Goldman Sachs Warns MassiveA Stock Selling Starts Monday

Goldman Sachs is warning that the biggest forced selling of equities is about to hit Monday. This is something we haven't seen in over a month. On top of that, talks between the US and Iran broke down on Saturday. What this is setting up for is a potential pullback in the markets. So if you've been looking for a reason to buy the dip, we may see it next week, particularly as we can note that machine positioning from the Systemax is starting to slow down. I've got the full update on that. Plus, there are two critical things that are also happening next week. These are the reasons I'm still long on holding my long S&P positions because flows are coming back in a meaningful way. You've got to see what those are. Plus, we're going to talk about the two biggest macro risks to the economy and the markets. Let's dive right in. Because Goldman warns of massive month-end rebalancing from stocks to bonds. What's happening here is we're seeing $23 billion of US equities keyed to sell. That's going to happen this week over the next four days. Why is this happening? It's because pension funds have to rebalance. The way these pension funds work is they've got an equity component and they've got a bond component. According to their rules, they have to rebalance when they get out of line. What we're seeing in the charts very clearly, stocks have taken off as we look at the S&P 500 index in green. Meanwhile, bonds, that is TLT, the iShare's 20 plus year treasury bond ETF in red, has gone relatively nowhere since April 1st. For pension funds, who are legally obligated to maintain their percentages, this means they've got to sell $23 billion worth of equities over the next four business days. We're talking over $5 billion of selling. Why does this matter? If you think, over the last week, CTAs bought $40 billion of equities. This week, they're starting to cool that number way down. And demand from this cohort, we're talking CTAs here, sits in the 8th inning after acting as a major tailwind in the last couple of weeks. That's a lot of rotational energy for the equity tape to handle these fragile highs, suggesting that when you combine all of the selling on top of the fact that the talks have now gone away, what we're setting up for is a potential correction of the market. But keep in mind, there's going to be two offsetting flows we need to talk about. But I want to first cover what's going on with the CTAs because they've been a big driver of equities here. Of course, that was the call we made back on April 1st. I said, look, you've got to go along with the S&P because CTAs are going to be big buyers. Now last week, according to Goldman, he bought $44 billion of U.S. equities and $84 billion globally. Next week, they're going to continue to buy in every scenario. But keep in mind, that number is going to go way down and those flows coming off from these pension funds are likely to be far higher than the CTAs are going to buy. Let's take a look. Over the next week, this was the data as of last week, so we can cross that right off. But over the next month, this is the next three weeks, in a flat tape, CTAs are buying $36 billion of global equities, but only $17 billion into the U.S., and that's across the next three weeks. In an uptape, you've got buyers at $44 billion globally, $21 billion in the U.S. You can see, potentially in an uptape, only $7 billion a week buying into the U.S. Keep in mind, pension funds looking to sell $23 billion of equities, and guess where that money is going to flow? That's right, it's going to flow into bonds, so they're going to be buying $23 billion of bonds. In a downtape, we're looking at selling $82 billion of global equities, $25 billion out of the U.S., but again, that would be over the next month if stocks were to drop. But a key component here is flows are indeed coming back, and wait until you see what's going to hit. This is the reason I kept my S&P longs over the weekend, because I think these flows are going to be huge. But let's take a look at the estimates here for the CTAs. So this is the S&P 500, notably, in most conditions, they're not big buyers here. You can see that in a down move, what we can note is they're likely to be sellers, assuming we see the market come down. Now in the U.S., you can see they have been buyers here, but they've still got a long way to go to get back to their max long position. And this is where you see the difference between what are called the fast CTAs that react very quickly to the market, and the slow CTAs, which in some cases are still actually short the market. Now they take a much longer time, and once they kick in, and markets stay up, I'm going to show you, they are going to continue to kick in and buy, but what you can see is them moving right back up to that max position over the next, say, three to six weeks, and it's going to be a huge push for the market. And globally, look at this, again, CTA positions still not back at max long, a lot of systematic buying to come, but there's a bigger component. And this is going to be one of those two key things you've got to see, because once these both kick in, and one of them is really kicking off next week, what you can see is potentially this pension selling might get offset. Even if it doesn't, this could be a potential buy the dip opportunity if you've been looking for one. Let's turn to UBS, who notes that their simulation framework paints a uniformly positive picture for U.S. equities, with CTAs strongly positioned by U.S. large cap indices