Interim Update Sept 9, 2022

[deep1nSand]

Sol: Curious about today's market event & the CPI print - do we consider this thing as a blue swan/clown event and work through a plan B? Or do you still think the thrust action will resume before the October crash?

[Expert]

Sol: Curious about today's market event & the CPI print - do we consider this thing as a blue swan/clown event and work through a plan B? Or do you still think the thrust action will resume before the October crash?

I have the same question.
In the recent market update sent out yesterday, it said that this is the market of extremes, with extreme, sudden movements in both directions. Is today's market drop an example of this?
Are markets still projected to rally before the correction phase that will lead to the cybernetic bull market? Or is this the start if the correction phase?

[Yodean]

In the recent market update sent out yesterday, it said that this is the market of extremes, with extreme, sudden movements in both directions. Is today's market drop an example of this?
Are markets still projected to rally before the correction phase that will lead to the cybernetic bull market? Or is this the start if the correction phase?

In short, yes. At least that's my base case. Overreaction to CPI print, which everyone, including myself, was expecting to be a bit lower, was today's main story.

Most tech stocks are still above their June lows, and we're going to find out soon enough if the equity indices will break the June lows - my base case is that we do not break the June lows in the latter, but we might test them. Followed by volatile, sideways consolidation, with bullish bias. In a sense, forming a basing pattern after double-bottoming.

If Fed hikes less than 75 bps, then markets will rally significantly. If its 75bps (my base case), weak rally/consolidation for a bit. 100 bps and there will be another leg lower.

It's going to be a trader's market for a bit, I would think.

Then of course as always, unexpected Light Swans and Dark Swans flying about.

[Yodean]

Hi folks require a bit of advice please. My software has cleared my default chart settings. Can you suggest some standard settings on the weekly and monthly charts for Macd, RSI and SMA's please? Thanks.

Another indicator which you could use to substitute for all the others - until you determine which ones you like - is the "Supertrend" indicator. It's available on most platforms, I think.

Pretty accurate, in a rough kind of way, but will keep you out of trouble, almost all of the time.

My problem is that I often ignore it, much to my detriment.

[SOL]

Sol: Curious about today's market event & the CPI print - do we consider this thing as a blue swan/clown event and work through a plan B? Or do you still think the thrust action will resume before the October crash?

I have the same question.
In the recent market update sent out yesterday, it said that this is the market of extremes, with extreme, sudden movements in both directions. Is today's market drop an example of this?
Are markets still projected to rally before the correction phase that will lead to the cybernetic bull market? Or is this the start if the correction phase?

We all know by now that power corrupts, and absolute power corrupts absolutely. The CPI is whatever figure these chaps want it to be. So the market of extremes is living up to its name. The higher-than-expected CPI print was their way of building up the anxiety factor. Long-term anxiousness is far worse than fear.

We have a divergence now; the Nasdaq and, to some degree, the Russell 2000 are far stronger than the Dow and SPX. Given the way, the rally was cut suddenly once again. The first hit from Powell at Jackson hole and the second hit yesterday, it looks likely that the markets will remain in a volatile range, possibly until the rate hike in September. However, the divergence indicates that there will/should be another upward phase that will culminate sometime in October. In essence, this sharp pullback has extended the rally period.

However, both Bitcoin (especially BTC) and bonds are issuing signs that a bottom might not be too far in the making. The pattern is a lot stronger for BTC, and if confirmed, it will indicate that BTC has put in a long-term bottom. For bonds, the outcome likely is a strong counter-rally and then one more downward leg.

The big players now have so much money that they seem to take perverse delight in watching small guys squirm.

Bearish sentiment might soar to 60, and bullish readings could drop below 15 by the end of this week, which under normal contrarian conditions almost always results in a strong counter-rally.

So far, the markets continue to follow the path they took from late 1973 to 1974.

[Yodean]

However, both Bitcoin (especially BTC) and bonds are issuing signs that a bottom might not be too far in the making. The pattern is a lot stronger for BTC, and if confirmed, it will indicate that BTC has put in a long-term bottom. For bonds, the outcome likely is a strong counter-rally and then one more downward leg.

There appears to be institutional buying of BTC consistently at around 20k, at least for the time being.

