The Crash Of 2024...

Nothing Like Price To Change Sentiment

Author

Howard Lindzon
August 05, 2024

I waited to write today’s Momentum Monday because today was truly different.

I was busy working last night as I saw the futures imploding so Ivanhoff did the episode by himself. I shared it at the end of this post.

Onward…

If you really want to dig into ‘panic, fear and opportunity’…go listen to my first 15 ‘Panic With Friends’ on Spotify. The March 2020 COVID panic was the biggest panic of my lifetime and we properly covered/nailed so much that it would be silly to try and reproduce it again. While the stocks/markets that will benefit from this panic will be different, the messages and the lessons are timeless.

If you are new here…know this about me:

I do not short stocks ...cash and confidence in income is the hedge I rely on to keep my sanity as an investor.

As I wrote on Saturday …complacency is the bug (human) and volatility is a feature (the market).

In hindsight the complacency is obvious. This one photo of $NVDA CEO signing a bra might have been the final straw a month back (half a trillion ago)…

So here we are.

As Helene Meisler says - ‘There is NOTHING like Price to change sentiment’ and boy did price change sentiment quickly the last week.

Let me get to the investing punchline very quickly and you can read the long winded gory details below the chart it if you like…

While the data only goes back to 1990’s, you can understand why I perk up when the $VIX spikes. I sense the odds are in my favor as a long-term believer in the US public markets. I invest more time and money when the math and probabilities line up on my side.

All that said…I was NOT prepared to see a $VIX 60 reading this morning from a close in the 20’s on Friday.

For context on this $VIX spike this AM…

and…

If I had woken to news that Iran had sent missiles at Israel and some landed in Tel Aviv, I might have understood $VIX 60, but when I read that it was a crowded Yen Carry Trade, all my work was out the window. So I started making calls to trusted traders and did less than I planned even though I had a good plan.

WTF is a Yen Carry Trade?

Here you go…

Honestly…I tried listening to the video but 30 seconds in I ordered sushi on Uber eats.

This Yen carry trade unwind has not been kind to Japan either…

Matt Levine has his missive up on the disaster that was today -’The Good Trades Have Gone Bad’. It was great.

There is no shortage of smart people that will explain all the nuances for you. Sadly, to find those you will have to read endless fear porn and ‘I Told You So’s’ from budding Cathie Wood’s and Jim Cramer 2.0 podcasters.

I am doing that work for you. It is not pleasant!

So What Did I Do Today?

Not much.

On Stocktwits (as I always do) I shared some investments I made (that became trades a few hours later) on Goldman Sachs, $NVDA and some indexes as the market opened, but the more calls I made to traders I respected the more I was not feeling it.

Not to be too technical but with the $VIX at 60 and the news being more about bad trades and not something I even closely understand..I called an audible.

I was definitely spooked to see such a high spike on the actual news that drove it. I mean the S&P is still up NINE percent on the year and the semiconductor index still up 20 percent:

The $VIX closed in the 30’s and I don’t feel I missed much today by sitting on my hands. I do think that a $VIX high was put in but the market damage feels very limited all things considered. Color me thrilled if today was the next great buying opportunity of a lifetime and I sat it out for a few days.

I will wait for the markets and news cycle to turn over few more cards in the days ahead.

Have a good evening and see below for Momentum Monday (taped Sunday evening).

……………….

As a reminder, MarketSurge (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from MarketSurge. They are offering my readers 2 months for $59.95 - save $239. That's 80% off the most powerful stock research platform for individual investors.

Welcome back to Momentum Monday!

In today’s episode of Momentum Monday, Ivanhoff discusses the following:  

  • Market Overview and NASDAQ Struggles

  • Tech Earnings and Market Reactions

  • Small Caps and FOMC Impact

  • Buffett's Moves and Market Sentiment

  • Defensive Stocks and Dividend Play

Reminder: Riley on my team created the ‘Trends With No Friends’ email which is my go to list every day to track what is working and what is not. You can get it for free here.

In This Episode, We Cover:

  • Market Overview and NASDAQ Struggles (0:00)

  • Tech Earnings and Market Reactions (1:23)

  • Small Caps and FOMC Impact (3:11)

  • Buffett's Moves and Market Sentiment (5:57)

  • Defensive Stocks and Dividend Play (11:59)

Here are Ivanhoff’s thoughts:

The long-expected FOMC July meeting came and went. The Fed didn’t cut rates but hinted that it’s getting close to the beginning of a cut cycle. Most stocks sold off heavily after the event. The market believes that the Fed is too conservative and lagging again. It’s the typical Fed – never forward-looking, always too late to act and when it finally decides it’s time, it overreacts. The economy might be close to a recession, yet the Fed stubbornly keeps interest rates high to ensure inflation is defeated. Being too late and then overreacting is exactly the behavior that caused the high inflation post-Covid.

Anyway; we are here to trade and manage risk, not to discuss the Fed. All major indexes are now in a downtrend. They experienced multiple distribution days in the past few weeks. Distribution means institutional selling. Any slight hiccup in tech earnings caused a massive pullback. It’s as if the market is looking for a reason to sell. To top it off, the Japanese Yen has been rallying, causing a reverse carry trade and pressuring US stocks.

Small caps were hit hard too. IWM is sitting at its 50-day moving average and its July CPI gap near 208-209. It’s a make-or-break moment. A weak bounce towards 215 or its declining 20-day moving average is likely to set up a short setup. The premise behind the rally in small caps, biotech, regional banks, and home builders was that the Fed is ready to cut rates. At this point, the market believes that the Fed will cut too late when the economy might be already in a recession – September. Let’s see if buyers start to step up in those sectors next week. The mortgage stocks showed notable relative strength last week, which only makes sense with rates pulling back.

Is the liquidation in tech done or there’s more to come? I don’t know. The correction in the space has already been significant. One of the supposedly new AI- leaders, MU (Micron) went from 160 to 90 in a few weeks. You don’t see such fast drops in a bull market. SOXL (which is a 3x long semis ETF) is down 60% in four weeks. FNGU (which is 3x long tech mega-caps) is down 40%. This doesn’t mean that we should buy blindly the dip. There has to be some sign of seller exhaustion (bullish reversal candles) and a spot we can enter with a relatively tight stop. If the downtrend remains intact, rips to major declining moving averages (10. 20, 50) are likely to be shorting opportunities – we saw it last week in NVDA and QQQ near their 20dEMA and many others. The important levels for QQQ (Nasdaq 100) are 450 (previous resistance that might turn into support), 443 (YTD VWAP), 430 (200dma).

And here are the charts discussed:

PS - Here is the latest ‘Trends With No Friends’ which covers ‘new highs and new lows’ and measures the followers (friends) on Stocktwits versus the prices. Subscribe here.

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