Hey trader,
Chick Hearn was the greatest basketball announcer who ever lived. He called Lakers games for 41 years without missing a single broadcast. 3,308 consecutive games.
When a defender got completely fooled by a head fake, Hearn had a phrase for it. He said the player got "faked into the popcorn machine." Spun around, out of position, totally deceived.
That is exactly what this market is doing to you right now.
The S&P 500 is barely down 3% from its highs. Traders are rushing in to buy the dip. They think the worst is over.
I have been doing this for 39 years. The most violent rallies always come off oversold conditions through bear markets. Every single time. This bounce is a sucker's bet, and I am using it to reload my short positions.
The 3% Problem
The S&P 500 has pulled back roughly 3% from its peak.
That is nothing. You need a standard 10% correction before I even start paying attention.
Everybody panicking over a 3% move tells you how fragile sentiment is. The real selling has not even started yet. As Don Kaufman says, professionals in downtrends reload to short.
That is what I am doing on every rally. I sell stocks at or near 52-week highs. I keep raising cash. This bounce is handing me better entries on the short side.
I have my pulse on the institutional trade desks. JP Morgan is one of the few I consider truly objective.
Their trade desk remains tactically bearish despite this bounce. They are not piling on the short side. They are simply refusing to lift their hedges.
JP Morgan's downside target sits at 6,270 on the S&P 500. Goldman is holding their hedges too. These firms control trillions of dollars that move markets alongside Citadel, BlackRock, and Blackstone.
If JP Morgan will not take their hedges off, why would you? They will walk this market down to that level. When trillion-dollar institutions make a call, they have the firepower to will it into existence.
The Netherworld Tells You Everything
We are not in a bull market. We are not in a bear market yet either. We are stuck in a transition zone I call the netherworld.
Here is how you know. Semtech reported earnings this morning. The company crushed estimates and guided higher. The stock got destroyed anyway.
That reaction tells you everything about the current regime. In a bull market, stocks rally on any earnings report. In the netherworld, even perfect numbers cannot save a stock trading at elevated levels. The expectations are already baked in, and there is nobody left to buy.
I warned my audience about this pattern. Consider the forces stacking against buyers right now:
- The market has not factored in lower earnings or lower consumption. Those revisions are coming.
- Interest rates could move higher again. The tailwind bulls were counting on is gone.
- Every dip buyer concentrated in 52-week-high names is feeding the machines that will sell to them on the way down.
I would buy individual stocks that are cheap. I bought Uber at $71 because it was 13 times earnings and broke through a descending channel. That is a value trade with a breakout confirmation.
But the broad market at these levels is a head fake. You are getting faked into the popcorn machine.
The Genesis COG System identifies when algorithmic pressure is building against the trend before it reverses. It separates the stocks worth owning from the index-level traps that destroy capital in transition markets like this one.
See how the Genesis COG System detects head fake rallies before the machines flip to the sell side →
Professor Jeffrey Bierman
Creator of the Genesis COG System