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
Calming down but not out of the woods. The morning was a bit ugly because overseas markets didn’t respond well to our tariff news and market reaction. Asia and Europe were off 1-2% and the negativity seemed to be swinging around to us for Round 2 of the same catalyst. That’s silly of course but momentum is a tricky wicket.
There wasn’t much new news today so dip-buyers didn’t have a new wrinkle to contend with. They just had to step into the blender and turn the tape. Not an easy task but they did it just the same. They are strongly conditioned and they will continue to step in *as long as there’s no new negative catalyst.*
The bulls couldn’t do what they’ve done in the recent past however: turn a big down morning into a big up afternoon. Today they turned the big down morning into a modestly up day.
Is that a sign that the dip-buyers are weakening? Are they losing nerve and/or capital? I think it’s more about nerve than money. The bulls took quite a drubbing in early Feb and they responded like usual. The bears didn’t capitulate though and now we’re facing round 2 of what looks like a long fight. I think bulls who jumped in long when the market dropped 1%, then 3%, then 5%, are more gunshy this time around.
Some are being more opportunistic, waiting for a bigger dip than last time. Some are waiting for a retest of the Feb lows (5-6% below current prices). Some are waiting for oversold momentum indicators (right now RSI is neither oversold nor overbought).
I think we’re simply dealing with a new phase of digestion. We’re still trying to find a range. The bulls are letting go of the dreams of jetting right back to the old highs. The bears are realizing that they can’t go straight to zero.
I expect things to calm down for a bit and for the trading range to be tighter. A positive Friday will go a long way towards allaying fears and the push wasn’t great enough to break the shorts.
See you Monday, have a great weekend,