Newsletter - 04/07/2024
UPCOMING WEEK:
From two weeks ago:
"We are in dangerous times."
From the market to geopolitics and everything in between, the tenor is nervous; as if everyone is waiting for a very bad shoe to drop.
Is it frustrating that the market has been chopping around directionaless for weeks? Absolutely. In environments like this, it pays to be patient. It pays to be disciplined.
It pays to protect capital.
Week in Review
From TRowePrice:
"The large-cap indexes pulled back from record highs, as U.S. Treasury yields increased in response to signs that the manufacturing sector might finally be gaining traction. The market’s performance also narrowed again, with growth stocks faring better than value shares and large-caps falling less than small-caps. Energy stocks outperformed as oil prices reached their highest level since October on worries over rising tensions between Israel and Iran and a decision by major exporters to maintain production limits despite tight markets. Some late strength in Microsoft also boosted the technology sector.
The Institute for Supply Management’s (ISM’s) separate indexes of service and manufacturing sector activity seemed to play a particular role in driving sentiment over the week. Traders reported that stocks moved lower following the release of the March ISM manufacturing reading on Monday, which came in well above expectations and indicated expansion—if barely—for the first time in 16 months. More concerningly from an inflation perspective, the ISM prices paid index also surprised handily on the upside, seemingly confirming recent data showing a rebound in input prices. Conversely, the ISM services report, released Wednesday, appeared to ease worries. While still indicating expansion, the services index fell back for the second consecutive month—and, more significantly, perhaps, the index of prices paid fell back to its lowest level since pandemic lockdowns began in March 2020.
The Friday jobs report from the Labor Department, typically among the most closely watched indicators of growth and inflation pressures, appeared to further reassure investors. Employers added 303,000 jobs in March, well above expectations and the most in nearly a year. Encouragingly, from a wage pressures standpoint, the solid gains came with only a modest increase in average hourly wages, from 0.2% in February to 0.3% in March. Part of the reason may have been a solid rise in the labor force participation rate, suggesting that employers might be enjoying an easier time filling empty slots"
Sectors
SPX and NDX
The SPX has done absolutely nothing in the last two weeks - consolidation. While the Kashari induced fireworks were a nice show if the market really believed his comments were accurate, the sell off would have lasted days. The fact that it didn't is proof that the market does not believe him.
On the weekly chart we have three candles moving sideways further supporting the consolidation thesis. What's interesting to me is the MACD Histogram (bottom of the charts) as it is show declining buy momentum: lower highs of the green bars and dark green candles.
Stay nimble/
NDX:
As with the SPX, the Nasdaq has been consolidating. And just like the SPX, the consolidation period has been going on for weeks - except with the NDX it has been going on for an even longer period of time: 6 weeks.
I will go out on a limb and say that the NDX is topping. Almost two months of consolidation at the topside can be taken two ways: either the market is building support to move higher or struggling to break through resistance and topping. The reason why I choose topping is that for the last almost two months, no news, no developments have been able to break the NDX out of this range to the topside.
Small caps (RUT) printed a daily reversal this week, and have had follow-through to the downside. The weekly also printed a reversal with a very strong red engulfing candle.
I will be considering shorting the
RUT this week depending on if the 2072.54 AREA is breached again to the topside. I would much rather price retest that break line to the topside, and fail for a higher confidence level. But there is no doubt that small caps have not confirmed any move higher in the other indexes.
Fund Flows
100,000,000,000. That's 100 BILLION dollars that moved into money markets this past week. Other than Bond funds, no other asset class saw positive inflows. Even though there was not a corresponding drop in Equity or Mixed Asset funds, the fact that none of that 100B went into non-Bond or Money Market funds affirms to me that investors are becoming more apprehensive about increasing their risk exposure. While we have not seen capital flight from stocks, I believe that it is only a matter of time. I know I sound like a broken clock but with so many possible Black Swans out there, no one, including me, knows which one will light the fuse, or when.
Interestingly, from the figures below, there is no sector that saw broad buying. While the appetite for risk appeared to slow down measurably last week, there is no reason to doubt that if the markets can break out of consolidation to the topside that the pursuit of risk will be back, front and center. The markets move in a herd and currently that herd is a bunch of toddlers on a wicked sugar (liquidity) high - and they are not going to be happy when it's finally taken away.
Bitcoin & Miners
After being stuck in the 74k to 60k range, BTC has tightened its range to 64700 to 72300 range. Classic "pennant" action and in my opinion, price action that typically leads to a break HIGHER.
IREN has the same issue: stuck in a range on the daily and a pennant formation on the weekly. Pennants are effectively when price range compresses, low to high, over a period of time. For the time being, until the halving, price action is noise.
CIFR has been respecting the +1/-1 SD lines on the daily and the +2/-1 SD levels on the weekly. While I speak from experience only, when price ranges between a lower (+/-1) SD level to a higher (+/-2) it tells me that depending on which "side" is unbalanced, what the trend of the stock is. In this case, it is up.
BITF must hold the $2 level as support. Failure to do so and price goes to $1.
Yes, I will consider adding more if price breaks below that $2.
