Weekly Update: 2.6.18

CLOSE TQQQ Puts...A Bottom but not THE Bottom IN

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Our TQQQ puts did their job...in just a few days! Like my old buddy Art Cashin said in his morning note, "What we want to see is a woosh down below since 100-day The S&P 500 hasn’t closed beneath its 100-day average for 15 months, its longest streak since 1996. THEN we want to see a counter rally off that bottom...and another "sell the rip" plunge and THEN see if that bottom holds. THAT is how bottoms are made."

Well folks...that is EXACTLY what happened. It's a process...and WHEN we test the 100-day again and it holds...we will have a bottom of this correction. I was hoping for a 200-day test...but when the VIX trades unwound in the morning the market coiled like a spring at the 100-day.

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ALL the indexes reacted the same...The S&P 500

Key point: The computer programs execute buy and sell orders based on complex algorithms and formulas, without a human involved in the process. On a typical trading day, computers account for 50% to 60% of market trades; right now they are above 90% of trades...THEY are the marginal seller AND buyer. Add ETF redemption selling, forced liquidations, and the liquidation of the Volatility Shorts mafia, and we got the open bell puke selling... and dipped below 100-day.

THEN my guess is the REAL buyers...real meaning institutional humans doing bargain hunting below the 100-day (which again has not been breached in 15 MONTHS...came in...market rallied...failed...and when it HELD the 100-day the computers said BOTTOM and bought.

Action to Take: We should expect to see another retest of the 100-day...intraday...but at these levels that 2% ish and no whoop. We are going over our list now and picking out new stocks in our favorite 2-3 year+ secular growth sectors: AI/Big Data/Machine Learning/Autonomous Vehicles/3D NAND Memory/OLED Semi Equipment/HyperScale Data Center and adding the Enterprise Digital Platform Dominators like Splunk, Workday, Redhat, Adobe and others.

PS: The perfect METAPHOR for today is the successful launch of the Space-X rocket! NERD ALERT!!!

Congrats to all that did NOT PANIC and remained calm...like I said last night this 10% correction was the most forecast one ever...and corrections are PART of healthy markets. As in every market panic, I have a little ritual I do: I take a picture of my cat Peju in my office during the height of meltdowns and say my mantra "What Would Peju do?

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The market told us where the humans found value...let's call that "value discovery."

Again...we should not be surprised by a retest especially if the major indexes stall at the 50-day line...but wow...what a 3 day trading period.
Panics ALWAYS start on Fridays and build over weekends to Mondays...Black Monday is named for a reason. Bottoms come over the next few days...but I think it is fair to say the blown up 3X VIX ETNs exacerbated the selling yesterday and the lack of forced selling today.

Cheer, Toby

 

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Updates/AlertsTobin Smith