Nasdaq and S&P500 shit out another >1% drop yesterday with the Tech sector leading the down move.
It was a red overall this week. We have shared and warned of this impending downfall as early as 17 Feb 2023
https://www.tradingview.com/chart/NAS100USD/5hbXKwEp-Nasdaq-massive-distribution/
So how did it happen? It all started with the 01 Feb 2023 FOMC meeting where Powell mentioned "disinflation" 20 times. During the meeting, he quoted,
The Market took this as a sign that we have successfully beaten inflation and rate cuts are confirmed in 2023. Is it, though?
Do we have sufficient data that support that narrative? We explored that in detail in our previous post titled "Disinflation and Soft Landing, 'this time is different;"
Do read that post if you have not as we will not be repeating some of the data that contradict the disinflationary narrative here. Since that post was made, we have another data that came out yesterday (Friday, 24 Feb 2023). And it is a big one; PCE inflation data.
OOooooo boy... Every single PCE data was not only higher than the consensus, but it was also higher than the previous reading! Worst yet, personal Income missed the forecast while personal spending ballooned to 1.8% MoM.
In Dec 2022 Summary of Economic Projection (SEP), the Federal Reserve projected 2023's PCE/Core PCE to be at 3.1% and 3.5% respectively. Note that these projections will decide the terminal Fed Fund Rate.
Both the PCE/Core PCE at the current level is nowhere near Fed's projection and worst, they have headed in the opposite direction.
The 10-Year Yield and Dollar Index have been recovering sharply since 07 Feb 2023 which gave us a big clue that the bond market is pricing in a higher Fed Fund Rate. This is way before the market actually heads down. We have warned of this disconnect between the Credit and Stock market countless times on our FB/Telegram channel.
This threaten the stock market rally that was based on nothing but hopium, fugazi, and options derivatives.
Going forward, we expect to see companies with really terrible earnings that rallied for no reason, heading back down to the dirt where they belong. "What counters? Share please!!" you might ask. Oh, wait we did! We shared Apple's terrible earnings right at the top
https://www.nimbuscapital.info/post/apple-to-eat-or-not-to-eat
We have also shared our bearish bias on the Homebuilder sector and even picked a homebuilder company for shorts. That stock has fallen by 8.5% since our sharing.
Going forward, we expect to see more downside in the stock market until the Bulls conjure up another bullish narrative. We also want to caution that the 2023 market will not be an obvious Bull or Bear market. There will be a lot of Kangaroo movement that will whip both amateur bulls/bears out of their positions.
Our advice: Do not be too dogmatic on either side. Do not go all-in in one direction.
Nimbus Capital Solution uses Long/Short equities strategy to ensure our portfolio is a beta hedge against the market. This ensures we are not whipped out by the kangaroo nature of the current market while still maintaining high returns from our directional trades.
Sneak peek of slides from our course.
Currently, we are up massively on our short positions while still maintaining protection against any sudden upside.
Navigating the market will be tricky in the future. Gone are the days of the 2020s, when everyone is a genius trader because of the "buy what also profits" market. Your risk and portfolio management will be tested to the limit. It will not be as simple as choosing to be a Bear or Bull. The market will head down, but you need to know when to pump the breaks because there will still be aggressive bear market rallies. All the best folks! #Macro #Portfolio #Nasdaq #SPX #Inflation
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