Did you buy and not sell on Friday? You’re doing it wrong – Again

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You bought Friday instead of selling. you’re wrong – Again.

Everyone was happy that there was a lower inflation number. The market was justified in going higher. Instead, it went much higher out of proportion to the news. We are talking about 1 data point. The next measure may have no evidence of a slowdown in prices. In fact, towards the end of this analysis, I’ve included a list of economic data for the week and it shows that we have the Producer Price Index on Tuesday 15. It’s a coin toss if the PPI will reflect lower prices. Although the consumer price index is the most important, the index has grown disproportionately to the news. Clearly, market participants had the wrong positioning, probably short because everyone was expecting more inflation, not less. So much of the lunar hit was the short cover, then momentum traders came in. Eventually, low-information traders and investors bought stocks in the market surge at the end of the day. This will not end well, as I explain below.

Here is how far the sale can go. This is the 6-month chart of the S&P 500 ETF (SPY).

SPY chart


Following the principle that patterns repeat, the first leg down should be around 125-150, or if there is a real selling pressure of around 200 points. I am not asking for the rally to fail. I am simply pointing out that we are going to have a bumpy ride to the upside. All these arrows point to the slides down but if you were to map the ramps the current one is the steepest and highest in some time. In fact, it crossed the nearest aerial resistance line (black dotted line). If there is any great news to push the rally higher, there is a gap to be bridged, I don’t think it will be bridged this time around. I just think the upside momentum has gone too far and we could see 130 to 150 downside. Which butterfly wing flap can cause sell-off? How about uncertainty in the elections? We do not have the results yet, and it is perceived that it is good for the economy if the chambers are divided. Also, there is a lot of talk that inflation hasn’t been won. The market is so overbought that it could lose its weight at this point. I believe the Nasdaq rose over 8% in just 3 days. For the week, the S&P 500 was up 6%, with just the last two days from November 10 to November 11 the SPY was up 4%, for its best week since June. Can I remind you what happened in June? Market participants misinterpreted the Fed’s statement as these investors cheered a Fed about to pivot, then Jackson Hole came along. We now had a lighter-than-expected inflation reading, betting that the Federal Reserve would soon slow its aggressive tightening campaign. I think the same thing could happen and Powell will find another chance to hit the market again. The result would be the same, totally giving up the recent gains. While we really had a welcome lower inflation number this time around, so maybe we’re not giving up on everything. Even so, we have a lot of ground to give up and we still have a higher low.

The Nasdaq opened on November 10 at 10869 and hit a high of 11,352, or 500 Nasdaq points (about 5%) in 24 hours. If I wanted to compare it with DJIA (the most cited and least significant index) it would be 1500 points.

The VIX, known as the Wall Street fear indicator, fell 1 point to 22.5, hitting its lowest level since August. The VIX, which replicates the 30-day implied volatility of the S&P 500, traded above the 30-point threshold for most of October. Comparing where the VIX used to be and where it is now shows just how deep the complacency of the general market is. That low VIX and all the other data I’ve gathered here further strengthen my thesis for a heavy market earlier in the week. Let me leave you with one final thought, Friday was Veterans Day and the Treasury Bonds weren’t trading, so the DXY and VIX dropped dramatically as Treasury Bonds were stuck at 3.81% for 10-Y , I expect all treasuries to make it back higher thus forcing all other indicators to weigh on the market.

What has the Dual Mind Research Community done?

We anticipated the sell-off in the news earlier in the week and simply hedged our portfolios using directly purchased 3-fold bearish reverse ETFs or put options on the 3-fold bullish ETF. We covered the equity of the ETF 15 minutes before the IPC disclosure. So we waited patiently for the surge that would be so high again as to be unsustainable and shorted again. We were expecting bad news on CPI and if it fell to the downside, we would be picking up shares of large stocks at a much lower price. Instead, we cut the stocks while the indices rose instead. So, as the market goes down sharply earlier this week, what are we going to do?

My plan for this week is to buy back the shares I sold at higher prices, hopefully a lot less.

I will buy back the expensive shares that I have sold, thereby lowering the average of the overall share price. First I’ll buy back the stock of my tech titans Amazon (AMZN) and Alphabet (GOOGL) and, if it falls enough, Microsoft (MSFT), ServiceNow (NOW), Adobe (ADBE) and Intuit (INTU). So I’ll try to add more to Boeing (BA), Spirit AeroSystems (SPR) and Raytheon Technologies (RTX) and open a new position in Hexcel (HXL) if that proves difficult. As for the bio, I want more Jazz Pharma (JAZZ), If Lilly (LLY) falls by 30 points I would add it. If Seattle Genetics (SGEN) or Incyte (INCY) showed a good price, I’d prefer them too. All of these are current positions in addition to HXL. If Deere (DE) falls in the mid-30s. I would like to start a position there. I’m looking at CNH Industrial (CNHI) and AGCO Corporation (AGCO), its competitors and if they fall hard I might add them instead. I want to create industrial names where I see growth potential. Agriculture will be strong for several years even when the war in Ukraine ends. That’s why I focus on BA and its suppliers. I think they have a clear track (pun intended) for growth. Finally, if I have any funds left, I would add them to Confluent (CFLT) and HashiCorp (HCP), but I want 5% cash left, so it’s a tall order.

I still believe that the banking sector will provide sustainable earnings in the near future

Since I have compared the regional banking sector as the next “oil” sector, I have not yet addressed it. I still believe regional banks will become a hot sector, they already are. As my mother used to say, “You can’t dance at every wedding.” At some point, I will build a position in a few names, albeit probably in my investment account where I appreciate dividends, relative to growth. I think banks really take off when subsequent rate hikes really go down.

Earnings this week are pretty meager

The only earnings that interest me are Home Depot (HD) on November 15, Lowe’s Companies, Inc. (LOW), NVIDIA (NVDA) on November 16, and Palo Alto Networks (PANW) on November 17. It would be interesting to see how HD and LOW do. Also NVDA and PANW. If PANW falls hard and its earnings / revenues meet expectations. Even if they bag driving forward, there may be some alpha in that name. I don’t care where the economy is going, cybersecurity won’t be cut. PANW is a complete solution that could be much more cost effective. As I said before, I prefer cybersecurity stocks to be the best specialists of the breed, but in this environment I can see PANW outperform. As for HD and LOW, I think it’s interesting not because I would like to get involved, but because it says something about home improvement and construction demand. We also have Walmart (WMT), BJ’s Wholesale (BJ), Target (TGT), TJX Companies (TJX) and Ross Stores (ROST), but only to probe consumer spending desire.

Notable shares that go ex dividend: CTRA Date: 11-15 Div 9% / MPLX 11-14 Div 9.1% / CG 11-17 Div 5% / WBA 11-15 Div 5.38%

Economic news chart of the week

economic data chart

Good luck this week!

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