How I Traded Through a Market Bloodbath
I made some aggressive moves — selling and buying — during an ugly day on Wall Street.
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Goin’ Crazy
Well, here I’m rolling down another sunny highway
Been in the sun too long
I’m blowing coconuts, but at least I’m going my way
I’ll probably be here when that sun goes down
I wanna live it up, wanna quit my job
Tell the boss to go to hell
I ain’t complaining, you do the best with what you got
I know you’re laughing cause it’s easy to tell
I’m going crazy
Going crazy from the heat
– Roth, Vai (David Lee Roth), 1986
Welcome to the Circus…
Remember that “Day One” bullish reversal of treadmill that we talked about roughly twenty-four hours ago? Yeah, forget that. All we needed was the necessary pause. Uhm, Thursday, gang… that was no pause. The bullish reversal has been put to death. For now. The markets may still enjoy a coming gridlocked political environment and the final two months of the calendar year may still prove that.
We now know or at least think, however, that Wednesday was nothing more than an algorithmic reaction to the electoral outcome that had more or less been pre-programmed based on probabilities of different results and was almost certainly designed to force price overshoot. By the way, back when dinosaurs ruled the earth, or when floor traders in colored jackets roamed physical trading floors, the S&P 500 didn’t rally 1.6% one day and selloff 4.4% the next. Why? Because humans don’t follow each other off of a cliff. We are not lemmings. Many algorithms are written to race each other. This erratic result is what you get.
‘The Closer’ Call
I was asked to take on “The Closer” role at the Fox Business Network on Thursday. That’s the premier guest spot for portfolio managers on any given day for that network. That daily interview takes place during the final few minutes of Liz Claman’s 3 p.m. to 4 p.m. ET show, ahead of the closing bell. Now, I turn down a lot more TV interviews than I do these days. I only do them if I truly have the time, but I do try to make time for certain shows, such as this one, that were good to me throughout my career.
I told the producer that on a day such as that, there was no way that I, or anyone truly making a living in the markets, could go “on air” ahead of the closing bell. I was busy trying to save my tail, as I would think almost any legit trader would be. To be honest, I look sideways at anyone who appears on these shows often or on a near everyday basis. I mean, are they just salesmen? I guess so, and I guess in a way, that is making a living in the markets but in a parasitic kind of way. I mean… who does not have to have their eye on the ball at closing time on a 5% move type day? LOL. Friends, they are not in the same fight as the rest of us. I did make note of who took that spot.
It’s October Jobs Day…
Do we care? We will if the numbers surprise.
Bloodbath
The depth and breadth of the equity market beatdown on Thursday was stunning. The S&P 500 gave up 4.4%. Not to be outdone, the Nasdaq Composite lost 5.5% as the Nasdaq 100 surrendered 6.4%. Small caps were not immune. The Russell 2000 gave back 4.5%. Did somebody say “correction?” Last night, the Nasdaq 100, Nasdaq Composite and Russell 2000 all closed more than 10% below their recent highs. The Nasdaq 100 is now 15.1% below that high and that high came less than a month ago.
Stocks related to high-tech and the AI trade were hurt the worst, as data centers, which have been the U.S. economy’s clear driver of both job creation and wage growth have come under intense pressure due to Tuesday’s electoral outcome. What provoked Thursday’s panic-stricken selloff that easily erased Wednesday positivity (and then some)? Early Wednesday morning, news broke that memory chip designer Micron Technology (MU) had suspended plans to build a new plant in Taiwan over a prolonged labor dispute.
This complicates matters as not only has there been an ongoing shortage of these chips that has slowed sales and damaged margin for the company’s clients, but it also makes it more difficult for Micron to compete against its South Korean counterparts. Memory and chips having anything to do with AI sold off hard in response. I had told you earlier this week that I was flat Micron and SanDisk (SNDK) and that I had reduced both Advanced Micro Devices (AMD). Even with those well-timed moves in the rear-view mirror (an on record), the Sarge-folio still took a beating on Thursday.
Then came the news that Apple (AAPL) is reducing employee budgets for artificial
intelligence usage as part of a cost cutting move. Engineers and engineering teams at the firm will have what they can spend on AI modeling and AI development capped under the new CEO. Not the end of the world and probably a net positive for Apple, but also not a helpful headline on a day that keyword reading algorithms were shooting first and asking questions later.
Tech-Ageddon
There was blood on the saddle. There was blood all around. By the end of the day, there was a great big puddle of blood on the ground. Sit down for these numbers. The Nasdaq 100’s 6.4% loss on Thursday wound up being good for the worst single day for that index since March of 2020 as the start of the Covid pandemic rattled financial markets. The Technology sector SPDR ETF (XLK) was hit for an 8% loss on the day. That too, was the largest loss for that fund since March of 2020.
