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
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 *AND
* 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 *BUT
* 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.