Thanks for reading my Diary today and all week. I hope it was value added. Enjoy the weekend.

Be safe.

"It is a certain truth that the gamma squeeze will be over today - actually it might be over a few hours before the market closes and before actual expiration."

- Kass Diary, Will The Markets Face a Hangover Early Next Week

I said to remember this early morning post - specifically the quote above - reflecting the end of the "gamma squeeze" which might have been instrumental with regard to this week's rally.

Mar 25, 2022 ' 09:32 AM EDT DOUG KASS

Will the Markets Face a Hangover Early Next Week?

* Will the gamma squeeze be over today and will stocks move lower after options expiration?

* Expanding my short exposure now...

Though I might be wrong, remember this post, which is short but may have some important messages!

As we end the first quarter of 2022, both retail (gamblers) and institutional investors (who "need" stocks higher by the last day of 1Q2022) have aggressively been buying weekly call options, particularly on big tech.

This result of the unusually high options activity/gambling is that dealers depress volatility and chase to hedge - feeding on itself.

It is a certain truth that the gamma squeeze will be over today - actually it might be over a few hours before the market closes and before actual expiration.

I am expanding my short exposure - in Indexes and making short rentals in individual large-cap tech stocks - in the face of the early day's futures strength and in front of anticipated weakness, based on my belief that an options hangover may occur early next week.

With about 60 minutes to go - same old, same old. 

The senior Indexes are higher without participation from autos, banks are lackluster - considering the spike in bond yields - and homewreckers are in the basement. 

Net/net I added to my short exposure today.

I am taking (TLT) short off of my Best Ideas List (short) where it has resided for nearly six years.

Professor Galloway's No Mercy/No Malice - NFT Unpact!

Short people got no reason
Short people got no reason
Short people got no reason
To live

They got little hands
And little eyes
And they walk around
Tellin' great big lies
They got little noses
And tiny little teeth
They wear platform shoes
On their nasty little feet...

- Randy Newman,Short People

As noted below, my shorts were down slightly in a sea of green on Thursday. 

Today my shorts are broadly lower - at multiple percentages relative to the Indexes. 

Long standing Carvana leads the parade (-$20/share), down by -13% and by AI another 5% lower: 

Mar 25, 2022 ' 07:29 AM EDT DOUG KASS

Minding Mr. Market (Part Deux)

It is also interesting to note that on Thursday my portfolio of shorts (Sleep Number (SNBR) , Digital World Acquisition (DWAC) , Starbucks (SBUX) , C3Ai (AI) , Lightspeed (LSPD) , Carvana (CVNA) , Robinhood (HOOD) , Roblox (RBLX) , F45 Training (FXLV) , Carnival (CCL) , Royal Caribbean (RCL) , Ginkgo Bioworks (DNA) , Roku (ROKU) and Berkeley Lights (BLI) among them) was down on the day!

I am buying a bunch of March 2024 Treasuries to yield 2.35% now.

I took in - covered and bidding for - some of my short (SPY) $434 puts at $8.60 or better. 

It means I am getting shorter.

I have added to my short (SPY) (May) $435 call position this morning.

So the dollar is strong against the yen, certainly against the euro and more mixed vs the British pound, with the 3 making up a majority of the DXY but if that is all you're getting for info on the direction of the US dollar, you are not getting the full picture.

The commodity currencies are ripping higher vs the US dollar. The Brazilian Real today is at a 2 yr high, the Mexican Peso is rallying to the best level since September 2021, the Aussie$ is matching the highest level since June 2021, the Canadian dollar is a few cents from its best level vs the dollar since last November and even the South African Rand is rising to a level last seen 5 months ago vs the dollar.

Brazilian Real

Mexican Peso

Aussie$

Canadian $

South African Rand

Pending home sales in February fell 4.1% m/o/m, worse than the estimate of up 1% and follows a 5.8% decline in January, a 2.3% fall in December, a 2.9% drop in November and after a 6.3% rise in October. The index is at the lowest level since May 2020. If we include the January numbers, the weakness was broadly based regionally speaking so far this year. The average 30 yr mortgage rate was 4.09% in February according to Bankrate and as of yesterday was 4.54% vs and vs 3.55% at the beginning of the year.

There is no question that inventories are light with the existing home sales figure seen earlier this week showing that months' supply was under 2 vs the long term average of about 6 but "house hunters are contending with a number of additional market issues, including escalating home prices and rising interest rates...Given the situation in the market - mortgages, home costs and inventory - it would not be surprising to see a retreat in housing demand." I'll leave it at that.

Pending Home Sales

The final March UoM consumer confidence index was 59.4 vs the 1st March print seen a few weeks ago of 59.7 and down from 62.8 in February and 67.2 in January. That's the lowest print since August 2011. One yr inflation expectations was 5.4%, up 5 tenths from February, the highest since 1982 while the 5-10 yr outlook remained at 3%.

