Coiled Spring Capital MW 3/12/25

We were right about one thing in our 3/9 report, the market bottom did not occur last Friday.

Here is that excerpt:

Monday was a bloodbath, teetering on the edge of capitulation. The Nasdaq plunged 4%, while high-flying stocks like TSLA saw their post-election gains wiped out, extending their peak-to-trough decline to a staggering 55% in under four months. Its RSI momentum hit 20—the lowest level in over a year. TSLA is no stranger to wild swings, with its cult-like status often defying traditional valuation metrics. But even by its standards, the sheer speed and magnitude of the drop likely had shareholders' hearts pounding.

After the election, TSLA was one of the market’s hottest stocks, fueled by POTUS appointing Musk to a cabinet position to lead efficiency initiatives (DOGE). However, Musk’s dramatic fall from seemingly untouchable status to public enemy #1 has sent shockwaves worldwide. The backlash has sparked boycotts of TSLA vehicles and even rowdy protests outside showrooms, underscoring the intensity of the sentiment shift.

While this doesn’t directly impact our market analysis, it encapsulates the growing anger and uncertainty fueled by the Trump administration. The erratic tariff rhetoric is freezing both consumer and business spending, while DOGE’s aggressive austerity measures ripple through every company and employee connected to government funding.

With nearly 40% of U.S. GDP tied to government expenditures, this uncertainty is a major economic headwind. Markets despise confusion, and right now, ambiguity reigns. Without resolution or at least greater clarity, we fear the market will remain trapped in a state of suspense, unable to find solid footing.

This SPX has now lost over 9% in waterfall fashion.

The Nasdaq is seeing worse declines, down over 13% since the SPX peaked on Feb 19th.

These are not insignificant moves, especially when they occur with such vigor, signaling massive deleveraging. According to Goldman Sachs, the combined hedge fund de-grossing on Friday and Monday was the largest in four years and ranks among the most extreme events of the past 15 years. When panic sets in and everyone rushes for the exit at once, chaos ensues—this time, growth stocks bore the brunt of the stampede.

This is better exemplified by the Goldman Sachs VIP ETF which tracks the most crowded hedge fund positions.

Our recent reports have emphasized that the market had become overstretched in one direction, making a snapback increasingly likely. Timing the exact pivot, however, is always a challenge—especially when deleveraging unfolds with the intensity we’ve seen. Identifying a tradeable low in such an environment is no easy feat.

Today's cooler CPI print provided a much-needed reprieve, offering temporary relief to investors. However, the real test lies ahead. Tariff implementation is only just beginning, meaning any inflationary impact has yet to materialize. The market may be breathing easier today, but the road ahead remains uncertain.

Anxiety over the potential fallout from tariffs will likely temper any sustained relief rally, reinforcing our outlook on the market’s near-term trajectory.

Let’s break it down…

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