Mike Zigmont Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business

since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

Breaking. Equities were under modest pressure this morning. The dip-buyers went to work in the first hour of trading and took the S&P into positive territory. The buyers wilted under selling pressure and the tape drifted south over the rest of the day… until

3 PM.

At that point the tape broke. Equities fell fast and far and the markets began to panic.
  • Flight-to-safety kicked in and US treasuries rallied hard (yields dropped – a distinct change of late)
  • Equity implied volatilities spiked and changed in huge steps (very choppy/spastic price changes)
  • Activity climbed… we were running at 160% average flow… the 3PM trading took us up to 202%

There are more numbers one could cite but I think you get the idea.

The tape cracked. The S&P (and all other indices) fell very fast in a selling cascade. What caused it?

  • It wasn’t a headline
  • The selling simply fed on itself and things broke

Buyers came back in and repaired some damage but into the close we faced a new batch of selling. We closed near the lows of the day.

We just had the 5% drawdown (and then some, we’re in down 8% territory). That record consecutive stretch of trading sessions without a 5% drop from a high is over at 404.


Now what?


That’s the question. Let’s speculate.

The sentiment of the market is radically different now. Optimism is now concern/worry. I don’t think we’re at panic yet because the selloff is so recent *


* we’re back to the beginning-of-the-year levels (essentially).

The bulls and the dip-buyers are going to go to work sometime soon. There are 9 years of conditioning behavior out there…. Here’s the 9-year chart just to remind you.

I have seen this movie before. Investors are going to jump in long…. Especially since there’s no event/news at work. Bulls are going to say “nothing’s different today, except that stock are on sale. Let’s go to work!”

I don’t think equities are a buy here for the record. I still think valuation is too high *


* I am not the investing public. The market, even pros, are conditioned to buy the dips. I think we should wait for them to do their thing.

There’s a big fight now in the market. The bears cold-cocked the bulls. The bulls are going to get swinging at some point (soon I’d guess).

How long the fight lasts is what I wonder. It’s going to be volatile. The market dynamics of the last 2 years are dead, buried, extinct. Do not plan on them returning.

Plan on the market dynamics of 5 years ago returning (or 20 years ago). Prepare yourself for the entire market moving 1-3% frequently. That doesn’t mean the market has to go down 3% for 10 sessions in a row.

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