Bears had a rare chance to get short with impunity last week -- arguably the first such free-money opportunity since the bull market began more than 12 years ago. With the Evergrande saga unfolding in real time, shares appeared to be doing a Wile E. Coyote ahead of Friday's opening. Their gravity-defying behavior reflected one of those deft manipulations where DaBoyz greet whatever fragile bids show up in the early going with a feather-light touch. On Friday, playing it by the book, they scaled back their offers until the very last of the idiots from Mars doing the buying were fully satisfied. The result was that stocks hovered aloft for just long enough that traders who had gotten things exactly right -- i.e., realized that Evergrande's failure could make the 1998 collapse of Long-Term Capital Management look like a furniture-store liquidation -- must have begun to doubt themselves.
Up to Their EyeballsFor now, don't believe talking-heads blather about how Black Rock, Goldman Sachs et al. hold only relatively small stakes in Evergrande. The truth is, when you connect up the dots, toting up derivatives exposure tied to Evergrande's epic real estate portfolio, they are all in it up to their eyeballs. In the meantime, traders and investors should treat every rally as a gift, and every Wile E. Coyote pause in selling as an anomaly. The tempo of the selling is certain to accelerate, and short-squeeze rallies to grow more violent; it will be increasingly difficult to get short. But there should be little doubt that bears have finally got the wind at their backs. The chart above shows that they have some technical support as well, in the form of an E-Mini S&P top at a 4503 Hidden Pivot rally target that has been a a decade in coming
September 20, 2021