Trader: The Dead Cat Bounce Is Ending, "The Situation Remains Bearish"

"To buy the dip, or not to buy the dip": over a week since the February 5th volocaust, that still remains the question, and in his overnight macro view, Bloomberg's macro commentator and former Lehman trader Marc Cudmore has a decidedly pessimistic outlook, and writes that "taking a step back, the situation remains bearish overall. High U.S. rates, elevated volatility across assets and wealth destruction all point to further equity deleveraging."

And while the next direction in the market will be unveiled on Wednesday with the all-important CPI print, anyone hoping for a calm reaction will be disappointed as "we're now in a world of higher volatility", especially since the signs suggest that the dead cat bounce may be ending:

If there’s high inflation, then yields might rise again, further squeezing liquidity and financial conditions. A low print -- and it would appear markets have got way too far ahead of themselves in pricing rising inflation -- and more wealth destruction will come through a squeeze of the large short positions in Treasuries.

Cudmore's full note is below.

Don’t Read Too Much Into the Short-Term Stock Swings

Whether the next 3% in the S&P 500 Index is up or down doesn’t actually mean much in this environment. So don’t waste mental capital trying to predict short-term moves.

While price itself is the most important fundamental, price- action provides a vital guide to positioning and sentiment, as well as offering insight into stories that may be under the radar. Neither should be ignored but they do need to be assessed in context.

Up until late January, investors became so used to minimal volatility for such an extended period of time that it’s hard to ignore the large swings we’re seeing now. But February has already seen the S&P 500 carve out a range of more than 10% and we’re still less than two weeks in. That’s the context short-term moves must be interpreted within.

Bulls shouldn’t relax until E-mini futures break above last week’s open at 2,757 while bears must be nervous about the possibility that 2529 will be seen as an important double-bottom in hindsight.

Taking a step back, the situation remains bearish overall. High U.S. rates, elevated volatility across assets and wealth destruction all point to further equity deleveraging.

Everyone is understandably looking to U.S. CPI as the next major catalyst. It could be argued that that event is skewed to be an equity negative either way.

If there’s high inflation, then yields might rise again, further squeezing liquidity and financial conditions. A low print -- and it would appear markets have got way too far ahead of themselves in pricing rising inflation -- and more wealth destruction will come through a squeeze of the large short positions in Treasuries.

We’re now in a world of higher volatility. Register that fact and don’t let the increased noise distract and mislead you.

Comments

BritBob Tue, 02/13/2018 - 06:19 Permalink

Falklands Oil – Worth a Punt?

By a ruling of the UN, Argentina will extend its maritime platform (Politica Argentina) ; New map of the maritime platform reaffirms the sovereignty of Malvinas with UN endorsement (ElCronista); Argentina enlarges its territory 35%, with a UN endorsement ...(La Capital).To add to this euphoric atmosphere the Argentine Foreign Minister stated, ''This is a historic opportunity for Argentina. We have taken a great step in the demarcation of the outer limit of our continental shelf; the most extensive boundary of Argentina and our border with humanity,'' Foreign Minister Susana Malcorra told La Nacion, which tomorrow will publicly announce the details of this resolution. (Susana Malcorra, quoted by Dinatale M, La Nacion, Argentina, 27 March 2016).

 

 

Argentina's Continental Shelf Claims and The UN CLCA Commission (1 page):-

https://www.academia.edu/33898951/Argentinas_Continental_Shelf_Claims_-The_UN_CLCS_Commission

But what did they say...And what does international law say about ownership of natural resources?

 

juggalo1 Tue, 02/13/2018 - 06:39 Permalink

How can a short squeeze destroy wealth, when shorts are a derivative with a counterparty?  Any loss or gain in a short is offset be the counterparty 1:1.

medium giraffe Tue, 02/13/2018 - 07:08 Permalink

I flipped a coin but it landed on its edge, propelling me into a abstract dimension far beyond the realms of Gaussian distribution, where no statistician can survive without life support equipment and no one knows how to spell Chebyshev.

Fuck it, I'll probably just BTFD then.

Occams_Razor_Trader Tue, 02/13/2018 - 11:32 Permalink

Daily trend line is still dominant up- until it isn't anymore-  Ima buying- but remaining flexible is the key to longevity- and profits- and preservation of capital and happiness and a good sex life and ..........................