Within the tech sector, the Dow Jones U.S. Software Index gave up 4.5% and wait for it… the Philadelphia Semiconductor Index was absolutely taken to the woodshed for a beating of 12.3%. Again, the worst single-day performance since March of 2020. Within that index, SanDisk, Micron and AMD gave up 22.3%, 17.5% and 17.3% respectively. Yes, I dodged a few bullets, but not all of them. The S&P 500 gave back a rough $2.9 trillion in market capitalization on Thursday while the market cap of the Nasdaq Composite lost about $2.5 trillion. Ugly.
Trading the Sarge-folio
Yes, I traded my book quite aggressively on Thursday. I had a tough day as I am sure most of our readers did. My other equity trader had a rough day as well. Thank goodness for our bond trader. That dude, who I only hired a few months ago, has proved his worth. Safe haven was sought in U.S. Treasuries only this time, the bond market included the short end of the curve. The bond market had already been pricing in lower oil prices and less inflation. Now, it has to price in significantly reduced economic activity as investment in technology will become much more difficult, especially in certain states.
As for the Sarge-folio, I made quite a few changes. So, especially you guys who love to point out when I make mistakes, go get your pencils. I started the day off finally completing my exit from Intel (INTC). I also exited my misadventure in Planet Labs (PL) after I got the $10K Portfolio out of that name first. On the sell-side, I also reduced long-side exposure to both Taiwan Semiconductor (TSM) and CrowdStrike Holdings (CRWD). That’s it for sales.
I was quite aggressive on the buy-side. I made a large purchase of SoFi Technologies (SOFI) one weakness after first buying some for the $10K Portfolio. I repurchased the AMD that I had sold earlier this week and then bought a little more. I added to long positions in Amazon (AMZN), Palantir Technologies (PLTR) and JP Morgan Chase (JPM). I also initiated new long positions in Goldman Sachs (GS) and Wells Fargo (WFC).
Breadth
It’s difficult to describe just how tough Thursday was for the “long and wrong” crowd. Technically, the pause we were looking for, turned into a reconfirmation of the bearish trend on increased trading volume. That said, I think fundamental analysis is starting to matter at least as much as technical analysis and it’s about time, to be honest. Thankfully, not bragging, just stating, I am exceptional at both, so I will understand, identify, adapt and overcome. So will you.
As for market breadth, all 11 S&P sector SPDR ETFs closed out the Thursday session in the red. Defensives obviously outperformed cyclicals. You know that Tech (XLK) lost 8%. The Industrials (XLI) gave up 4.1%. Seven of these 11 funds lost at least 2.5% for the day.
Now for some of the nitty gritty. Losers beat winners by a rough six-to-one margin at the NYSE and by about five-to-one at the Nasdaq. Advancing volume took an anemic 23.6% share of composite Nasdaq-listed trade and a pathetic 16.1% share of composite NYSE-listed activity. Trading volume was up huge from Wednesday after Wednesday’s volume had been up huge from recent averages. Not a day to brag about except for the net-short crowd. To them, we say “congrats.”
Hey, But Are You Gettin It?
Armageddon it.
A-really gettin’ it?
Yes, Armageddon it.
– Lange, Clark, Allen, Savage, Elliott, Collen (Def Leppard), 1987
October Employment Situation (08:30 ET)
Non-Farm Payrolls: Expecting 64K, Last 29K.
Unemployment Rate: Expecting 4.2%, Last 4.2%.
Underemployment Rate: Expecting 7.6%, Last 7.6%.
Participation Rate: Expecting 61.9%, Last 61.8%.
Average Hourly Earnings: Expecting 3.0% y/y, Last 3.0% y/y.
Average Weekly Hours: Expecting 34.4, last 34.4 hours.
Economics (All Times Eastern)
10:00 – U of M Consumer Sentiment (Nov-adv): Expecting 47.4, Last 48.0.
10:00 – U of M Consumer Sentiment (Nov-adv): Expecting 4.7%, Last 4.7%.
10:00 – U of M Consumer Sentiment (Nov-adv): Expecting 3.6%, Last 3.5%.
1:00 p .m. – Baker Hughes Total Rig Count (Weekly): Last 603.
1:00 – Baker Hughes Oil Rig Count (Weekly): Last 462.
3:00 – Consumer Credit (Sep): Last $12.0B.
The Fed (All Times Eastern)
04:30 – Speaker: New York Fed Pres. John Williams.
09:10 – Speaker: St. Louis Fed Pres. Alberto Musalem.
12:15 p.m. – Speaker: Reserve Board Gov. Michelle Bowman.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: CHTR (9.16)
At the time of publication, Guilfoyle was long AMD, TSM, CRWD, SOFI, AMZN, PLTR, JPM, GS, WFC equity.
