Newsletter - 12/14/2024
Doom
Anti Doom
The last two weeks in the market have been a trader's dream - at least for the type of trading I do. Hi beta names exploding with short term momentum as money chases returns into the end of the year. Quick, violent moves, sometimes in hours, have certainly caused excitement as I locked in outsized gains to pad my returns this year (model portfolio up +220% in a little over 19 months). To be honest, some of the trades recently seemed a bit "too easy" because they worked so quickly. Even I, after 31 years of trading, found myself "excited" and "looking" for similarly "easy" trades. But just as quickly as that thought materialized my mind quickly shifted back to my methodology and my First Rule of Trading: Protect Capital. While I might sound like a broken record, the ability to remain steadfastly committed to following my plan has prevented me from becoming over confident when my trade plan produces outsized returns, quickly.
Having said all of that, I believe that the next four weeks are setup to be very strong to the topside. While this is no guarantee and an outlier event could derail any further move up, the trend is up, the money flow is up, and the news flow, post FOMC this week, will be quiet. For the next four weeks, ignore that the market "shouldn't be this high" or that the "market is overbought" or any bearish comment like that. For the next four weeks, the market wants to go up and up it will go. I will hold my nose, buy when there are setups and continue to make money.
I would not be entering any tactical long positions, say beyond the next month, because we do not know which of Trump's policies will be enacted. We do have a good idea of what to expect based on his first term and I cover that later in the newsletter. Risk still remains that some "outlier" event could disrupt the normal transfer of power but thus far, there have been crickets.
Also, as I discuss later, the Mag 7 are once again doing the heavy lifting and high beta tech stocks are benefiting from this money flowing back into them. Are traders "chasing" returns? Sort of but so am I . I would not say I am chasing as much as taking advantage of a unique market period where short term reward outweighs the risk. This will not last but with a strategy where Protecting Capital is the number one rule, any quick sudden downturn would have a minor effect on my total portfolio.
Finally, I have been giving a lot of thought to the CRE / Banking mess as it relates to Trump's expected policies and I discuss the Bullish Case for Banks in this Newsletter. While the bullish case is terribly bearish for the US economy longer term, there is a viable scenario where Trump's policies do not cure the problems but do propel banks higher.
Where Are We?
Relative to what I was expected, it has been extremely quiet regarding the election. Important dates have come and gone with nary a peep from any dissent. It is almost as if the last 8 years of hyperbole have been completely reversed. Am I surprised? Hell yeah. Do I expect some monkey business? Well my emotions say yes but logically, thus far recent history says no.
Risk related to the POTUS Election remains, but it goes down with each step of the process completed with no problems.
November 5 - Election Day
December 11 — The Appointing of Electors
Well this came and went with not even a whimper.
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?
5 1/2 Weeks
I am looking at 2025 as having initially different risk metrics based upon where the Trump Admin is in the process of assuming control I see two specific time periods and although they do overlap, each period is unique in its risk/reward profile. What will be important is to recognize when the market is transitioning from one period to another.
Period 1: Holiday Feast!: 12/12 to 1/15ish
The market structure is set up to support a rally into the end of the year and Trump's election has provided additional fuel, and rightfully so. He intends to cut regulations (BULLISH), reduce government waste (BULLISH), secure the borders (BULLISH) while at the same time he WILL stimulate the economy. Before I go on: if you do not support Trump, that's fine - but do not allow your political leanings distract you from important data points.
IT DOES NOT MATTER AT THIS POINT IF HE SUCCEEDS OR NOT. What matters is at this very moment in time, Trump has the wind at his back and the market is reacting to that. I am not saying it's logical or that it will last, it won't. I am merely stating a fact: the market is excited about Trump winning. For now. What I see is that HOPE is coming back into some sectors of our country. And the hope of Trump's policies being enacted is probably as high as it will be so why would I be "looking" short at this very moment in time?
Look: I still think the market is going to drop. I still think that no matter what Trump does, it will not be enough to stave off a day of reckoning in the CRE and credit markets. But it could delay it by a year or more. In fact, as I discuss later, I see a scenario where the market rallies part or all of 2025. But that view will be severely refined after Trump takes office and this "Quiet Period" is over.
