I’ve seen way too much at this point to underestimate what the market is capable of doing. People call me all the time and say, “JC crazy market huh?” or “Did you see that crazy move in XYZ”. Yea I saw it. So what? As Jay-Z said in his latest album,
if everybody’s crazy, you’re the one that’s insane”.
How high can a stock go? Much higher than you think. How low can a stock go? Zero. How low can your account go? In the negatives where you actually owe money. That’s the deal we make when we enter the marketplace.
So there is being overly dramatic and there is being realistic. We’ve seen these clowns calling for market crashes since a month after the last one was over. They prey on vulnerable hard working citizens preaching the end of the world and they make a ton of money doing it. They’re terrible people.
It’s my job as a market participant to identify the risk that is on the table at any given time. Until just recently, the risk in U.S. Stocks had been higher for years. Not being aggressively long, was the real risk in my opinion. All of that changed in early October.
So here we are 2 months later and stocks are near their lows and we’re all wondering whether this is just a long sideways consolidation to reset the market sentiment before heading higher? Or is this massive distribution that will lead to a more significant break?
I think there are three charts that we want to pay attention to. I firmly believe that a much more severe correction is on the near term horizon if these charts start to break, and we’re awfully close.
The first one is Technology. Part of the bullish thesis was that Tech was finally breaking out above its March 2000 highs. How can we not be bullish in that environment? Semiconductor stocks have been trying to do the same thing, but failed badly. If Tech fails up here too and starts to fall back below the 2000 highs (near 64 in $XLK) then there is unlimited downside potential in the largest sector in the S&P500, by far:
The other bubble from the past 20 years was the Financials in 2007. Regional Banks breaking out above their historic 2007 bubble highs was incredibly constructive for the bigger picture in financials. However, if we lows those highs, then like Tech, there is a ton of risk to the downside:
Broker Dealers are in the same boat. Breaking above those 2007 highs was incredibly constructive. So is this just a successful retest or is this an epic failure up here and BDs come crashing down, kind of like what Deutsche Bank is currently doing in Europe?
There are times when there is much less risk in the market. You can see it in implied volatility. You’re not going to get 1000 point dow moves when the VIX is at 11. Currently, we’re getting 3-4% moves in the major U.S. Indexes on a single day. That means 1000 points dow moves should be expected until further notice.
I’ve been a huge advocate of heavy cash the past couple of months, particularly when it comes to stocks. There have been some great opportunities in bonds, but as far as stocks are concerned, what’s wrong with avoiding getting chopped up for a while? Let the dust settle and let this market be someone else’s problem.
The point of this post is not to scare anybody. I don’t take joy in that sort of thing and I certainly don’t profit from it either. But as an OG blogger I need to keep it real. I think there is risk out there. I’ve been saying it for months. And if we break these levels I’ve pointed to above, we could be in for some serious shit.
Let me know what you think