AIR POCKET OF RISK - STILL IN PLAY
First, Housekeeping: Catching Up.
Month of September has been intense so far. For those who wonder 'what the hell happened to Samantha' on this channel, see above post on "The Nvidia Saga".
Also, I was off-line for SIX DAYS from no internet post micro-burst storm that literally took out both my primary and secondary internet providers. (Yes, I pay for two just in case the primary one goes down, LOL.) Luckily, I had a generator and live trading room coverage Mon-Wed from my wonderful team of CLUB moderators @Mikey Bot @Rithika @archnakj until my return on Thursday September 14th.
Trend Updates: In addition, I have fully caught up and posted not only an update to the TREND LONG PORTFOLIO last week, but also a top ten TREND WATCHLIST.. Check both out. Boring is VERY profitable. And they are true value plays which should support my continued sector rotation thesis of Growth To Value into year end and beyond.
Swing Updates: Yeah, Tiff is taking over this channel and portfolio, so they will get updated more quickly.
Webinar Updates: I missed the posting here of the September 5th Macro-To-Micro Power Hour with Craig upon return from Labor Day Weekend. Apologies.
Suffice it to say, everything we discussed happened: higher US dollar, Yields and Oil with a side of breadth breakdown under the surface as growth stalled post AAPL and NVDA earnings as market reacted to both with selling. Not only that, but Craig nailed the FOMC likelihood of removing rate cuts from their forecast and raising their Fed Funds rate for 2024.
Fast forward to this past FOMC day on Wednesday the 20th, Craig and I did another Macro-To-Micro Power Hour to remind that the second half of September historically bodes poorly for risk taking.
We referenced the JPM option collar expiring on the 29th of September for which we both expect a push down into the $4215 strike area.
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https://laductrading.com/join-edge My SOLD-TO-YOU CallI have great tools and some decent trader instincts. I happened to warn clients Monday and more strongly Tuesday that I expected volatility. For the week just ending:
Dow ended down -1.9%
S&P 500 fell -2.9%
Nasdaq rolled hard -3.6%
VIX traveled higher 30% and Nvidia is fast-approaching my price target of -20% since earnings, helped this week by a Hawkish Fed.
But as clients also know - from my tools that I highlight every day in my trading room - the market had been in solid distribution since August 1st, meaning breadth broke-down under the seemingly bullish action of the indices, in large part because heavily-weighted mega cap tech plays in SPY & QQQ kept the market from realizing the underlying weakness as indices traded sideways.
I could see the net selling too that literally started August 1st. It was only a matter of time before gravity took hold. All we needed was a trigger. Fed reminded markets that rate cuts should NOT be priced in.
My Secret Sauce for Market Timing.
My stock-bond-volatility read was a great tell when I warned it was ready to explode. Also my rising USD/10Y ratio leads as a tell for market direction. It is still threatening risk off. "Air Pocket Of Risk Potential"
https://laductrading.slack.com/docs/T01GN5BH7KP/F05TQSNJYL8"Air Pocket of Risk In Play:
https://laductrading.slack.com/docs/T01GN5BH7KP/F05U3BKH5LY
D.I.Y. Risk Management
As I closed my trading room Tuesday I posted my continued watch on these key intraday intermarket tells:
1) USD/10Y ratio <> 280
2) SVXY <> 93.43
3) T2123 <> 100D support
4) DXY <> 106
5) 10y <> 4.333
Other than DXY breaching $106 - although it has put in ten consecutive weekly closes in the green, a record - all of the above trigger.
In particular my warning still stands from my USD/10Y ratio: currently ~290, but a move up and to 300 would trigger volatility; above 300 would trigger a flash crash.
Main Reasons I turned BEAR
Macro: August 1st was when I noted the pause in breadth and net buying, post July 31st quarterly Treasury issuance which Craig warned was massive. This large bond supply in the market put a bid in US Yields and Dollar ever since, even as indices moved sideways waiting on NVDA, all while net selling picked up under the surface and breadth continued to break down across NYSE, NDX + SPX.
Micro: Nvidia earnings seemed to beat. My contention going into their announcement was that the market was "priced to perfection", it was "buy the rumor, sell the news", and that the AI-hype that had driven NVDA + related plays had also peaked. We needed the macro trigger from a hawkish Fed, but we already had the intermarket warnings and AI sentiment waning to set up a perfect storm for bears.
Fed Day: FOMC Wednesday was the trigger for that volatility as Fed not only priced 2 rate cuts from their forecast, implied the neutral rate would move higher at the same time extended the Fed Funds rate for end of 2024 to 5.1% from 4.%. I even tweeted pre-announcement in response to 99.2% of all $VIX calls expiring that morning:
Translation: $VIX sellers won. Board is cleared, mostly. $SPX puts are relatively cheap! And we have a 60% probability Fed announces a Pause.
My bet: Hawkish Pause, Again.
Skip but HODL the line.Any hike intonated for Nov/Dec is not priced into equities. Pushing cut out into end of '24 isn't either.
Watch the SEP!
> 4.6%: VIX will trigger. PLACE YOUR BETS!
Translation: the market was pricing in cuts not the removal of them!!
WHERE TO...
My call the past few months is that we could see SPX 4000 by EOQ. Until this week it didn't look viable. Now, it's reasonable to expect a push into $4200 - whether by the 29th or not.
We can already see some early signs of intervention from Fed/Treasury regarding bond buying to assist with Treasury liquidity (read: QE), and there is a large pension rebalancing by EOQ. Maybe this will help bond bulls defend here.
But if US dollar doesn’t get firmly rejected at $106 and US 10Y yields don’t retrace back down AND BELOW 4.33%, we are at risk of a flash crash.
Good news: BOJ didn't surprise and unemployment claims fell.
Bad news: We are facing a very real possibility of a US Government Shutdown starting Oct 1st. Markets are definitely not out of the woods and my intermarket analysis suggests strongly it is better to be careful not complacent.
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