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Quadruple Witching, Fed’s Bullard worsen stock market face-plant

Written By | Jun 19, 2021
Quadruple witching, Bullard, tech heavy NASDAQ, Coyote, Roadrunner, Acme, post-Memorial Day Blues, recession fears

Screen capture of Wile E. Coyote, our favorite market metaphor, poised to take a long trip down to the canyon floor. (From YouTube video of Warner Bros. cartoon. Fair use.)

WASHINGTON – Adding Friday’s quadruple witching action and bearish remarks by St. Louis Fed’s President James Bullard to Thursday’s bloody stock market rout simply worsened this past week’s market face-plant. CNBC provides the nasty details on the Friday morning trading action.

“Stocks fell on Friday, with the Dow Jones Industrial Average on pace for its worst weekly loss since January, as traders worry the Federal Reserve could start raising rates sooner than expected. Economic comeback plays led the market sell-off.

“The blue-chip average dropped 443 points, bringing its week-to-date losses to 3.2%. The S&P 500 fell 0.9%, pushing its loss this week to more than 1.5%. The tech-heavy Nasdaq Composite dipped 0.6%.”

As it turned out, markets closed down all the way around at Friday’s 4 p.m. ET closing bell




What’s with the Fed’s Bullard?

Preferred stock guru, Innovative Income Investor’s Tim McPartland provides a bit more color on that bearish commentary offered by the Fed’s Bullard. This only served to make this week’s budding “Taper Tantrum” worse than it already is.

“Common stocks are having quite the little tantrum today as the Federal Reserve starts to ponder tapering quantitative easing (QE) down the road.

“For those watching CNBC today James Bullard, the Fed president in St Louis, made his position quite clear which started off the tumble in stocks. He wonders why the Federal Reserve is buying so many mortgage-backed securities during this time of strong housing demand and rapidly inflating prices.

“The funny part today is that treasuries are going the opposite direction to stocks as the 10 year treasury is off almost 6 basis points to 1.455%. Seems like rates would be ticking higher–but not the case.”

Yes, the action in US treasurys did prove rather strange. But in context, Mr Market has also behaved weirdly going back to the January 20 launch of the weirdest US presidency in this country’s history. The market’s most recent irrationally exuberant rally got a little bit ahead of itself in May. Now, the current apparent market correction this week seems determined to do the same. But in the opposite direction. Friday’s quadruple witching action accelerated the resulting downside.

A tale of two charts

Thursday’s closing McClellan Oscillator clearly shows we’re nearing a selling climax – the kind that generally results in at least a snapback rally within days of its ultimate bottom, which has yet to occur, as we can see in the Oscillator chart below.

quadruple witching, Bullard

McClellan Oscillator, COB 061821. Obviously, a big leg down is underway. Quadruple witching Friday and the Fed’s Bullard aren’t helping. Chart courtesy of Stockcharts.com, a service to which this writer subscribes.

At Friday’s close, the Oscillator closed at an even more bearish -177 and change. Nasty. And it probably has a bit more to go on the downside. But we’re also closer to a bottom here. Friday’s quadruple witching action likely accelerated this move.

A look at the VIX

Looking at the VIX market volatility chart as of Thursday’s closing bell, also shows how the (usually negative) market volatility measure has begun to reverse sharply to the upside after reaching a remarkable level of complacency just a week or so ago.

quadruple witching, Bullard

Vix Volatility Index chart, real time, Friday afternoon, 061821. Chart courtesy of Stockcharts.com.

Friday’s VIX closed a point higher, meaning that its forward velocity slowed somewhat but didn’t stop. Remember: When the VIX goes up, that tends to be bad for the bulls, as selling generally (but not always) increases. The sharp increase in this measure over just a few days shows how dramatically trading sentiment can reverse, as in the blow up region (below, left) of our previous chart. Look inside the red circle and you’ll see the selling switch get flipped rather abruptly following a short period of low volatility “complacency” in late May-early June. Again Friday’s quadruple witching phenomenon didn’t help Mr Market’s mood.