in the coming weeks. Key word, weeks, not just next week, but over the next several weeks. Even in a scenario where the S&P 500 stays flat, their exposure to the index could quadruple by the end of April. So what you're seeing here is an opportunity, again, that these CTAs on these slow algorithms start to kick in, and that brings in a huge wave of buying. Because one of the easiest ways to make money, one of the reasons we talk about the CTAs is because they're trend followers. So as the market moves up, they kick in and buy massive amounts of money. And that's exactly what UBS is saying here, is look, you want to go with the momentum, meaning you want to look for the assets where CTAs are expected to add their current positioning, and that's their way of using the CTA model, and that's exactly what we do on the show. This is exactly what I do for my subscribers, this is what I do for my clients. We saw the flows on April 1st, I said, look, you heard it on the show, I said, you got to go long because I'm going long. I cut my shorts the day before, I told all my subscribers, and then I rebalanced all my client portfolios accordingly, and look at this. What they're saying is, bullish signal is the S&P, the NASDAQ, the top 40, those are your key ones, even semiconductors, but that one's taken off already a lot, and I like to play chase on things that are all the way up. Now if you're saying, Steve, how do I get involved, how do I find out where these signals are coming from, what if I miss the show? You don't need to worry, because back on April 6th, we told all our subscribers to buy IW, and that is a small cap ETF, that trade got stopped out on the 22nd for a clean 9.08% gain, meaning you don't even have to sit in front of your computer all day to trade by signals, we just let our stop-losses do the work. Now with this recent pause in the market, what we're looking at potentially is a little correction here, and that could set up another trigger on our program to buy back in, and how do you need to get involved, all you need to do is grab those links in the description below, there's a 30 day free trial, so you can jump in, see the signals, I even talk about how I'm positioned, but let's go on, because now, let's talk about the two biggest catalysts that are hitting the markets. The reason why I'm still holding my longs, well the first reason is buybacks. Now we saw light volume last week with many companies in blackout. They currently estimate, this is from Goldman Sachs, that 18% are in their open window as of today. Now this is as of Friday. By the end of the week, that is this coming week, they expect 29% in the open window. So with each passing day, what you're going to find out is more companies are going to exit their blackout window and be able to start buying back their stock. Keep in mind, they're the biggest buyer of stocks in the market, and this is where we're at right now. So you can see those flows. Remember, we talked about the 25th being a critical day, that's 10 days after tax day. There's two things that were going to happen. One, you start to see retail flows come back into the market. What's the other thing? It's corporate share buybacks come out of blackout. And you can see going all the way through mid-May, there is a strong increase in companies that can buy their stock back. And the amount they're likely to buy, well on a quarterly basis, you can see it's not near the all-time high, but it is a massive number, looks like $257 billion. And how about this? Their overall projections are very high. We're talking over a trillion dollars here. So this is setting up to be the biggest tailwind in the market. So in the short term, you can see the shock from pension rebalancing pull back potentially, and then after that, things start to kick off. Because there's a second factor here, and this one's important. We've been talking about these vol control strategies, what we call volatility control. And here's how they work. They're very, very simple. When volatility goes down, they typically buy into equities, often very commonly, you're talking like the S&P 500, but whatever the component is, they go along the equity market. So what happened when volatility went up, they sold down on their stock positions, and they haven't come fully back online. Now this isn't an exact proxy of where they're at, but this is called the vol panic index. So you can see very clearly as volatility panic drops, what's going to happen is these vol strategies are going to kick back in. Now as of last week, and this is important to understand, as of last week, they had $286 billion with equities to buy. A lot of that is going into U.S. equities. And all this is triggered based on one very simple thing. If the market movements on a daily basis somewhere around a half a percent, plus or minus, they kick in. Now based on the data I have access to, I don't think they were big buyers last week. Meaning, over the next three weeks, they could be huge buyers. Let's take a look at the VIX index, and you can see that volatility has been relatively subdued here. It gets up here into this 25 to 30 range, and I said, look, if it doesn't break out here, and remember, I was short going all the way back mid-December all the way onto this rally up here, and I closed out my shorts right in here, because I said, look, on the 31st, things are reversing. If you don't get a breakout, you're going to see the opposite happen. Now this is pushing down, and if you see these vol control strategies kick in, you're looking at the VIX potentially