Warsh 0-3 – Huge & Weak Rally
Kevin Warsh is now 0-3 on Fed day. The FOMC did exactly what the markets expected and priced in. But it was the shortened press conference that unleashed the selling. More rate hikes are coming and I remain on the other side of the issue. I remain firm that the Fed is going to have to pivot and do a mea culpa. If I am wrong, you know I have no problem calling that out.
With the little plunge on Wednesday, I thought the floodgates would open with one more day of selling. That did not happen as Thursday saw a huge rally in the major indices, trapping the bears. The problem was that the rally was weak underneath. I shared this in client meetings all week. The next 2-4 weeks should have the highest risk over the next three to four months. If stocks are higher than they are today in early to mid-October then I am dead wrong and will need to reassess. A rally from here to new highs will make it tougher for my thesis of a four-month rally because not enough weak hands have been shaken out and not enough energy will have been built.
Below are the NASDAQ 100 and Russell 2000. I don’t think anyone can really call these strong indices like they can with the S&P 500. They need repair. They need time. But just because I want a scenario that the odds favor doesn’t mean it will come to fruition.
Today is one of the gargantuan quarterly derivatives expirations with some $2 trillion in notional value going away. Historically, the September expiration shows weakness from open to close across the board. (hat tip my friend Rob Hanna for the data on that). Very short-termers would sell the open and buy the close.
The week flew by yet again. Sadly, it included two funerals, one for a longtime friend and golf buddy who was just a few years older than me while the other was my neighbor growing up who lived to 94 and didn’t wake up. The former is tragic. The latter is sad. I am looking forward to a happier weekend that includes a two-day golf tourney and some social fun. Because of the Jewish holiday on Monday, I am not sure if I will get something posted by Sunday afternoon or not.
On Wednesday we bought SSO, XLF and more MSFT. We sold GDX, PINK, IYT, some SPLV and some IYR. On Thursday we bought PCY, GDX, GDXJ, TQQQ and more IGV. We sold SSO, XLF, JAAA and some SVARX.
