Outflows and delusions  dominate decision makers; both in markets and in the regulatory arena; where degrees of confusion about how vulnerable things are, tend to eclipse a simple reality: 'don't fight the tape; don't fight the Fed'. I think this is part of making a bottom with so many new bears; but incomplete or not (likely more remains in the process); it's real late to embrace negativity.

The irony is the preceding distribution was ongoing, as was initial inflation and even statements of forthcoming tighter monetary policies; oh for a year plus at this point. The so-called 'official' bear market territory is nonsense; given what we know from history of capitulations and even recession proclamations very commonly exhausting (with varying shades of drama) near the end of decline.

Remember; a majority of stocks outside of the 'Grand Dames' and meg-caps; at this point even the so-called 'safe haven' stocks; are down way more than a mediocre 20%. The handful of speculative stocks we sprinkled as 'bets' were already down typically 60-80% from their highs; way below IPO/SPAC offering prices in those examples. What's happening now is capitulation or liquidation, not based on valuation or 'quality', but the big stocks taken to the woodshed.

Trips to the woodshed are often the final punishment even if the backside still is sore for awhile (to be literal; and not speaking from experience); so while all the attention is on 'inflation', 'war', 'Fed' and so on; the reality is it's basically a scenario of the 'Generals retreating to the trenches and rejoining the troops'. It is something we've warned of for over a year; and relates to the 'buyback' and other temporary delusional pressing-higher of already expensive stocks.

And that is part of the problem here: those big stocks were super expensive; and are now just expensive; some relatively speaking very expensive. Hard to say whether a low point for the S&P will correlate to actual value achievement or merely coincide with crescendo type 'el foldo' events for the overall Index.

In sum: This S&P (and to a degree much of the market) is behaving in tricky as well as indecision markets; sort of flapping between trap-doors and relief rallies; neither of which has much sustainability. So let's call it something like a 'butterfly pattern'. (Of course there's no such term unless we just made it up.)

When it's S&P, or Bitcoin, or liquidation in mega-cap or safe-haven stocks; or even the (nonsense?) allegations against Musk (and thus impacting Tesla); you have a situation where the uncrashed not only have caught-down with the majority already crippled for months or a year; but are at risk of overrun. Just as such stocks overran with buybacks etc. to the upside we warned of; now it is not unlikely that they get more extreme on the downside. Examples: mostly the ballooned stocks get really deflated (Tesla is one; Netflix was another); at the same time something like Bitcoin tracks more the S&P and crypto exit in a capital-salvaging panic; and that continues the risk.

I realize people will get bearish at the lows, as they almost always do; but with the fundamental variables not showing even hints yet of improving (that's part of why I look for geopolitical or Oil-related factors; not just at Fed or technical analysis); I have to call this continuation patterns with intervening rebounds; a viewpoint I've held since last year even when calling rebounds. Clearly, 'now' that some technicians are interested in Puts and shorts, that's one sign that it is getting overdone on the downside after hitting our ~3800 S&P measure; at the same time as ~3400-3600 would be the next approximation; but likely with an intervening rebound before that happens if it's going too.

Actually I think there is a hedging strategy called 'butterfly'; but in this instance I am just referring to the fluttering wings of alternating moves; but even critters like butterflies must eventually settle down somewhere. This market continues to hunt for a landing spot; and I thought it had to be at a lower S&P low.

That was primarily since the behavior was so mediocre on the prior relief-rally, and safe-haven stocks were being killed; often stocks that hardly move at all. I noted these are often in 'retirement accounts' or 'conservative funds'; hence it got everyone's attention and reflects outflows due to after-the-fact redemption pressures; and in some cases an overdue reaction to inflation pass-throughs.

In other words much of this pressure isn't really based on P/E's or valuation or how well-run a company is. It's about liquidation to raise cash plus late fears. I do note they shoot retailers for the moment; and you've got several next week including Macy's, Costco, Best Buy and AutoZone.  A couple are Tuesday, so that could inhibit any continuation effort following Friday's late recovery.  At this point I suspect some of the negativity is sympathetic declines; and lots of 'new' bears are merely trend followers; which is fine but it's later in the game. I think those would be the ones shorting the crushed big-caps and buying Oils; it doesn't mean you won't get more from establish trends, but they're not early like the danger of pressing downside in a plunge as evidenced late Friday.

While the 'butterflies' flutter; keep in mind that confirmation of a recession will likely dovetail somewhat with the culmination of Fed tightening moves. Then it will be important to recognize that stocks will discount recovery 'in general', at the same time speculative (new technology / disruptive) stocks with viable or solvent business models, will likely have even better percentage moves.

But of course that is for the future. Some such stocks are hammering near or on lows now; and not cratering like the 'Grand Dames' funds were hiding in or thought they were safe in. Again this is just the Generals catching-down with the troops already in the trenches for some time; and that can be the last big phase of decline.

The reason I said 'can' and not 'is', relates to exogenous risk considerations; which can't really be quantified; even though they can be specified: the Putin war against Ukraine (and to an extent humanity); China's Taiwan threats that compelled more active U.S. Navy regional activity in the Indo-Pacific region in addition to the President's trip there; the North Korean threat (which possibly is just a diversion so Kim's masses don't revolt while infested with Covid on a scale larger than just about anywhere proportionally); and of course few signs of 'recession here', which means continued expectation of Fed rate hikes; with only limited signs of peaking inflation in some aspects, at least so far.

All of this creates a 'butterfly' fluttering for the moment with no assistance from an unfriendly Fed to help; as they want to wring inflation out of the system so I have noted with callous disregard for the economic or market consequences. I hope that's not the case as it should be obvious that they don't repair errors before (transitory etc. and being behind-the-curve for too long) by excessive aggression on the tightening side; or even a belief 'they' not the world is now a primary influence on what happens with inflation. Food and Oil are not fully addressable by the Fed, even if the FOMC things they can hand it all. That's of course how you deepen stagflation; rather than merely fight inflation.

Bottom-line: the Fed continues draining liquidity out of the financial system. And there's a degree of redemption as well as compelled liquidation I've noted for weeks; which gets more 'normally complacent' folks or managers nervous after what they thought or think should be the end of decline.

The Fed rushed too much money 'into' the system along with Covid stimulus. The war disrupted food supplies and elevated Oil prices even more (we said a year or two ago from the 40 area that it could double; but any move over 80 in our view would be geopolitical; and it of course is). Oil remains key to unwinds more than the Fed; and there a ceasefire would help a lot. 

Global recession exists now; rather than as a forecast. The proportion of our big-cap companies revenue from overseas sales is huge; and not considered by most analysts. That's a part of this nasty big-cap decline; it's more realistic assessments of what those stocks should be priced at. And now, as we finish an Expiration week, we have the longest sequential S&P (multiweek decline) since the mid 1920's. Will we get another bounce next week? Probably, while everything hinges on 'exogenous' events that do impact U.S. stocks indirectly if not directly; and impact inflation more than what our Fed can easily defeat.