Timely Pullback

Market Update 2020-09-08.

Equity markets rose early in the week on the back of continued month-end price agnostic retail ETF money flows, only to reverse course Thursday in what has come to be a very normal “deadzone” Q3 pattern.  In total on the week, the equity markets fell sharply from its Wednesday spike high of over 3575 on the SP 500.  The S&P 500 finished the week down 2.3% with the Nasdaq declining 3.3% and Tech stocks falling over 4% week on week.  From the top-tick Wednesday peak, the declines are of course larger, but I remind readers, no one consistently sells the short top or buys the lows.  It does not happen.

Putting things in perspective, year over year, the Nasdaq is up 42% off of a low in September 2019, up 26% year to date and up 15% from its mid-February pre-Covid top.  Prior to this week’s drop, the Nasdaq was over 28% above its 200-day moving average.  A pullback in everything was due and is happening pretty much right on cue.

Texas hedge

Late Friday a story emerged (they always seem to emerge after the big drops not before) that Softbank (the large Global/Asian technology investor) had initiated what is commonly revered to in the hedge fund world as the “Texas Hedge” in a whole host of large tech stocks.  What is the “Texas Hedge”?  The “Texas Hedge” is not a new two-step dance.  It is as maximally aggressive as one can get in long equity markets, and it is a clear indication of many investors being “over their skis” as we had warned weeks ago. It is pyramiding long equity positions with long call option positions in the same stocks. This results in highly leveraged long positions.

In addition, Tesla was not added to the S&P 500 over the weekend, much to the chagrin of day trading speculators. There is also probably the most important and least discussed issue: the China and USA technology trade fight escalated…

Outlook

The setup for late-Q3 and early-Q4 into the election remains the same.  As of now, any pullback back below 3300, which is where the S&P traded in late July of this year, may be a buying opportunity for some investors, setting up for post-election economic expansion.  Behind the scenes, things are already looking up for November through the first half of 2021.

Resources

  • Our complete second half outlook has been also posted and can be found by clicking here.

 

Weekly market updates contain general information and expresses views of Oak Harvest Investment Services. Data, articles, and information cited are believed to be reliable at the time of creation, but are not guaranteed. Nothing in this content is intended as, nor should it be regarded as, personalized investment advice. Strategies and ideas discussed may not be right for you.  Views and opinions expressed may change without notice and do not constitute a recommendation, or an offer or solicitation to buy or sell securities. In addition, Oak Harvest makes no assurance as to the accuracy of any forecast made. Indexes are not available for direct investment and your results may differ. Past performance is not indicative of future results. Investing involves the risk of loss.