The Zigmont Report (Daily Market Recap for 10/12/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $12B 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 and do not necessarily represent those of Harvest Volatility Management, LLC.

Averting disaster.  Bulls stepped up to the plate again today.  This time they made their moves overseas.  Asia finished up nicely and Europe was up nicely before our open.  US equity futures were indicating a 1% up move.  This was finally what the bulls and dip-buyers were waiting for.  The S&P traded 40 handles up shortly after the open and it looked like this was just the beginning of a major pop.

The tape couldn’t go higher though and it sagged as Europe closed.  Europe finished down and with our tape slipping, the momentum went south.  Almost all the gains of the morning disappeared by 1 PM.  It looked like the bulls would fail miserably today.  A down day today would’ve panicked a lot of people over the weekend and investors would be *dreading* Monday.

It didn’t unfold that way.  The bulls re-trenched and clawed back most of the gains of the morning.

All of this happened without significant news.  Earnings season kicked off but was mostly ignored.  JPM and C beat expectations while WFC missed.  The overall results were perceived as blah and C and WFC closed higher while JPM sank.  No need to slice-and-dice what they said.  Financials lagged the broader market today.  Whatever we ultimately conclude about their results and guidance, they didn’t inspire the market.

So there were no fundamental forces really pushing investors around today.  That means sentiment continues to drive market behavior.  Well today sentiment improved.  Greed controlled the morning, fear showed up around lunch, greed finished the afternoon and got the win.

That’s good because it helps avert a panic Monday.  It is not a resounding win by the bulls however.  Yesterday’s damage was mostly repaired.  Selloffs earlier in the year, and in the past few years, turned pretty strongly during the first positive session.  Those up sessions tended to repair *more* than the prior day’s carnage.

This time it didn’t happen.  The bulls have more work to do.

That’s not proof that the bears have broken the bulls but it suggests (to me) that the sentimental shift underway is different than what we’ve seen time and time again.

I don’t think the old playbook of chasing the tape higher right after the bounce is being followed by as many people as before.

All in all, the best news about today is that there’s fight in the tape.

Whether we trend up or down, I don’t like it when one camp hijacks the market.  Sentiment shift is one thing.  Sentiment shock is another.

See you Monday, have a great weekend,