Yesterday, just before the open, to help allay any confusion about what the market would do and how to trade it, we provided the perspective of the biggest fade in market history, Dennis Gartman, who was quite bearish.
Clearly we wish that we had had the presence of mind to have been aggressively net short of equities, but we did not, nor are we that lucky. We shall, however, look upon any intra-day rally in the market as a point at which to become modestly shorter of the market. That is, given the range thus far with the low in the S&P futures just below 2000 in early trading, and given that the futures are now 2015, this is sufficient to sell into to become slightly net shorter of the market. This shall be especially worthy of selling into given that the futures “gapped” lower of course and given that the “gap” has been closed on this modest rally from the lows.
As we further said, “we note this just in case the BOJ needed one more reason to buy a few yards of USDJPY and send the S&P right back up to 2100.”
Sure enough, the BOJ, both directly and indirectly via Trust banks, proceeded to unleash an unprecednted rally in the USDJPY carry, dragging the E-mini 50 points higher from its overnight lows.
So where is Gartman now?
Well, just as yesterday was a warning to the bears, today we have a warning to the bulls because, you guessed it, Gartman just covered all is virtual money “shorts.”
But first, here is Gartman’s shocked amazement that in a rigged, centrally-planned market where every uptick is meant to inspire nothing more than confidence in a failing system, a terrorist event could lead to a market surge:
SHARE PRICES HAVE FLOWN HIGHER, MUCH TO OUR SURPRISE for we had no idea that when terrorists kill nearly 130 people in Paris and wound several hundred more, with more than 150 of those wounded in critical condition, that that is very bullish of stock prices, but apparently it is. Apparently terrorist attacks are supportive of stocks… apparently! We have been wrong in times past, and we have been wrong badly before, but we cannot recall every having been as wrong as we were yesterday for we were certain that terrorism is a bad thing for equity investment. We were certain that when cultures clash, as Islam and the West are clashing, stock prices should weaken. We were certain that terror is detrimental to business conditions. We were wrong. Apparently all of these things are marvelously supportive of stock prices. Apparently, terror is stimulative to the economy, and apparently any thoughts on the part of the monetary authorities in the reserve currency nation to raise the o/n base rate by the barest of minimums can now be pushed aside because terror trumps any and all other investment concerns.
That said, it is somewhat disheartening to see even Gartman lose faith in central-planning.
We learn new things every day. Hence, if we are bullish of equities apparently we need to ask for more terror to be wrought upon us; we need to see thousands of deaths, rather than mere hundreds, to push stock prices even higher. We are indeed in a brave new world. It is a world we are not particularly fond of, however, if this is the new reality.
It’s all good Dennis; Just sit back and laugh – we do it every day.
Finally, for those looking to fade the next Gartman trade, here it is:
So what have we done in our retirement funds here? Initially as reported, having come into yesterday’s market slightly… very, very slightly… net short, we got a bit shorter very early in the session. However, by mid-morning we knew we were wrong. How did we know that? We knew that because that which we sold had moved a full percentage point against us, and the market is the final arbiter of positions. We were wrong. We were clearly and obviously wrong, and when wrong the only possible action to take is to get less wrong; to cover that which had been done and to retreat to the sidelines. We did precisely that, covering in the short positions we had had in the derivatives markets and buying a bit more of that which we had been long of… tanker stocks… to end the day net neutral, or as close to net neutral as we could get ourselves.
Do we believe this rally? No, we do not. We refuse to believe that “terror” is bullish. We refuse to believe that the deaths of 129 innocent people by madmen are materially supportive of stock prices. We refuse to accept the notion that the odds of a Fed tightening are reduced modestly and that that is massively supportive of stock valuations. We refuse to believe that common sense has been cast overboard entirely, and so neutral we are and neutral we shall be. We are wise enough not to stand astride of the market and scream aloud that the market is wrong and that we are right, and so we’ll not be short, but neither shall we accept the notion that what happened in Paris on Friday is equity bullish. Sometimes it is just best to hove to the sidelines and watch; we’ve hoved! We’re watching.
Don’t forget laughing, Dennis. For everyone else, this is your inflection point.