The Zigmont Report (Daily Market Recap for 2/12/18)

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 it daily shortly after the market close.


The opinions expressed below are my own


Buying opportunity.  That’s what the dip-buyers/bulls were saying today.  Friday’s positive close looks very much like the end of the selloff so lots of chart-watchers figured that today was a great chance to get long(er).  Treasuries didn’t change too much so the weight of marginally higher interest rates wasn’t in play.  News wasn’t interesting either today so the equity market had very little in the way of fundamental drivers at work.

That leaves emotion as the sole force in the tape.  The present emotion is one of opportunistic greed.  It remains to be seen how much longer the buyers-of-opportunity can push prices upward.

It’s impossible to decide what the proper fundamental valuation of the moment *should be.*  That leaves investors mostly looking at charts and grappling with the overreaction of markets.  Even the bulls are looking in the mirror and admitting that maybe we were too high in late January.  Those same bulls say that we oversold through Friday however.  They are trying to figure out where two overreactions should balance out.

I think the bulls are gunning for about 2730 in the short run.  That’s 5% lower than the all-time highs and I think most bulls are willing to admit that a 5% correction would be healthy for a market that skewed into delusional optimism.

The bears, whatever they’re thinking, are outgunned at the moment.  Their opinions kinda, sorta don’t matter.  If I had to guess, I’d speculate that they too understand the give-and-take nature of the latest price swings.  They took a 10% bite out of the market and it’s only natural to expect a recovery of some kind.  Maybe the bears are looking at the same 5% correction level before they try to step in front of the tape again.

I think what’s most important to consider is that these large moves of late are a function of investors groping for a new equilibrium.  The market is letting go of the old trading dynamic and feeling out the new one.  I expect over-reactions on both sides to continue for a spell longer.

I’m looking for a couple of calm sessions to happen in order to guess/estimate a new equilibrium level/range.  We’ll just have to see what shows up.

If/when that happens, we’ll go back to the waiting game.  Waiting for a material catalyst to push the tape in a meaningful way again.

For the moment though, I think we’re all chart-readers and we’re all thinking that the Friday low was too low.  How high will be too high when it comes this countermove?

See you tomorrow,
-Mike