Mr.NotAdvice
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Newsletter - 11/12/2023
I said it last week: "This 'rally' might have some legs". And it has not disappointed on that account. Tech stocks are absolutely crazy right now and they are trying to drag the market higher.
But trust me, this will not end well - but the real question is when will it end??
Shorts continue to get torched and really bad news continues to be ignored.
It can be amazingly frustrating but believe it or not, I am not frustrated at all.
Because I know how this ends.
The Week in Review
The market this week was all about two forces battling: excess built upon manipulation and reality.
Monday through Wednesday saw the market move marginally higher. Here is the trade that is doing that: Large parties are shorting the VIX, being paid premium, and then using 0dte's to move specific tech stocks higher. They have been doing this since July and its been a banger of a trade. From the order flow, its easy to see which stock is powering the entire market higher:
And here's some evidence that the rally should continue next week:
I mean if you think about it, if you are a money manager, the path of least resistance right now is UP!
You have order manipulation, order flow, CTA buying and bears capitulating all at the same time.
However, adding a little dose of reality, take a look at the next graphic that show the market just went through the best 10 days of the year:
But, and of course you know there was going to be a "but," here is what happends when reality enters the room. This is a Thursday 5-minute chart immediately after the 30 year bond auction results were released. It was a very bad auction.
The auction was bad because there were much less bidders for the 30 year paper then what were expected, especially with the previous 5 and 10 year auctions going ok. This injected a does of REALITY into the market that lasted - oh - until the very next day.
News releases this week were almost all bad. We have discussed these in real time in our Discord Chat but here's a few of them:
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China largest bank hacked
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US large mortgage payment processor hacked
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Direct debits of paychecks down for days due to a hack
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Australia's second largest cell service down due to a hack
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U Mich Inflation expectation survey came in hot at 4.2% (expected rate of inflation) moving up from October's 4.2% and up hugely from September's 3.2%.
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Fed's Fedwire service "issues"
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Moody's issues outlook downgrade on the US (after the market closed of course on a Friday)
I could list about 30 more but you get the idea: the reality is that things are breaking, either due to error, hacking or on purpose and that economic conditions are worsening, not getting better. This is the reality.
Reality vs Fiction
I cannot tell you how many times I have seen bears get absolutely mauled because they are factually correct, but their timing is off.
The issue currently is not that economic conditions are not worsening - even the bulls know this. the issue is that there is no motivation not to ride the wave
higher. When bad news is being spun as good news or it is being outright ignored, there is the tendency to be stubborn and wait until the market confirms what you know is happening - and you miss the run up.
I can assure you that it is not something I intend to do.
But here's the problem and risk with getting long: as we saw from the 30 year auction, when reality takes hold, the drops are very swift. And you never know when the drops will turn into a new trend. So there is also a fear that you could be buying the top. Pretty hard right?
Actually, as we will see from the charts below, price will tell me when we should get long, not heavy but long. And I will do so. All the while being very cognizant of watching for when the trend has changed.
Think about the market like this: the baseline are the sum of all the economic information out there, the fundamentals, the macro picture. Now price will move up above and below this baseline based on expectations, manipulation, sentiment, etc.
Right now, we are at the high wave of the Price sine wave. And you know that I fully expect a reversion to the baseline. But while we wait, we need to still make money trading so its important to NOT let REALITY to stubbornly cause you to miss as prices get even more extended from the baseline. I certainly won't.
Murphy's Law
Getting long when you know that a snap back to reality can happen at any moment is a nervous undertaking. Especially for traders like me that base trades on DATA. And knowing that market extensions are driven by emotions. Its completely counterintuitive, unless you understand that market emotions ARE part of the data.
When the market runs on emotion, that doesn't mean stay away from getting long. It means you have to be prepared that out of nowhere, the market could decide to revert to the baseline and you could lose money. What makes this an especially challenging task is that we try very hard to remove emotion from our decisions so "betting" on emotion seems, dirty.
But we have no choice unless we want to remain on the sidelines until the market breaks. Sure, I believe that will happen in weeks but timing such a thing is very hard. Remember in 2008 the market rallied for 6 months before finally breaking.
As long as we are well aware that at any time, the market could severely correct and therefore, we must respect our stop, then we ride the wave.
One more note: Murphy's Law says that anything that could happen will happen. In this case, Murphy's Law would mean as soon as I get long, the market corrects. I had this happen to me before. But to allow that possibility to keep me out of the market long would be ignoring the data.
I am not capitulating because I have never been a BEAR or a BULL. I am agnostic and will trade in any environment. But IF the market moves through the levels I review below, I will get long AND retain the short positions I have.
Looking for candidates to get long I of course have QQQ, but the following graphic are companies I am going to take a look at also.
But honestly, unless one of the above is a super setup, I will be using a QQQ ETF. I will follow the money and ride the wave.
What's the plan?
Ok, so there are couple of caveats for getting long now. This is not chasing, it is not buying the top - scrub those from your brain. This is completely driven by the charts but we must be well aware that this could go against us very quickly. Or not.
I do not suscribe to Murphy's Law - in fact
I am not a superstitious person, well maybe a little stitious. I do have one superstition if you call it that but that's for another conversation.