BITO must hold level is $28. Fail that and $24ish will be the next level of support.
I wrote this 3 weeks ago and there is no reason to modify it:
"Let me be blunt: the argument that miners should be sold because their production will be cut in half after the Halving is very short sighted and wrong. Remember that at this point in time, the current miners are THE ONLY WAY TO PRODUCE MORE BITCOIN AT SIZE. If another new miner wants to the enter this space, they will do so without ever having had a chance to mine at a rate pre-Halving.
I believe that the current miners have a significant moat in that they DID mine pre-halving and most have BTC in storage. I think that by the end of 2024 there will be some consolidation amongst the miners which might be an additional bullish catalyst.
For now, since this is an Event Driven trade, I wait and watch. I would only add more if prices got to really stupid levels and we aren't even close yet. YES - the above is from last week. And it will probably be the same next week. And the week after that."
And the week after that, again.
Doom Trades
$KRE
Price is stuck in a channel that actually goes back to December. I WILL BE ADDING TO MY DOOM TRADE SHORT IN KRE ON A BREAK AND CLOSE ON THE WEEKLY BELOW $45.66.
$VNQ
VNQ has the same channel as KRE. As such, I am ready to short it on a break and close $81.48 on the weekly.
$BAC:
If price prints a HCD on the weekly at the current level, which is a year old resistance level, I will short it per my DOOM thesis.
$TQQQ:
TQQQ is a proxy for the NDX and how I intend to "trade around the core" taking advantage of daily price swings to profit.
$TLT:
Price remains contained to lower side by the +1 SD level. I am pondering removing TLT from my DOOM trades as the coming downturn in the market have better opportunities to make money.
Current Open Positions
$ARKG:
The break level was $27.20 and price did a classic retrace Friday on the daily chart. Coupled with what the MACD Histogram is showing, price appears to be weakening. Great for us. Not so great for Crazy Cathy.
$BYON:
The break level was $31.47. Price attempted a weak retrace on Friday and as with ARKG, the MACD Histogram says selling momentum is growing.
$UPWK:
For the love of God, this POS will not break $11.78 support. Yet. However, with the Theta Cliff very close, I will be looking to close this position this week regardless if it is profitable or not.
Closed Positions
$CENX:
Performed as breakouts should resulting in a profit of 100% in 7 and 9 days. This was the first position that I utilized additional momentum data points.
$BOWL:
I had to close BOWL this week because of the sheer amount of time I have been in it - 35 days. This resulted in a loss of 45% for the position. NEXT!
$MNMD:
Another break trade using my additional momentum data points resulting in profits of +44% and +52% in 8 and 9 days.
$OWL:
Another excellent trade resulting in profits of +55% and +97% in 12 days.
Doom Update
DOOM 1: CRE IMPLODES
Total Bank deposits are now back above pre-SVB levels, further supporting a rising risk-off tone amongst investors.
At exactly the wrong time, credit card rates are hitting record highs as banks scramble to squeeze every last penny of profit from consumers. Bad idea as it will only make the coming consumer implosion even worse.
Bank deposits jumped to 6Trillion which is further supportive of a slowing appetite for risk.
While not yet at record levels, credit card charge-offs have been aggressively rising at the same time the credit card use is at record levels. Consumers are running out of credit but POTUS is probably telling issuers to refrain from aggressive collections until after the election.
Sadly, as further evidence that those in power could give two shits about the health of the US banking system, as the headline to the left shows
there is a push to rewrite the rules so that the atrocious balance sheets of banks, whose atrociousness is largely due to CRE, will "magically" be redefined as healthy. The sheer audacity of this proposal is only surpassed by the sheer evilness of it. It's as if the cultural "wokeness" that has infected the world is now moving into MATH! A bad balance sheet is a bad balance sheet. Period. But the average person will read headlines that the "Banking System is Sound" and continue on there merry way, oblivious that the path leads to destruction.
While investors blindly "party on" the CRE cancer continues to spread unabated. If any other industry was experiencing growing weakness in one of thier main lines of business, it would be punished. But not with banks because doing so would trigger a collapse in everything. All at once.
DOOM 5: NATO AND RUSSIA
Excuse me while I go Amor Fati for a bit, but these stupid, evil f'ing morons WANT WWIII. They do not care about you and I and they do not care if NATO goes to war with Russia. In fact, they have been planning and executing steps to lead us to that incredibly dangerous crisis for decades.
While it is off little comfort, if Russia gets to the point where they believe they are surrounded (they already are) and that they have no choice, the world might see the first battlefield nuke deployed and it will be over Europe,
I absolutely hate ALL of them. The ruling class, the military industrial complex - all of them are complicit in all the deaths that have occurred and will occur.
Do not allow yourself to ignore the facts of what is occurring because you won't consider that which you cannot comprehend, or do not want to believe.
The Industry is a Scam
Before I tear into the industry I was a part of for three decades, let me be clear: while I hate the industry I do not hate the people in it - they are just parts of a larger machine. I know there are many good people in the Investment Industry - I was one of them. But those people are working within a system that is corrupt and fixed and unless that system is changed, my opinion will not.
