When I return in a few hours I'll have a wrap of today's events and any notes on what I think is the most likely course of the market in the near term. As most of you know (we do have some new members) the longer term 3C charts have deteriorated badly over the last few months and that deterioration is accelerating. I have not changed my position on volatility which at last check last week (using a volatility channel based on the market's ATR as well as some other indicators as there are many ways to measure volatility) is at last check over twice as high as it was in February, it is also 50% higher than 2 weeks ago at last check.
What this means...
Volatility is associated with tops, we are seeing extraordinary volatility as the market structure has changed over the last several years. This is why our short term options trades have been doing so well. As you are well aware, I've expected the market to continue to deteriorate as it has, but there's still that slow-boiling the frog effect. One notable change in character recently has been the market's inability to stage late day comebacks that made the market seem more bullish than it was, all of the downside volatility was on the gap down and the rest of the day, particularly after the European close, we would see a slow melt up. This had the effect of showing you hours of the market moving higher, yet the gaps down where actually moving it lower. This is also something we expected to keep the 'buy the dip" crowd in the game; all of that has changed. Why? As I have mentioned over the last few weeks and I believe AAPL is an excellent example, hedge funds are increasingly taking a "everyone for themselves" stance.
One of the reasons 3C typically shows such consistency in divergences among multiple market averages and industry groups as well as high profile stocks is because hedge fund managers are the biggest sheep on Wall Street. When AAPL disappeared from Dan Loeb's top 5 holdings and as of our analysis from April 10th on, I suspected AAPL would underperform the broad market, it did. Why? Hedge Fund managers, in my opinion, are all trying to squeeze out of the same small door at the same time. Loeb's holdings are very relevant for other managers who tend to piggy back his positions.
The point being, hedge fund managers are VERY well paid, their first and primary objective is to keep their job. As the flock moves together, no one hedge fund wants to stand out as underperforming the industry. If the majority of hedge funds are down 5% on the year, any single manager being down 5% is not viewed as a threat to their job. This is why they flock together and very few actually break from the flock to chase real returns for their client, it's about keeping their job and not standing out in the crowd.
APPL's performance relative to the SPX since April 10th
SPX green/AAPL red
I'll be back after I take my wife to the Doctor and bring you the market wrap.
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