Ok, here's the "rules" so to speak about getting long right now:
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We need at least a 3-4% gain very quickly to make this trade work.
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I will attempt two times to get long and if neither work, I will stop.
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The initial stop will be set by the break levels of course but ultimately, I will set the initial stop at 10%.
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Position sizing will be 20% maximum.
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I will retain all of my short positions.
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I am not scaling into this trade - its all or none because I do not know how much gas is left in the market.
Entry:
While I will not go over the specific contracts I intend to use (VIP and Traders will get this real time, Free Members on a 48 hour delay) I want to go over WHAT will get me in. I will use the QQQ AS AN EXAMPLE.
QQQ:
I will be using calls, DECEMBER, because I expect this to be a short term trade and I want to capture as much of the up move as possible.
The entry is NOW and the stop is a daily close below 369.57.
From the spreadsheet below, the initial R is 1 and the T2 R is 3.32. Make special note in the upper right hand corner that I have adjusted the timeframes of T1 and T2 as well as the stop. This trade MIGHT have to be entered twice if the first attempt gets stopped out on a fake reversal. If that happens, I will adjust entry.
Final important point: as soon as this trade is up or price is above the Trail Stop level, the Close Stop will be raised to B/E or the Trail Stop.
WEEKLY HOW WALLSTREET SCREWS YOU:
Might as well go over how a couple of firms have been gaming the system to make tons of money AND drive the markets higher. It took me a lot of studying and research but I finally found a couple of guys who were able to break down the trade for me. It's simplicity is amazing and quite frankly, if I had the same ability, I would do the same thing. They are doing it at such enormous sizes that they are able to move markets. This is not the Fed or some other Central Bank, although those parties get involved when they need to or want to because while their goals are different, the trade benefits them all the same.
The Trade is this:
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Short the VIX either using VIX, UXVY, VIXY or VXX.
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In all products, they SELL short collecting premium on the short long side. IF VIX rises, they lose and if it falls, they keep the premium.
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They use that premium to buy 0DTE calls on the SPX and Nasdaq thereby forcing the indexes higher and locking in more premium gain.
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They are also currently using NVDA short term calls to "help" the markets drive higher.
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In the past, they were using all of the Magnificent 7 stocks but now, just NVDA.
They have advantages that you and I do not have:
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They can hide a lot of their activity in Dark Pools so that it appears as though the market is rising on its own.
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They most likely have accounts in Japan so they are borrowing at a 100% margin AND at a 1% interest rate.
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They can hypothecate that value even higher by borrowing in Yen, at 1%, buying US Treasuries at 4.5 to 5%, then margining off the US Treasuries, thereby capturing the difference between 5% and 1%, which equals 4%, thereby making the borrow a risk free transaction.
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Then they margin that amount, doubling it, and sell short against the VIX
Since they are using leverage, and they are leveraging their original amount, and they are taking advantage of the JPY Carry Trade, well you can see how this is an extremely profitable trade.
And if you don't feel screwed enough, there is really only one way to stop them, and its not the market going down. I mean if the market crashed they would be in trouble but they can also prevent that to a degree.
The only thing that could stop them is if their broker decided to cut their margin rate. Yup. And the chances of that happening when the broker is collecting all those transaction fees and margin interest? Pretty slim.
So, how WILL they be stopped? Well, eventually, some firm in the system WILL lower margin availability because of other investments on their books. Say CRE or CMBS or whatever. And when that happens, then this trade is busted.
Can you see now how this is an absolute amazing trade that absolutely screws you? And why trying to fight this trade right now is silly? It is only when the weight of all the bad stuff percolating final gives way to a real break in the system will these traders get burnt.
Here is what I am watching to tell me that the trade might be breaking apart:
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Increase in JPY rates makes the carry trade less profitable and more risky.
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A shut down of the government (I still don't think this will happen) which locks up the bond issuances from Treasury.
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A firm suddenly announcing adjustments to their margin loan policy.
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The YEN continuing to strengthen making the carry trade less profitable.
Thats this weeks episode of How Wall Street Screws You.
UPCOMING WEEK:
This week I will be keeping an eye on:
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Progress or lack thereof of the budgetary circus in DC.
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The YEN - keep on moving on up.
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The US 2 year and the 30 year - remember that Yellen is trying to do some curve steepening.
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NVDA and if it continues upward - major resistance is right above it at 500.
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CPI, PPI and Jobless Claims.
Paid Memberships:
If you want to accelerate your learning, a paid membership is the way to go. Heck, even one month will speed up your learning quickly. Sales pitch over.
From this:
To this:
CLOSING COMMENTS:
The crash is still coming. And its going to be an absolute wrecker. You will here comments like "Why didn't we see this coming" or "This was unplanned for" or "theBoss is amazing because he warned us." Ok, maybe not the last one on the major networks.
But we are positioned well, have started our DOOM trades, and will take a shot at the top side and take the FOMO and Hopium express as far as it will go.
Make no mistake though - the end is near and when it comes, my only hope is that it will not crater EVERYTHING.
Merch Store will be up THIS WEEK!
VIPs will be able to buy products at a huge discount!
Traders will get 20% off.
Free Members will get 10% off.
Stay Tuned!
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. If you get removed by mistake, email me or @AtomicStreudel and we will fix it. Ok, he will fix it.
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.