Newsletter - 6/30/2024
$SPY and $QQQ both printed their second weekly doji's with large selling tails.
Will the market drop? Is this the top? Should I buy the VIX?
Maybe, maybe and are you kidding me?
Look, this is often where retail gets in trouble - believing that the "Top is in" and getting short before it's actually confirmed.
I do not know why people are so impatient. Or is the real reason retail doesn't wait is because they aren't really focused on what's important: risk to reward, probability, statistical significance and instead focused on choosing the "direction" as if that's the prize?
If you find it difficult to wait for price to confirm a direction and if you give no thought to risk to reward, target, stop, probability . . . you are not trading, you are gambling. And you will never consistently trade profitably.
When people sit at a slot machine for hours, days, their lifetime it is important to understand why: the rush of serotonin is from pulling the handle NOT from making money. They are merely paying for entertainment. They are like drug addicts caring little about the results only looking for that little "high."
I simply want to help you break that addiction. I want you to risk your money not playing slots but Blackjack or Poker where you can learn how to put the odds in your favor. I want you to treat your investment accounts with the seriousness they deserve not as a slot machine.
So which way do I think the market will go? See below for my best guess since at the time I am writing this, that's all it would be.
As a reminder, I said this two weeks ago:
"Finally, I suspect the $Yen will be back in focus this week as once again, it is pushing the 158 level which is $2 below where the JCB intervened previously. Don't forget that the JCB sold US Treasuries to raise capital to defend the Yen - they will probably do so again this week. This would put upward pressure on US yields which is bad for the market. It's something to watch."
The Yen is trading at 160.873. The JCB will intervene. When? Who knows. But risk is high now because the probability of the Yen being supported is high which could put selling pressure on stocks. This is not a tradeable data point. It is a "Yellow flag" letting you know that risk is even more elevated then a week ago.
ANNOUNCEMENT:
Starting with the first newsletter in July, I will be moving to a paid model for the newsletter only. It will be a nominal monthly charge of a couple of dollars and VIPs will of course continue to receive the newsletter for free. Watch your email for updates and how to sign up.
Week in Review
Model Portfolio - since 5/9/2023
This Week:
Last Week:
Back on track for the Model Portfolio. Even when my portfolio takes a hit I don't worry, I don't get more aggressive. I take the losses and move on to the next trade because I know that the key to my methodology is statistical significance and that requires a large data set of trades in order to allow the historical probability of the data set to work. In other words, you've got to have enough swings at the plate and not freak out when you strike out. That is not to say that I do not learn from both my winners and losers. I say this frequently to my Members: I EXPECT to make money just like a good baseball player expects to get hits. This is not ego it is merely having a large enough sample to rely upon to provide: PERSPECTIVE.
Closed trades this past week:
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$CELH: -43% in 5 days
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$BYON: +37.50% in 14 days
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$AVPT: +20% in 9 days
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$JD: +29% in 6 days
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$JD: +102% in 8 days
Sectors
SPY
While I don't know if this is the top I will say that the price rejection on Friday was NOT bullish. Furthermore, the fact that price printed another doji on the weekly with another large selling tail, couple with the fact that hedges have been selling HEAVY leads me to believe risk is strongly to the downside.
However, until the weekly confirms a High Close Doji (a close below the recent doji low) there is nothing for me to do.
Plus, I do not care that I call a direction right, I trade to make money. And right now, price is still in a bullish consolidation.
QQQ
Same as the $SPY. But reports that institutions have been selling tech heavily lead me to think that the QQQ's could lead the rest of the market lower.
But don't forget that earnings season is coming so this might be the case that the outlook has been reduced enough that any positive news will finally trigger the blow off top that I have been looking for.
Remember what I said last week: "The 4/29 HCD resulted in a 3% pullback and that is the maximum amount this pullback will produce, if even that."
Doom Trades
$KRE
FROM 6 WEEKS AGO:
"Am I worried that the stock prices of my DOOM trades are going up?
NOPE
Why am I not worried?
Because NEWS WILL LEAD PRICE lower.
Price on these DOOM trades can go up 10%, 20% or even 100% and it will not concern me because the underlying fundamentals are deteriorating so quickly."
