The market sold off with a
vengeance today. I have to say it continues to feel like forced margin selling and liquidations among big hedge funds. We already know that $4B
Osparie blew up, and today, an even bigger hedge fund (
Atticus) had to publicly deny rumors they were liquidating.
Today's
selloff puts us very close to the July lows. The question is:
Will the July lows hold? The answer is a tough one. The bulls point to the fact that the July lows coincided with total panic in the financials, and that the sector has been acting much better since. I can't argue there.
But the bears will say that the rest of the market is now rolling over also, and that the September-October time frame is a notoriously difficult time period in the market, and one where market bottoms are often made. This argument holds a lot of water as well, and I would currently have to say that I think the July lows will ultimately be broken.
Tomorrow is Friday, and if the sellers emerge again ahead of the weekend, we could see the lows tested tomorrow. If not, I think there is a good change we bounce first, as today saw some panic selling. To wit:
- 90% of today's volume was on the downside
- The volatility index (VIX) spiked +12% to 24.03
- The ARMS Index hit 2.89, an extreme level
- Volume rose for a third straight session, signaling heavy distribution
I am still holding lots of cash as well as my SPX hedges. I do not anticipate putting that cash to work in a meaningful way until I see the typical signs of capitulation witnesses at prior trading bottoms. And if we bounce in the short-term, I would consider adding to my downside hedges. Risk management is an active process, but every little bit helps.
long SDS