Newsletter - 11/2/2024
79 days.
79 days until the Presidential Inauguration.
We have entered the most dangerous 79 days in the stock market in the 31 years I have been in the business. I say this without hyperbole and sadly: There is no reason our country, our economy and our standard of living should be at risk as it is today but here we are.
In my last newsletter I "focused on preparing for any of the possible market "landmines"" and in the two weeks since it was written the number of landmines has not changed, the degree of seriousness of the risks the market faces has not changed and the probability that at least one of those landmines are hit has not changed (still high). And yet, the market continues to remain elevated, risk remains suppressed and no matter how much you want to believe it, this time will not be different. Before you say "I don't think it's going to be different this time" allow me to ask you a simple question:
If you, and I am talking directly to YOU, if YOU agree that risk to YOUR investments and YOUR money is at historic levels, then what are YOU doing to prepare for it?
Let's say you have been reading this newsletter and agree with the evidence and case I have laid out for coming economic pain. Good for you. Your eyes have been opened and you have begun to break out of the "Matrix" of lies that your mind has been imprisoned in. You have succeeded in learning how to objectively look at data while rejecting the historic levels of lies and gas lighting.
So what?
Just knowing what the risk is not enough. Just knowing what the numerous triggers are is not enough. Having the intellectual integrity that allowed you to reject what you are being told and instead see the painful and discouraging truth is not enough.
What are you actually DOING? I am not a licensed advisor anymore so I cannot and will not give advice. What I can do is challenge you: the storm is here, the dark clouds are overhead but it hasn't started raining. Yet. What are you doing to prepare?
The #1 Negative Catalyst
With all the record high risks out there the POTUS election is still THE catalyst that I believe will start the downturn. Unfortunately, getting past Election Day no longer guarantees that the contest will be decided. With lawsuits ALREADY FILED one can only imagine the potential for this election to be contested.
With that in mind here are the dates that could be flashpoints for broad, institutional lawfare.
November 5 - Election Day
Be prepared for reports of widespread fraud and voter intimidation, by both sides. Also, I expect reports of lawsuits at the local level that will embroil State Election Officials. I will be watching for acts of violence.
December 11 — The Appointing of Electors
This is a big deadline: it's when each State certifies their Presidential Election Electors. If there is going to be an attempt by a State party machine to manipulate the vote, this would be the time. I will be watching for any attempt to NOT certify (the Governor is the default "certifier") a State's electors because it would delay the next deadline which can only happen six days after the Appointing of Electors. And that next deadline is:
December 17 - The Meeting of Electors
Each State's appointed electors will meet in their respective state capitols to cast their votes for the candidate that won that State's votes. This is what is referred to as the "Electoral College." Since the location of the meeting is a public location I will be watching for acts of violence to prevent the electors from meeting.
December 25 - The Arrival Of Electoral Votes
The president of the Senate and the national archivist must receive the electoral certificates of each state by the fourth Wednesday in December.
January 3, 2025 - The New Congress is Sworn In
The new Congress has to be sworn in before they can count the POTUS electoral votes. I will be watching for a delay.
January 6, 2025 - Congress Counts the Electoral Votes
Following the effort to overturn the 2020 election, the Electoral Count Reform Act introduced a series of reforms to this joint session, such as clarifying that the vice president's role (as president of the Senate) in overseeing this count is "ministerial," and raising the threshold for objections to a state's electoral slates to one-fifth of each chamber. (from NPR)
January 20, 2025 - Inauguration Day
If you honestly believe we will arrive at Inauguration Day without the market having gone down due to something to do with the election, then you can stop reading now.
What are the odds that the market exits January 20th, 2025 unscathed? Now what are the odds that NONE of the other possible risks to the market don't pop off between now and January 20th?
In Case You Forgot
As if the above calendar of landmines wasn't enough, let's not forget all the other risks that exist also. I did a Live Free Session last week where I discussed how I took my thesis that Risk is high, analyzed it and then arrived at warning signs I will watch for as well as what assets I will use or am using.
One Trigger Has Occurred
The 10 year yield closed above 4.3% on Friday at 4.36%. The market expects Powell to cut by .24% next week. Of course, there is absolutely no evidence that supports a further cut since the first .50% cut did exactly the opposite of the desired effect.
Now that the 4.3% level has been breached on the close - where is the explosion of DOOM?? I think we could see evidence of it's effect in the capital markets next week. I will be keeping a close eye on the Yen as well as for any evidence that a bank is in trouble and then finally, for evidence that a carry trade participant is in trouble. What will I be looking for? I don't know but I will know it when I see it.
Popcorn Time
While I continue to have a smaller than normal number of positions and certainly a smaller than normal number of long trades, it is NOT due to any bias from what I believe will happen. The reason why I remain underinvested relative to my average exposure is because risk is high AND the major indexes have stalled (more on that below). However, being the trader that I am, I also am watching very closely for the markets to move strongly higher since there are also shorter term catalysts for that scenario, no matter how short lived it would be. While not an exhaustive list here are a few of
the structural and seasonal events that could add fuel to any up move attempt:
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Corporate buyback "Blackout" period is over.
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Seasonal Santa Claus rally.
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Hedge Funds were buyers again after 5 weeks of selling.
