Selling Begets Selling in Overbought Stocks
Despite MSFT spiking higher and GOOGL spiking lower post earnings Wednesday after hours - canceling out the QQQ weighting tilt - markets only had eyes for rising US dollar and Yields with USDJPY piercing above 150 as JGBs continued higher. The result: a strong sell-off in markets overnight. In fact, my long-held QQQ $348.50 price target was taken out!
Not even good morning news today could stop the selling:
US Q3 Advanced GDP print comes in at 4.9% YoY; est: 4.3%.
US weekly jobless claims come in at 210k; est: 208k.
US durable goods orders come in at 4.7% MoM; est: 1.7%.
US pending home sales come in at +1.1% MoM; est -2%.
European Central Bank (ECB) holds its rates at 4% pausing their rate hiking cycle.
Ford (F) reaches an agreement with United Auto Workers union.
Not even a decent 7yr treasury auction could stop the selling.
Afterhours, Amazon reported and has had some 4% whipsaws in both directions. Basically, AWS missed revenue and growth rates, but we won't really have a solid market reaction until tomorrow.
If you are following closely - whether from my live trading room or via detailed trade analysis under my #swing-ideas channel - my call for MAG8 to rollover is working really, really REALLY well.
I mean, this doesn't come around every rotation with such precision, but so far, my levels for all of these shorts have been spot on:
AAPL, AMZN, GOOGL, META, MSFT, NFLX, NVDA, TSLA
Even the swing shorts from July 21st in QQQ, SPX, IWM continue to outperform.
Now we get into the tricky spot: FLASH CRASH or BOUNCE BEFORE THE TROUNCE?
A lot depends on BREADTH as a majority of stocks have been in a "bear market" for the last year - really two!
Check out this chart of percentage of stocks per sector that have fallen more than 20% since the lows of October 2022. Only sector that is green is Energy and I recommended shorting it last week!
Year-to-date, 1,654 out of 2,689 Russell 3000 stocks are down 61%.
52 out of the 100 of the TOP market Capitalization stocks are down YTD.
94 out of the 100 Lowest market Capitalization stocks are down YTD.
The Mag8 stocks peaked in July; since then, they are down -14%.
The S&P 500 is down -9.7%+, and the equal-weight S&P 500 is down -12.76%
Remember SPX hit $3491.58 in October 2022, only to rebound firmly into $4607.07 in late July - right when I called that "Market Is Priced For Perfection" and should rollover to $4000.
Today, we had a solid sign of selling in Mag8 stocks while oversold 'value' got a bid. But is there really any reason to BUY banks or bonds for any longer than a trade?
Craig posted in #macro-advisor-craig channel and in the live trading room how strong the factor rotation was from hedge funds - selling VIP stocks and buying back shorts in heavily oversold issues:
another alpha unwind day out of growth into value, from large cap to small cap. I don’t think this will last as alpha unwinds often beget beta face plants
$ strength suggests these rotations wont last very long
Exactly, as long as USD is firm/rising, value will have a hard time coming up off the ground.
When it does, I will be shopping for large cap plays with a significant percentage of revenues abroad that have strong balance sheets and cash flow to take advantage of the falling DXY.
Until then, the dollar and yields are still a strong headwind to FUTURE growth and market is finally pricing that it.
When Capitulation?
Remember this post from over two weeks ago: https://laductrading.slack.com/docs/T01GN5BH7KP/F061F49FR4Y
Yes, we can bounce here, but I'm still a big picture SWING SHORT equity and bond bear and here's why:
The market prices in the truth only after reacting (overreacting) to the best case scenario when it’s ‘happy’ + worst case when it’s not. So how did I KNOW these past two months that we have not reached "capitulation"?
Forced Selling hasn't been absorbed by the auction of buyers and sellers.
And that ONLY happens after markets have priced in "worst case"...
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