Newsletter - 11/7/2023
Kaboom!
What an absolute carnage for Bears.
But.
As I have said in the past, Bear market rallies are vicious and of the "rip your face off" kind.
They are fueled by hopium and greed (not the good kind) and ignorance and this one is being fueled by algos.
Nothing changed in one week. Nothing. Mark my words - this is setting up for an epic rug pull. This week makes it more likely, not less.
The Week in Review
Let's start with Powell's press conference. The market heard what it wanted to hear. I made note of some of the statements that struck me as being interesting and the market made not of what was supportive of launching itself higher. You tell me if what Powell said was a reason for the market to explode:
My notes:
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"it's tough to try to translate that in a way that I'd be comfortable communicating to how many rate hikes that is" - How many? But I thought you were done?
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"the fact is the Committee is not thinking about rate cuts right now at all. We're not talking about rate cuts" - So this is interesting, because he answered the question apparently in the context of a slowing economy and the need to stimulate it. But he also said throughout the Q&A that economic conditions were "resilient."
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"the question we're asking is, should we hike more." - uhmmmm, that's not bullish
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"we've got a very strong economy, strong labor market, making progress on labor market, making progress on inflation" - what a total and complete line of BULLSHIT - the economy is not strong, the labor market is not strong and inflation is rising
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"we've been able to achieve pretty significant progress on inflation without seeing the kind of increase in unemployment that has been very typical of rate hiking cycles" - are you kidding me? Inflation is rising as is unemployment.
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"the public does believe that inflation will get back down to 2 percent over time, and it will, they're right" - no we don't AND we believe your 2% target is stoopid.
The Market's reasons for bullishness:
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"we haven't made any decisions about future meetings." - the market took this to mean the Fed was pausing
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"we haven't made any decisions at all about December" - the market took this to mean the Fed was pausing
In addition to his presser, let's look at some data points that the market keyed on:
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The jobs report was taken as showing jobs growth was cooling. The 150,000 in new jobs was below what "experts" were expecting.
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IGNORED: The unemployment rate actually rose month over month AND the number of people working or actively looking for work moved lower.
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The Treasury's announcement that they were going to skew their borrowing toward shorter-term debt from their typical 5, 10, and 30 year durations.
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IGNORED: The fact that the Fed will have to issue more debt because the deficit is rising makes choosing shorter term durations more of a gamble - the Fed is assuming that rates will continue to fall but what if rates start going back up?
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Powell's speech was taken as dovish - that the Fed was done hiking.
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I believe that the speech was merely "less hawkish." Where did JP say they were done? Where did he say they were cutting? All he seemed to imply was that December was not going to be another hike.
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The bottom line for me is that this rally, while it might last for a while, is NOT being launched from a foundation that supports a true trend reversal. I will get to that below.
BUT THERE IS "GOOD" NEWS:
The US continues to assert, publicly, that it does not want to go to war with Iran, at least not directly.
Now, you know my attitude towards trusting anything the US says but the fact that they are publicly repeating this "No War with Iran" mantra tells me that for now, the US is willing to attack Iran's proxies using US proxies.
Even though there is currently the largest collection of Nato military force ever in the region, none of the countries present have the appetite for another war - the Europeans are especially fiscally tapped due to Ukraine.
I think that there really are only two ways this war expands, OFFICIALLY:
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US Nationals, and I mean civilians, are directly targeted and killed
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A battlefield commander on any of the sides decides to go "John Wayne"
Unless one of the above two things happen, it is likely that Israel has entered into its own smaller version of Vietnam: a war they can only win if they eradicate completely the enemy.
HOW ABOUT OIL?
An oil embargo is a larger risk but also something that I do not see developing because in order to do enact one, the boss of OPEC+ has to be in agreement - and Saudi Arabia WILL NOT SUPPORT AN OIL EMBARGO.
