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February stock market rout snaps longest monthly win streak since 1959

Written By | Feb 28, 2018
fake coronavirus news, Blumenthal, first Fed rate cut

Wile E. Coyote (and Wall Street) look like they’re in trouble again. (Fair use, satirical rework of Wile E. Coyote. Character copyright: Warner Brothers.)

WASHINGTON, February 28, 2016: Our ongoing February stock market rout concluded fittingly with yet another feast for the bears on Wednesday. U.S. stocks were pounded once again on this, the final day of February 2018, after flirting insincerely with traders earlier, coyly hinting at a mild market recovery. It was not to be. The greatest monthly stock market winning streak since 1959 has ground to a miserable conclusion. At least for now.

It’s hard to say for certain if today’s market battering occurred due to a lingering caused by a rookie Fed Chair’s bearish Tuesday interest rate hike proclamations, or something even more ominous. Yet Wednesday’s final stanza of America’s grueling, February stock dump-a-thon strengthened into the 4 p.m. closing bell.

When the dust had cleared the Dow was off a sickening 382.07 points (-1.5 percent). The S&P 500 and the NASDAQ were down to a somewhat lesser degree, off 1.11 and 0.78 percent respectively. The NAZZ lost most of that amount in the last half hour of trading. Bulls were not doing their happy dance. Long suffering bears were licking their chops and sharpening their long knives. (Or claws.)

Today’s bottom line: With only a few hours left in February 2018, we will be absolutely delighted to kiss this truly rotten  month goodbye. Here’s hoping that March proves to be at least a partial antidote for a February stock market Mardi Gras of irrationality, stupid trading and thoughtless over-use of margin debt. All three factors contributed to this month’s serious market setback to what otherwise has been a phenomenal, sustained bull run that has roughly coinciding with regime change in Washington, D.C.




With regard to the Fed: In his first appearance before Congress as Fed Chair, it really didn’t help that an economically tone-deaf Chairman Powell thoughtlessly left his Washingtonspeak Instant Decoder Device at home. With markets already worried about the pace of interest rate hikes in 2018, even a mildly skeptical choice of words and tone might have settled this months VIX-ridden averages at least a little. But lacking his decoder, the rookie Chair waxed blunt. Mr. Market liked this not one whit. Hence, the current Phase II of our already overdone February stock market swoon.


Read also: Interest rate hikes? Full speed ahead says Powell. Stocks choke


When it came to discussing the likely number of 2018 interest rate hikes with members of Congress, Powell dared to speak that dreaded word “four,” instead of the expected “three” – even if he didn’t really mean to suffer the consequences. What he did say was quite enough to send the bulls crashing out of the NYSE so fast that they trampled an awful lot of happy bears on their panicked way out the door.

“February has been a volatile month for stocks. The major averages dipped in correction territory earlier this month, falling 10 percent from record highs set on Jan. 26. The move lower came as fears of rising inflation sent rates higher and sent market volatility surging after a year of unprecedented calm.

“‘The volatility is being caused by one overarching theme: The market doesn’t know what to expect from the Fed,’ said Tom Essaye, founder of The Sevens Report.’ There’s uncertainty around that and it’s going to continue for the next several months.”

Gosh, Tom, thanks for the good news.

Alas, it doesn’t get any better over at ZeroHedge, where “Tyler Durden” quotes an opinion from a Very Big Bank that shall apparently remain unknown:

“Confused by today’s whipsawed market action, which as much about month end flows, as it is about newsflow, post Powell jitters, breakevens, inflationary fears, and of course, whatever it is that [investment advisor Dennis] Gartman may be doing? You are not alone: in its intraday macro update, the bank that is also the world’s largest currency trader, had some (very) simple advice for its clients: ‘Don’t try to make sense of this.’

It then clarifies, and we use the term loosely: ‘Price action today has been messy to say the least. The shortest explanation is, it’s month end and so there is little point in making sense of the move.’”

Well, good day to you, too, Mr. Really Smart but Mysteriously Anonymous Banker. The problem is, the little guys still trying to make a few investing bucks on their PCs out here in Flyover Country need to make at least some “sense” out of February’s savage bearishness – and soon – or we’re not going to make any money in 2018.



“In a ‘bagholder alert,’  Tyler later opined as to exactly what might have taken today’s markets for yet another February stock rout today:

“Originally published at iBankCoin.com

“Don’t say I didn’t warn you this time. Had you read the prospectus you would’ve know to dear god that it was not only within Proshares right, but also their duty to take away your money and flush it down the toilet. Last night they announced a leverage change for their SVXY and UVXY products. This is especially deleterious for out of the money call buyers who wanted black swan bets on volatility. A lot of investors utilize these trades to hedge downside. Now those people have been eliminated from the field of play.”

What Tyler is noting here is that two more of those nasty “short VIX” ETFs/ETNs quietly jacked up the cash you need to put up if you’re buying any of these shares on margin (credit). That also meant that those still holding those ETFs today may have had to dump more stocks to up the cash positions in their accounts. This in turn might have led to the afternoon’s heavy mass dumping of stocks to raise more cash.

Tyler further observes,

“In other words, you’re now paying exorbitant management fees for less leverage, and of course in the process wiping out premium across the entire option matrix. With the market up double digits, SVXY is higher for the day — but options holders, especially out of the money holders, got REKT.”

I.e., “WRECKED.”

Our attitude here: Too bad for the big boys and the “playahs” who continued to get wiped out in dangerous volatility oriented short ETFs or ETNs. Just like their bros did in 2007-2010, their asinine greed paid little heeds to the laws of markets, the laws of nature, and the laws of borrowed money. We, the little investors of the world get hammered by their stupidity as a result.

True, the Royal Smart Guys get hammered, too. But they always seem to have enough family money left to stake them in a brand new game.

Small investors don’t have those kind of resources. So it’s time for the overpaid and underperforming members and staff of the SEC actually go out their and call these rich gamblers on the carpet. Otherwise, why are we paying so much for government, n’est-ce pas?

Grrr.

We’ll be back tomorrow, March 1, 2018. Perhaps coming in like a lion, March’s grand entrance promises to be a windy one here in the swamp. Hopefully, that wind will be at our backs at Thursday’s opening bell. If so, it will be a most welcome improvement over this now-concluded February stock market hell.

 

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17