The Zigmont Report (Recap for 6/3/19)

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 and do not necessarily represent those of Harvest Volatility Management, LLC.

Souring mood.  News over the weekend wasn’t very meaningful and European markets were slightly higher.  Our premarkets were down small but futures traders pushed the prices up to unchanged once regular trading began in the US.  The S&P bounced around and was about 10 handles higher when European trading closed.  Those were the highs of the day.  Some modestly disappointing economic data helped the bears turn equities in their favor.  Throughout the morning, bearish news items broke for various tech stocks (TSLA, FB, AAPL, GOOG).  Those biggie names took the Nasdaq 100 down more than 2% and the rest of the market fell in sympathy.

Capital flow today was finally heavy, 128%.  Intraday lows printed with 30 minutes left in the day.  The S&P was off more than 20 handles at the time and moods were not good.  The dip-buyers jumped in to repair most of the damage before the close but… how much buying was short covering and how much was from the long-and-strong crowd?

We obviously don’t know but that’s not the point I want to make.  I want to highlight that news is still pretty light.  We are experiencing changes in the tape because attitudes in the market are in flux.  Investors are slowly letting go of the optimistic spin on things and repricing things in the pessimistic direction.

We are nowhere near pessimism.  Thing can get worse but I don’t mean to suggest that it *must* get worse.  What we’re witnessing right now is a narrative change.  The market is openly wondering about recession probabilities.  What will the Fed do as global growth falls?  Will Trump make a positive move at some point?

There are a lot more questions floating around out there and *more importantly* those questions are being addressed in a more balanced way.  The market is no longer over-weighting the chances of the positive outcomes.

This is a generally healthy turn in US equities.  It’s not great for the investors that bought at higher levels but the danger of the market leaning too strongly towards one outlook on the future is falling.

At some point, a big material news item will force a big market repricing… but until then, it looks and feels like investors are trying to discount positive and negative futures without a bias.

Don’t know if the process is finished but it feels like we’re close to the end.

See you tomorrow.