So while Iran can announce one the Saudis can just make up the difference. And the Saudis clearly want nothing to do with causing the oil markets to explode because it will piss off all Western nations. Remember that the Saudis are on a "buy everything" spree currently, purchasing sports teams and networks and tournaments. Why? Because they want to own the mediums to normalize the view that the rest of the world has of them.
Untradeable Black and Grey Swans
So it's easy to get caught up in a doom and gloom circlejerk. Things ARE bad, no doubt about it.
But, my job is to look at the PROBABILITY of larger risks actually occurring. Even I have been guilty of making assumptions because I get caught up in the overall tenor of the news flow and the fact that
unfortunately, I expect the worst from people, not the best. Sadly, with the exception of the MrNotAdvice community and my friends and family, I am usually right.
HOWEVER, that does not mean that every risk should be traded. In fact, most risks, especially of the geopolitical kind, never materialize to the extent that you can make money off of them.
Trading possible outlier events is binary in nature: they either happen or they don't - there is no in between. In fact, trading outlier events is akin to trying to make quick easy profits. They are alluring because they seem so simple, so clear and this gives you a sense of confidence that is self-serving and self-assuring. It is also a way to lose money consistently.
Here's, in nor particular order, is my list of possible Black and Grey Swans that are complete lottery trades and therefore, I am not trading:
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Expansion of the ME war - it's not expanding and neither the US nor Iran want it to. Could a field commander do something stupid? They already have and nothing. Could the US be bluffing? I don't think so. While the US desparately wants to wipe Iran off the map, it will not allow itself to be seen as the aggressor and therefore, it will not publicly fire the first shot, so to speak. False flags, fake attacks - all possible but even less probable.
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Oil embargo - I simply do not see this happening for reasons I have provided above.
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China invades Tawain - I have covered this before - there are elections in Taiwan this coming year so China does not need to invade - they can just win the election, which they will. ONLY if polls show that their candidate is losing does military action go on the table.
One of the most attractive things about trading outlier events is that a successful call makes you a genius that can predict the future. What's really interesting today is that you don't have to be a genius to look at the data before you to know that things are breaking, that the economy is worsening, and that the most recent rally in stocks is built upon hope. I will take the other side of that trade every single day.
Where there is smoke there's fire
Ok, pay attention. This is very important. So important that I will put it in CAPS.
When looking at trading, you go to risk first, and then probability. But for reasons I have discussed, people would rather expound and risk capital on the what-ifs because frankly, its more fun and can be quite lucrative if you get it right, which is extremely rare. Here's the important part:
INSTEAD OF TRYING TO GAUGE AN INVESTMENT RISK/PROBABILITY ON A TOPIC/EVENT YOU HAVE LITTLE DATA ON, LOOK AT THE DATA FLOW THAT YOU ARE IGNORING AND ASK YOURSELF, DOES IT SEEM NORMAL TO YOU?
This won't guarantee success but IT will increase probabilities because at least you are focusing on FACTS that are actually real and not prediction based on making a ten derivation extrapolation of events you have no idea about, only an opinion.
Here's an example of smoke - without knowing the source of the fire. Is it tradeable? Not yet. Is it important? Absolutely. Because there are only a few possible reasons for the following to be occurring, at such frequency.
So here we have multiple verifiable data points. All of them are similar in nature. All of them have to do with banking or investing firms.
First Question: if you want to trade probabilities, which events do you have more data on? The ones I listed in the Black Grey Swans section or the above?
Second Question: how can you make money off the above?
Answer: There is no way, YET.
Look, almost always the simplest explanation is the actual reason. So, here are your choices:
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The above events are independant of each other and are just glitches. In the most technologically, most regulated economies in the world.
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They are not (#1) and the systems failed not due to mistakes or errors but are due to some other outside force.
And what could some outside force be? My opinion is that these are either direct attacks or they are dry runs for attacks on the electronic infrastructure of the financial markets.
