AFMC - Detox

Summary

• 2023 has started as most years do with the losers of the previous year becoming winners and the winners becoming losers.
• Last week had the feel of a short squeeze. The most shorted stocks in the market were up big.
• When the MEME stocks and most shorted stocks are running higher, it has the feel that the bear market is not over and market investors need further detox from the years of Easy Money and the Fed bailing everyone out.

The market has been a bit too quiet as most got their tax loss harvesting done early this year and stepped aside to enjoy the holidays. 2023 has started as most years do with the losers of the previous year becoming winners and the winners becoming losers. It’s just tax issues. Everyone who sold their losers is buying them back and they are now selling their winners as they have delayed the taxes due for another year.

Last week had the feel of a short squeeze. The most shorted stocks in the market were up big. One of the leaders was Bed Bath & Beyond ( BBBY ). BBBY announced that it might go bankrupt and the stock was up 400%!! Huh? Bitcoin ( BTC-USD ) made a nice move and Carvana ( CVNA ) was up big. All junk. When the MEME stocks and most shorted stocks are running higher, it has the feel that the bear market is not over and market investors need further detox from the years of Easy Money and the Fed bailing everyone out. The Fed has said that they are not coming this time and when the stock market runs higher, it eases financial conditions. The Fed wants tighter financial conditions. Don’t fight the Fed.

We believe that the Inflation numbers are headed lower. This was peak inflation for the moment . First is the peak in inflation, then come the earnings reductions and warnings. The banks reserved far higher amounts for loan losses last week, so they are expecting a recession.

The Retail investor has sold. Fear is fading and greed rising. The 200 DMA is key. We are right on it and in positive gamma. That is supportive for markets. We always ask – What is the pain trade? The pain trade is higher. The banks reported poor numbers but rallied. The corporate buyback is back in full swing on the 27 ^th . The options market resets with a big expiration on Friday. We expect volatility to rise.

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