Newsletter - 12/3/2023
I had to chuckle last week when the markets ripped higher when Christopher Waller, normally a hawk, mentioned that there was the possibility of rate cuts if inflation continues to trend downward.
This was after Powell's comments were interpreted by the market as being dovish. Guess what, they weren't.
I chuckled because this is exactly what happens at market tops: the market ignores anything it does not want to hear and instead, just tries to rally.
This too will end.
The Week in Review
"The market continues to look for reasons to go higher. This always occurs near the end of a secular bull market. I probably sound like a broken record but I have seen this before and it doesn't end with happiness for all the investors who are jumping in right now. There is a law of diminishing return for hope to drive the market and large jumps due to arguably benign data is a classic tell of a market moving on fumes." - I said this two weeks ago and there's no reason to change it.
If you recall, I have discussed how prices of assets move up and down like a sine wave, with the mean being macro data. No matter what asset prices do, become overvalued or become undervalued, at some point the sheer weight of what is ACTUALLY happening in that asset class's macro economic environment WILL force asset prices to revert to the mean. There has not been one time in modern history that this has not occurred. If you name any bubble (real estate, tech stocks, tulips) they never failed to correct for asset mispricing.
Every. Single. Time.
This time is no different.
Bulls are celebrating as if we have just entered a new bull market. In fact, I actually saw headlines stating that. ONLY AN ASS WOULD BELIEVE THIS. In order for there to be a sustainable bull market there needs to be a correlative sustaining economic expansion. Tell me: where do you see the economy expanding? Anywhere? Exactly.
All we saw this week was a market that is looking for any reason to go higher because there are resistance levels right above that the algos want to test. Why? Because they are there. Algos will choose the path of least resistance because it also happens to be the higher probability path to profits. Until it isn't.
Calling tops and bottoms can be an extremely frustrating endeavor but know this: the longer this goes on the worse the drop will be. And a drop of epic proportions is coming.
Remember this: the market was up a whopping LESS THAN 1% FOR THE WEEK. Do not allow all the talking heads to shake conviction that this market is overextended. Having said that, the market CAN and probably WILL become even more overextended. Why? Because as I have been saying for months, market participants MUST BE CONVINCED AND FORCED TO BELIEVE when the party is about over. Right now the market is in one huge echo chamber where all they hear is what they want to hear. I have been through this before a number of times and it will end the same way the other times did: painfully and quickly.
That is not to say that I will not profit if the market wants to continue to go up - remember that I still own QQQ calls. Tops take time and the process does an excellent job of chewing bulls AND bears up. I will not participate in that type of idiocy.
Let me be clear: THERE IS NO FUNDAMENTAL MACRO REASON FOR THE MARKET TO RALLY. PERIOD. END OF STORY.
Hear what you want to hear
Not to go all Michael Stipe on you but that's me in the middle on the right. That's exactly how I feel right now. But as I said, I have been here, done that before also.
Instead of me piping off again about how the market is going to drop, Let's
just take a look at Powell's exact words. I know facts are not often focused on in our hype and morally relative world we live in but the funny thing is facts matter because no matter what the market wants you to believe, the baseline is always facts.
In case you've forgotten already and as a primer to what will follow, remember this:
Ok, let's get to what Powell actually said, shall we? And for each quote, I want you to ask yourself if what he said was rates are going to be cut or not.
NOPE
NOPE
NOPE
NOPE
NOPE
Next, let's review what the market heard:
Hey Pete - you're an idiot.
First, it's LPL - but "inching?"
And a voice of reason in the wilderness proving I am not the only one out there who is not sufficiently STOOOOOOPID:
Great Boss - but how can the market be so blind?
So I would completely understand if you were reading this saying to yourself "Yeah, so you expect me to believe that you are right and everyone else is wrong?"
YES.
Before we proceed, think back at everything I have taught you about bias, and human behavioral tendencies to hear what supports their own thesis and their DESIRED OUTCOME. And to make it super simple, I will tell you exactly what the Fed would have to accomplish in order to navigate the big fat mess they've created.
How can the market be so wrong?:
EOSE. ENVX. AMC. BBBYQ.
What have I shown you with each of the above? That investors will twist anything to support their narrative because it's easier to do so than to face the truth and have an opinion counter to the crowd.
Remember what I said about analysts and so called experts - they do not get paid to call things correctly. They are more interested in NOT STANDING OUT.
NO ONE EVER WANTS TO BELIEVE THE PARTY IS OVER. EVER.
The markets and the global economy have been riding the sugar high of sweet sweet cheap stimulus and making money from it. But the Fed has been draining liquidity from the market not adding to it.
What about currencies and interest rates etc.?:
Those are FACTS that matter. What doesn't matter over the long term is what the market thinks the Fed will do. The fact of the matter is that there is evidence all over the place, and I have gone over them all at great length, that the global economy is in serious trouble.
If you disagree then I offer this challenge: name ONE SINGLE economic indicator that is NOT showing credit contraction, industrial contraction, asset value contraction.