What do we do with this? Nothing at the moment expect to understand that at the very least, the system seems to be having issues "all of a sudden." When you couple that with the very real macro risks in banking, I would suggest now is not the time to be getting extrememly bullish in the markets.
SPY Commentary
Gaps gaps and more gaps.
Look at all the gaps that will now be tested to the downside. And look at the major resistance that is overhead right now.
I am not saying this cannot go higher, and I discuss why it might below, but what I am saying is that this is NOT a healthy advance.
All those gaps have the markings of algos gunning the markets. And that's NOT constructive for a bull market but instead, is classic bear market squeezing.
438 is a must break and lookie lookie, that just happens to be the gap that remains unclosed from 9/20.
This "rally" might have some legs:
This is really simple. The market is supply and demand. And right now, there are three data points that tell me that this rally will have legs, outside of some outlier event acting upon it.
Here they are:
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There will be $5b in DAILY stock buybacks until mid-December
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CTAs will be buying up to $200b in global stocks over the next 30 days
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Hedge Funds are least net long since 2011
It's going to be awfully difficult to fight that flow of money and I do not intend to. What I DO intend to do is to wait for the downside test of those gaps and on rejection, get long. what I do NOT intend to do is chase haphazardly.
And what stocks will i be looking at? Well, the same ones that led before: techs - so the QQQs.
Are you a BULL now Boss? :
Uhmmm. NO FREAKING WAY.
Look, I do not know what the straw to break the proverbial camel's back will be - I think it's already happening in the banking sector. What I do know is that given the data, the probability for a crash is higher today than it was last week and when taking all the datapoints into account, there is no reason for a new bull market to develop.
Traders often screw up timeframes. They get the data right, the analysis right, but they confuse short term events with longer term events. Markets do not go straight down but given the weight of the evidence, I remain steadfastly of the opinion that last week's move was entirely algo driven and that the higher it goes, the worse it will be coming down.
Finally, two things.
First, the market rallied 28% in 2008 before collapsing.
Second, this:
WEEKLY HOW WALLSTREET SCREWS YOU:
Taking another week's break due to the length of this letter already, and the fact that I have to work on the website and attend to some member questions.
I will leave you with this chart because its very simple (courtesy of member RJR capital - give him a follow on Twitter @RJRCapital - he's a smart dude with zero bias. And he's only a dick to those that deserve it). He is correct when he says either the market gaps above the resistance or they first of many gap tests BELOW start.
We are about to see in live action Wall Street screwing investors.
Ok, I can't resist reiterating FACTS over prognostications. The following is a FACT. When, how and if are prognostications. But when you see big money risked, pay attention.
UPCOMING WEEK:
This week I am watching the following:
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Gaps
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Gaps
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Gaps
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Gaps
NO FREE MEMBER CLASS THIS WEEK
VIP CLASS THIS WEEK SCHEDULED FOR WEDNESDAY, 9PM NYC TIME
DON'T FORGET TO SET YOUR CLOCKS BACK
NO I AM NOT CLOSING MY $TSLA SHORT BC GAPS!
Paid Memberships:
If you want to accelerate your learning, a paid membership is the way to go. Heck, even one month will speed up your learning quickly. Sales pitch over.
From this:
To this:
CLOSING COMMENTS:
Let's keep some perspective and not start acting with hopium.
We closed three shorts this week, all for profits. For profits of close to 50%. In one month.
Do not engage in self speak about how you wish you had caught this up move or any of that. I will verbally kick your ass if I hear it.
We will continue to do what we do: protect capital, make money, and learn. Everything else is a distraction.
I am still working on getting the merchandise store up. If anyone wants to help and get a free t-shirt then dm me. I have it mostly done and all that remains is upscaling the pcitures for the best graphics on the merch. That's it. I prefer if you have some experience with web design or graphics.
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. If you get removed by mistake, email me or @AtomicStreudel and we will fix it. Ok, he will fix it.
In the meantime, come and join us - its the best community out there: Discord.
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.
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.