Alright you degenerates…
So you guys have something to panic about, I get it. Everyone turned into a macro expert last week, writing their little threads with emojis telling everyone how they saw this coming months ago. It’s easy to get caught up in the mass hysteria, speculating about which major bank is going under next. However, let’s step back and analyze what’s important here. First, we got a much-needed pullback in the broader market, washing out some of the late bulls (cough cough riff-raff cough cough). This is best reflected in short-term sentiment indicators like the Squeeze-O-Meter and the CNN Fear/Greed Index, which took a significant hit last week. Within a week, the Fear/Greed index dipped from “Neutral” to “Extreme Fear.” All because of one headline! Players still lack conviction in either direction and are easily swayed by the day-to-day noise.
Hedge Funds and CTAs (commodity trading advisors) got SPOOKED last week. Hedge Funds, who were quick to jump on the bear market rally and add exposure, were just as quick to jump ship during the recent market weakness. They’re now back at zero net exposure, again sidelined by this brutal bear market. We view this as a net positive in the grand scheme of things. As mentioned in previous posts, when Hedge Funds are overexposed to equities, the risk of a significant pullback is much higher. With Hedge Funds scared and underexposed, the environment is more favorable for a sustained rally. The same is true for CTAs; when CTAs are aggressively short and the market tanks, they’re more likely to cover further weakness rather than add to their short position. With this in mind, we like to see light positioning from CTAs and Hedge Funds before taking any longer-term bets.
We are still far from seeing the 2018 or 2020 “nukes” in the flow. Instead, we’re talking about the unmistakable, monster, multi-million dollar bets in the flow that you can’t miss. While we’ve seen some decent action in a few names here and there, this action pales compared to what we see in raging bull markets. Until we start seeing those monster bets again, we won’t get caught up in the media hype about “capitulation” or “the market low.” Steamroom members know what “bull market flow” looks like and are waiting on the day we finally get it rather than giving in to the noise.
The Squeeze-O-Meter took a massive hit last week, collapsing to 37 after retail scrambled out of their positions.
Aside from a few isolated bets, there’s not much to write about from last week’s flow. However, we’re seeing a trend of energy bets come in ($PBF and $VLO), so keep an eye out for a breakout in the sector.
Hedge Funds sold the rest of their long exposure last week, returning to net neutral.
In the first episode of our Everything is Tape Series, Lucci gets to the heart of what tape reading is and how he uses it in his trading. If you’re curious about why someone would choose to read tape, this episode is for you.You can catch Episode 2 in this series with Wall St. Jesus on Wednesday, March 15th, where he’ll break down his version of tape and how it gives him edge in equities and options markets.To learn more about the next live session of the Sang Lucci Master Course starting up in just a few weeks, check out https://sanglucci.com/mc
Jesus reminds us not to confuse tactical bounces with big rallies. Check out the Flow Show to hear what Wall St. Jesus is looking at after this latest sell-off.
See you mañana!
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