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.

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The opinions expressed below are my own

It’s a correction. The dip buyers went to work in the premarket. They turned S&P futures around from a 20-30 point drop into a flat open. They didn’t have the ability to keep the tape up. We drifted lower over the day in what looked like an unstoppable march. The path was reasonable though. There were no violent cascades though the overall loss was substantial. Capital flow was heavy again. Flow was 169% of the average.

Treasury yields climbed again too. Interest rate pressure on equity valuations is a front-and-center topic. Anyone watching equities is also watching the 10-year treasury yield. 3% is going to be quite a headline-grabbing event but that is not a magic level… That said, with every tick up in yields, valuation-sensitive investors drop their valuations… and in a down-move like this, everyone pays more attention to valuation.

The bolt-from-the-blue shock is behind us but this is *

not

* one-and-done adjustment. Dip-buyers did their thing over the last couple sessions but the market is attempting to discover the new valuation levels.

At some price, we are all dip-buyers, with are various justifications.

Let’s ask the question. What levels are going to draw out the short-term buyers?

Let’s guess at just a few technicals and then a few fundamentals.

Technicals

• 2585 (right here) is 10% below the all-time high, official correction territory, patient dip-buyers will go to work here
• 2538 is the 200 day moving average, an important level

Fundamentals

• 2616 represents 2 times 2018 revenues. Multiples or revenue aren’t as popular as earnings but for the sake of stripping away accounting shenanigans, it’ll do in a pinch.
• 2572 represents a 15 PE on 2019 earnings. 15 seems reasonable. It’s not a steal for the valuation investors but if we avoid a recession in the next couple years, it’s a respectable value.

Here’s what I’m trying to say. Down here there are some reasonable (maybe not compelling though) levels to put *

some

* money in to the long side. There’s reason to believe that the bulls are going to make another short-term move. See you

tomorrow

,

-Mike