. That is a true statement. So either the market is starting to discount a potential recession or this is just a really volatile correction in the bull market we all know and love. Which one is it….which one. I wish I knew, really I do. Maybe the fact that I made a real estate transaction is the tell here. I bought my first home in 2007 and my second in 2015. Feel free to send me hate mail, I’m sorry, I ruined it all. Did you know the Cubs won the World Series in Back to the Future 2 and that took place in 2015? No way that was just a fluke, get on the bandwagon kids.

After the open we headed lower because that’s just the way things work nowadays. “Oh is that a rally I see? Here, take $500mm worth of stock to sell, I’ll end this quick.” Unfortunately we are in a bit of a vacuum right now, earnings don’t start for a few weeks and macro data doesn’t seem to be having any impact at all. You think a 200k jobs report on Friday is going to stop people from selling Biotech and Materials? “Hey Joe, we printed 195k jobs again for the 80th consecutive month, maybe this economy thing is ok. Shut up Dave and puke out our hospitals.” Nature abhors a vacuum and in the absence of something meaningful like earnings everyone has taken to focusing on Glencore, High Yield debt, and sectors like Health Care and Energy as their tell. Icahn is all beared up…he even put out a video called “Danger Ahead”. Sounds like a great Bruce Willis movie title to me. Remember when bigtime investors got bearish over steak tartare and Dewars at Smith and Wollensky? Now they do it on Twitter and Social media. Embrace the carnage. Hey, one of my colleagues put together a list of names that FELL THE LEAST in the 2007-2009 “burn the house down” market (SPX fell 58%). Here are a few to whet your appetite: CMP, NFLX, EW, RGLD, KW, THOR, SWN, AZO, WMT, GILD. I guess if playing defense is your thing that’s a decent list to start on. Anyway, that small selloff was erased and the market actually ticked higher thru lunch! Angels we have heard on high…sweetly singing over o’er the plain…or however it goes. You know what I love about that song? You get to hear who has good lungs when you hit that GLOOOOOOOOOOOOOOria part. So many people who don’t workout.  By lunch we were up 4 pts, 0.25%, but it felt like a million.

Aaaannnddd you can probably guess how the afternoon turned out. Down and to the right, as always. Rus2k closed negative for the 8th straight day. Apparently eight isn’t enough (last time is happened was 2008). We did see a tiny, tiny rally at the last minute that kept us from another red close so we had that going for us.  Which is nice.  Look on the bright side, at least there’s only 1,884 points left before zero in the S&P! There’s always a silver lining! I’m guessing tomorrow is going to be awful…month end trading in a terrible month. Just feels like the marginal losers will be tossed on the scrap heap indiscriminately. We’ll see I guess.  

Final Score:  Dow +30bps, S&P500 +12bps, Nasdaq -59bps, Rus2k -61bps.

News Highlights:

• Succinct Summation of the Day’s Events: Morning rally off oversold conditions. Afternoon selloff because that’s not a good enough reason to go higher.
• Winners:  ESV, DLPH, TDC, AVB, EQR, RIG
• Losers:  UA, OKE, COG, KMI, PYPL, WMB.
• This is why we watch High Yield vs SPX (found on Twitter from Advisor Shares).  
• Update on the Wall of Worry here: “It's worth repeating that every recession in the past 60 years has been preceded by a severe tightening of monetary policy, which can be seen in a strong and rising dollar, high real yields, a flat to inverted yield curve, and rising credit spreads. Moreover, the past three recessions have been preceded by high and rising swap spreads (the swap market wasn't very active prior to that). Of all those preconditions, only  rising credit spreads can be found today, but as the chart above shows, they are not critically high”
• Time to revisit this link. “Fundamentals of a Market top”. Read it..digest it…ask yourself whether we are seeing all this.
• Price to Rent is what matters for home prices and Bill says its only back to 2003 levels.
• Ugh…let’s hope this doesn’t play out: As if September isn’t bad enough, to add insult to injury, it ends with what has historically been one of the most losing days of the year for the S&P 500. While March 30th has traditionally been the day where the S&P 500 has been up the least, 9/30 is tied for fifth at 38%.
• 10 Things Ben Carlson loves about Twitter. For me #6 is so true
• This AMZN Flex seems interesting right?
• All of these need to happen immediately.

Tonight I am ending with a couple .gif files. They are quick, to the point, and mind blowing.

The first is the strongest person I’ve ever seen

The second is something you’d expect at the carnival not a morning show.

Have a good night.