In all my years of doing this work, I have never seen a sequence where the VIX hit a new high because the market suffered the first serious technical damage to a new trend and have the news be greeted by the kind of euphoria and champagne popping like we were witness to on Thursday night and Friday morning. Facebook was all they talked about
This isn’t the same kind of complacency from last Friday where they bought the JPM news. But its complacency nevertheless. They were surprised the stock struggled to maintain 38 by the end of the day. Why? NASDAQ is the fall guy because they couldn’t manage the canceled orders on Friday morning? Who really would want to buy stock the morning after markets broke support?
For something as important as this IPO was, they followed through on just about the WORST possible day they could do this. If NASDAQ is to blame for anything, they should have postponed this event.
Zuckerberg has a mission not to make money but to connect the planet in ways never seen before. Here, we believe in the process because you do what you love and the money will follow. That’s admirable and its true. That being said, if that’s really the case, why should they care if the stock fell below $38? But the rub is they do care and NASDAQ should’ve saved the kid from himself.
The smartest thing I heard all day was from Charlie Gasparino who said the kid is now working for Wall Street. They want results and he might have to take off that hoodie and put on a suit. It’s not going to happen. But it’s true; they introduced this stock to the public at just about the WORST possible point in time. And the selling that followed was the exact right thing to do.
The best thing for the day is the euphoria fizzled quickly and we didn’t end the day with a VIX near 20. It finally closed over 25 and, yes, officially it rose for the day. That’s good, because part of the day was a bounce day and the VIX still ended up higher. That gets us closer to the end of this correction.
For those of you learning this psychology business seriously for the first time, this sequence is something you’ll be able to draw upon for years to come. Here’s your takeaway. You cannot have euphoria in any way, for any reason on a day the market breaks serious support where we get the first real technical damage in this correction. In a bull market it just cannot happen. This is bear phase activity. You don’t need a market to fall 20% to identify bearish activity. All you need is a good dose of complacency.
It is what it is but there is a price to be paid and you saw what it was. If the powers that be are as smart as they think they are they would have done this event 2 months ago or in 2 months from now. If they are disappointed a 38 handle didn’t become 50 by the end of the day all they need to do is look in the mirror to establish culpability and that goes to the highest level. But NASDAQ is not the fall guy; they got dealt a lousy hand.
I’m not rooting for a bad economy as you know but I will say this, shorting was relatively easy on Friday after you put these pieces to the puzzle together. Your takeaway needs to be the charts do get easier to read when you understand the psychology involved.
European news contributed to the week as one district in Germany, an anti-austerity party that is opposed to Merkel’s take on things won a major election victory last Sunday. Coupled with the possibility that Greece will leave the EU means this austerity business is for the birds and it did add to the VIX at least climbing into mid 20’s for the week. Slowly people are figuring it out. How can you possibly impose austerity on good hard working people across the globe when you have individuals who think they are so smart they can lose $2 billion dollars in 6 weeks? It just does not make sense.
Think of what they could’ve done with that money. As I told you last week, Magic Johnson has done some of this greatest work with his movie theatres across the country as a businessman. A lifetime of work led to the crowning achievement of buying the most valuable sports franchise in the world (until the Steinbrenners sell the Yankees), the LA Dodgers for that same $2 billion. What has been lost in academia and Wall Street is a respect for money. If anyone tells you it’s okay because it wasn’t client money and the government doesn’t have to step in, they just don’t get it. You want austerity? Teach these people how to trade, please!
And then don’t let the generation’s most important IPO take place in the middle of a brutal market sell-off. Think of all the wealth that could’ve been created this week IF FB ended the day at 50. If there is any contribution to the week, the takeaway should be a barely breakeven day robs the market of confidence and could push the VIX even higher next week.
Next page: The state of the correction
There’s still lots of work to do with this correction. At a VIX of 25 there’s obvious still way too much complacency floating around. Maybe if FB falls to 30 people will really start to get unglued and realize the seriousness of the situation. It probably wouldn’t do that but it can easily drop to 34 which is 10%.
Click chart to enlarge
But the weirdness of markets is that they don’t go straight up or down. It’s time for the Greenback to pull back which means markets could catch a break this week. The US Dollar has been on an unsustainable path and needs to consolidate. In early trading on Sunday night the Dollar was already below the first ridge of support which means it should trade down to at least 80.50. Not a big deal you say but it will be the biggest pullback since its rise at the beginning of the month.
Click chart to enlarge
Let’s be sure we understand this. The fundamental people will always be right about owning a good company however when it comes to anything in life, it’s all about the timing. Markets are going to do what they’ll do because there is a season for everything. Go against the tide, it isn’t going to work. I’ve spent the better part of the last 3 years subscribing to my bullish symmetry at the bottom. However, we are not in that season right now. We started being concerned about a low VIX number just before Christmas when the VIX did not rise when the market sold off. It took time to play out but it did put a ceiling on things. Now we experience blatant complacency at the exact worst time for it. Everyone wants to know when this correction will end. There is no magic bullet or exact number I can give you. But I can tell you this, there will be some market symmetry attached to the final low and will happen when fear levels rise above the creek. It won’t happen until then but we’ll recognize it when we see it. Even as we should have an improved week technically the end is not here.
Bono supposedly made more money on Friday than he has in 30 years of being the U2 front man. I’m happy for him because it shows our system still works. But the market goes on and the rest of us should be happy the VIX didn’t retreat which prolongs the agony or should I say complacency. It’s the best the bulls are going to get right now.