We can see how many things have to go right before we can rally. And when they do, then there's real hope, not for all stocks, but chiefly for the ones that do better when the dollar is lower and rates are stable. In other words even when things "work out" they don't work out for everything.
Now I know that it is counterintuitive given the power of the bonds and the fear of 3% but it is still the VIX that is calling the tune.
The fact that the VIX opened down after yesterday's disturbing decline at the end of the day was pretty much all you need to know about how part of the day is going.
I write part of the day because remember under my new thesis you do not get a full day's worth of trading these days, you get several full days in a session --hence why we just violated our basis and bought some Goldman Sachs (GS) which has been waiting for intra-day volatility to come back and is fully staffed to handle it.
Now we know that the bonds are supposed to rule. That means we will have to hang on every auction but we will also have to remember how auctions go -- it's been ages since the Fed wasn't the marginal buyer or that we had such a cash drain. The secret to auction trading is the same secret to an amphibious landing. All good auctions require heavy shore bombardment for the soldiers themselves to survive their encounter with the enemy.
While I, personally, did not think that the seven year auction went all that well -- meaning I think that the auction will ultimately push the ten year closer to 3 -- it is clear that the market has been softened enough that the danger may have been built in to some degree -- you are nuts if you don't caveat things in this tape.
Now, we did like higher yields when they came from better than expected economic activity. We don't like higher yields when they come from supply -- thank you writing partner Matt Horween for pointing out that distinction to me.
The oddity, though, is the bifurcation of the judgment. Initially the speculators buy volatility in any crazy intra session form they can come up with, if they think the auctions are going to go badly. They have not thought through what I just described probably because the vast majority do not remember the big auctions of the 1990s -- ones, for the record, that I traded heavily and, yes, proudly because I spent eons figuring out how to do so -- or because they are too young to do anything other than to react to the commentary they hear.
The problem with buying "vol" which became a term of art for those who didn't know the difference between (CVS) and (CBS) , the ones who thought the variegated symbols just stood for "the action" is that the VIX selloffs were and are not uniform. When the smoke clears after the initial down move the banks and the industrials come back and come back hard the moment interest rates stabilize.
All of this is far more complicated than the old market where a Clorox (CLX) or a Johnson & Johnson (JNJ) could go up as much as a Boeing (BA) and more than a United Tech (UTX) or a 3M (MMM) . That "market" so to speak, is over. The same goes for the REITs, the Utes and most of non-health insurance healthcares. Given the shortage of cyclicals and even so-called chicken cyclicals like 3M or Honeywell (HON) , the moves are far more pronounced. They are even more pronounced with the banks because the creep up in rates is simply an estimate raising experience, one that, given lighter regulation, makes a mockery of the low multiples given to the banks given their key metric, at a cost of doing nothing, is higher rates.
Where people keep going wrong is that they are focusing on tech, most specifically FAANG as almost a proxy, a silly proxy, for the entire S&P. That's because these, with the exception of Netflix (NFLX) , are so huge that they are submarkets in themselves. They are so buffeted by so many factors that they make no sense as a proxy. Again, though, I am offering an unadulterated indictment of many commentators and big time hedge fund managers who talk and write and don't seem to understand the subtleties of what is happening here.
To wit: do you know that all that mattered to capturing a bottom in the S&P 500, a tradeable almost magical bottom, was knowing that the S&P 500 oscillator had ALWAYS bounced for almost a decade at minus ten, and that the VIX and its derivatives had been crushed?
All talk of earnings or of bonds or of auctions meant ABSOLUTELY nothing with the exception of the Walmart (WMT) shortfall and a couple of positive semiconductor equipment stocks?
I am urging you to realize that, once again, we have a different kind of market where you must know the SYMBOLS and know what the companies do that are the symbols. For most that is too much work. They would rather talk about Facebook (FB) and the Russians or Alphabet's (GOOGL) Google and crypto-nazi Youtube videos or Apple (AAPL) and the failure of the X.
I find this all tiresome.
Even as I write this the VIX has turned up. That could mean another session beckons.
Get used to it. We no longer have a buy the dips sell the rips situation. We have a buy the dips for some stocks that you must know the fundamentals for and hold on for dear life. If you can't, or won't, or think that the effort is too difficult, then make a decision that you will ride it out because in the end earnings are good, the dollar is not screaming higher because soon the rest of the world will have to raise rates and the environment is ideal for SOME companies, not all.
I have found that for the most part most people no longer care about what an Illinois Tool Works (ITW) or an Emerson (EMR) does. They just think that Boeing is some stupid cyclical. They treat everything as an option or a commodity.
That's a shame.
But it is a fact. The homework bores people. Even the conference calls -- the basic, the fundament -- makes most people too bored to make money.
But they have to decide if they want to profit from this moment. If they don't they must stop bitching about it and move on. If they do, welcome aboard.