Chop chop chop.
There is nothing to do but wait.
$BAC:
Price is stuck at major resistance. Like the rest of the market, it seems like it is "waiting." For what? To decide.
$VNQ
Waiting. Waiting. Waiting. Waiting. Waiting.
Closed Positions
$CELH Aug 75C: $2.59 / -43% - 5 days
I entered because of a confirmed Low Close Doji which are typically very strong reversal patterns. But even when the probabilty of the trade is high, sometimes it doesn't end with a profit. Next trade!
$BYON Jul26th 12P: $.80 / +37.50% - 14 days
Entered on the break of support and when I saw the price action Friday I closed the entore position.
$AVPT Sept 10C: $.70 / +20% - 9 days
This trade is a great example of what happens when a strong up move with the accompanying gamma effect in the trade's favor is followed by a quick price reversal: the option price can reverse strongly. I had the opportunity to scale or close for a higher return but instead ended up with "only" a gain of 20%. But let's keep this in perspective: +20% in 9 days. Yeah - my expectations are high because my performance history is high.
$JD Aug 27P: $.99 / +29% - 6 days / +100% - 8 days
I entered on the break of support, price retested and failed and then it went straight down. So why close it? Because price hit and then surpassed my Target 1 and for all the reasons I wrote above about $SPY and $QQQ. When risk is high, protect capital. In fact, always protect capital.
Current Open Positions
$FXI Aug 26P for .75 - VIP
Price once again bounced off of the same price level for the second day in a row. Pretty simple: break and I will get a scale, reverse and I stop out. Not very complicated.
$EOSE Jan2026 2C for .66 - VIP
This is entirely due to the involvement of Cerebrus and their large investment in $EOSE. Do I think $EOSE's tech works? Doesn't matter. Do I think $EOSE will be successful? Doesn't matter. What matters to me is that Cerebrus does and have put a lot of money in their belief. In fact it appears that Cerebrus values $EOSE at over $3 per share, today. Follow the money.
$RIVN Aug 12.50P for .75 - VIP
Gap close trade BUT I entered before the daily close and am already up 40%. I did not scale yet though because price was strongly rejected Friday. Friday price tried but failed to close below Thursday's low so instead of it being in a strong downtrend it is in a moderate downtrend. Monday will be very constructive as to if not scaling was wise or if it was greedy.
See below for why I entered this trade intraday.
Doom
As a result of Trump's comment that he will cut off all aid to Ukraine if elected, all of a sudden Zelensky wants to talk peace. It's always been about the money. It's always been about stealing from you and I and giving it to Zelensky and his cronies, defense contractors and every other industry that has had in the US taxpayer's pockets.
However, due to Biden's abysmal debate performance the odds of DOOM 4 has risen significantly. If you think this is more conspiracy talk then you have not been paying attention to just how evil their actions have been thus far, how illegal some of them have been, and how terrified they are of Trump being elected. It does not matter who you "like," facts matter. Do not fall into the trap of not believing delaying the election by any means necessary because YOU are reasonable and would not do the same thing.
This and That
$RIVN Entry
As you know I do not enter trades 99% of the time without waiting for the daily close. On Friday I did not wait and entered intraday. Why?
First, if @JDC had not pointed out the price action I would have missed the entry so thank you @JDC!
I was watching the 5 minute chart and saw that price had broken support so if it closed there the trade would be active. However, then price printed a Bearish engulfing candle and I decided that it was worth the risk of taking a small stop vs. a possible gap close.
Even still, I sized down my trade because of the additional risk and by the end of the day, I was able to scale. But I did not scale because price only avoided closing below the previous day's low (bearish for price, bullish for my trade) in the last 5 minutes of the day.
This was an entry refined by my 30 years of experience. Some call it having a "feel" for price action when in reality, it is just analysis and pattern recognition having been internalized.
Why did Bonds drop?
Bonds dropped because someone was selling. Who was that someone? Israel. Why were they selling? Because they wanted to let the US know that if it continued to criticise Israel's military actions, there would be a price to pay. They sold without making any announcement or back channel notification to the US. they sold to make a point. Whether this is a one off or a warning of things to come remains to be seen.
