The Zigmont Report (Daily Market Recap for 7/27/17)

Mike Zigmont

Mike Zigmont
, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business
since 2008, sending shortly after the market close.

The opinions expressed below are my own and do not necessarily represent those of Harvest Volatility Management, LLC

Swoon.  Facebook crushed earnings and all the other reports were good enough to keep the bullish earnings party going.  The S&P set new all-time highs this morning and the day looked like another exercise in the same-old same-old.  Au contraire.

At 12:30 PM the S&P started to drop and treasuries started to rally.  Capital flow climbed from a 115% pace to a 140% pace.  The S&P fell about 23 handles before bouncing at 1:40 PM.  We bounced around a little bit over and recovered much of the damage over the rest of the session.  Here’s a picture:

So what happened at 12:30?  It’s a matter of debate.  Some think a research piece was to blame (story here).  Some think a republishing of North Korean sword-rattling did it.  There are probably a few other ideas out there too.  The bottom line is that nobody really knows.  Usually clear moves in markets come from clear catalysts in the world.  Today that wasn’t the case.  It’s very odd.

We shouldn’t confuse odd with worrisome though.  Some are saying this is a sign of a structurally weak market or a market on the verge of collapse.

I disagree.  The dooms-dayers have been desperate to point to anything to allow them to cry wolf yet another time.  Since ’09 the dooms-dayers have predicted about 50 of the last zero crashes.  I don’t think we should dismiss them the way we do the nut on the sidewalk with “The End Is Near” sandwich board on his shoulders… but I think their case is very weak.

We all know that there are a lot of automated stop loss orders out there and that there are a lot of computer-driven momentum dollars flying around.  That’s the structural nature of the market.  If that causes a crash (debatable but still a reasonable view), it will only come into play once the market is off 5% because of some big hit.  The dip-buyers are still out there and they’re not going to get run over on a less than 1% drop without a scary headline.

See you tomorrow,