THE FED CANNOT SUCCEED:
In order for the Fed to "succeed" here's what it has to do:
It has to slow the economy down but not too much that it goes into a recession.
OR
It has to stimulate the economy but not too much that it drives inflation.
Now, never in the history of monetary policy HAS ANY CENTRAL BANK SUCCEEDED IN ACHIEVING THEIR MONETARY GOALS without significant destruction to the economy. not once.
So, which odds are better? That the Fed will be able to dance on the head of a pin or that they will fail?
Yeah, I thought so.
Market Levels and expected action
The SPX levels are super easy to see if you look at the weekly chart. Next levels to break are 4607 and 4637. I fully expect these levels to be tested. Remember that PRICE ALWAYS OVERSHOOTS. The odds favor a push higher, especially since we are into December.
The Nasdaq is very similar. There are two areas right above that I fully expect to be tested. There is nothing to prevent this; the Fed is in a quiet period and the market sure as hell isn't going to all of a sudden stop being stoopid.
Don't forget I am STILL LONG QQQ calls. This is from three weeks ago:
Why have you taken a number of stops Boss?
If you were in the live Discord chat at the end of the week, you might have noticed that I was a bit frustrated. Actually, I was pissed. And that never happens.
I wasn't pissed at the market. I was mad at myself. Because at least three different times I decided I would get cute with stops and use intraday price action and as a result, I stopped myself out of profitable trades.
So, as a reminder: I trade off of the daily. I enter off the daily. I exit off the daily. My methodology works based on that data and that data alone. I apologize for straying.
Another apology
The other thing that I realized is that I will let positions, losing, run beyond stops and I fail to notify you why I am doing that.
I look at my trades as one big portfolio. So, when I have positions that are up I will often use some of those gains to offset the losses on other positions and let them run longer than usual.
A perfect example of this is TSLA and VNO etc. I have QQQ calls still so I am happy to let things like TSLA run longer.
Here's what I am going to do though: I will RESPECT MY STOPS REGARDLESS IF I HAVE ANOTHER TRADE THAT MORE THAN MAKES UP FOR THE LOSSES.
And here's what you will do: YOU WILL BE RESPONSIBLE FOR YOUR OWN STOPS REGARDLESS IF I NOTIFY YOU OF WHAT I AM DOING. Remember that I am not offering specific trade advice or signals. My goal is to teach you techniques to protect capital and take high probability trades. The rest is up to you.
What Am I Watching?
So the chart above is the historical relationship between oil and the VIX. They are inversely coordinated.
But not right now. Why? Because oil continues to be manipulated. As does the VIX. As do currencies. As do interest rates.
Currently oil and the VIX are NOT MOVING according to long historical data.
Here are the scenarios for that correlation to be restored:
Oil has to rise = bad for inflation = bad for the economy = bad for the stock market.
VIX has to rise = bad for the stock market = bad for the economy.
Yes, its that simple. I literally cannot make it anymore simple than that. EITHER OIL OR THE VIX WILL GO UP.
Two year, ten year, reverse repo - they all matter. But many of you found me based on my Reddit post on the VIX. Well, guess what? Its still the same. Oil must be kept low or inflation will jump in a big way. And that would be very bad for stocks. Interest rates, two or ten, reverse repo - they might add fuel to the fire but the simplest factor is oil.
And here's what's really interesting: if oil goes up its bad for the stock market because it will be inflationary.
If oil goes down it will be bad for the stock market because it will indicate economic contraction or recessionary conditions.
The VIX is going to go up. Period.
Think about what I wrote earlier about the market ignoring the facts. This is why the VIX is low also. No one, and I mean no one, is buying any protection for the downside. Exactly how do you think that will play out? Yup.
WEEKLY HOW WALLSTREET SCREWS YOU:
F U Bank of America!
So these asshats spoof almost 800 trades to manipulate the Treasury market and they get fined a whopping $24m and don't even have to admit they did something wrong??? WTF.
Unfortuantely, this is how FINRA works. They single out a broker or trader and let the company skate.
How about reimbursing everyone who lost money as a result of the spoofing/lying? Nah. That would be "too hard" to do. What a steaming pile of crap.
UPCOMING WEEK:
This week I will be keeping an eye on:
-
Oil, the PESO, the YEN
- FREE MEMBER trade idea Freebie: VIX LEAPS.
Paid Memberships:
ALL OF THE LIFETIME VIP MEMBERSHIPS ARE GONE! But I am still running a special on VIP memberships and will be announcing a VIP Trial special this week also.
From this:
To this:
CLOSING COMMENTS:
I do not know when the "Turn" will happen. But we are getting very close. Until that happens, I will look at taking some selective longs, and shorts. But I am getting close to adding to the DOOM trades. It is only a matter of time.
While we are waiting, keep throwing ideas at me. Thankyou for your interest and trust, especially those who are VIPs, Traders and VIP4Life Members.
This week is going to be a great week. Last week is done.
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.
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.
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.