A ~$20 Billion Misunderstanding
Markets fell a whopping 3.11% peak to trough on Friday.
The selloff catalyst was an update from Donald Trump’s Truth Social that announcing massive 100% retaliatory tariffs on China in response to rare earth export controls.
On Sunday evening, it was discovered to have been a miscommunication between President Xi and President Trump.
The tone has already been walked back and is far less hostile, and it would seem well within reason that the 100% additional tariff threat will not ultimately take hold.
If we’ve learned anything from April’s Tariff Turmoil, maintaining a bearish stance as the new gets “less bad” is a great way to miss the rally and stay sidelined.
As we’ll see the base case is to be openminded for a lower high to initiate a daily reversal into a downtrend, but if it never comes, be as openminded to getting back in the bull camp.
Lessons From The Wipeout
While I would never in a million years call the S&P pullback a “wipeout,” crypto markets experienced an even more severe drawdown. Many traders were left having their entire portfolios liquidated in a matter of minutes.
Total liquidations from the heat map below amount to $19.21 billion.
Here are some general reflections:
- If you’re going to step into the arena (financial markets), anything goes.
- As Munger said, “You only need to get rich once.”
- You trade a portfolio differently when you have nothing to lose versus everything to lose.
- Not knowing the mechanics of leverage (portfolio margin, not instrument selection) kills. If you use it, use it wisely.
- Be resilient; this is going to open up just as much opportunity as it destroyed.
And most importantly: The world keeps turning. Your neighbor three doors down doesn’t even know what happened. Here’s an actual clip from Black Monday in 1987 with this exact sentiment. (link opens in browser)
Trade Brigade Live Squawk
Make the most of the final trading quarter with live intra-day commentary on breaking opportunities.
Check out this recording for a taste of what each morning session is like: 07/09 Live Squawk
Onboarding support will be available through the evening and Monday morning starting at 6:30am EST before the 8am premarket-prep kick-off.
Broad Market Analysis
SPY – Weekly
Hardly any substantial shift in major trend with plenty of room for a HL to still form over the two key references we’ve been tracking at 638 and pATH at 613.
SPY – Daily
Wider ranges will develop with volatility rising. To actually effectuate a daily trend change, a LH needs to be made, or a substantial LL that follows up Friday’s low. On a gap down, you won’t find me short. Rubber band risk is too high.
Acceptance over 660.4 likely leans into higher timeframe trend remaining up and would be quick to put the short thesis to bed. I can easily get back to neutral stance in the short term. Sellers completely fail if price trades over 667.25.
SPY – Hourly
The pathing makes most sense on the daily so refer to that considering the wider more volatile ranges. Here we just want to illustrate the change in character where the market found ZERO support at the reference points mapped below. This is different from recent washouts where markets have seen ‘v’ shaped recoveries from the low.
This time WAS different. A data point that helps us keep an open mind to worse than expected outcomes and points to stronger sellers starting to get involved.
Market Internals
Bears showed up… in a big way on Friday, and even into Thursday’s failed ATH breakout. The important part here will be the follow up (or lack thereof) on Monday. Note the over correlation on AD line. Rubber band risk there is real.
Market Profile
Massive shift lower in value as expected. D and C period single prints. M period spike. 4:15 futures traded lower on the actual % announcement. Everything hinges on where futures actually open up Monday, but the M and D period prints will have my attention.
Opens over M spike should kick off the counter trend rally. Acceptance over D period singles is an admission of failure from the sellers.
/VX Term Structure – VIX9vs30D – VIX1D
Volatility lit up. Due to how sharp this is, it would seem that a mechanical drop in VIX1D on the already “less bad” headlines from Trump could be enough to kick off a counter trend rally in the SPX.
If you want the full take, including all of the nuance of breadth, risk appetite and much, much more, check out the weekend episode here:
Economic & Earnings Calendar
All government data will continue to be pushed off. The BLS noted that the CPI report will be released regardless on October 24th.
Powell speaking on Tuesday should have Q&A so keep an open mind to that.
Top watches: Earnings season is BACK! JPM, GS, ASML, TSM, SCHW
Swing Stock Scans
Slim pickings with ranges widening out and many names not even close to pullback levels of interest after major rallies. For new setups look for this week to remain constructive and start building out bases.
AEP – Daily
Relative strength on Friday not breaking down like just about everything else. Holding over the prior pivot high. So far looking at holds over 115.3 to remain interested in breakouts over 118.85. That unlocks new highs.