Hand Me The Hopium

Crypto appears to be the canary in the coal mine for what is awaiting the equities market later this fall. So let me start with the latter and then get you up to speed with the gift that keeps on losing.

The SPX chart above says it all – equities are being pushed to the brink and complacency is pushing into record territory.

So bearish, right? I wish it only was that easy.

Nothing in the market – any market – ever moves in a straight line. That holds true for bull markets but it holds double and triple true for large scale bear market corrections.

And make no mistake, what you are seeing unfold here in excruciating slow-motion pace is the mere preamble leading toward a bear market of biblical proportions.

It’s not that nobody knows it. Everyone feels it in their bones these days, but after a generational bull market that lasted nearly 14 years most people seem to have forgotten the painful lessons of the prior decade.

The signs are in plain sight everywhere now. Nevertheless for months equity traders have been pitching themselves into a swing trading frenzy, high-fiving each other every time they were able to gobble up another dip and then quickly dump it on some hapless retail bag-holder.

Speaking of complacency, here’s a great example.

Last week the market handicapped risk at 97 SPX handles on each side.

And what did we get? 200 handles!!

And it’s not the first time this happens, this is becoming a regular occurrence now.

So has the market finally embraced the error of its ways?

Of course not…

Last Friday the 9/23 expiration closed at an expected move of… drumrolls… 11.5 SPY handles.

Pardon my French but are you friggin’ kidding me???

The odd of that happening are in single digit territory. A jump in volatility nearly always begets more volatility.

The monsters of tech are only a bagel throw away from their recent summer lows.

Will we see a pop here before it all goes the way of a suicidal wingsuit jumper?

You bet, because as I pointed out already: nothing in the financial markets ever moves in a straight line.

And bear market rallies can quickly rip your face off. What we’ve seen so far is only the aperitif to bear feast scheduled for November/December.

The VIX is literally coiling up on a well established baseline that extends one entire year.

The VVIX (realized of implied vol) is only now coming out of record low readings.

In case you wonder – this should be technically impossible given the price action of the past quarter plus inflation exploding in everyone’s faces.

For some reason however the VX futures appear to have adopted the Alfred E. Neumann style outlook on the final quarter.

While equities traders continue to puff on the hopium bond traders seem to know exactly where we’re heading.

Of course it’s not at all covered in the financial MSM but bonds are heading straight into the lower levels of Hades.

And just to spice things up the spread between the 2-year yields and 10-year yields has inverted.

What could possibly go wrong…

With both equities and crypto in the dumpster surely precious metals are experiencing their well deserved renaissance, right?

WRONG again! Gold isn’t the inflation hedge you are looking for.

Way too small of a market and thus easily ‘swayed’ if you get my drift. Monty Python’s big boot remains all too ready to stomp on any attempt of a market rally.

The USD has been on a tear all year and as an expat living in Europe my silly grin at the ATM now requires a concealed carry license.

And given the geniuses in charge over in Brussels I wouldn’t be surprised to see the EUR at the 0.8 mark or perhaps even lower. Bring it on!

Maybe a bit of wishful thinking but let’s revisit this topic after the winter  😉

So let’s sum it all up:

  1. We have the Dollar pining for new highs.
  2. Volatility futures are primed for an explosion higher.
  3. ZB breaking out – to the downside – while 2-yr and 10-yr yields are inverted.
  4. We keep seeing 2-sigma moves in equities while risk is badly handicapped.

Result: Keep your hands and feet inside the vehicle at all times, for we are heading into a hurricane of volatility.

But enough with all the black pilling.

In the end what separates the pikers from the pros is the ability to make money in any market, even the mess we’ve been experiencing since the onset of the big C.

Here are my options trading results since February of 2021. 45R all earned without breaking a sweat, just nickling/diming myself higher week after week. I barely even paid attention, spending only about 5 minutes per day.

Once again my live options P&L spreadsheet can be found right here.

If you’re tired of losing and interested in playing along zap me a message here and we’ll talk.

Last but not least, remember how I told you to not fall for all that ETH 2.0 hype?

Once again the old adage holds true: Buy the hype/rumor, sell the news.

Some learn it quickly, a few learn it the hard way, and most never learn it at all.

Which is the nature of all things, there are no consolation prices when it comes to winning in the market, no matter which.

By the way BTC has breached through recent support and may retest its June lows one more time.

We all know what happens if it cannot hold those lows. 14k and lower may quickly be in reach.

Of course there’s a better way, and I’ve been demonstrating it over the course of the past month.

See above the up to date P&L stats for the new Crypto Salary System I am launching in a little over a week.

These are not backtested results, it’s purely forward traded in LIVE tape along with our intrepid group of beta testers.

Everyone seems to be loving the system and I can’t wait to unleash it onto the rest of you guys.

If you happen to hate crypto then let me ask you this: Why do you care what you make your money with?

The crypto salary system (CSA) isn’t about HODLing or guessing which altcoin may make a dash for it next.

It’s completely automated, with precise rules, and its average campaign half life time is less than a day.

Honestly it’s almost boring – I don’t spend more than 7 minutes per day on it.

Boring but profitable. And that’s the only way to play when markets are completely bonkers.

If you haven’t already make sure to reserve you spot for the FREE webinar I’ll be hosting on the 27th.

I will show you the ENTIRE system top to bottom – no holds barred.

Tomorrow I will be off (moving into a new house) but expect an update on Wednesday.

 

  • Mike
  • last week

About the Author

Hey there, I am one of the founding members of Red Pill Quants. I used to work as a systems engineer in Silicon Valley until I left the industry in 2008 to become a full time quant trader. It's been fun ever since.