As most of the internals weren't that much different than the early month data, I'm not going to list them all here again but do want to point out one notable intra month change, and especially after just talking about home sales. To the question of 'is it a good time to buy a home', that fell 3 pts in the 1st March look to 70 and declined another 7 to 63 just this week.

Any of us could have written the UoM bottom line, "Inflation has been the primary cause of rising pessimism." On the positive side, "The sole area of the economy about which consumers were still optimistic was the strong job market. Consumers anticipated in March that during the year ahead it was more likely that the unemployment rate would post further declines than increases (30% vs 24%).

UoM

One yr Inflation Expectations

Four factors conspire to make this selection: 

* The rise in interest rates today (+14 bps on the 10-year) threatens technology valuations.

* The massive 10-day move from oversold to overbought in the S&P Oscillator.

* The rise in equities has been accompanied by lower exchange volume but much higher (gambling) in weekly calls.

* A possible hangover from this week's "Gamma Squeeze" early next week. 

Bond yields are blowing out to the upside now - with gains of 15 bps in yield on the ten year US note to 2.49%! 

At some point this will impact equities. 

There is an alternative now.

P.S. - Lower bond prices should be particularly painful to technology stocks. I am short (QQQ) .

More SPY short at $452.81 now.

As I expected, the initial euphoria in cannabis stocks has stalled out. 

Mar 25, 2022 ' 07:25 AM EDT DOUG KASS

Cannabis Chronicles (Part Deux)

The bad weed news in New Jersey was ignored Thursday in light of the House vote on legalization.

Mar 25, 2022 ' 06:29 AM EDT DOUG KASS

Cannabis Chronicles

There were some post-market fireworks in cannabis stocks Thursday afternoon. 

I am long AdvisorShares Pure US Cannabis ETF (MSOS) and a number of individual equities, but I remain fearful that the optimism regarding 2022 legislation might be premature. 

Stay tuned.

Here are my large-cap trading short rentals discussed in the previous column, with the cost basis: 

* (AAPL) $173.87

* (MSFT) $305.40

* (NVDA) $281.63

* (SNOW) $227.70 

I wouldn't recommend this strategy to home gamers - just being transparent in my trading/investing. 

These are very short term rentals!

* Will the gamma squeeze be over today and will stocks move lower after options expiration?

* Expanding my short exposure now...

Though I might be wrong, remember this post, which is short but may have some important messages! 

As we end the first quarter of 2022, both retail (gamblers) and institutional investors (who "need" stocks higher by the last day of 1Q2022) have aggressively been buying weekly call options, particularly on big tech. 

This result of the unusually high options activity/gambling is that dealers depress volatility and chase to hedge - feeding on itself. 

It is a certain truth that the gamma squeeze will be over today - actually it might be over a few hours before the market closes and before actual expiration. 

I am expanding my short exposure - in Indexes and making short rentals in individual large-cap tech stocks - in the face of the early day's futures strength and in front of anticipated weakness,  based on my belief that an options hangover may occur early next week.

* (FTNT) downgraded to neutral from buy at Mother Merrill/Sister Bank of America.

* (CVNA) price target raised from $140 to $160 by Wedbush.

* (ROKU) price target lowered from $250 to $225 at Citigroup.

Another late week gamma squeeze with lower exchange volume and accelerating volume in weekly call options: 

You've heard me talking about the yen all week as it traded to the lowest level since 2015 because of the risk it poses to Japanese inflation that would result in monetary tightening and the major implications that would have for the JGB market and in turn global bond markets and rates. Today it is bouncing after falling for the past 13 out of 14 days.

BoJ Governor Kuroda was brought in front of parliament and addressed the yen weakness but he embraces it. "There's no change now to my view a weak yen is generally positive for Japan's economy" and blamed the selloff more on the rise in energy prices that they are so dependent on importing. He then says "Cost push inflation that is not accompanied by wage hikes will hurt Japan's economy. As such, it won't lead to sustained achievement of our price target. That's why the BoJ will continue to maintain powerful monetary easing."

And that easing in the face of ever growing inflation pressure will further lower the value of the yen and the purchasing power of its citizenry. Kuroda and Draghi are on the Mount Rushmore of the most dangerous central bankers in history.

So it wasn't the Kuroda comments that is leading to the bounce in the yen as he doesn't care about its weakness, it was Finance Minister Shunichi Suzuki who said "Exchange rate stability is important, and sharp volatility is undesirable." At least someone in Japan understands this but I will continue to watch this situation closely with the yen and JGB yields because of the major global ripple effects and further large moves can create.

The 10 yr GJB yield was up for the 4th straight day by almost 1 bp to .238%, the highest since January 2016 and getting ever closer to the .25% upper end of YCC. The 40 yr yield, the least influenced by YCC, was up almost 3 bps to exactly 1.00%. The 10 yr inflation breakeven was up another 2 bps to .87%, the highest since September 2015.

