What If Nothing Happens?
Everyone expects the market will roll over after Federal Reserve Chairman Jerome Powell speaks on Wednesday. They predict that Friday’s jobs report could signal additional efforts required by the Fed to keep hiking rates. They are worried about earnings numbers later this week from Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG). In addition, February is historically the second-worst month of the year.
Everyone thinks that the S&P 500 will break down. And how could it not, right? The rally we’ve had since January has pushed a lot of stocks into overbought territory. We’ve witnessed an incredible amount of put buying as investors could look to take profits.
There’s just one question people need to ask: What if they’re wrong? Then what?
The Line in the Sand
As I noted, I expect the market to push back down to the bottom of the blue support line on the S&P 500 ETF (SPY). But I’m not placing those bets right now.
Yesterday, I said that I didn’t need to be the first person over the wall. If I’m making a trade here, I might do a put spread and keep a tight trailing stop.
But I can’t ignore the fact that liquidity is a lot better than people expect. We are witnessing a dramatic reversal in financial conditions – the fastest pace that I’ve seen since 2020.
This doesn’t mean that a selloff can’t or won’t happen. It just means that I wouldn’t expect an outright collapse in the market that so many people have called for: Capitulation.
I will continue to monitor our momentum reading and trade accordingly. There are multiple ways to trade momentum in this market. The most important is obviously built around the S&P 500 ETF (SPY) and the Russell 2000 ETF (IWM). If the selloff doesn’t come, this market could squeeze higher toward overbought levels, shake out all of the shorts, and then selloff.
Meanwhile, I’ve just launched Hyper Momentum Trader. If and when we have a negative move off a market top – we will target a very specific list of stocks. Check them out, here.
Today’s Momentum Reading
Broad Market: Green
S&P 500: Green
Recap: The World’s Biggest Indicator (Momentum) is Green…
Buying pressure has dipped a bit today, but the algos and funds aren’t selling. Everyone seems content to hold positions into the Fed meeting. In addition, the market does like to bid up ahead of these announcements. It’s no surprise that we saw a reversion off the first standard deviation today on the SPY at 10:10. Typically, I look for moves to the second deviation band as a trade – but the sharpness of this rebound shows that the algos are buying heading into this meeting.
Flash Points I’m Watching
Flashpoint No. 1: Cue the Outrage
Exxon Mobil (XOM) reported earnings this morning, and it was something. The company generated a staggering $59 billion in profits in 2022 or almost $7 billion per hour. I’m sure Senator Elizabeth Warren has some level of outrage to share. Have a look at the company’s F score. It’s a perfect 9. Weird, it’s like well run companies are really good at making profits.
People can bark at me until they are blue in the face about the climate or profits. Then, I can explain to them the mining conditions for cobalt in the Congo that power their phones and computers. As an investor, oil companies are cheap, they’re well run, and they’re doing everything the right way for their shareholders. I’m sorry if that offends some people, but unless you’re willing to nationalize the energy industry and invite an entirely new level of problems, just buy XOM and go eat a steak…
Flashpoint No. 2: Good Work, Boys!
Europe is NOT in a recession – a factor that stunned a lot of economists who were thinking that energy shortages and consumer spending would shrivel up. Well, it turns out that the forecasts were incorrect as there was a mild winter that dented natural gas demand, and government spending helped prop up the continent. In addition, Ireland came off the top rope with a very strong series of numbers. GDP in the fourth quarter in Ireland expanded by 3.5%, which helped push the Eurozone’s GDP to 0.1%.
Fun fact. I was told my entire life that I was Irish. But when I took a 23andMe test, it said that I was 86% Welsh and 12.5% Greek. My parents think my test was switched. I just keep reminding everyone that Europe was a mess in the 1800s and people were nomadic and lied a lot. Thanks a lot, Science.
Flashpoint No. 3: AI and Deflation
This message on Twitter gave me chills. Are any of us going to have jobs in 2030?
Also – I’m pretty sure this is how societies end up collapsing. Because what happens if the power just goes off and no one has the skills to do very basic things, let alone some of the more complex ones that keep our economy and systems going?
Today’s Hot Long Shot
Do nothing. This market will have a strong reaction on Wednesday, and we will follow the trend at 2:35 after Powell speaks.
What You Missed
This week, the market will be wild.
Big tech releases much-anticipated earnings… New jobs data could shake up the economy… Another Fed rate hike is coming…
Individually, each of these events can cause a small earthquake in this volatile market.
But all of them combined could trigger one of the biggest trading days of the year.
In fact, it feels like we could see a major hyper turn in the coming days.
What are hyper turns? Click here for my primer on this.
In the past, these hyper turns have triggered gains of 330% in one week… 442% in two days… 800% in just one day…
But you have to hurry…
Once these events hit the market, things happen fast.
Make sure you’re set up to take full advantage of this – click here to get started.
January 31 2023
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