Still Orderly...For Now

Although today's selloff seems like it caught some bulls by surprise it also mirrors quite a few of the selloffs we saw in 2022 insofar as being more of the orderly variety, lacking in true explosiveness to the downside. 

As a bear market matures, however, the odds of the selling intensifying pick up, especially in light of the big rally we have seen since last autumn and then even more since the beginning of 2023. Eventually, we should enter the fear and capitulation stage with genuinely scary price action even to hardcore bears. 

There is a plethora of evidence out there that the rally was spawned by retail traders diving back into market head-first alongside CTAs (more on what CTAs are here), all the while hedge funds were covering shorts in a panic. 

Give that February options expiration is behind us, the risk of a sharp unwinding of that entire retail/CTA trade lower is legitimate. In fact, I have been looking for just that during this late-February/March window for a good while now. 

The clues should be fairly straightforward now: We are looking to see if dip-buyers now fail where they have previously prevailed, to the point where longs are the ones who panic and exit positions in the same way shorts did throughout January and earlier this month. 

At the same time, the VIX should keep a bid underneath, eventually spiking back into the 30s and not immediately failing this time around. 

With the Fed Minutes, GDP, then PCE data all later this week amid a fragile market structure in a seasonally vulnerable time of year bears are officially out of excuses not to force a retest of the likes of 3800 and eventually below in the coming weeks.