Period 2: High Risk: 1/15 to 2/28
During this period we will know if there is any serious effort to Trump being seated as POTUS. We will also get a read on if the new Congress will continue to be a bunch of jack-asses or if they will support Trump's policies. More importantly, we will see how bruising Trump's confirmation battles will be. And this is without anything else anywhere in the world blowing up.
I will have be long the VIX for this period.
I wanted to remind you that the gaudy returns we have been achieving recently are completely bonkers and therefore: DO NOT GET USED TO THEM! Do not succumb to the Gambler's Fallacy where you take a small sample of wins and extrapolated them forward arriving at the conclusion that you are the greatest trader in the world. You might be but it won't be because of the type of trades we have been profiting from so quickly.
But in case you don't believe me, according to Goldman Suchs, the recent 3rd quarter earnings season "has marked the largest 1-day realized moves in 15 years." So yeah, the recent returns are definitely an outlier.
If you have taken the recent trades then Great! You followed your plan and made easy money. Don't expect it to last nor repeat.
If you missed the trades because you broke your rules or it didn't "feel right," you missed the opportunuity. There will be others. Just not like this one probably.
Update: Where Are We Going?
Four weeks ago I predicted that we would bounce. We did but have made little progress to show for it. Until price tells me otherwise we are in a sideways consolidation before the next move up. Don't forget that we are entering the strongest weeks seasonally in the market: the Santa Rally. While an outlier event could derail the rally I see the market advancing at least another 5% and maybe 8% before we enter Period 2 from above.
And let's not forget that Jerome will do his best to keep the party going for his corporate banking overlords and cut again this week.
Mag7 Leading Again?
The MAG7, specifically NVDA, had been the leaders as the market pushed relentlessly higher this Fall. This time, it appears the market is attempting to do so without NVDA. Will it succeed? I believe it will.
That's a pretty big long term trendline there that also just happens to intersect with a support level at pretty much where we are today. If NVDA breaks below that level we will find out soon if the market thinks it can move higher without it.
NVDA vs. the SPX. It's been awhile since we have had this wide a divergence.
This is an example of what I mean about Structural datapoints that support the market continuing to rise. At the end of December any Index or Index ETF that holds the above stocks MUST buy, they do not have a choice. This is Structural Buy Pressure. I think this could be the spark that breaks us out of this range.
Bond Vigilantes Always Win
As FightClub Member and huge Michigan fan @GC pointed out, the 10 year is back to "un-inverting" again. I had a Discord member asking what that means so I thought it might be good to share here.
Yield Curve Inversion (YCI) is when long terms bonds pay less than short term bonds. Typically, the longer the term, the longer the risk and therefore, the higher interest rate that bond purchasers require., When YCI occurs, it's flipped and short term bonds receive a higher rate, relatively speaking.
The cause of YCI was the enormous amount of liquidity that was injected into the market. That liquidity drove short term rates up as bond investors saw an opportunity to lock in historically high short term rates.
This brings us to our current situation where the Yield Curve is "Un-Inverting" or rather, the historical relationship between long and short term rates appears to be being re-stablished. Is this a bad thing? It signals that the market expects rates on the long end to rise. This would be inflationary. This would be bad for the market moderate term.
But it's also a sign that the Bond Vigalantes are demanding higher rates AND signaling to the Fed and Treasury NOT TO CUT RATES THIS WEEK.
It won't matter. Jerome won't listen. He will cut again.
Bank and CRE Shorts: CANCELLED
Just kidding. Let's just say they might be delayed. And you can blame it all on Trump.
Trump's promise to cut regulations in the Banking Sector could throw CRE and Banks a temporary lifeline that propels their stocks higher for the next 12 to 24 months. I am not saying that the price advances will be permanent because there is just no way to magically remove trillions of dollars of liquidity from the market without causing selling in assets; it's simple supply and demand.
Demand was created with the liquidity pumped into the market in 08 and Covid. Don't believe me that it's been all about the liquidity? Take a look at this chart:
So, for the purposes of this scenario, I will lay out my broad thesis on why a top trade for 2025 might be to be long banks and not yet short CRE.
