Thread: MrBowl's Account Talk

Bond yields and mortgage rates are higher but I don't think they are in a problem area. Compared to the long run rates are still low. If I was trying to buy a house now i wouldn't cancel my search.


Three things happened to cause this dip.


1) the market ran up so long that we were due for a 3-5% dip any time.


2) jobs report showed higher wages which caused inflation fears which meant the the dip will happen now (week of Jan 29).


3) so many hot shots, hedge funds, and naive rookie day traders with a lot more money than experience were over leveraged in the VIX, XIV, and related products that when stocks were lower and the vix was higher on Monday Feb 5 they had to start selling. That made their products even less valuable and they got margin calls, so they had to sell everything they had, from triple strength Inverse VIX to 3M, just to pay the margin. This situation turned it from a 3-5% dip to a 10-12% dip.


In the final 2 hours of trading Friday those products began to settle down and the market rocketed upward. The margin calls seemed to have stopped at that point. I expect there will be new tests and bursts of margin calls and selling Monday and maybe Tuesday, but we are quickly running out of those people.


Look at the economy...increased corporate bonuses instead of layoffs, lower taxes (which I see for the first time in my upcoming Tuesday paycheck), very low unemployment, good GDP, etc. A market dip during times like this is quickly forgotten. We'll see new all time highs by May, maybe earlier.

Nice points and good analysis!

My rule had been that there needed to be two consecutive up closes to establish the dead cat bounce/relief rally/sucker's rally/whatever you want to call it. When I looked at the situation closely last Friday and over the weekend it occurred to me that the uptrend last Tue-Wed satisfied all requirements except for that arbitrary rule of mine. When tossing that rule out I gained more confidence that the sharp turn around midday Friday was the real deal and we are on the far side of the canyon. Dips like this used to happen 1-3 times per year, and we usually see very few down days in the weeks following the dip. I think that's where we are now.

It's helpful to step back and set aside biases to get a clear view of what really just happened and what comes next. I don't think that inflation is high enough to matter yet, even though the direction is worth closely monitoring. The VIX issued seems to be taken care of for now. It looks to me like we will resume market trends that were in place back in mid Jan, but perhaps with a bit more volatility since folks will be justifiably more skittish.

Trade the market you got, not the one you want!