MLS Chart, page-366

Markets in a very uncertain territory

Yes MLS lost 3 pips to finish on 4.5c. Our volume was in the range of last few days, just over 5.2m shares traded.

ASX Li Stocks had a good decline today. Of the 54 stocks that I track, average loss was 4%.

Overnight US Li stocks were also largely down, losing around 5%, so similar to us. The ETF of LIT though declined just under 2%

What next -

US markets are in a decline, now for 3 days. Since it closed just below 3900 just 3 days back, SP 500 has lost roughly 3.5% in last 3 days. ASX also had a decent decline today. Most resource stocks that I follow had a decline.

Couple of things which I have written in last few days still stand, hence copying here.

This is from Monday around the bear case:

Market sitting at pivotal point, and a lot of reading that I did could be summarised in couple of points:

• Bear Case - Most analysts are feeling that we may drop in medium term. The medium term could be say till end of October. The quantum of drop though, different people have different opinion. First point is for SP 500 to test 3720 (4% down from here). Next is June bottom of around 3660. Finally the capitulation as they say, between 3100 to 3400.

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.This is from Wednesday around the bear case:
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• Most analysts/funds etc are bearish for the medium term. One flavour that I found was that we will go down till mid October, do some sort of bottom, and then rally. May be that mid October may coincide with September CPI data. For the immediate, many feel that by end of September we will be lower than now. Again one has to remember that many of these predictions have been wrong in recent times.

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What are the analysts thinking? Still no consensus at this stage. My reading points towards two scenario:

• First for bull case, a bounce. But this bounce is mostly based on technical reasons, not fundamental. Many have been calling for this bounce for last few days, has not happened till now, many have given up, but few have strong belief around a technical bounce.
• For the bear case - majority are thinking that we may test June bottom of around 3636. Half feel that we may bounce from there after doing double bottom, other half feel we may go lower and get to the zone which bears have been calling for last 6 months - a drop in 3100 to 3400 (same as I mentioned on Monday, narrative has remained the same).

For me there are 2 key signals, one for bear case and second for bull case. I am following these very diligently and will take action as they move:

• For the bear case, 10 year and 2 year yield. Yesterday 10 year yield gained over 5% to be above 3.7% - very bearish. another bear signal is US dollar strengthening.
• For the bull case, although market has dropped considerably and is very close to June bottom, the Volatility Index VIX is not playing accordingly. Yesterday, actually VIX dropped nearly 2.5% to finish on 27.35. So the fear, anxiety is not there - yet. Or a signal that punters feel we are reaching bottom and may rebound soon.

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Personally I have been saying for last 1 month that if SP 500 does not like holding 3900, I will go defensive. From last Wednesday I have been letting my trading shares go and I am at this stage quite high on cash. The situation for me is similar to June when I went big cash. That time I was very, very lucky and nearly picked the bottom when I started writing from last week of June that I have started buying. I will probably need that big luck again. Happy to lose first 5% as no one can get absolute bottom. at this stage I am playing for June bottom to play - but will be happy if it bounces off 3720 level, which could happen today.

So what will happen tonight? US Futures nearly flat. Asian markets big red. Cryptos on a slight run - but related to some crypto news rather than feeling good about market. VIX on 27.35 - in no man's world. Powell to again speak today 4AM our time - his tone can again provide some direction. My one feel is that if most are feeling we have to do June bottom, lets get that out in one day and get going. But it would be good to get a technical bounce - who knows market could reverse from that bounce. Will that happen? Lets hope so. Enjoy your weekend and all the best.