Banks have prospered due to the liquidity. Pull the liquidity and Banks will suffer, along with CRE. However, if, at the same time the Treasury is removing liquidity from the system DEPOSITS rise at banks, the banks could "thread the needle" so to speak and see their balance sheets improving at the same time their business is building. And what is a bank's primary business other than deposits? Lending.
Looking back at Trump's first term, as soon as he signed the Economic Growth, Regulatory Relief, and Consumer Protection Act, banks; lending business exploded:
In this scenario, CRE benefits because improving business and balance sheets will allow Banks to further push off any "Day of Reckoning" in the CRE space.
Increased bank lending will drive economic growth so Trump could actually "save" CRE indirectly. While nothing has been made of it let's not forget where Trump made his money: CRE. He understands that industry and what is wrong with it. I do not see him reforming it because doing so would cause too much economic pain and Trump is going to do everything he can to make people feel like their economic lives are improving.
Does this change my view that CRE is headed for a crash? Nope. Trump could delay or lessen the odds, but until someone figures out how to take trillions of dollars of fake asset growth due to irresponsible liquidity from Central Banks out of the system, Trump's expected policies will only make the situation worse for the long term.
Whether this ends in a bailout of the CRE space or a destruction of the space remains to be seen; but in the mid term outlook, if Trump follows through with further deregulation for Banks, their stocks are going to go up. I will trade them in that direction with one eye on the door.
Trump Causes a Crash
In case you think I am drunk on Trump's victory and I agree with all that he plans to do and that everything is sunshine and lollipops, allow me to snap you back to reality. Trump is part of the "Iran Must Go" camp and while he will attempt to get Iran to heel with economic and perhaps targeted military strikes, I believe his administration's position will be much more hawkish toward Iran than his first term.
Courtesy of Zerohedge:
This should be a sober reminder that no matter how euphoric or optimistic the market is about a Trump second term, there remain a LOT of risks just slightly beyond Trump's control that could start a market pullback. In fact, because it's Trump's second term I expect him to do pretty much whatever he wants regardless of what anyone says. No I don't think that's a good idea.
Update: EOSE
Since I intend to do a Podcast covering EOSE with Mr. Greg Reyes and I will be doing a year end commentary on EOSE, I will keep my update short.
I am trying to add to my long EOSE position on Monday based on my methodology. However, price has entered what has been very strong resistance: from 3.50 to 3.66. While I believe that price has the momentum do get through that area this coming week will tell me how easy or hard it will be.
Price remains very strong and despite repeated short attempts to merely slow down the advance, buyers are stepping in. Additionally, I have noticed a large increase in FinTwit "Gurus" posting bullish comments about EOSE. Momentum is with EOSE.
USDJPY
The Yen is weakening again vs. the dollar which is good for us but bad for them. How long can it be "bad for them" in Japan's case?
For as long as the US tells them.
Japan is merely a vassal state of the US.
Only a monetary crisis would force Japan to do what's in it's own best interests.
$SPY
From 5 weeks ago:
"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."
That's a pretty good summation of where we actually are. Tech will lead or the rally dies.
I think the rally is just getting started.
$QQQ
From 5 weeks ago:
"500 is the line in the sand."
From 3 weeks ago:
"Price is above that level.
Time for me to get long.
Impromptu Haiku."
Today: I am long via UPRO and QLD as long as a number of high beta tech names.
$RUT
Small caps have rolled over so unless there's a Dash for Trash Part Deux, QQQ's and tech are the place to be.
$EOSE and $ENVX
3.50 to 3.66. Break that and 4 comes quick.
ENVX stock is going to continue to drift down barring any surprise news announcement.
Even then, it has been being sold off along with other small cap stocks.
It will go down.
THIS AND THAT
Just in case you though I was all "Bulled Up."
I am trading the short term trend and momentum. Nothing more.
Just makes me hate them more: they have no principles. They go where the money is.
FAKE NEWS!
Record Corporate profits were driven by debt. Aka LIQUIDITY.
GO EAGLES!!!
PODCAST:
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VIDEOS:
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Paid Memberships:
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:
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.