dropping below 16 in the weeks to come, that would be a huge tailwind to the market. So we've got some clear setups here. On top of that, there's some very interesting things. Now, I don't have the latest data on hedge funds. The last time I saw it, they were still extremely short. You may remember that from a recent show. But let's talk about leveraged investors. And these are people, I'm not talking about leveraged ETFs, I'm talking about people who borrow money and buy stocks. And check this out. In black, you've got the average funding spread versus the federal funds rate. And right now, it's pretty low. And you'll notice in blue, you've got the S&P 500. So what this is saying right now is if you miss this rally and you're a leveraged trader, it's relatively cheap to borrow money to chase the market. Now, when the black line's way up here, that's not where you want to borrow at all. And that's where you kind of see the market start to peak. So what we're seeing is the potential that leveraged traders could play chase. But we've also got to talk about the dollar here, because it's actually gone up over the last few days. And I said the trend is likely down. Some of the comments and some other YouTuber was commenting that the dollar was going up. And I'm like, what? Do they even know how to read a chart? But anyways, check this out. The US dollar selling is back on CTA's agenda. And again, this is a machine traded market. And once you realize that, it'll change your whole perspective on trading and investing. Over the past two weeks, they offloaded $60 to $70 billion of the greenback, and a similar wave of selling looks like it's coming in the weeks ahead. So let's take a look at the dollar here and see where this thing's likely headed. Because yes, it did reverse, even though I think the trend is down. And keep in mind, it's just like my call recently on silver. I don't think it was a bad call. I think the timing was, well, slightly off, but we used stop losses, so we got stopped out relatively quickly. But I still think the trend for silver is up. And I still think the trend for the dollar is down. Even if you get a short-term move that goes against your view, overall, let's take a look. Because here you can see the DXY kind of broke down, and I said, look, if it gets above the 200-day moving average, I might change my mind, and there's a good chance. And I didn't. I said, you know, I still think the trend is down. It rallied up here. This red line, that's a 21-day moving average. It didn't even get there. In fact, from a resistance level, it got right up to a spot right here that was a prior level of support. So it seems to be a very technical move, and if the CTAs keep selling, and the vol index continues to drop, or the VIX continues to fall, and equities rally, well, you're still standing up for the fact that the dollar here is likely to go down. That's the relationship. Because we see as the VIX goes down, the dollar goes down as well. Let's continue on, because let's talk about the two macro risks here. What this, now, from Bank of America, they've noted that profits are correlated with payrolls and earnings per share accelerating. All right, so what they're saying here is the S&P has been going up because, well, earnings are going up, and that means payrolls likely to fall, and you can see the historical relationship here. Now, the big risk is, is what if payrolls don't fall? Of course, one of the big key things, again, as we look to be long the market here, because that was a call I made back on April 1st, and I'm in that position, one of the key things I'm looking at is the labor market, and I'm also looking at flows, and I'm watching the labor market. Because if we see it break down, it doesn't mean in the short term we could see these flows driving the market, perhaps over the next month, but I'm going to be very aware that if payrolls continue to weaken, that is not market bullish. But what's driving this earnings per share win is exactly what I said it was, and that is, look at this, S&P 500 employees fell for the first time since 2016, and we see that happen last year. That was the risk. Companies were laying off to boost their bottom line, so the question is, will the rallying market here drive companies to hire, will it drive consumers to spend? That is the big risk. The second risk, which now showed up on Saturday, is the oil market. Let's take a look at this chart. Because the oil VIX, that's OVX, that's shown in orange, remains trading at longer-term elevated levels. The gap between the VIX, this is on the equity side of the S&P 500, in blue you see down here, is very wide. So oil is still pricing around 5% daily moves, probably something you really don't want to trade. But what it's suggesting from a macro perspective, if oil prices don't come down, it's likely to put downward pressure on the equity market. So what we're setting up for next week, Goldman's big warning, $23 billion is selling from pension funds at the same time CTAs are cooling off their buying spree. What's that going to do? It's likely to put downward pressure, particularly when you couple the fact between the talks between the US and Iran are currently off as of the moment. But offsetting that is buybacks are ramping up. On top of that, the vol control strategies could be kicking in next week if we don't see big movements in the market, potentially offsetting it. But either way we go, I think the trend, at least in the next month, is up. And with that, I'm Steve Admeter, thanks for watching, thanks for being fans, bye now.