Short-covering rally boosts stocks after tech carnage

The wheels off…certainly for a lot the quack investments, crypto shills and the rest of those who mistook a Fed-fueled momentum bubble for real money. Bitcoin briefly sank under $30k, MicroStrategy dived 25%, Tesla was off 9%, Coinbase –20% and ARKK declined almost 10% amid a total rout of the tech sector. 

Yesterday was carnage, but was it capitulation? Stock markets in Europe and US futures are attempting to rally this morning but we still question whether the bottom is in….Vix lower but have we top-ticked yet…need it to flatten a bit more. The Nasdaq Composite fell 4.3% and the S&P 500 declined 3.2%. Asian markets were broadly firmer with PBOC delivering some easing via comments on supporting the economy…lockdowns in China’s megacities remain though. 

Losses were large across virtually all sectors yesterday and everything got swept along with the current – commodities sank too and there is plenty of babies being thrown out with the bath water in this environment. However, in this kind of bear market even if you some really enticing valuations for beaten-down stocks, you should be prepared for them to fall further, especially if they’re in the tech/growth old momentum names. Breadth is horrendous – about 90% of US stocks were lower, 1,400 new 52-week lows on the Nasdaq…but not the total flush-panic that we saw at the start of the pandemic. But portfolios are under extreme pressure. 

MS: “We live in the most chaotic, hard-to predict macroeconomic times in decades. The ingredients for a global recession are on the table… Avoiding a recession is our base case, but markets will have to confront the rising probability of one regardless.” 

ARK and the disruptive growth thesis doesn’t hold water…down another 10% to $41. Latest filing shows Cathie has been selling Tesla from ARKK and buying GM for the ARKQ fund – the Autonomous Technology and Robotics ETF. Given how many times she has said OEMs are an investment risk due to EV disruption, this is kind of odd. Meanwhile Tesla has halted production at its Shanghai site due to a shortage of parts.  

Twitter shares fell but only in line with the rest of the market. Slipping 4% to $48. Musk indicated he could walk away. Meanwhile Hindenburg has come out with a short position on TWTR saying there is a material risk of the deal being repriced. “We believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower,” Hindenburg notes, adding that the Tesla boss can simply walk away if he chooses to, which means he can get better terms if he were to press for them. “Musk has incredible leverage to renegotiate should he choose to,” they write. You can read the full research piece here. 

It was the worst day for global stocks since June 2020. The difference between then and today is the Fed no longer has the market’s back and there is not a few trillion in stimulus cheques incoming. We are in the kind of market where selling begets selling, rallies are sold into and everyone is hiding from the recession and inflation risk in cash. Gamma is negative so dealers are hedging selloffs by selling as the market drops, exacerbating the decline. There are some very clear correlations with the dotcom era now and we look to see who might emerge as the winners from all this…for there will be some. 

Oil was swept away by the strong currents but also because China’s lockdowns are not about to be lifted. Spot WTI dropped below its 50-day SMA. 

Bitcoin is a great barometer for risk now and we see its decline as evidence of significant deleveraging…hardly the safe haven. Feels like we are kind of an important point in the cycle…according to Glassnode some 40% of Bitcoin investors are now under water.