Things you need to know.
– Stocks SNAP their winning streak – It’s about time!
– You can point to 6 reasons why….Any of them work….
– The VIXY (Insurance Product) surges by 6% – Hello?
– Try Nana’s Cheesecake – this is one you’ll make over and over.
Stocks did WHAT? The VIX did WHAT? The Hooties did WHAT? Philly Fed President Patty Harker said WHAT? Nicky Timarous (the FED deep throat) published a story in the WSJ suggesting that the FED is WHAT? Zero Day Options – WT(?)… are those? Wait – could someone please tell me WHAT is going on?
Well stocks FELL – can you believe that? They were humming along, not bothering anyone when suddenly at 2:20 ….– the S&P breached the unchanged line and began to fall like a lead balloon – mins later they all jumped in…..seemingly out of nowhere – buyers seemed to disappear – well, not really disappear – they just all suddenly pulled their bids (almost in unison – which smacks of technology) and moved lower – leaving a void on the electronic order books causing the sellers (again automated) to go into ‘panic’ mode’…..
So here is how this works. The ‘smart logic algo’s’ (that’s the first mistake – calling them ‘smart’) do nothing all day but scrape the headlines from everywhere, the media, the papers, online, chat rooms, social media etc…They aggregate the info and then ‘decide’ what it means only to then make Pico second decisions….(a Pico second is one-trillionth of a second) and I’m pretty sure that someone is doing it even faster….as the modern computer that uses AMD, INTC & NVDA etc. chips can process ‘billions of instructions per second’. No matter – you get the picture right? So, when they find a headline that challenges the current thinking – they react – either positively or negatively – depending on what the computer ‘thinks’ is the message. (which is the 2nd mistake). So, hold that thought.
Then at the same time – Philly Fed President Patty Harker – who is NOT a voting member – gets on a radio show and shoots holes in the narrative…saying that while rates might go lower – it is NOT imminent…..saying ‘they should go down BUT not immediately’ – pushing back against this idea of March cuts….saying
“We don’t have to do it too fast, and we’re not going to do it right away. We should hold rates right where they are….”
Now – there are some that saw his comments as supportive of cuts while the algo’s found his comments ‘less supportive’ of the immediate cuts they want….and while the FED did send out Johnny Williams, Loretta Mester, Austan Goolsbee and Raffi Bostic – all voting members – their message was not strong enough or believable enough to change the expectation – partly because they are voting members and they don’t want to go against the chair…..Patty – is not a voting member – so he is not as constrained by those orders to ‘fall in line’ his comments may not be as orchestrated.
And then we had the WSJ story that suggested the FED is CONFUSED – does not know what to do…. leaving the idea of an immediate rate cut in jeopardy. Saying that the FED is in a no win situation…..Recall all of the most recent rhetoric coming out of their mouths….JJ says rates are going lower and then 5 of them come out and say – ‘well, maybe not…’ as they try to push back on the latest narrative….
And then we had the negative FDX and GIS story…. all about weakening demand and lower guidance.…sending those stocks down 12% and 3.6% respectively leaving many to ask – is that what we are going to hear in January when the next reporting season begins?
And then we have the Hooties – You know that Iranian backed terrorist organization – over in the Middle East – that is trying to shut down the Suez Canal – causing all kinds of disruptions from oil to cargo in the Red Sea. Raising the geo-political temperature as well as the supply chain temperature…. Today’s WSJ’s front-page screams…
“RED SEA TENSIONS PUT NAVY, SHIPPERS ON ALERT”
Now that doesn’t sound like such a positive headline….
And then in a side plot – we found out that JoJo swaps ‘Fat Leonard’ – prominent money man for Nicky Maduro – for 10 Americans in a Venezuela fugitive swap….
And then in a reach – the options markets are saying that it was the expiration of ‘zero day (ODTE) options that caused all of the angst yesterday….Ok…sports fans – whatever it was, it was….point your finger at any of those headlines and you can craft a story about why stocks sold off….but if you are a long term investor, you remain unfazed….and if you are a day trader – you either got your head handed to you or you made out like a bandit….It’s all good….
And all of this sent the VIX (fear index) surging higher by 9.1%…. the higher it went the more stocks fell….and by the end of the day every sector in the S&P was negative…. The Dow had given back 475 pts or 1.3%, the S&P down 70 pts or 1.5%, the Nasdaq down 225 pts or 1.5%, the Russell down 38 pts or 1.9%, the Transports down 380 pts or 2.3% and the Equal Weight S&P down 110 pts or 1.7%. All while bonds rallied…the TLT up 0.7% and the TLH rose by 0.8%.
