Retail Capitulation (Paperhanding!) | Stock Market Flip, Dates, and Trades.

we've got to talk about retail investors

now and what the heck is going on with

retail and positioning and we happen to

have a report on just that from Bandit

track that's going to provide us some

incredible insights on what's going on

with retail keep in mind this comes on

the back of already AMD getting

downgraded and Logitech numbers not that

great almost every segment of this

Computing industry is plummeting you're

down about 20 however chip stocks and

peripheral stocks actually off of their

lows probably because the stock market

has once again overpriced fear anytime

you have uncertainty and then you get

reality oftentimes stocks actually go up

when reality comes out not always

especially when it's unexpectedly to the

negative side but usually when people

are really really fearful about things

it tends not to be as bad as expected so

what does Vanda track have to tell us

today well let's find out

the latter stages of an equity bear

Market or the early stages of a pain

trade rally either way U.S markets last

week exhibited wild and at times

inexplicable swings in this week's

positioning update we'll take a look at

how investors are positioned ahead of

peak earnings upcoming catalysts that we

are watching number one as we enter Peak

earnings season the focus Equity

investors for Equity investors has

shifted towards gauging the size and

timing of the forthcoming U.S recession

this is true we have seen a substantial

shift away from for example monitoring

what the Federal Reserve is going to do

when it comes to rates or what's going

on with inflation now everybody just

cares about earnings per share which is

frequently deemed to be the second half

of of the cycle now what's really

remarkable here is that if we do just

for example take a quick little peaky

Deaky over here at uh well there okay

that this what we find is that we

actually have a now 42 percent

probability ability that interest rates

are not going to lift off at all from

4.25 that so much bad data has come out

that the fed's not even going to be able

to forget five percent forget 4.75 they

can't even get it up off 4.25 imagine

that fed can't get it up I don't think

j-pal is going to be too happy about

that characterization anyway

so uh here's some catalysts widely

anticipated Q4 results for Microsoft

today Tesla Wednesday is Chevron and

Healthcare names also but uh oh do keep

in mind I hope to stream Microsoft at

the closing bell today though I might

have to unless that live stream

afterwards if you do come and keep in

mind January 30th mark your calendar for

that as a catalyst for the expiration

the coupon code which comes just the day

before the employment cost index report

something the fed's going to watch

Pretty clearly next Fortnight okay next

20 days here we will see U.S equities

entering Peak earnings season with

BuyBacks not in play until the first

half of February now that's actually a

big deal because when you get companies

in a blackout period it means they can't

buy or sell stocks and if their stocks

are potentially deemed low based on the

earnings they put together the company

can't actually go buy the dip before the

rip because they're in a blackout period

which means we're really not going to

see companies be able to buy back stocks

if they are so inclined until on average

of about mid-February so that actually

potentially means that we're in a period

of low buying pressure right now which

is kind of remarkable because stocks

have kind of been trending up so imagine

if you got buy back buying pressure as

well on top of that interesting to note

when looking at where investors are

hedged for bad news on the earnings from

we see the biggest puts taken out across

Industrials and Staples in recent weeks

this is the uh call to put ratio here

and when it's negative it means there

are more puts and right now it looks

like the biggest puts and this is

actually surprising to me are on

Industrials and Staples now Staples and

utilities keep in mind have done very

well in 2022 and those are actually the

ones with the biggest amount of puts on

them right now relative to call options

Tech obviously also substantially more

puts than calls some folks are

suggesting that's why we're potentially

seeing a little bit of a squeeze led by

Tech however other sectors actually have

more shorts against them CarMax Nike

McDonald's McDonald's by the way has

done very well year over year as a stock

financially though and fundamentally not

actually that good and I will say red

robin as just sort of a comparison to

McDonald's does not really franchise I

don't think it franchises its

restaurants at all and they're losing

money hand over face I was at a Red

Robin yesterday and I hate to say it

because I used to work at Red Robin like

16 years ago uh it was not good they

first of all the restaurant was like

nearly empty uh barely people coming in

around dinner time uh and on top of that

I think because so few people were there

