Evening Note

Just a quick note this evening:

A 400-pt open for the Dow this morning turned into a 33-pt decline at the close. The Nasdaq rolled over bigger and closed down 1.4%. That’d be -336 points if the Dow had matched it.

Interestingly, the action of late has seen a lagging of the year-to-date leaders, and a leading of the year-to-date laggards. I’m absolutely certain that mainstream financial television (I avoid it like the plague these days) is trotting out the pundits who point to present smallcap outperformance as being a sign the bottom’s in. Well, while, make no mistake, we’ll ultimately be joining their camp, and clients will be at that time owning smallcap stocks, uhh, no, now — in my humble opinion — is not the time. The data don’t, in the least bit, presently support that notion.

Just as they didn’t during the first smallcap rally of the ‘08 bear market, or, for that matter, the second, the third, the fourth or the fifth. Each time sparking the “this is it” chorus, but each time to no avail. 

Not until the market cleared sufficient excesses from the previous bull market, confirmed by less-bad general conditions, would smallcap outperformance signal the bear market’s end.

White line = large caps (S&P 500), Purple line = smallcaps (Russel 2000):  click to enlarge…

Note the improvement from -50 to -39 in our macro index at the bear market bottom, then the gradual improvement to +13 over the ensuing weeks/months:

As I type, US equity futures are once again screaming higher. Alphabet (Google) beat Q1 earnings and reported that their cloud business was “still strong”, and that “YouTube brand ad growth accelerated in the first two months of the quarter, but started to experience headwinds in March.”

While the cloud business report is encouraging, make no mistake, it’s still mostly about ads for Alphabet. The question of course, per the “headwinds in March”, is, will companies (many of whom are holding tight to what cash they have) be in the mood to spend on ads (to a profitable degree for Alphabet) in the months to come?

The big jump in futures says FOMO (fear of missing out) continues to rule the moment. Also, as I continue to stress — per the near multi-year high in net short positioning in SPX futures contracts — fear of getting killed is no doubt creating a serious short-squeeze. We’ll see if that carries into tomorrow’s cash session…


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