Dumpster Fire Sale

In my 50+ years of following the stock market (yes, I read the ROB in my teens), I don't think I've ever been more happy to see a stock market correction. The Nasdaq has completely erased the Trump-inspired runup in less than three weeks since my 'get out' call. 'Magnificent 7' is now synonymous with 'Dot-Com bubble'. Elon Musk's three main investments, Tesla, Twitter and SpaceX, have simultaneously experienced 'unscheduled disassembly.' Excuse me while I gloat a bit here, but is anyone surprised?

So, is it over? Should I "buy, buy, buy," to quote CNBC's trained parrot, Jim Cramer? Sorry to go all economist on you, but -sorry, Charlie - not yet.

If you have sat on the sidelines, á la Warren Buffet, with his cash hoard, you may want to stay out a bit longer. The U.S. economy is suddenly heading off a cliff carved by the confidence-sapping policies of a ham-handed oligarch and a gang of Trump's misguided autarky architects. Tariff-induced chaos has directly frozen the C-suite into inaction. Investment and deal-making are on hold, and 'animal spirits' on Wall St are fleeting memories.

When do investors regain their 'animal spirits?' It seems a long way away. There is a real risk investors will get even more bad news for a while longer. Political headline: Russian roulette.

The U.S. Federal budget uncertainty has only begun to filter into the conversation. The government shutdown talks have already thrown a wrench into congressional law-making. There is only so much Trump can do by executive order. His gambit to 'detox' big government first and fix the economy later with tax cuts looks like a failed effort now. America has swallowed a bitter pill, and there's no sugar coating on it. Actually, it's more like cyanide in the kool-aide served up to Trump's cultist morons.

The stock market litmus test has revealed the flaw in this approach, offering a swift rebuke from the only poll that investors should care about. The ratings for "The Apprentice 2.0" are in, and they are horrible. A trillion dollars has suddenly gone missing from the global wealth portfolio. Was it really there in the first place, or was it all a dream? More like a MAGA fever dream. Crypto is no-bid, too. Trump's meme coin looks more like a 'two-bit' coin now.

The economy won't help bulls anytime soon. The NFIB Uncertainty Index has collapsed, and the market has disproportionately punished small-cap stocks. Airlines are slashing their forecasts, and most retailers have dropped estimates. Consumer Discretionary stocks are getting pummeled relative to Consumer Staples and look like they have more to go.

Meanwhile, back at the Federal Reserve, we are hearing crickets. Despite the carnage in the stock market, the Fed, having lashed themselves to the mast of 'data dependence,' shows no sign of offering up a 'Fed Put.' Lagging data, almost by definition, will not suddenly prompt Chair Powell to make a preemptive strike. Look for them to disappoint the momentum jockeys next week as they leave rates unchanged. Actually, I think Jerome is enjoying seeing Trump squirm like a stuck pig, given his comments about taking control of monetary policy last year.

So, will the 'Tuesday at 11 Turnaround' happen here? Not as long as the only stocks selling off are the large-cap momentum plays. Selling these overhyped winners is the easy part of a correction. I want to see a bit more pain before I'm convinced it's over. Remember my chart from last week. More work is needed.

Aside from the small caps, the broad market actually held up better than the S&P 500. But is that a sign of potential leadership rotation? For that to happen - and it must happen quickly - Trump needs to do an abrupt about-face. He needs to reverse the nasty parts of his agenda and offer up some goodies to quell the agitation created by Musk. But this morning, Trump reaffirmed his belief in Mini-Me Musk by vowing to purchase a Tesla car. He seems quite willing to jump into the burning Cybertruck he helped ignite. The list of potential positive catalysts is growing shorter by the day.

So play the 'B' wave here if you dare. For the market to complete its reset, there must be true capitulation. The economy and earnings were slowing before the Trump dump. I see no reason that consumer sentiment will turn around. The Fed is stuck, staring into its favourite rearview mirror. Government spending and employment have reversed. And immigration, an underappreciated economic driver since 2009, has been suddenly truncated. Forget illegal immigration, even legit applications are down!

So, if you are looking for a used car, I have some advice for you. Instead of a Tesla, this ten-year-old Cadillac looks like the kind of car I would buy.

Risk Model: 2/5 - Risk Off

There is no sign of a bottom here. The VXV and AAII Bull/Bear are stretched but need time to reverse. The RSI is also in oversold territory but needs to reverse for an all-clear signal. The TSX is still above its 200DMA, so there is room to go yet.

After Doug Ford's move on electricity exports, Trump is going all-in on more tariffs, destroying what little confidence is left. The news won't get better until the market crash gets under Trump's skin, which is as thick as his head.

Good luck buying this dip. Most dips are Republicans, by the way.