TLT/TMF may have formed strong reversal upside candles yesterday, with potential confirmation in the days to come.

[chippermon]

It looks to me like BTC is leading the equities right now. I'm keeping my eye on it very closely.

[Yodean]

It looks to me like BTC is leading the equities right now. I'm keeping my eye on it very closely.

Hey Chip, I know you're an experienced trader at reading charts in the very short time frames. I generally don't often go below the daily charts.

With that said, it's come to my attention that often the high or low for the day - in the indices and even the stocks themselves - is put in around 10 a.m. (Eastern Standard Time). Ever notice this pattern?

Also, I tend to see the price action between 11:45 a.m. and 1:15 p.m. as often representing what retail investors are thinking/doing, while the big money generally moves in during the last and first 30 minutes of trading (largest volume times).

Thoughts?

[SOL]

Part two of the MU report will be delayed due to the plunge on Wednesday. I want to see what the latest sentiment data yields and what levels the indices end the week. Then we will also examine the Kansas financial stress index and look at several charts. The short-term outlook is always much, much harder to gauge.

[scremonini]

Hello Sol and all fellow members

have we considered that the markets may fail to enter the TRUST phase and instead of a bounce just steadily enter the final part of the correction and take out the previous lows pushing bullish readings to 2008/9 lows creating the FOAB ? Keeping in mind enough people expect the bounce and readings are on neutral ranges on monthly charts, not oversold. Geopolitical situation is bad enough to require more extremes of negativity..

If this comes to pass many subscribers would probably find themselves without ammunition to buy the panic screaming sell off being already overinvested as we hope for a decent relief rally.

Also if either way the most likely outcome is that soon or later the markets will take out summer lows, wouldn't it be the safest option to build cash despite locking in losses should markets trade lower by the end of the year?

following the same approach of not fixating to buy at the minimum, with not trying to sell at the top, but avoiding been caught without gun powder when the right time to punch comes.

[SOL]

Hello Sol and all fellow members

have we considered that the markets may fail to enter the TRUST phase and instead of a bounce just steadily enter the final part of the correction and take out the previous lows pushing bullish readings to 2008/9 lows creating the FOAB ? Keeping in mind enough people expect the bounce and readings are on neutral ranges on monthly charts, not oversold. Geopolitical situation is bad enough to require more extremes of negativity..

If this comes to pass many subscribers would probably find themselves without ammunition to buy the panic screaming sell off being already overinvested as we hope for a decent relief rally.

Also if either way the most likely outcome is that soon or later the markets will take out summer lows, wouldn't it be the safest option to build cash despite locking in losses should markets trade lower by the end of the year?

following the same approach of not fixating to buy at the minimum, with not trying to sell at the top, but avoiding been caught without gunpowder when the right time to punch comes.

This question needs a detailed response, but for now, I will offer a brief response due to time constraints and the fact that i am on the road.

One way to raise cash if one is short on cash would be even if one happens to hold every stock during a crash, would be to sell the stock or stocks and immediately purchase the equivalent in LEAPS. So, for example, if you owned 100 shares of WMT. You would sell WMT and then purchase one In the money LEAP call with at least 12 but preferably over 15 months of time premium on it. Now you have extra firepower for other plays.

The second option is to use the Market Status chart we created to determine how much cash one should raise.

other options are to customise our suggestions. Overall we were expecting two corrections. Hence traders could and can still use rallies to raise some cash, especially in those positions that are or were recently in the BLACK like KMB, WMT, LDOS, CHPT, etc.

Now having said all this, if bearish readings rise within the next 10 days to or above 57 it should trigger a powerful counter-rally. The bullish sentiment should soar above at least 45 before the markets put in a longer-term top.

The resident doc AKA Yodean has been getting into the ITM calls game quite aggressively so he might be able to shed some more light on this strategy for you

[bpcw]

I was 40% cash when the Nasdaq 100 hit 13700 mid August by gradually selling into the rally. I then gradually bought back in and was practically 0% cash until the big drop on Tuesday so lost a bit there. I decided to offload some positions in the black and a few with minor losses and am now around 40% cash.

For me this is plan B, we weren't expecting this so I now have ammunition if stocks go lower and personally I'm expecting them to drift lower for a week or so until at least the fed rate decision. If they go up then my 60% invested will go up too. If momentum suddenly changes to bullish again, say if the fed gives good news such as only 0.5% raise then I can still buy back in more even if missing the initial burst upwards.

Think eveyone has to determine cash/risk levels for themselves but the new TI chart should help.

[Yodean]

Yodean has been getting into the ITM calls game quite aggressively so he might be able to shed some more light on this strategy for you

I think we're double-bottoming here (relative to June lows) - 60%+ that we'll end up with higher lows. Depends on rate hike next week in the short-term, volatility-wise.

ARKK is surprisingly outperforming today - one of my leading "risk on" indicators. Another one is the lumber:gold ratio, and after finally breaking 0.30 to the upside, it's backtesting support just below 0.30 today.

To convert shares to ITM LEAPS, besides duration, you want at least a delta of 0.75. So a delta of 0.75 means each call will roughly capture the upside/downside of 75 shares.

Let's use Google as an example:

-currently, Skynet june24c-strike89 has a delta of 0.7591; so one of these LEAPS would be roughly equivalent to buying 76 shares.

-if you want even more "safety," Skynet jan25c-strike60 has a delta of 0.89613; so buying one of these is roughly equivalent to buying 90 shares.

If you're going to do this, recommend keeping the stocks/ETFs with good dividends (e.g. INTC, IBM, URNM, etc.). Also, if a stock/asset doesn't have good options liquidity/volume, you'll be taking on some extra risk.

[chippermon]

It looks to me like BTC is leading the equities right now. I'm keeping my eye on it very closely.

Hey Chip, I know you're an experienced trader at reading charts in the very short time frames. I generally don't often go below the daily charts.

With that said, it's come to my attention that often the high or low for the day - in the indices and even the stocks themselves - is put in around 10 a.m. (Eastern Standard Time). Ever notice this pattern?

Also, I tend to see the price action between 11:45 a.m. and 1:15 p.m. as often representing what retail investors are thinking/doing, while the big money generally moves in during the last and first 30 minutes of trading (largest volume times).

Thoughts?

Absolutely. This is a definite pattern. Indices and ETFs tend to have heavy volume in the 9:30-10:00 and 15:00-16:00 time frames. Index futures not so much at the end of the day. It has to be dealers and the big boys. I believe there is a lot of covering of positions near the end of the close also (day traders). I realize that ETFs are always trying to balance their positions and this may skew some of the observation.

Stocks like MSFT,KMB,BAC,WFC,AAL,GM tend to have the big volume at the end of the day and stocks like SHOP, NIO, BABA, TTD, AAPL tend to have heavy morning volume. So you have to be careful there, each individual instrument has it's own quirks, to a certain extent. I'm not sure about the retail guy. I think, generally speaking, that you are correct here but I sometimes wonder if the bigger guys are letting the market tell them what is the flavor for the day and accumulating during that time (11:45-13:15) hence the big bail out at the end of the day.

One thing for sure, the heavy volume on the options on the underlying is done first thing. I rarely place an option order before opening and never place one for more than a day order

[Yodean]

Absolutely. This is a definite pattern. Indices and ETFs tend to have heavy volume in the 9:30-10:00 and 15:00-16:00 time frames. Index futures not so much at the end of the day. It has to be dealers and the big boys. I believe there is a lot of covering of positions near the end of the close also (day traders). I realize that ETFs are always trying to balance their positions and this may skew some of the observation.

Stocks like MSFT,KMB,BAC,WFC,AAL,GM tend to have the big volume at the end of the day and stocks like SHOP, NIO, BABA, TTD, AAPL tend to have heavy morning volume. So you have to be careful there, each individual instrument has it's own quirks, to a certain extent. I'm not sure about the retail guy. I think, generally speaking, that you are correct here but I sometimes wonder if the bigger guys are letting the market tell them what is the flavor for the day and accumulating during that time (11:45-13:15) hence the big bail out at the end of the day.

One thing for sure, the heavy volume on the options on the underlying is done first thing. I rarely place an option order before opening and never place one for more than a day order

Thanks, this excerpt is going into my journal.