The Great Unwinding

[CptTrips]

Whoa.  Went to go make breakfast, came back and the market had tanked.

S&P @ 3858 was a MAJOR, no... CRITICAL support level and the market just blew through it like cheap, wet tissue paper.  I was expecting a multi-day slog like it had at 4000.

If S&P can't sustainably claw that back, I don't see anything stopping it durably until 3000. (Maybe one or two sucker rallies along the way.)

If it gets to S&P 3000, by then the retail investor will have started to panic sell and the smirking buy-da-dip bro's on Redit will have had the arrogance beaten out of them.  They'll be quietly staring at the charts in disbelief.  The days of the Tulip bulb\Bitcoin\NFT and Redit AMC\Games Stop Apes are over.  It's time to learn about Moral Hazard and Hubris.  It's time to pump wealth from the pockets of Dumb-Money to the pockets of Smart-Money. 

It might pause at ~3000 while the muppets wait for the Fed cavalry to ride over the hill.  Nope.  Not this time.  The Fed isn't going to lift a finger until inflation is down to 3-4%.  How long do you think THAT'S going to take?  The stock market will be rubble and burnt corpses by then.  If it gets to S&P 3000, I can see a reasonable chance it eventually gets to 2000.

What is interesting is watching how placid the VIX is.  That suggests to me that the smart-money know EXACTLY what is happening.  Knew it for a long time, and this unwinding is organized and orderly and planned and programmed into the algo's. Smart-money is not panicking.  Smart-money is harvesting dumb-money wealth.  Dumb-money still hasn't admitted to themselves what's coming. 

The trick is you can't let it drop too much too fast or too long or else you spook the suckers.  Stocks can't sell to themselves.  There has to be a greater fool who thinks now is the time to buy that dog-sht off you.  You have to ease off occasionally and let the muppet think the worst is over.  It's hit the bottom.  Now it the time to put in the last of the dry powder and buy at the bottom and recover everything they've already lost.  They are already imagining in their heads how they will brag to their friends about how they didn't panic and continued to buy low at the bottom and made a killing.  At that point a new crop of muppets is ready for harvest.  Every crash needs bag-holders for the smart-money to get out.

Casinos play games like this.  They cannot blatantly manipulate outcome of slot-machines (probably their biggest money maker.   Every tourist feels comfortable playing slots).  That's watched pretty closely by G-men and will bring serious punishment.  They don't have to.  They can track granny from Omaha and watch her plays slots though the night.  They can track how long she's played, how much she's lost, and know from models and demographics about at the time she is ready to call it quits.  Then out of the blue a waitress walks up and congratulates her for being the 10,000 pull on that machine this month and the casino is awarding her $10 is free tokens.  Now she has a second wind and decides to stay up past her 8:30pm bedtime to at least play out those free tokens before bed.  By 11:30pm she has not only blown through that, but another $80 of her own money before finally crawling off to bed.

You got to play out a catch with a little line occasionally to make sure you get them all the way into the boat.  Same with market sucker rallies during a crash.

Funny thing about math.  If you lose 50% in a crash, you then have to make 100% profit on what's left just to get back to where you started and break even.  It's a lot easier to lose 50% than it is to make 100% gain.  I guess that's where that saying comes from that you slog your way up the stairs going up, but jump out the window to go down in a crash.

And yes, markets always come back.  This one will too.  But it took the NASDAQ 15 years to get back to it's pre-tech bust high. 

I don't expect we will see Nov 2021 market valuations again until 2031.  Bag-holders get to hold all that dog-sht for a decade for no reward what-so-ever just to break even, or sell before 2031 and realize the loss.  Good luck with that.

This is all just my opinion of course.  I could be totally wrong.  There is a non-zero chance of a strong bear market rally at some point that might last a month and claw all the way back to S&P 4500.  It won't break the resistance at 4600 though.  It will then collapse all over again, and again until the muppets learn the object lesson.  IMHO, this will continue until the market reaches historically reasonable valuations or until the Fed sees inflation at 4%. 

Sorry for the long read, but I had to get most of what I wanted to say out in the first post. 

Eagler will lock this thread in 3....2....1.....

[decoy]

I don't know who said that the true test of another man's intelligence is how closely his opinion agrees with your own, but I believe it.  Trips, we may disagree on other issues, but I think your market analysis is spot on.  Since the bear bust of 2008-09, the market has been one bull after another.  I've been expecting a drawback for a couple of years and if this isn't it, it'll do until one comes along.

But in early 2008 the S&P was 1300, almost unthinkable for the last 8-9 years, and it lost 46% of it's value before it bottomed between 6-700. 

I always heard something from my grandfather, but I never paid attention until my econ professor, and major advisor at school, said, "The bulls and the bears make money and the hogs get slaughtered."

If you're in the market and you don't have a broker who knows how to play both bulls and bears, you need a new broker.

Preach on.

[Eviscerate]

Eagler will lock this thread in 3....2....1.....

 

[Eagler]

I have not locked a single thread...I am not this bbs admin...

As far as this one goes yes we are no where near the bottom...

