The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Blindsided
Today’s large selloff was a regular trading hours event. Premarket futures were slightly higher actually and only dipped to around down 10 points just ahead of the open. The S&P opened down about 10 points but started falling right away. The index was down 100 points within 15 minutes and down 200 before the first hour of trading. Megacap tech led the market lower and there was almost nowhere for longs to hide. Yields came down across the curve as equity fear spread. Crude climbed consistently throughout the day, offering no help to bulls and dip-buyers. Capital flow was extreme at 186%.
So much for yesterday’s sentiment shift. Today was a complete reversal. The mood is now dour and the technical damage is severe. The popping of the AI bubble is a story being told across the Street. However bearish the equity market mood was on Monday, it’s now worse.
While there are no smoking gun headlines to blame, it looks like the volatility of the megacap tech names finally took its pound of flesh. The selling of the morning looks very much like a cascade and the downside momentum spurred bearish narratives in and of itself.
It is also speculated that significant leverage exists/existed in the megacap tech and AI space. Unwinds of some of that leverage is certainly part of reason for the large losses today.
We are left to ask, is this the beginning of something or not?
I am affected by the mood of the market. I am bearish. I don’t know if I’m right or wrong and I’m not even making a prediction. I am merely stating that the bolt-from-the-blue we just experienced has altered both my mood and my thought process. I am obviously not alone.
It is almost never a good idea to act when emotions run high. Both greed and fear usually lead to regret. All I can do is recognize that I’m at an emotional extreme and resist the urge to act in size.
The market has just become a very volatile environment and its swings are as influential on emotions as PnL. If there’s any trend to attempt to hop on, it’s probably better to let it play out than to make a pure guess right now.
Tomorrow morning brings us the October nonfarm payrolls data (+65k est vs +29k prior). That data and market reaction should be something we can *interpret.*
Unlike today’s events, which seem to only be something we can *feel.*
See you tomorrow.
-Mike
Visdom Market Commentary
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