SeptemBEAR lived up to its reputation

Wow! Sometimes I am amazed how well seasonality plays out. I wish trading was this easy! All you would do is go bearish in Feb, Aug, September and bullish for the rest of the months and you would be all set 🙂


Fear and Green Index (Nice to see some fear in this market)

In the investing world, there is a saying “Don’t fight the Fed”. However, markets have been completely disconnected from reality and have been ripping, defying all fundamentals. I am sorry to say this, but I am kinda pleased that markets finally sold off in September. We are still in “fear zone” though. A real correction will happen once we slide into “extreme fear” and that hasn’t happened yet. 

The yield curve inverted 15 months ago. 

Since 1978, the yield curve has inverted 6 times and every single time it was followed by a recession. On an average recession starts around that 15 month mark after the yield curve inverts. Of course, just like with that seasonality chart up there, there is never a guarantee that things will always play out exactly as expected. But there is a lot of historical evidence supporting this. Treat a yield curve as a really good proxy of investor sentiment into the future. 

Spread Tracker (Beautiful)

A picture is worth a thousand words. So look at the picture below and move on.

SPY 6m daily (blew past 430 support already)

Last week I had pointed out a Head and Shoulder pattern forming on SPY. The pattern depended on SPY breaching 430 support. The pattern is now in play and that 430 is resistance now. If we continue this sell off, as traders we need to start making projections as to when the reward for taking bear put spreads is not worth it. Based on the H&S pattern, that area will start showing up as we touch $415 on SPY. I will most likely reduce my trading volume or start balancing between bear put and bull call spreads in preparation for an eventual bounce in the markets. 

Oil still holding strong

I had made an educated guess three weeks ago by looking at rising oil and energy prices in the last few months. My projection was that that headline CPI will be higher and it did turn out that way. You must be wondering (hopefully not fearful or nervous) about a possible bounce in these markets. Well, nobody can tell you that but if you keep a close eye on OIL, $DXY (US Dollar Index) and TNX (10 year treasure yields), you can get a pretty good clue. So, keep these in your radar. 

10 year treasury Index (Oh my! Is the anomaly resolving itself?)

A few weeks ago, you may have seen my rant on Twitter ( . As frustrated as I was, I was baffled by this anomalous behavior I was witnessing in the markets. With this recent market downturn, will this anomaly finally be resolved? The chart below is from last week’s market outlook. But my eyes are laser focused on this. If you pull these charts today, the full blown resolution hasn’t played out yet, but we are headed that way. If SPY gets to 408-410 year, the inverse correlation between TNX and SPY will once again re-establish itself.

Market moving events next week (A bunch of jobs data)

Next week is peppered with a bunch of jobs data. Nothing earth shattering here but do expect some volatility next week as all of this will effect possible interest rate hikes. Hourly wages will be an important one as Powell pays close attention to it.

Earnings (HELE, STZ)

Enjoy your break from earnings because we will soon be bang into the middle of earnings again in a couple of weeks. Next earnings season will be very important as any downward revisions to forward guidance from companies will keep taking us into the dark depths of a bear market.