Eagler

[CptTrips]

The Bulls are trying really hard to to claw back SP 3858.  They can't afford to go into the weekend below that.  That sets up a really dangerous momentum.  Markets seldom bottom on a Fri.  Not sure how that got so far past them.  It will break sooner or later but expected more of a fight.  It's like holding the Rhine.
 


Oh, and the other shoe to drop....  not sure where the trip wire is, but there is a near historic level of margin debt hovering over the markets head.  If you start hitting margin calls, then people start liquidating anything to meet that call.  Which crashes other assets, which creates more margin calls for others.  Wash, rinse, repeat.

That starts feeding into itself as a recursive, self-accelerating function.  That's what REALLY scares me.  That is non-linear and beyond the control of even the smart-money.  That will no longer be a orderly planned unwinding, but a primal, unthinking panic.  Like yelling "FIRE!" in a crowded theater.


[Edit]

Wow.  That was exciting.  Like watching a great football game.   It was a maximum effort, but the Bulls pulled it back up.  That was a hell of a stick save.

The problem is, it has been broken.  Not just by a point, but by a non-trivial amount.  They pulled it back, but the psychological damage might be done.  Everyone has seen now that support level can be broken.

You can't un-see what has been seen.  You can't un-ring a bell.


Next week will be interesting. 
And in a couple of weeks the QT actually starts.
And a couple of weeks after that, another 0.5-0.75% hike.
And another in July.  Etc.

This market can run a bit longer, but it's only going to die tired.

[Eagler]

PPT going at it to keep it positive at close

Edit

Slowing the fall is my guess

Eagler

[CptTrips]

Ah.  I have a theory on what happened. 

A whole boat load of options are expiring tomorrow.  Today is the last trading day to cover.

https://www.marketwatch.com/tools/options-expiration-calendar

I think a bunch of shorts didn't get quite the drop they needed yet and had to buy to cover.  They waited until the last hour to see if they could get a lucky break and then bought like crazy.

https://www.investopedia.com/terms/s/shortcovering.asp#:~:text=Short%20covering%20refers%20to%20buying,to%20as%20buy%20to%20cover

That would make sense.  So the market got a last minute reprieve from the Governor.


I don't think they will have such luck next week.  Also next week we have a slew of retail reporting.  You've seen how that has gone so far.  So I'll expect blood in the streets next week.

And the week after, the long awaited QT starts.  That won't make the market feel any better.

Then they'll get a two week breather, before the next rate hike. Maybe a 0.75% 

(Blast from the past.  Remember when the Bulls were still cocky instead of crying in their Wheaties?  Warning language.)

[Peanut1]

Thank God I don't give a frenchmans fuq about the market. Own my Home (29 Acres), own 3 vehicles of which none rely on any form of equipment I can't repair on my own and have no debt. Sorry to you sucked that are slaves to the system cuz you only got ur own azzes to worry about. Oh and retirement?! Don't need it if you ain't retarded. Throw a nickle in the grass and you'll be saved.

[Arlo]

So ... you're off grid and all your vehicles are electric (with plenty of spare batteries for the future when the old ones wear out)? Maybe you have horses and oxen for backup with a field of hay and field of oats alongside all the foodstuff you harvest?

[Eviscerate]

Thank God I don't give a frenchmans fuq about the market.

Yet you felt the need to post. Hmm...

[Peanut1]

So ... you're off grid and all your vehicles are electric (with plenty of spare batteries for the future when the old ones wear out)? Maybe you have horses and oxen for backup with a field of hay and field of oats alongside all the foodstuff you harvest?

Own and operate a market garden/homestead as well as a custom Lumber business. I have enough parts on hand for 2 of my vehicles to last me a lifetime. As well as a small scale Oil distillery that I can make more than enough deisle to operate any of my equipment as much as necessary. If you are paper pusher in a office you have nothing to provide anybody when watermelon hits the fan. I have enough that people are in need of that no matter the state of currency I will be just fine. I regularly go 4-6 months without stepping foot off of my land.

[Peanut1]

Yet you felt the need to post. Hmm...

if your bet your own life on the market, you are the owner of a severe mental deficit. Not once in my short life or the long life of 2 generations before me have we had to give a good Golly-gee about the market. In fact our family thrives off of morons like you that can't make ends meet when some moron you voted for messes up ur 401k.

[Arlo]

Please calm down. No matter how much faith you have in your homestead independence it won't do you much good if you stress yourself to death over other's not being as smart or skilled as you in that regard. 

[Eviscerate]

if your bet your own life on the market, you are the owner of a severe mental deficit. Not once in my short life or the long life of 2 generations before me have we had to give a good Golly-gee about the market. In fact our family thrives off of morons like you that can't make ends meet when some moron you voted for messes up ur 401k.

Morons like me? I said nothing in this thread about investing in the stock market.

Did you know that studies show the smarter you think you are, the more inept you are?

[Arlo]

Morons like me? I said nothing in this thread about investing in the stock market.

Did you know that studies show the smarter you think you are, the more inept you are?

I believe you reference the Dunning-Kruger effect. I'd cut Peanut some slack. To me he sounds like a skilled and smart fella. I think he just lets topics like the stock market rile him a bit and for no good reason. The skills and circumstances in his life that he describes sound rather admirable to me. Even if I'm not able to swing it like he has.