Who poked the bear?

DOW PLUMMENTS 371 PTS (1.7%) TO END ON THE LOWS, THE S&P FALLS 43 PTS (1.8%) AND BREAKS SUPPORT, THE NASDAQ TUMBLED 158 PTS (2.57%) AS THE VIX SURGES BY 30%............ AND YOUR SURPRISED – WHY?  Once it became clear that the buyers were NOT defending the indexes at short term support - the sellers got a bit nervous and pushed lower...the buyers - were glad to accommodate and drew their inline bids...and so the mkt continued to move lower.....and as the day wore on - and the buyers continued to refuse to step it up - the sellers pushed harder into the closing bell.......

Overnight Asian mkts skid into the close....….as the US Political Risk Rises and the Trump agenda comes under fire!  Japan -1.3%, Hong Kong -0.62%, China -0.35% and ASX -0.82%, Taiwan, South Korea, Pakistan, Sri Lanka and India all lower.....

In Eastern Europe - the Russians, Czechs, Romanian and Hungarians are all lower and in the Mid East - the Saudi's. Israeli's, Qatar,  and UAE are all feeling the pain as well. 

In Europe - mkts are big RISK OFF mode as the sun moves across the sky.....FTSE - 1.4%, CAC 40 - 1.3%, DAX - 1%, EUROSTOXX -1.3%, SPAIN -1.8% and ITALY - 2%. 

Last night -  The DOJ (Dept. of Justice) named a special counsel in the Russian probe, Trump considers Joe Lieberman for FBI Director and the bond mkt is concerned about slow growth as the GOP agenda hits the wall……

US futures are pointing lower again this morning - currently down 9 pts in early pre-mkt trading....after the damage yesterday - the mkt will look to find support at 2336 - the 100 dma. If that doesn't hold then look for the SELLERS to really kick in as the BUYERS withdraw - willing to buy stock, just not at those prices!  Remember - it's not like the buyers disappear - they just decide to take advantage and bid lower....this ain't difficult.   

Arrabiata…. is the Italian word for ‘angry’…and boy were the mkts angry yesterday…. but you must ask – what took so long?  Why were the mkts seemingly ignoring all the signs that have been flashing RED for weeks?  Why when Trump was elected – did investors take the mkts to new highs without looking back?  Because it was all about the ‘future expectations’ of what a Trump Presidency meant…. you couldn’t use the word REFORM enough times…. Reform Taxes, Reform Healthcare, Reform spending, Reform regulations, Reform Washington, Reform Congress…. Reform, reform, reform…and investors loved it!  They couldn’t wait for the reforms to happen and they voted with their dollars taking stocks to new highs on the expectation that Trump was going to actually get something done and even as he began to stall – investors did not want to believe it - as they continued to push an push...…. Ok – that was then…. this is now……

Unless you have been living under a rock for the past 3 months – you must realize that the storm has been building…. Mkts making new highs, complacency at new lows leaving everyone to scratch their heads.......there was a seeming disconnect......between politics and the economy..

Trump – after successfully managing to throw almost everyone under a bus or two, after he refused to play by the rules, after he ripped into the mainstream media and accused nearly all of them of reporting FAKE news, after he offered to have a sit down with ‘Chubby’ (North Korean Pres Kim Jung On), saying “it would be an honor to sit down with him” as Chubby launched ‘test missile’ after ‘test missile’, after he threw FBI Director James Comey to the wolves for trying to figure out exactly what is going on with the Russians and Mikey Flynn, after he hired his son in law and  sent him to Iraq as some kind of ‘US envoy’ to negotiate US foreign Policy making him responsible for  ‘Peace in the Middle East’,  after all of this crap and with the FED on the verge of raising interest rates again – NOW you ask – Why did the mkt sell off yesterday?  REALLY????

Ok – so let’s be clear here…. the mkts do not typically price themselves in the long term based on noise in Washington….and that was clear for the past couple of months…. as investors ignored all this stuff – until they don't.   And while there was no ‘event’, no ‘catalyst’ per se to cause the mkts to sell off – investors are now saying – “look – we’ve had enough”.   The reforms that we planned on happening in 2017 are not happening, so the expectations of lower taxes, less regulation, more spending etc -appear to be nothing more than a pipe dream. 