And guess what else shot HIGHER? The VIXY…it rose by 6.2% yesterday. Remember that ‘cheap insurance’ product I have been discussing that was trading with a 15 and 16 handle on it for the past couple of weeks as I warned of the risk of a headline coming out of left field that no one expected? Yesterday it closed at $17.40…..up 8.8% since I first told you about it….And it’s a simple product, not complex, not a straddle or condor or an Iron Condor or a butterfly and Iron butterfly or a married anything….It’s just a simple ‘contra ETF’ that allows you to bet on FEAR…….Now you could also have bot the SPXS -Direxion S&P Short 3x’s levered ETF and earned a paltry 4.2%….but I wouldn’t suggest that for everyone at all. It’s a ‘sophisticated product’ that requires diligence and real understanding of the risks of a 3x’s levered product.
And so, just like that – BOOM! Now look – in the end – the market has been searching for a reason to back off after the strong rally that has taken place, in fact some of us have been begging for a pullback…
Here was my appearance on the Big Money Show yesterday where we discussed this exact point…
https://www.foxbusiness.com/video/6343612736112
In the end – yesterday’s decline is nothing to get all worked up about – in fact, I would like to see it decline again, to do nothing if not shake the branches to see who falls out…just like we did in October….all of those guys that fell out, scrambled to get back in over the past 8 weeks – giving fuel to the most recent rally. Which is again why I say what??? Stop trying to pick tops and bottoms in your long term account – create the plan and then stick to it – talk to your advisor….get comfortable with being a bit uncomfortable….….tweaking it when necessary but NOT making daily decisions as if it’s gonna make a difference in the long term…It is not….
This morning – US futures are bouncing back….the Dow up 160 pts, the S&P up 22, the Nasdaq up 100 and the Russel is ahead by 18 pts….as the mood goes right back to ‘we don’t care about all of that’ we remain convinced that the FED is cutting rates in 2024….So just as quickly as the algo’s react – the can change the narrative again just as quickly…and remember – we are now officially in the ‘holiday zone’ – many people are out of the office, leaving the computers in charge – I discussed this with you over the past week….I told you to expect ‘exaggerated moves’ and yesterday we got an exaggerated move and I suspect we will get more by year end…so again – don’t let this action send you off the rails….Call me to discuss.
Eco data today includes –GDP, Core PCE, and the Philly Fed Business Outlook. Friday brings us the PCE Deflator and Personal Income and Real Personal Spending.
Remember – the next two Monday’s are holidays – so, a lot of people will not be in the office towards the end of this week…so expect the algo’s to take control – which means we could see exaggerated moves in either direction – depending on what the algo interpretations are……which also means that asset managers/portfolio managers will place GTC (good til cancelled) buy orders below the market and GTC sell orders above the market – to take advantage of those exaggerated moves (if they happen) while they are away from their desks…..
The S&P closed at 4698 – down 70 pts…..going from one century to another……as the angst took over…..This morning though it feels a bit better, but I am not convinced the pullback is over……It will be an interesting week ahead….and then we are in 2024 and earnings will begin….the slate will wiped clean and we get to start all over again….It’s an amazing industry and one that always holds (or creates) opportunity.
If you are invested – you’re good, if you have more money to put to work, be patient – don’t chase anything, let it come to you – listen to my appearance on the Big Money Show – Remember – it’s time IN the market not timing THE market.…. Call me to discuss. 212-381-6194.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
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Nana’s Cheesecake – Dessert time!
I’m running with this again because a reader asked me for it…so here it is…
This is one of my favorites.… easy to make dessert for the holidays. This recipe once again reminds me of my grandmother – It will bring a smile to your face and will quickly become a staple on your desert table along with the Italian pastries – cannoli’s, Profiteroles, sfogliatella, parigini, pasticiotto….
Preheat oven to 375 degrees.
Crust –
1 1/4 cup flour, 1 1/4 tsp of baking powder, 1/4 c sugar, 1 stick of melted butter, 1 beaten egg, 1 tsp vanilla.
Put all ingredients into a deep-dish pie plate and mix directly with a fork. Once formed – using the back of a tablespoon – gently spread it out onto the plate and up the edges.
Filling:
16 oz of cream cheese, 2 beaten eggs, 1 c sugar, 1 tablespoon flour, 1 1/4 c whole milk (at Christmas – one of my readers replaced the milk with eggnog and loved it), 1 tsp vanilla.
Combine all ingredients into a blender and mix well. Now pour the mixture directly into the crust – sprinkle with cinnamon and place in the middle rack in oven. Bake for 35 mins…Remove – it will appear shaky…no need to worry….as it cools it becomes solid and creamy. Refrigerate and when ready serve just plain or with any fruit topping you like.
Buon App
