Stocks were rallying notably in the pre-market ahead of this morning’s CPI number. But, as I suggested in yesterday’s video (one to watch if you haven’t yet), we did not expect a market-friendly read out of September’s inflation numbers… The way certain components are measured, along with base effects, simply didn’t offer much hope of a downside (upside for stocks) surprise.
Well, that’s what’s playing out in the premarket this morning… Which is a virtual replay of last month’s action… Stocks rallying into the number (although news out of the UK was globally bullish this morning), then tanking on the disappointing CPI release.
Now, make no mistake, there’s information in that market action… I.e., despite the sour sentiment, there’s some serious nervousness around missing a market upside pop should the slightest catalyst emerge…
Fascinating, at least at the moment, that the volatility index (VIX) is actually trading lower as I type… In a panicky selloff, you’d expect the VIX to be soaring as options traders pile into downside bets… The opposite appears to be occurring (but only for the moment, mind you)…
As we’ve reported — while we’ve maintained that there’s yet more downside to plumb for the current bear market — the technicals have been constructive, and fear remains high, which is the recipe for some violent bear market rallies… I suspect that’s what has traders hesitating to load up on downside derivative bets (again, mind you, only for the moment).
On another note, per the second line in the snip below, Janet Yellen’s getting concerned:
So, what’s the worry? Well, a lack of liquidity essentially denotes a lack of interest, or a lack of buyers… In an illiquid market/security, should a disruption occur that incites a panic or rapid selloff, the price of said security can utterly plummet in value, and, in the case of bonds, send yields to the moon.
Case in point, the earthquake in gilts (UK government bonds) last week, that, had the Bank of England not intervened (bought like crazy), it appears as though margin-call-disaster would’ve hit the UK pension industry.
Two of the components within our own financial stress index are the Treasury Liquidity Index and the MOVE Index (tracks implied volatility on treasury options)… In both cases, a rising line ain’t good.
Treasury Liquidity Index:
MOVE Index
Asian equities struggled yet again overnight, with 13 of the 16 markets we track closing lower.
Same for Europe so far this morning, with all but 2 of the bourses we follow trading down as I type.
US stocks are getting hammered to start the session: Dow down 518 points (1.80%), SP500 down 2.26%, SP500 Equal Weight down 2.37%, Nasdaq 100 down 2.96%, Nasdaq Comp down 3.04%, Russell 2000 down 2.79%.
The VIX had now turned, albeit slightly, at 33.68, up 0.33%.
Oil futures are down 0.29%, gold’s down 1.66%, silver’s down 2.38%, copper futures are down 0.93% and the ag complex (DBA) is down 0.75%.
The 10-year treasury is down (yield up) and the dollar is up 0.22%
Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 0 (save for put options) are in the green so far this morning. The losers are being led lower by Albemarle, MP Materials, AMD, base metals miners and cyber security stocks.
Not saying it’s time to get greedy right here, but of course we’re getting closer by the day:
“…be greedy when others are fearful”
–Warren Buffett