you actually saw them providing less

quality food like old oils for grease

you know for mozzarella sticks or french

fries and I'm like what are you doing

that's like the staple here should have

fresh french fries uh and so um kind of

disappointing but you see that kind of

stuff going into a recession you see

restaurants start seeing numbers go red

and then they start cutting corners and

then numbers go even more red but anyway

CarMax Nike McDonald's Tesla Apple

seeing big Hedges put on clearly fears

around the US consumer uh this is where

we're seeing the top hedges in s p

companies big ones again here CarMax

microchip uh we got Nike McDonald's

Devon craft uh new mod Tesla Kinder

Morgan ooh big Tesla shorts here that'll

be interesting Advanced Auto Parts Apple

Halliburton Halliburton

releases so far confirmed that

discretionary investors are broadly

underweight U.S equities yep that's true

a lot of money to be sitting on the

sidelines even Goldman told us that last

week a lot of money waiting to be

deployed on the sidelines waiting for

proof that you know the pain is over and

it's time to go rally

excuse me firms with strong earnings

seeing the highest excess returns since

the second quarter of 2019 pointing to

light Equity positioning okay in English

when stonks do good they go up real fast

implying a lot of money against sitting

on the sidelines if earnings hold up in

the coming weeks we may see Equity Bears

shift their focus to debt ceiling

concerns

okay this is actually the most hilarious

line shout out to the the writers

Advanta track this is probably the most

hilarious line I've ever seen somebody

say about bears basically as soon as the

last remaining holdout for Bears to say

everybody should be bearish goes away

AKA if earnings aren't that bad they'll

have to find something else to

about and they'll just complain about

the debt ceiling

that's a good one that's a good one uh

however overall S P 500 performance has

been mixed ahead of uh previous uh major

government shutdowns and obviously we we

don't actually expect anything to happen

with the government shutdown run up to

Prior government shutdown shop mixed a

mixed s p uh 500 performance clearly a

flight to safety and bonds fine who's

been behind the selling of late

relatively lackluster retail buying and

mutual fund outflows explain soggy

markets now this is interesting mutual

fund outflows basically suggesting Hey

look

a lot of people do this and I saw this

with my I hate to say it but I saw this

with family members in 2009 at the

bottom of the market they're taking

their money out of mutual funds because

they're like man my mutual fund manager

sucks I'm taking my money out and they

literally withdraw we're deeming their

money at the freaking bottom

all right what else one of our two

conditions for a bottom in U.S equities

is a capitulation in defensives well we

haven't seen that yet although there

were some signs of this last week really

cyclicals have accounted for the Lion's

Share of selling okay interesting so so

defensives would be like Health Care

real estate cyclicals could be things

like Autos like Ford GM right

interesting so not actually seeing that

defensives capitulation they're saying

uh just yet but you are seeing short

star loading up on some of these

the other condition for an equity Market

bottom is clear retail capitulation that

has not happened yet we have not quite

seen fire sales in the mar that marked

the end of the Q4 2018 sell-off this

would also usually align with a

volatility spike a vix Spike

uh this is clearly not the same retail

investor that we saw in 2020 or 2021 on

the surface an uptake in retail buying

over the past week May point to A

Renewed Animal Spirits amongst investors

of this cohort but retail investors

always tend to buy big ahead of earning

Seasons interesting however purchases

this month have been relatively light

for this time of year ah because usually

you do see a lot of retail purchases in

January after tax loss harvesting in

December this kind of implies a lot of

people waiting on the sidelines for uh

for potential

of for us to get through earnings and

again if those earning if these earnings

come out good

or at least better than expected

it could it could kill some of the bear

thesis anyway retail typically buys

ahead of earnings but it's been

lackluster this year there you go you

can see the chart right here pretty dang

low still retail other retail parts of

the market have indeed been capitulating

with mutual funds seeing uh their usual

end of year outflows that being said

there could be a lot more pain to come

if these funds see a full reversal of

cumulative inflows in other words a lack

of money coming in

mutual funds likely to be behind recent

selling we talked about that already

okay mutual fund inflow since Jan 2021

still positive risk of further unwind

though it because of recession fears

that could create some more selling

pressure

when it comes to rebalancing our models

do not point to a massive selling of

equities in the next few weeks fine

