To BTFD Or Not To BTFD, That Is The Question

“To buy the fucking dip or not to buy the fucking dip, that is the question.”

Judging from the morning trading on Wednesday (which is really all we have to go on because let’s face it, you can’t divine anything from the manic price action on Tuesday), it appears that some folks see an “opportunity” to get in on what they imagine is the next leg higher after the S&P finally snapped the longest streak in history without a 5% pullback.

But is this really “an opportunity”? Well, that probably depends on whether you thought there were good reasons why folks were selling last week. As we detailed on Tuesday evening, you shouldn’t lose track of the fact that prior to Monday’s collapse, everyone was worried not about VIX ETP rebalance risk (I mean, that’s always been lurking in the background, but it came the fore this week), but about rising yields and what that might mean for Fed policy. Those concerns have not gone away.

So if there was a reason to sell last week, that reason still exists because all of the things that were driving yields higher are still in place and the only mitigating factor is the safe haven bid that would likely drive yields lower were equities to get crushed like they did on Monday. But again, that bid for Treasurys would likely be fleeting considering the circumstances, which raises the specter of an ongoing rout where everyone remains concerned about bonds.

One person who apparently thinks nothing has changed over the last week in terms of whether U.S. stocks are a compelling investment at these still-elevated levels is SocGen’s  Roland Kaloyan.

“As we highlighted earlier this week, we are not buyers of US equities at these valuation levels (read: lot of good news already in the price) or at this point in the economic cycle (SG projects a US recession in 2020),” he wrote, in a note dated Tuesday, before adding that “rising bond yields in the US are putting pressure on US equity valuations; we stick to our year-end target of 2500pts for the S&P 500.”

He also spoke to Bloomberg for a piece published this morning. “Equity investors have had an amazing time over the past four-five years,” he said. “But now, the surge in bond yields is reaching the pain threshold for equities.”

Evercore ISI’s Rich Ross doesn’t agree. In a note out today, he says “the short volatility Gray Swan is over and so is the equity correction that came along with it.”

For his part, Ross sees some “outstanding shit” going on with the lines on his charts. Specifically, he says tech stocks “are an outstanding position as QQQ broke out of a two-month range to reach a new high relative to S&P 500 during the rout.”

Meanwhile, Wells Fargo’s Chris Harvey (who apparently isn’t as worried about the “popo” as he was last week), is out suggesting there’s 10% upside from here.

“We are increasing our 2018 S&P500 Price Target to 2950 from 2863 indicating about a 10% price return (includes dividends),” Harvey said in a note out this morning. Here are some other excerpts:

Recently, we’ve been telling clients to slowly and methodically invest their cash as the sell-off unfolded. Now, we’re telling clients that they’re free to trade (invest the balance of your cash). From here, we see almost 10% upside for the S&P500 and we believe all or most of that gain will transpire over the next 3-6 months.

The increase is partially a function of our EPS bump from $146.01 to $150.76. The 3.25% revision was the result of better-than-expected earnings season. In the near term, we feel the worst is over for stocks and the pullback in the equity market provides almost a free look at earnings.

Who to believe? Well, that’s for you to decide.

And if you’re looking to Seth Golden for answers, just know he’s doubling down on his short VIX play…