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 it daily shortly after the market close.
The opinions expressed below are my own
10 AM.
We printed new all-time highs in all the major indices and the capital flow was heavy, around 140% at that time. What was the news? Beats me. We’re not in a news-driven environment anyway so one may as well ask what is the sound of one hand clapping. After10 AM
, stocks began to fade. It was a slow and steady decline over the course of the day. Capital flow remained robust over the session and the flow for the entire day finished at 140%. This means today’s action was meaningful… as opposed to noise due to apathetic investors. I think that’s important.The action itself looks like the last of the shorts were squeezed and/or the last of the tape chasers lifted offers. The bulls ran out of gas and that shouldn’t surprise any of us…. Here’s the chart of what the S&P has done for the year. I leave it to you to judge whether a turn in price makes sense or not.
S&P for 2018 so far:
So if the buying fever broke today, the big question is whether this is a brief pause or a more meaningful turn? It’s a purely psychological question. Is the collective consciousness of the market ready to turn or not? I don’t have a good answer but would suspect that the bulls are going to retrench and buy this dip….They’re just too conditioned to change their behavior.
We shall see.
Let’s role-play as a stock analyst for a bit.
Citigroup announced earnings today. They announced the biggest quarterly loss in their history… and remember that they barely survived the financial crisis! Anyway the loss was $22 billion because of a tax charge. We don’t need to play accountant here. Let’s just take their accountants at their word. So the loss they took resulted in a loss of $7.15 per share. *If
* they didn’t take this loss they would’ve reported $1.28 per share, which would’ve topped the $1.19 expectation. So I guess that’s a good job by Citigroup but it makes me think that the operation was a success but the patient died.I’m getting off track. So the CFO says the loss was a temporary bump in the road and that they can quickly overcome it. OK. Investors seemed happy and the stock rallied almost a percent.
Here’s what I don’t understand. If Citi earns $1.30 per quarter, it’ll take five and a half quarters to get back this loss. Analysts are expecting about $1.55 per quarter for the upcoming year… so even with those numbers it’ll take more than a year to recover this loss.
As a non-analyst, I don’t know this loss should be ignored. Setting yourself back a year seems like a big deal to me. *Disclaimer: I am not a stock analyst so I freely admit I don’t know what I’m talking about with respect to C.
* The point of this little role-playing exercise was simply to illustrate the current market’s mindset. All news is spun as good news. Accounting charges (the biggest *ever
*) are ignored by investors and called a speed bump by the CFO.Cavalier and bullish attitudes. We’re swimming in them at both the macro and micro level.
Maybe the investors and the CFO are right but is anyone out there asking whether the Emperor is wearing any clothes or not?
See youtomorrow
,-Mike