The Zigmont Report (Daily Market Recap for 4/2/18)

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

Rough stuff.  The pre-market was a cake-walk.  Futures were down small but after Friday’s rally, it didn’t seem out of place.  News at the time was pretty tame too.  China announced a bunch of retaliatory tariffs on US agricultural goods but they also stated that they didn’t want things to escalate and this was simply to compensate China for the steel and aluminum tariffs the US imposed.  In the grand scheme of things, it seemed pretty minor.  The Han Seng index finished higher (closing around 4 AM our time).  Europe wasn’t too bothered either.  The EuroStoxx 50 was up more than half a percent around 8:30 AM our time and closed almost a percent higher at 11:30 AM.

My point here is that today’s equity pain appears to be a US phenomenon only, at the moment.  Asia and Europe will almost certainly trade off tomorrow in sympathy with today’s drop here.

Anyway, early in the day the news wasn’t terribly bearish but selling momentum simply increased until it was unstoppable.  Continuing troubles among some big stocks added fuel to the bears’ fire.

  • The President is stepping us his PR war against Amazon on Twitter.  That sent AMZN down more than 5%.
  • Tesla is dropped more than 5% on a mix of an ill-considered April Fool’s bankruptcy tweet by Elon Musk… this while the analyst community worries about the slower-then-expected Model 3 production ramp and the potential need for Tesla to tap capital markets shortly.
  • Facebook continues to aggravate users and investors with their responses to the data issues.  FB dropped more than 3% today.
  • Intel dropped more than 6% today as Apple announced they would move away from purchasing Intel chips.

You get the idea.  When the big leaders of the bull market all drop hard… the whole market drops in sympathy.

There’s a lot of negativity in US equity-land right now.  It’s all kind of small potatoes if you ask me.  Each issue is serious for each firm but these are short-term problems which have reasonable solutions.  Imagine if The Washington Post/Amazon lays low and Trump moves on to another target?  Imagine if Facebook changes its damage-control strategy to something the market likes?  Imagine if Tesla says/demonstrates something that suggests a better production ramp and/or less need for a capital raise.

These are not pie-in-the-sky wishes.  These are all doable… more importantly all these stocks have a sentiment problem, in the short term.  If they can turn sentiment, they can stop the bleeding.

I don’t think the bears are going to run over the bulls.  I think this is yet another example of the equity slugfest in progress.  The bulls ran roughshod over the bears for 9 years.  Not anymore.

I’m not bullish.  Don’t misunderstand.

But the bulls and the buy-the-dippers aren’t knocked out… they are just on the ropes.  They won’t drop without at major news catalyst.  That didn’t happen today.  I expect bulls to counterpunch.

I wonder if it’ll be tomorrow though.

See you then,