POTUS Debate
I am not going to discuss what has already been said: Biden was horrible. Period.
I WILL comment on what I think happens next.
Biden cannot be forced out, it is too late and primary voters have already cast their vote. Plus it's already too late in the calendar.
So if Biden will not go willingly then there is only one other option: the 25th Amendment - removal of POTUS due to death or incapacitation. The question is who is going to say it out loud? Kamala can't without looking bad. The WH doctor could but I doubt he wants to be known for kicking POTUS out of the race. That leaves Congressional Dems; they are absolutely who are most likely to do it if they think that Biden remaining in the race will severely hurt down ticket races. More importantly, if their ability to fund raise becomes seriously hampered.
As for who the replacement would be? Either Harris or Michelle Obama. Only Harris has access to the funds already raised and she is not white and a woman - both constituencies that the Dems must have if they want a chance at turning the race around.
Michelle checks the demographic boxes and has the ability to raise a lot of money very quickly. But she has no governing experience, and she is more disliked by Republican voters than even Biden or Harris.
The question is who is going to want to come into the game in the 4th quarter down three touchdowns? It would be wiser to just wait until Trump's 4 years are over and start with a clean slate and that's what I think will happen.
The people who will try to push Biden out are the mega donors. They will say if he doesn't drop out the money will be turned off. But the person they need to convince is Jill Biden, not Joe. She is running the show and she will decide. If past behavior is used as an indicator, she will not tell her husband to vacate the race. Probably because she has become used to the power she is yielding and nothing more.
Ignore polls like this. Because they lie without context. While 72% think this, it's only an increase from the previous week of 65%. While numbers don't lie the people who present them often do.
SCOTUS
While the focus has been on SCOTUS' rulings on abortion and the January 6 charges, the ruling that could change the way you and I live our lives AND restore some freedoms was the Chevron case. In simple terms the Chevron case allowed for regulators to make regulations that the Courts had to follow. In fact, Chevron put "experts" above the rule of law which led to an explosion of administrative "rulings" that have made life more complicated and expensive for us all.
Chevron, which was passed 40 years ago, was the tool the Fed and Treasury used for the bailouts.
Chevron has allowed for the explosion of regulations, regulations that ignored established law, regulations that have been used to affect every part of our lives.
Chevron being struck down should lead to an avalanche of lawsuits directed at dismantling the administrative state where "experts" have decided what is best for you and I.
A Simple Test for Success
I am often asked by new traders what is a simple go no go test when considering a trade. A test that can be done for every trade opportunity regardless of the probability, the charts, etc.
Without further delay, here it is:
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Do you have a stated stop?
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Do you have a stated target?
That's it. If you do not have both of these then you are not trading, you are gambling and you will lose more often than not. In fact I would say that if you lack both of these things than you are falling for the "Direction" trap. This is where retail thinks that if they choose the right direction then they will make money. This incorrect assumption gives investor's a false sense of accomplishment that just fuels further foolishness, and losses.
The Current Market Enviornment
The Summer Doldrums are upon us. This means that moves are often are exaggerated due to the lack of participation. Therefore, I might be sizing down my trades more often because it will take less volume to change the direction of a trade against my thesis. Yes, it also can lead to outsized moves in my thesis direction I always focus on Protecting Capital as my primary goal.
Remember that I expect to make money when I trade, it is inevitable. My confidence does not come from arrogance, it is due to a massive data set of actual trades and 90,000 hours of refining my trade methodology. If I didn't have that, I would not be as confidant.
One of the foundational principles I trade by is that I must be forced to take a trade because the probability of success is so high. This is completely opposite of what most traders do: they search for trades because they think they always have to be doing something: they are mistaking activity being the key to trading success. Nothing is farther from the truth.
Because we are on the Summer Doldrums I am going to be even more cautious on my evaluation process and more protective of my capital. For 30 years that plan has served me very well.
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Look, there are a LOT of scammers out there on FinTwit. 99.99% of them care only about selling packages of crap. SOME OF THEM ARE CHARGING AS MUCH AS $5,000 PER MONTH! 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.