watch out for Commodities uh traders in

the coming Seasons or sessions rather

okay what else do we have here overall

the sellers are becoming fewer and fewer

we're potentially entering the latter

stages of the bear Market the window for

a pain trade rally in stocks will be

open if U.S earnings positively surprise

pain trade rally would be like hey

things have been so bad but they're just

not as bad as we thought Equity bulls

look to be returning given that a Fed

pivot looks to be in sight whilst

investors seem to be chasing the

low-hanging fruit of positive macro

surprises in Europe and Asia and mo may

only be a matter of time before

sentiment spills over to the underweight

U.S Equity markets this is something we

actually talked about earlier that it

seems like well first of all we've seen

the entire world stock market up 19

whereas the US is just up about five

percent since October so you've seen

more bearishness in the U.S than in

Europe and Asia specifically uh but also

the rest of the world this is why you

have a lot of analysts right now talking

up oh it's Emerging Markets that's where

it's at at whereas I actually have a

little bit of a belief that you could

look at American companies that have a

lot of international exposure like what

I consider pricing power style stocks

Taiwan semiconductors uh you've got

Tesla you've got Apple you've got Nvidia

these companies have a lot of exposure

to International

Global Equity positioning up over the

past week investors gaining confidence

by the dip okay fine U.S tech amongst

markets that have seen the sharpest

outflows in januaries however with Bulls

increasing risk in Europe and Asia

that's interesting look at that bearish

positions U.S tech down here EU Staples

EU energy Japan bearish U.S Industrials

U.S energy that's a surprise whereas

what's what's bullish right now bullish

you've got Taiwan Thailand EU Equity

South Korea Germany Germany talking

about not going into a recession

ooh fascinating uh this is actually

really interesting and kind of aligns

with some other data that we're seeing

let's look at some other data that we

have retail let's see here retail retail

retail

muted purchases by retail in ETFs which

actually indicates potentially a low

conviction ahead of earnings I can go

ahead and show this chart right here

this means individual and I actually

mentioned this earlier here's just the

chart to evidence and Retail investor

net purchases you can see the blue line

is single stock purchases the red line

is ETF purchases mostly uh like larger

index funds like S P 500 uh the triple

leveraged S P 500 Triple leverage NASDAQ

actually seeing lower inflows than

single stocks or some are saying

actively managed ETFs seeing more

inflows as well because they are more

maybe thematic or more single stock

Focus than these sort of broader let's

just invest in the entire s p 500. I

think what's happening is retail

individuals basically are picking which

stocks they think are going to do well

in earnings and which stocks up

potentially been oversold

let's see here Market rally potentially

coming from Institutional Investor short

covering

ETFs are experiencing the biggest flow

divergences since uh 2022 oh wow here we

go we actually have a chart kind of

showing us numerically where these flows

are occurring I'll go ahead and pull

that up now now when you look at flows

some of these ETFs aren't going to be

very obvious to us what those are so if

you're curious curious just take a

screenshot and no I won't show you a

screenshot about that 30 off coupon code

that expires or sorry it's more than 30

off the coupon code that expires on

January 30th I screwed that one up best

coupon code will have three month

guaranteed price lifetime access a

pretty pretty great pricing you can get

in lifetime access to those programs but

anyway here you go you have inflows

going into the semi's triple leveraged

bear index wow natural gas uh treasuries

it's like cash Holdings over here

whereas you have outflows look at where

you have the outflows you actually have

outflows on Ark

semis long

Russell won thousands that's your value

NASDAQ 3x bear that actually has

outflows too NASDAQ Bowl has outflows

this sort of reiterates that people let

me show you the rest of the chart there

we go this kind of reiterates there you

could take a screenshot like right there

uh you can

see here that it really seems to be the

broad-based indices are are getting hit

and I'm surprised the bearishness on

chips because I'm actually personally

bullish on on chips but anyway upcoming

weeks should give us a good

understanding thanks to earnings Blended

earnings declined for the S P 500 Q4 is

4.6 that's the estimate we'll see what

happens

do keep in mind that uh retail sales are

lagging right holiday sales grew 6.7

percent from October to December sales

lagged the average inflation rate of 7.1

percent so real holiday sales were

actually negative uh probably Q4 was

also not as good you've got the national

retail Federation estimating that

holiday sales in November December grew

5.3 percent that was short of the growth

estimate of six to eight percent so that

would be bearish for earnings right Q4

will depend on whether or not retailers

had to aggressively discount to get

their inventory off the shelves retail

uh electronic sales expected to be

negative 5.6 year-over-year in December

again we saw in with Logitech numbers

pretty bad furnishings and clothing

uh we'll be uh will be interesting as

well we'll see that from American Eagle

and Abercrombie uh Macy says there was a

lull of sales outside of holiday

weekends I personally sold my steak in

Lulu after their margin guide and uh

they are reiterating pressures today and

getting downgrades again today

personally I've never seen sales at Lulu

and uh I I hate to say it but look I

worked at Hollister so so maybe I have

this like personal like shell shock to

sales but as soon as Hollister started

doing sales

it was downhill from there

hate to say but it's something to pay

attention to who knows maybe it's just a

sort of seasonal and they were just

getting rid of some of their their

excess inventory and now they've

stabilized who knows something to pay

attention to so I would watch that at

Lou Lucent so generally not a company

that's been known for sales

real disposable income has been deeply

in the negative territory yep uh job

openings and wage gains have moderated

from fed tightening savings are depleted

and consumers have either cut back on

spending or turned to credit cards now

of course we'll see whether or not

retail sales actually hold up but the

important things to pay attention to

so uh that gives us a little bit of

insight here into retail where the

positioning is going where buyers are

going uh in my opinion this earnings

season is critical and it makes sense

for stocks to actually Trend down

slightly before earnings so I was a

little bit surprised with that large

rally we had on Monday uh especially

since usually before the news comes out

we don't get the big rally who knows but

I'll never forget the early part of 2022

when we started seeing those bad Netflix

earnings and it was the canary in the

coal mine for bad news coming forward

this time we've actually had better than

expected earnings coming out pretty much

everywhere expect the

real estate sector and some of the

discretionaries uh so real estate for

example DR Horton massive Miss contracts

falling 38

huge under expected uh result of four

contracts 13 382 versus 14 528 expected

there of course blaming mortgage rates

but it's no surprise that real estate is

getting whacked and we expect to see the

worst of the numbers coming up here

within the next uh two to three months

once the case Shiller actually catches

up to negative year-over-year numbers

some some thoughts here on a retail

Bitcoin trying to go positive here still

sitting slightly negative so we'll see

how stocks end up moving but uh I don't

know let me know in the comments what do

you think what's your retail positioning

are you kind of like a lot of retail

right now where you're staying away from

those broad-based indexes and you're

kind of waiting to see what happens with

earnings and you've got money on the

sidelines from cash stock loss

harvesting and you're ready to Pile in

that's what Vanda track is arguing that

maybe we could actually have a big bull

movement and the Bears are going to have

nothing left to talk about but the debt

ceiling crisis

kind of crazy something to pay attention

to and I kind of hope Vanda track is

right anyway let's go ahead and jump on

over and see if we've got CNBC covering

anything entertaining nope we've got an

ad okay well that's boring fine then

we'll look at something else

so let's see here let's see

what news do we have

okay we have

uh

pmi's coming out in about 30 minutes

we'll be covering pmis in the course

member live we've got break evens on the

five-year pretty stable right now two

three one we have

uh future still slightly negative

uh industrial earnings disappointing

some pullback in U.S Futures after the

sizable rally the past two trading days

unsurprising well yeah semiconductor's

got a lift Monday after a Barclays

upgrades although AMD is down pre-market

after Bernstein downgraded the stock

chat gbt Microsoft billions may be good

for NVIDIA hey I made a video about that

yesterday chat gbt is wild

absolutely Wild

uh Divergence between markets and

economy cheapens recession Hedges

economists tend to overestimate GDP more

frequently by a greater magnitude in

recessions markets therefore do not

adequately reflect downside risk before

a downturn hits put spreads on the

retail and high yield credit are among

attractive recession hedges for

portfolios wow okay put spreads on the

retail sector markets are implying the

odds of a recession are falling while

they can influence economies in various

ways such as the availability of credit

and wealth effects it is not easy for

them to reverse many months of economic

damage through this crazy hiking cycle

we've been through yeah no kidding