Tokyo reported its March CPI and it will be the last month where the 50% decline in cell phone fees will be in the data and thus will see much higher prints (relatively speaking) going forward. Headline CPI rose 1.3% y/o/y, matching the quickest since October 2018 but ex food and fuel because of that cell phone issue, fell .4% y/o/y. Both were one tenth more than expected.

10 yr JGB Yield

40 yr JGB Yield

10 yr Japan Inflation Breakeven

The war not surprisingly heavily weighed on the confidence of German business. The March IFO fell to 90.8 from 98.5 and almost all driven by a 13 pt drop in the Expectations component. The Current Assessment held in, falling just 1.6 pts m/o/m. The IFO said simply, "The mood in the German economy has plummeted...Companies in Germany are expecting hard times." All four components, manufacturing, services, retail and construction saw sharp declines in expectations. There is no way to spin this higher energy prices the biggest pain point but German industry still experiencing the pain of muddied supply chains.

Economic sentiment, as to be expected, declined too in Italy to 105.4 from 107.9 with manufacturing, services and retail confidence weaker. Construction was the bright spot.

Last night we saw UK consumer confidence for March and that fell 5 pts to -31 as forecasted. That is the lowest level since November 2020. Just as seen in the US, blame it on inflation. GFK said "A wall of worry is confronting consumers this month and there is an unmistakable sense of crisis in our numbers. Consumers across the UK are experiencing the impact of soaring living costs with 30 yr high levels of inflation, record high fuel and food prices, a recent interest rate hike and the prospect of more increases to come, and higher taxation too - all against a background of stagnant pay rises that cannot compensate for the financial duress. This is the 4th month in a row that UK consumer confidence has dropped."

So when one wonders why expectations for global economic growth is slipping, this would be a pretty good explanation as to why.

German IFO

UK Consumer Confidence

It is also interesting to note that on Thursday my portfolio of shorts (Sleep Number (SNBR) , Digital World Acquisition (DWAC) , Starbucks (SBUX) , C3Ai (AI) , Lightspeed (LSPD) , Carvana (CVNA) , Robinhood (HOOD) , Roblox (RBLX) , F45 Training (FXLV) , Carnival (CCL) , Royal Caribbean (RCL) , Ginkgo Bioworks (DNA) , Roku (ROKU) and Berkeley Lights (BLI) among them) was down on the day!

The bad weed news in New Jersey was ignored Thursday in light of the House vote on legalization. 

Good one from Maleeha.

I call BS on the Fed:

If one wants to look at one simple technical indicator to consider possible near-term price action, I would look at the S&P Short Range Oscillator, which is now 3.59%.

The oscillator was -5.23% on March 14.

It is sending a solid message -- just as it sent the opposite message a brief 11 days ago.

In premarket trading (6:35 a.m ET) I have shorted more SPDR S&P 500 ETF (SPY) and Invesco (QQQ) Trust QQQ at $450.81 and $359.89, respectively.

There were some post-market fireworks in cannabis stocks Thursday afternoon.

I am long AdvisorShares Pure US Cannabis ETF (MSOS) and a number of individual equities but I remain fearful that the optimism regarding 2022 legislation might be premature.

Stay tuned.

*I don't know

Of course we never know why markets behave the way they do on a short term basis, but Thursday's sharp ramp higher on top of the strength over the last nine trading days was difficult for me to comprehend.

Participation was not broad (as an example, financials were lackluster) and seemed to be concentrated in a narrow list of names (among them Microsoft (MSFT) , Advanced Micro Devices (AMD) and Nvidia (NVDA) ).

Pretend narratives are not for me, so when I don't understand the action I usually keep my mouth shut and my pen off the paper.

Which is exactly what I will do now...

* The market (and money) never sleeps

dougie kass • 10 hours ago

"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."

- Bob Seger, "Night Moves"

I described the importance that overnight futures trading holds for me in this column a few weeks ago. It is a guidepost to my strategy in the regular trading session.

Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid, and (2) it seems fear and greed is often exaggerated outside the regular trading session.

It was a quiet evening/early morning for futures. Gold was -$4.50 and Brent crude was -$2 to about $117 a barrel.

Bond yields of the long end are flat after yThursday's rise in yield.

S&P futures peaked at +13 and bottomed at -11. At 5:50 am ET they were at -2.

Nasdaq futures topped out at +70 and dropped as low as -56. At 5:50 am ET they were at -15.

In terms of my trading in the indexes, yesterday I traded around my core short positions in SPDR S&P 500 ETF (SPY) and expanded my gross short exposure into the rally.

After the close I continued to sell strength and initiated a short in Invesco QQQ Trust (QQQ) :

Post market trades:
* Back shorting QQQ $359.63
* Shorted more SPY $450.63.

Dougie

As I wrote above, money never sleeps!