Who Is Buying and Selling?

All the action today says bearish to me. I called the top on Saturday and nothing has dissuaded me. Utilities, consumer staples and real estate SPDRs are each up 1.50 percent or more with 30 minutes left in trading. This is bear market activity as I showed in the weekend post. The best case for bulls is this represents some pre-Fed nervousness and the whole market will shoot higher on Wednesday after Powell fails to credibly confront inflation.

I wonder who is buying and selling at these prices though. There is a lot of ink spilled on the topic of inflation being bad for stocks, yet shorts are near an all-time low. I'm sure options trading has picked up, but most of that is short-term neval gazing around derivatives of derivatives such as gamma. Are traders stocking up on 20-percent OTM puts on stocks while VIX is cheap? (I'm pivoting in this direction for 2022.) I sense not. Who has been buying a stock like Apple? I'm confident the "defensive" buying is fund managers dealing with inflows. Again, going back to my bear post this weekend, my sense is the defensives lead until the money flows stop, and then everything goes down. '

If I had to buy—I don't and won't— I'd be in consumer staples and then utilities, because I think the former have better pricing power aka bullish narrative. I saw this dirty diamond in WEC Energy (WEC), an upper Midwest utility.

Here is Proctor & Gamble up about 10 percent in the past two weeks.

Coca-Cola (KO). Is this the inflow/Santa Rally?

Proctor & Gamble Wedgie

Maybe nothing

The Second Great Depression

Great Depression I: Autumn 1929 stock crash, but the bankruptcy of an Austrian bank, Creditanstalt, on May 11, 1931, was the key event for causing sovereign debt and bank defaults.

The time frame is about 20 months from the start of the crisis to the major event that made everyone realize this was a depression. The failure of Creditanstalt was not a trigger event, in that it was a depression and there was going to be a bank failure of some sort, but it marked the turn.

May 2010 is about 20 months from the Autumn 2008 stock market crash. Today is May 6.

Does history repeat? Is this an over reaction by the market? What is making me nervous is that preferred stocks of banks are down huge today, nearly double digits in early afternoon trading. I've assumed bad things were coming all through the rally because I believe we are in a depression and not a recession. I lost a small sum trying to go short at various points. (I should have shorted the euro with reckless abandon though! Hindsight is 20/20.) But I've never been nervous before. Even though I have expected it and believe I'm well prepared, today I am nervous.

Which probably means today is capitulation day and tomorrow will see an awesome rebound. I did actually turn so pessimistic on March 3 that I questioned whether it was the bottom, since I literally could not find a piece of good news. I don't think today is anywhere near the pessimism of March 3 though. There may be a bounce tomorrow no matter what, but rationally I think we've crossed the threshold and the markets are in for some trouble.

Update: It turns out that plunge today was a fat finger trade in Proctor & Gamble (PG). This makes it very likely there's a rally tomorrow, but I wrote the above before the plunge took place. The timestamp is 2:12 and at that time, the S&P 500 was at 1138.96. It closed at 1128.15. I'm not sure if the plunge is good or bad for the market in the near term. Will people think today was just a bad trade and overreaction, or will confidence be shaken such that more losses are coming soon?