Phrases like obstruction of justice, witness tampering and impeachment have now replaced Reform, Reform, Reform……so will the speaker of the house be saying in January 2018 –

“Ladies and Gentlemen – It is my distinct honor and privilege to introduce and welcome President Mike Pence”!

The headlines are screaming for his head....and the Democrats (and some Republicans) won't be happy until they slaughter him and send the country into a tailspin....Just a side note - Does anyone else feel like we are the laughing stock of the FREE WORLD? 

“Congressman call for Trump Impeachment on House Floor”

“First Republican Raises Impeachment for Trump”

“Trump may be headed for Impeachment”

“Donald Trump Impeachment - How Quickly it could happen”

So while it is all very dramatic – the selloff -  while not over -  does not signal the end of  our current bull mkt at all….Look the S&P is up 15% since November – it is at all-time highs and yesterday it sold off by 1 ½%.....that is far from panic…..

Now individual sectors got smashed over the head a bit harder - think Financials - due to lack of any reform, tax, regulatory or otherwise,  BAC lost 6%, JPM lost 3.1%, GS lost 5.1% while the Financials ETF - XLF gave up 3%.  Next think Tech - because they have been such an outperformer that when the mkt gets nervous people sell stocks that have had the most bang for the buck....So Apple for instance lost 3.3%, Amazon lost 2.2%, Google gave up 3.3%,  and the tech ETF - XLK gave up 2.8%.  For the most part the only sector up yesterday was the Utilities - and that makes perfect sense.....it's called the 'safety play'. 
 
 
So we would have to sell off another 8 ½% before it is even considered a correction…so that means we would have to trade down to 2160 on the S&P….and that is NOT happening right now….If the mkt were to back off say 5 – 7% - that would still be within the normal range of trading – but would succeed in taking some of the fluff out and bring valuations back to earth.   Because let’s be serious – this was getting a bit long in the tooth, no?   I mean a 5% pullback puts us right back in the Dec/Jan range of 2260/2280 where there appears to be support......
And how happy would Janet and the Fed Presidents be?  This way they could point to Trump and the political drama on Capitol Hill as the scapegoat for a mkt correction.....and not FED policy.....I mean you can't make this up....who would ever believe it. 
Overnight Gold continues to move UP.....again think the safety play.....nervousness causes investors to play it safe and gold is always safe....
 
The dollar -continues to get whacked as well.....think failed GOP agenda (for now).....
 
And Oil?  Down again this morning....It attempted to test resistance at $49.65 and failed as well.....OPEC cuts failing to 'create demand' (for now)......as investors re-assess everything....
 
The VIX - that EXPLODED out of the gate yesterday - shot up 30%  - not unexpected - refer to prior notes when we discussed the concern over so much complacency.....and this morning it is up another 2%  at 15.59 teasing the April highs.....
 
So now we wait for the Comey testimony next week....and this could serve to be a real blockbuster - depending on what he says and how he presents his evidence.... Today we will get some eco data - but don't expect that the mkt will focus on jobless claims or even the Philly FED......these will be just supporting actors today - not the star attraction.

 

Take Good Care
KP

Linguine Arrabiata 


 And how appropriate for today......- this sauce is simple to make and gets it anger from the red chili pepper.....You can serve this with any type of pasta you want - but spaghetti or linguine is best.   

You will need:  olive oil, onion, garlic, red wine, sugar, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley.....

 Bring a pot of salted water to a rolling boil -

 In a large pot (or deep sauté pan) on med-hi -  heat up olive oil and garlic.... sauté a bit - but do not burn - 3 mins or so....now add sliced onion and sauté until soft - like 5 mins more.  Next - add 1/2 cup of red wine, 1/2 tblspn of sugar, fresh squeezed lemon juice (about 1 tblspn) , oregano, bit of tomato paste and a 28 oz can of kitchen ready crushed tomatoes (not in puree - just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) - bring to a boil and then reduce to simmer and cook for 15/20 mins....

 Add the spaghetti to the boiling water and cook for 8 mins or until aldente - strain - reserving a mugful of the pasta water.  Return pasta to pot and add back about 1/4 cup of the pasta water to re-moisten.  Stir.....Now add pasta directly into the sauté pan with the sauce - toss well - add a handful or two of grated parmegiana cheese and serve immediately in warmed bowls.  Enjoy with a nice bottle of Brunello di Montalcino.  Always have extra cheese on the table for your guests.


 
Buon Appetito.

The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates.