Trade the Fed or Break the Bed
Dear Reader,
This whole situation ends badly. As I’ve noted, the last few months have seen a wave of buying among algos and short squeezers who have taken advantage of the best opportunity to bludgeon the longs in… possibly ever.
I’m watching brilliant managers – people I revere – standing in front of television screens and wondering why the market is so detached from economic reality.
Algos keep buying the dip. This is the SPY – and it’s just happened three times today…
Off the second – and even the third standard deviation band. The algos are breaking the trend – they’re defying reality – and they’re making it impossible for smart people to stay sane
On January 17, for example, I saw the clearest market-topping signal that I’ve seen in nearly six months (back in August). This market broke down fast for two days – and then – out of nowhere, we saw dip buying and short squeezing that defied logic.
We ultimately moved even higher – heading into this Fed meeting.
The question is how YOU trade now.
There Will Be Blood
I will focus on trading the SPY, IWM, and other breakdown stocks using put spreads at Flashpoint Trader to help traders better manage risk. These trades will have a higher probability of success and target gains of 50% to 100% in two to three days.
Meanwhile, at Hyper Momentum Trader, I’ll target a very specific list of stocks that I expect will bomb based on their 12-month relative performance against the S&P 500 when conditions deteriorate. Here, the probability of these trades will be lower due to the challenges of squeezes – BUT the upside is 400% to 1,000% depending on how quickly this market breaks down and how deep the problems become.
It all comes down to who YOU are as a trader – but I assure you that the odds of these shorts paying off big are linked directly to the Hyper Turns that come every few months in this market. So, join me at Hyper Momentum Trader. Click here to learn more.
Today’s Momentum Reading
Broad Market: Green
S&P 500: Green
Recap: The World’s Biggest Indicator (Momentum) is Green…
Relative momentum is still strong, and liquidity in the market remains robust. My next focus is to determine the companies with the ugliest breakdown potential for any move lower. It’s insane how this market has devolved into an intraday reversion market – and reversion momentum has been the strongest trend in this market due to algo buying over the last four months. This could be a sign of a changing narrative around the market. A lot of people can’t fathom the idea that October might have been the lows. I remain neutral in this debate – and will only follow our momentum as it comes.
Flash Points I’m Watching
Flashpoint No. 1: Everybody AI!
I called it on the morning show last week. Every junk stock is now going to start claiming that they have launched a new AI division in order to attract stupid investors. Buzzfeed did it first. Now, we have even more companies rallying today on this integration news. This is going to be hilarious.
Flashpoint No. 2: Turn the Lights Off
California will eventually go broke. And if you need evidence, consider their latest proposal. An unconstitutional wealth tax that would “impose an annual tax at a rate of 1.5 percent of a resident of this state’s worldwide net worth” in excess of $1 billion starting in 2024. This is one of the dumber ideas in the history of economics – since the bulk of wealth will be tied up in equities and illiquid assets that will need to be sold – almost always and predictably at the end of the year to meet obligations. That sort of practice could implode the stock market pretty easily – or create wild distortions in asset prices that make it hard to assess the estates of these wealthy residents properly. And if those residents want to leave the state – because this is such a stupid idea – the plan will be to retroactively attempt to slap a tax on those people who left and took their businesses with them. The state’s administrative costs – just to collect the taxes – will cost (get this) more than $500 million. When this doesn’t work, they’ll start to come for the people with far less money. It’s how ignorant people work.
Flashpoint No. 3: This Can’t Be Good
The Fed will speak today, and I can’t imagine that this jobs report on Friday will help the central bank’s cause. According to private sector data, the U.S. economy added 106,000 new jobs for the month. But annual pay increased 7%. On Friday, the jobs report from the U.S. Labor Department will arrive. Economists expect 185,000 new jobs added to the economy.
Today’s Hot Long Shot
If you’re going to bet against the market, you’d want to do so with the SPXU since it’s cheap and a lottery ticket level trade. Next Friday’s $15.00 call is $0.35 or less. You’d need a pretty big selloff by Friday to make this pay, but it’s as good of a hedge as any in this market since it’s cheap. Over at Flashpoint, we’ve done something similar with the Proshares Inverse SPY ETF (SH).
What I’m Watching
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.
Stay Liquid,
Garrett
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February 01 2023
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