Daily Plan 3/10/23

Ominous and NFP

Traders-

A perfect storm gripped the markets today and the sell off caught most people off-guard. There will be post mortems on the session in chat rooms tonight, however from what I am gathering the below could have been key factors -

1. From an order flow perspective, the market was already weak. I covered this in my weekly plan (link below), that the break out of 4030 last week into 4080 was untenable due to failure of the value area to move higher and 4030 itself was a weak area structurally based on auctions the prior weak.

2. The Gold sell off yesterday was the Canary in the mine and perhaps set the tone for the session today. The market was already offering below 4010 when the session started today and the auction simply dried off at 4020, leading me to send the tweet below. Make sure you turn on the notifications for my tweet and share my twitter handle with other traders like your self.

3. What really exacerbated this sell off today was the collapse in the Silicon Valley bank SIVB , following closely on the heels of SI yesterday which I had warned against in my weekly newsletter. While SI was not a S&P500 component, SIVB is. Any stock that loses 2/3rd of its value in a day will be a major source of worry and confusion - the fact that a S&P500 company did so is doubly so. All said and done, SIVB lost 60% of it’s market cap, shed about 160 dollars in price - in one session! For a S&P500 component this is unheard of! Very rare. Memories go back to the dot com days !

4. While SIVB exposure to the crypto industry seems to be minimal, they are primarily a startup and venture capital investment seeder. With higher rates, the investments have dried up so the loan portfolios are not doing as well as other large banks , even though the rates on loans have now risen a lot. To make it worse for them, the cost of funding, or what they have to pay for the deposits has gone up quite a bit due to these increased rates. A perfect storm for a smaller bank. Ideally you want to see profits go up on loans and the cost of funding go down or remain stable for these banks. In case of SIVB it is the reverse.

5. This took the entire bank sector down with it. Stalwarts like SCHW lost 10% in a day. Nothing was spared. And if large banks, which are supposed to reap the rewards for higher rates from loans are going to be cut like that, who is safe? How can interest rate sensitive sectors like XLK be spared?

   

   A timely update by me on Twitter at 4020 today before a massive 110 point sell off. If you have not already, make sure you turn on the Notifications on from me and never miss my updates.

My take on this banking swoon:

The US banks have been stress tested several times in last 15 years and I will think that the regulators will have tested the banks for a variety of scenarios, including when the interest rates rise to 5-6%. Atleast any comprehensive testing regime will make sure this is the case. What the unknowns for me are what type of exposure whether that is through credit or bonds these banks have to these crypto companies. In the US, the bank deposits are insured by FDIC by upto a quarter million dollars per account holder per account per financial institution. However, I will personally not take chances and will spread this out from a risk management perspective. I have called the unintended consequences of these 5% rates for a while now and we are finally beginning to see the break in the system caused by these high rates.

Just unprecedented pressures which no one seems to worry about in the FED or on Treasury side at the moment. Perhaps it is working as designed -

1. Potential collapse of car loans with average car payment in excess off 1000 bucks and rates now pushing 10% on most loans.

2. Housing at the brink of 7-8% mortgage rates could completely shut off any purchases leading to severe markdowns.

3. Credit could freeze altogether - a trailer of that we saw today.

From an ETF perspective as some of these banks may have ETF products that folks buy- typically when an ETF goes bust, it is liquidated. That means you do not lose all your investment but you must sell off the assets in that ETF and proceeds are deposited to your account. Wanted to share, FWIW if some one wondered. I know I did .

My levels for tomorrow

So it is the NFP day. I do not like to do a super formal NFP day plan due to uncertain volatility but here are a few thoughts.

1. If there were to be no NFP tomorrow and it was a sterile, light news day like today, I would think the market could have remained soft to the downside, due to the fact it may be searching for value after a session like today and the technicals just would not cut it. This would be almost always followed up with even more sell off had there not been the NFP tomorrow which makes it a wild card.

2. But since we do have that NFP- it could either be a double (or triple whammy) for this market or it could be saved if the NFP were to come in quite softer than expected.

I personally do not think that the jobs market is as robust as what the news makes it out to be. I think a lot of the job growth is due to folks doing multiple jobs just to pay the bills. This does not show in the NFP as the report does not consider number of individuals but just the number of jobs created.

Remember what also complicates this is the sheer number of inept calls by so called internet experts.

For instance, when the GS came with that 190 PT on AAPL at 156 Monday, it made 0 sense to me. Many rushed into AAPL on back of that call and it may all have been a massive liquidity exit for the bank. Then on the S&P500 side, we had a lot of so called experts calling for a test of 4100-4200 due to the fact that the markets always rally after FED chair comments.

• Day one- it did not happen!

• Day two- it did not happen either !

• This was a strong clue that it may not happen on day three either!

This is the main reason I really do not follow any news outlets - I mostly observe level 2 (DOM) and all of my calls are based on a study of the level 2. It is time consuming but it is more reliable for me.

Now if the volatility is going to get worst, or if there are going to be more unknown-unknowns like bank runs or more wars, I personally think we could see Gold benefit from it. This could cut both ways, I think if NFP were to come in cooler than expected, that could also be good for Gold .

Names like GLD may benefit in this scenario. It is 170 now.

GLD

On the emini S&P500 side…

I will watch 3890 and 3950.

1. I think if we begin to see 3890 lost, we could see more volatility but until that were to give up, we could see the index float back up to 3950. Bank panic may be overdone but if the NFP is too hot, like 300K or more, then I could see 3890 break, else it may be supported.

2. A break of 3950 and a close above 3950 on the Daily time frame could see the index retest 4000 in my view (IMO).

3. These dips I think in 3890 if are not supported, we could be in for a much deeper sell off. From a timing perspective, if this were to come tomorrow, it may get ugly due to the context, sentiment and technical structure of the market right now.

We are trading 3910 at time of this blog. The levels are all March Emini and I will use the June levels in the weekly newsletter. FYI.

Previous weekly newsletter is attached below for my longer term analysis. Always make sure you subscribe to the letter and share it so we can reach more traders with the message of the tape reading.

Weekly Plan 3/5/23

Source: Boogich on Getty

~ Tic Tic

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