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The Mag 7 are being bought up again. (JPM Prime Desk)
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But Hedge Funds are also very stretched with their net leverage in the 95th percentile over the past 12 months and overall L/S in the 99th percentile. (JPM Prime Desk)
Trade Plan
So, with all of that, here is what I am doing this coming week and what I am watching. In fact, as part of last week's Live Session, I also shared which assets I will be using for each trigger, should they occur. But remember, this is what I am doing AS A TRADER. While I am waiting I will continue to observe my first rule of trading and PROTECT MY CAPITAL by doing NOTHING.
ENVX
I have largely kept my public comments to myself as to my reaction to last week's latest events in the ongoing saga called Enovix, beyond disbelief and disgust. What has troubled me is trying to understand why they would do something so incredibly stupid as to say one thing and then less than 24 hours later do the exact opposite. When management says that they do not need to raise money and they want to choose an option that is non-dilutive and then does a $100m dilutive offering the very next day it's a significant problem. When management moves up earnings before announcing they don't need money and then announce the very next day they are raising money, it does not pass the "smell test."
Is what ENVX did illegal? I am not an attorney but in my 30 years of professional experience I have seen pissed off shareholders and unscrupulous class action securities attorneys bring actions for less. Is what ENVX did unethical? Absolutely. And therein lies the problem: I do not think Raj or Farhan are unethical. Far from it. I think Raj has never been a CEO before and he is making mistakes that are costing shareholders money and increasing risk for the company. But I do not think he is dishonest. So why would they do what they just did?
I struggled with this until I realized that I had seen this behavior before. And then it all made sense. It was Cantor Fitzgerald. Raj took the advice of Cantor for this entire debacle. Cantor told Raj to move the earnings announcement up. Cantor knew on the conference call that there was an offering imminent and curiously revised their earnings estimates after the call, down. While I of course have no proof that Cantor has done anything illegal and make no such accusation, yet, I now know who Raj is listening to and what shareholders are dealing with: an investment bank is running the show. NOT GOOD. This is not the same as EOSE and Cerebrus.
My thesis has also changed. I am disappointed that I cannot trust what management says because that's a vital ingredient for a successful trade/investment. Heck, just having management that doesn't play fast with words (I made this point almost a year ago in a newsletter) would be an improvement. But since I don't trust management, the largest allocation I can take is 4%, as a trade. I can't overallocate to ENVX like I have wanted to for months. I remain optimistic that ENVX could be setting up for an explosive move to the long side. But there is no way that I will be taking an oversized position in a company where an investment bank is calling the shots; their interests are not aligned with mine. Hell, their interests aren't aligned with anyone else's but there own.
So What's Your Plan?
I asked you at the beginning of this newsletter if you had a plan to prepare if things get bad. After reading what I think will happen, what I will be watching for, and how long I think it could take, unless you have a compelling argument to counter the many points I made, what are you going to do? I am not talking about your trading account. I am talking about your real money: retirement accounts, your savings. What are you going to do to protect capital?
Let me simplify this for you and talk to you as if you were a client (I am not licensed so this is not advice) and we were meeting. The following would be the questions I would ask:
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"What are you doing in your retirement account to adjust for the elevated risk in the markets?"
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"Why are you worried about possibly missing additional up moves in the market?
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"When has protecting capital ever lost you money?"
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"How serious are you about protecting capital?
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"What do you mean you will make adjustments after the move down starts - no you won't and you know it."
If I were still in the business, I would fire any client that told me that they were not substantially increasing their cash allocations across non trading accounts.
USDJPY
Tick tock. The Yen has hit the danger zone (150 to 160 USDYEN) and barring an aggressive intervention by the JCB, the Yen will continue to rise and breach the "all hell breaks loose" level of 160.
$SPY
This is easy. Unless the SPY and the QQQs both take out the huge century levels acting as resistance, the top is in. The fact that they have both tried and failed makes it even less likely that a blow off top will occur. Watch the Mag 7 - they will need to lead. Banks and other Trump trades will try to lead also.
$QQQ
500 is the line in the sand.
$RUT
The RUT was again strongly rejected which is not a good sign for the SPY and the QQQ. In order for there to be a blow off top the RUT must participate. Well, the RUT has a LOT of work to do to even arrive at the party.
THIS AND THAT
Consumers have peaked
Want to see where all the Liquidity went?
It appears Regulators are growing tired of the extend and pretend that the banks have been playing. at exactly the same time the #CRE industry is about to hit a $1 trillion refi wall.
Residential real estate getting hit was not on my bingo card but here we are.
$ENVX and $EOSE
EOSE reports earnings this week so it probably will invalidate any price analysis I do now. Nonetheless, price is in a downtrend and must hold $3.
ENVX is now trading below the Point of Control (one of the top three strongest S/R levels imo) AND below $10. Both will act as strong resistance for any price move up. Barring any additional news, I expect price to go down. First test will be $8 and then $7.34 and then that gap close to $6.87. If that irritates you then ask yourself : what upcoming catalysts are going to restore positive momentum inthe stock?
Closing Thoughts
I would like to end this weeks newsletter with two of the slides from my Live Session. Which side do you fall one?
Doom
Anti Doom
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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.