I am often asked what is it about the Advisory business that I despise. The following is one single reason why: retail advisors. Again, I am not saying that the actual advisors themselves are complicit in the criminality only that they are complicit in their stupidity. As the front line to the public, Investment Advisers are supposed to be knowledgeable professionals with your best interests in mind. For the most part, they are no more than product pushers with little actual knowledge, limited experience and goals to make themselves more money. Sounds like a great deal eh? For this discussion I provide evidence covering both financial advisers as well as mutual funds since collectively, they are the primary gateway drugs to mediocrity.
The chart at the left (from RIZBiz) shows how the average adviser spends their time. Here are the two most important takeaways imo:
First, more than 50% of their time is spent prospecting for NEW clients and less than 20% of their time is spent working with existing clients. That means that once you are a client, you are ignored. Why? Because the goal of an adviser, due to the way compensation is strucutred (fees based on AUM) MUST grow the Assets Under Management or their pay will suffer.
However, as shocking as that might be, here's something that probably is shocking: on average, an adviser spends 2.9 HOURS PER YEAR ACTUALLY DOING ACTUAL INVESTMENT MANAGEMENT OF A CLIENT'S MONEY. Unfreakingbelievable and why mutual funds and index funds litter the average investors portfolios. It's called pressing the "Easy Button."
This graph (from Dow Jones) shows the % of large cap domestic equity funds that UNDERPERFORM the S&P 500. If it's shocking it should be. The very industry that supposedly wants to help you make more money does an absolutely atrocious job of doing so. In fact, the only thing they are good at is LOSING YOUR MONEY.
But wait, there's more! Even more sobering are the charts to the left showing over a 20 year period how bad actively managed mutual funds actually are.
While you might think the orange section is how many of those funds beat their respective index, it is actually how many FAIL TO BEAT THEIR RESPECTIVE INDEX. Let that settle in as you survey the data.
As I have said repeatedly, the mutual fund industry does not exist to make you money. It exists to make themselves money. PERIOD.
And if your response is "Yeah, that's why I do Index Funds" then ask yourself this: why is it that you think 12% per year is GOOD??? That's a shitty return and even still, most actively managed funds cannot even do that.
Finally, if you are wondering why so many people want to get into the business, all you have to do is look at the income levels. Income levels that can be achieved with no schooling, no experience and little effort. Their interests are not your interests.
Closing Comments
I have been told that my newsletters are sometimes, ok a lot of the time, sobering. Yes they are. But I do it not because I enjoy raining on your parade of good times and good feels. I do it because I want you to be aware of what risks exist that endanger your financial well being.
Look, you are inundated every hour of every day with "don't worry be happy" bullshit in every facet of your life all the while you are losing money, losing wealth and believing you are incapable of managing your own investments. I won't allow it with our group.
For the time being and I guess for the last 1-2 months, risk is high TO THE DOWNSIDE. Now is not the time to be aggressively long. I do not care what you believe will happen - look at the data. Look at the breadcrumbs. All is not rosy so protect your capital. It's exactly what I am doing.
Trust me that I feel pressure to do more trades, to do more activity so that our group has activity. But I can't because my knowledge and experience, supported by the data, is telling me that protecting capital is the best and highest probability course of action, for the time being. This does not mean that I won't take trades but it does mean that I will endeavor to only take the best trades with the highest probability.
Stay focused on the first rule of trading because that will insure that you have the capital to deploy when conditions improve. Otherwise, you will remain blissfully happy with single digit annual returns.
PODCAST:
The Podcast library is here.
We discuss what to make of Thursday's sudden downdraft in the markets.
We also discuss the Fed's plan for lowering interest rates, inflation, the US dollar vs Yen.
Finally we cover the outlook for TSLA and how to take advantage of price drops and WHEN the right time to buy or add to TSLA or any stock position for that matter.
VIDEOS:
The Video library is here.
Paid Memberships:
Look, there are a LOT of scammers out there on FinTwit. 99.99% of them care only about selling packages of crap. None of them include what helped make me a better trader: having a mentor. Having someone who will be your PERSONAL TEACHER, COACH AND ACCOUNTABILITY PARTNER. A Mentor that has over 90,000 hours of screen time. That by itself is invaluable.
People ask why I charge. First, I want only VIPs that are committed and "having skin in the game" guarantees this. Second, because my time is valuable.
See what others are saying:
MERCH STORE IS OPEN AND LIVE!
Don't forget the Discord live chat is STILL FREE but it will be closing to new members soon. In fact, we have already started removing non-active members.
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In the meantime, come and join us - its the best community out there: Discord.
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Also, be sure to check out the new page for Daytrading on the website, run by the fine gents @BaconTurkeyClub and @Juggernaut. If you ever wanted to learn or just watch two pros daytrade live, they are at it every day here: DiscordFuturesChannel.
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Finally, be sure to check out VampireTrades and his amazing penny stock trades.
Thankyou Family!
theBoss
Nothing above is investment advice nor should it be construed as investment advice. It is offerred for entertainment purposes only. Always consult your advisors before investing any money. Do not "follow" or "mirror" any trade ideas provided. Mr.NotAdvice is not a licensed or registered investment advisor. Do your own research.