NO U TURN ALLOWED : update May 7th

Slowing outflows from exchange-traded funds and repositioning in futures contracts indicate that “we are near peak investor bearishness across equity markets, though there are not yet any bullish reversals,” Citi strategists led by Chris Montagu wrote in a note to clients. “Going forward, there may increasingly be a bias towards unwinding the large short positions.”


Nobody knows anything. Here is one (really good retail) measure of the money flows in short positions. SPXU is double leveraged, which means simply you only need to own half as much to hedge your positions. Weak money flows mean people aren’t buying these trades even while the market is crashing. Odd isn’t it?

The long money has been exiting this trade since at least December. The institutional money peaked on March 14th and those shorts have been covering for more than a month. UPDATE May 5, verify

The short term guys, who really like to pile in and take advantage of the momentum, did nothing, the MFI peaked in January. UPDATE May 5th, NON VERIFY, SHORT TERM MONEY MFI has lifted in the leveraged short trade. The SPXU is meant to be traded not held, brokerage boilerplate….

There are other short mechanisms, primarily FUTURES related. Looking at the top chart you can see that when the market pulled back in January all the money flows went down sharply. In this selloff NOTHING. Top chart – the money kept humming along. There are people buying up every share the retail investor tosses on the table. Two problems with this scenario. The obvious answer is this is the great reallocation, not a bear market… UPDATE The question is what happens when the reallocation trade goes risk off.????

They already filled their accounts, and so the resultant buying pressure may turn out to fizzle. The long money especially exited the short trade months ago. What are they buying now? Bonds most certainly. The buzz is that rates will come back down when the economy hits a recession, and it’s time to look in those rates -even while they are deeply negative relative to inflation- and hold them for the duration. This tells me that the smart money is betting inflation will not remain this high for much longer….

Meanwhile there is some meaningful short interest on OBV in this leveraged play on the bear market to unwind. Today the FAANG stocks are all down 3 or 4% while the SPY is down almost 2%, so the rotation proceeds with Bonds stealing of lot of the action. It’s not complicated. It could well be that the smart traders just shorted this group and left the index alone….. and the passive investor gets punished.

No capitulation, no face ripping Bear market rally either. However when the FAANG stocks drop into value territory then we will see some action but this is not an homogenized group, AMZN is really a retailer, which just imposed a fuel surcharge on delivery, and has 100 worksites where workers want to unionize.

UPDATE the selling pressure in the FAANGS relative to the S&P has abated ever so slightly, while the markets remain “soft”. Despite the markets taking back their 3% rally on Wednesday, and then some on the 4th. The rate of separation has slowed. The second chart is arguably pessimistic. Then some Fed heads came out and said 75 basis points was under consideration.

This chart says quite a lot. The first catalyst of this selloff is rising interest rates, which impairs companies with more debt than revenue (and companies which make money rolling over debt at lower rates – and the entire fracking industry) Here the megacaps are the ones taking the losses. The SPY index is rising relative to FANG+. That means holders of big tech, are dumping shares, and that selling is putting pressure on the index, which is not being sold as hard. This helps to explain the nearly positive money flows in the index and there is no action in leveraged shorts, no one is bearish the index. So I want to back up on No U Turn, my latest post and say that a relief rally is more than possible if the selling in the underlying tech leaders would let up. I don’t know when or if that can happen. It’s clear that their valuations are stretched, and some of them are not quite as Tech oriented as they seem. At some point these stocks all look attractive as VALUE plays. Elon Musk wants to sell Tesla stock to buy Twitter. So tech, real tech is okay. More on that follows. There’s also a problem with Crypto, or rather the people who use it and that is weighing on the tech group. Tech companies like FB have their own crypto initiative, LIBRA and if crypto gets roped in (regulated and sanctioned) with the net the global financial police are throwing around the Russian oligarchs, these guys will suffer.

FB is really a media company, GOOG, is an online resource, (probably the dullest of the lot) and NFLX is a content provider. The difference between content provider and media company is very sticky. For the time being NOT being a media company is a huge edge, while Congress ponders the outcome of cyber free speech, in the long run we have to see how Twitter plays out. Musk is an idiot.

Facebook has a bad case of Microsoft protocol disease (you can’t get there from here – if you want to understand Windows you must go to Google to ask your question) while Twitter is a caste system, only celebrities and government officials need apply. TIK TOK and some others are natural aristocracies, but what does that mean? Musk would know, he wants to make Twitter into the Cyber Town Square Soap Box. Like those famous political town hall meetings which turned into town hall shoutouts in the 20th century, or shootouts. Elected officials are like rock stars, they only hang out with their fans, but no one goes to a Rolling Stones concert to boo Mick Jagger. That is the difference. Pretty soon they (politicians) will charge us for access by dumping all their feed on Twitter and Twitter will be subscription based….

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