Blow-up of a section of the previous VIX chart, showing how volatility has picked up quite dramatically over the past week. Not good for the bulls.

Markets worry about the unrepresentative government in Washington

Taking together these charts, the remarks of James Bullard, the disastrous, dementia-addled flailings of our Pretend President during this week’s G-7 powwow, and the world’s headlong rush to destroy affordable sources of energy we can demonstrate at least some evidence supporting the following thesis. Namely, that economic and political idiots are running Washington right now, just as they’ve run Europe for decades.



Then again, in recent decades, power mad idiots have taken over the operation of nearly everything in Washington. They don’t know what they’re doing – save for making the world safe for some kind of bastardized Marxist Utopia.  Their Antifa approach to democracy makes is it impossible for businesses to plan for anything more than the short term. It’s all just one big recipe for fear and loathing on Wall Street. The opinions of James Bullard don’t help. But things could get much worse.

Starving the non-elite classes of reasonably priced energy 

Oil expert David Messler points out something that no one else seems to be watching these days. Particularly when it comes to the phalanx of idiots bloviating daily from the wreckage of what we used to regard as journalism.

What we – and Messler – are talking about is the ruinous asininity of self-serving elitist bigwigs. Both corporate and government bigwigs are busily climbing on board the Good Ship GreenEnergy as it prepares to sail into oblivion. The upshot of their abdication from reality is this. They have made the decision to leave America’s – and the world’s – lower and middle classes in the lurch as they get priced out of the current energy market. But they’ll “save” the planet, no doubt by involuntarily succumbing to the elitist plan to eliminate those classes they don’t happen to like.

Back to David Messler.

“In an amazingly short period of time, the world has made an irreversible bet on green energy sources – solar, wind, and biofuels – being able to shoulder much of its energy burden. This is a transition without a track record and a very spotty roadmap of implementation. Time will tell if this bet will pay off. If my judgment is correct, we won’t have long to find out.”

We’ll help Mr Messler on this one. The bet WON’T pay off. Except for the super-wealthy elites and their political and media cronies. But the resulting erosive effect on the incomes, livelihoods and even the existence of lower and middle class families will likely wipe them out before all the wealthy industrial, government and media idiots figure it out. Unless this is also part of their amoral and socially ruinous plan

Readjusting portfolios toward a defensive posture

The headlong, faux-Marxist dash engineered by Western governments and their wealthy enablers towards an American energy grid based on permanently unreliable sources of power is a disaster in the making. It will function like a giant wrecking ball poised to destroy civilization. We’ll need to take this potential catastrophe into account as we redeploy our investments once this week’s stock market mess backs off.

As for us, we’re selling off some positions we’d planned to hold. Why not take most of the profits we’ve already earned on paper before wealthy sellers to take away from us. As always, accomplishing this much faster than it took us to log in those profits to begin with. Quadruple witching Fridays, like yesterday, already burdened with current Fed-initiated  Washingtonspeak can magnify market negatives for a few days. We saw this quite clearly on Friday, June 18.

But longer term, when the country is run by rich leftist idiots who talk like Marxists but act like capitalist robber barons and / or feudal lords, we need to develop some sort of viable investing Plan B if our portfolios are to survive 2021’s deteriorating prospects. That Plan B must take perma-bullishness off the table, as the dire consequences of Election 2020 become painfully obvious. At any rate, we completed our interim selling program Friday afternoon. (We’ll report on this once we tally up our scorecard.) Next, we’ll see what happens after all the smoke clears, hopefully Monday or Tuesday.

Meanwhile, have a good weekend.

We plan to take another few days off next week, getting away from it all. Destination: somewhere in the mountains of Western (not West) Virginia. But we’ll be back later in the week to assess what happened while we were away. Hopefully, Mr Market will still be there. And maybe even boast a few bargains for a change. That McClellan Oscillator is getting very close to oversold, which means we could get a dead-cat bounce within a few days. Or less. Stay tuned.

 

 

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