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Stay Golden

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Stay Golden

“Everything you need to know is right there in front of you.”
— Jesse Livermore

This morning was weird. The market felt heavy and tired. The bulls seemed exhausted and it appeared as though we'd get a late day fade such as the one we had yesterday. Earnings were missing left and right, market leaders were weighing on the market, everything "felt sluggish." I mean, even I called it this morning premarket. "$GS 175-176 support if it closes below that get ready to short it to hell."

Something strange happened this morning though, something different. This was the first time in a while that the market Bulls seemed to sucker the Bears in. As the SPY was fading later morning and our members were saying "Get ready for a fade!" the market internals were telling you something different. Stock heavyweights were not giving up support. AMZN wouldn't relinquish its grip on 547, GS moonshot off the lows, hell, even WMT caught a bid off its 3 year lows. Something was different, and I was letting everyone know "Don't expect the fade at the end of the day." 

With the potential for a lack of tightening and possibility of another round of some form of easing, today's tape basically told the bears "Fuck you." The bulls which have been waiting for months for the floor to fall out underneath them decided to take a stand. They decided, for whatever reason, that today would be the day they put the onus on the bears and dare them to move. If you're a bear, this isn't good news. 

This is the part of the year where things really start to ramp seasonally. I don't know if it's the cold air, the PSL mania, or all the scarecrows but something about the middle of October on usually gets things going. So with that said, we turned from Heel to Face and sometime around 12pm we went very very long. 

GO WITH THE FLOW

I have news for you, the market is in fact rigged. There is no doubt about it, the big boys are in control of it and there is nothing you can do about it. That said, we have advantages that the big boys never have. We have the ability to switch our opinions on a dime and follow the money. Today was a classic example of that. Staying stubborn and not following the trend will blow you out of the water. But days like today are great for us as well because we can participate and stay in the action without risking much capital upfront. We're gonna take a look at some examples of this. 

GS & FINANCIALS

This morning I highlighted GS support at 175 for members. We highlighted bias to the downside after an earnings miss and kept it on our radar. GS however decided to change the rhetoric and flipped a long off that 175. That flip along with commentary about growing organic loans from other banks sparked a fire in the space. You could have bought calls very cheaply today and walked away very very pleased if you were paying attention. This is just one example of how simply only knowing the support of a stock could help you capitalize even if your bias was initially incorrect. 

GS JPM and XLF 

IBB & BIOTECH

In the premarket the IBB looked like it was going to be the leader to the downside. With a subpoena issued to VRX, a heavy market, and with the IBB at support premarket this one appeared as though it was left for dead. Yet again however, buyers stepped in at support. Claiming 298 and riding it higher throughout the day, buyers continued and reclaimed the bear flag breakdown from the other day. 

Bios up up and away.

F.N.G. AMZN

With NFLX missing ER last night you would think that the other betas would have been hit as well. That however wasn't the case as the beta cohorts really ramped, especially AMZN. 

AMZN gapped higher with the market and appeared it was going to repeat what it went through yesterday where it lagged its internet peers. However, this time AMZN held support at 547 and started its catch up trade higher. 

On the heels of poor #'s from NFLX and a bad revision from WMT buyers stepped in ahead of next weeks report and bid the stock to highs not seen since its last ER and its highest closing high ever. 

Buying was relentless and lasted throughout the day. Expect this issue to resolve even higher before the company announces next week. 

AMZN played "catch up" with its cohorts as it lagged the last couple of days. 

SPY & QQQ

This face tearing rally sets us up for an interesting fourth quarter and moving forward. Specifically, the SPX/SPY closed on the highs of the week and appear to have taken out important resistance and setting up for a test of even higher resist. 

The same can be said about about the triple Q's which have been the strength of the three indices. Let's take a look at the next levels we may test. 

SPY & QQQ Verge of breakout and potential levels. 

With the SPY closing above the 202.2 level that was a brick wall of resistance earlier in the week we are primed to test the next levels of support. Barring a cataclysmic fall tomorrow morning look for this market to test the higher highs soon. Remember, we have the flexibility to switch our opinions and positions more often than the big boys. Because of this ability, we can, and should make money going up and going down. 

CURRENT BIAS: LONG WITH POTENTIAL FOR HIGHER HIGHS

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Life "Support" - Part 2 (Bubblicious)

Life "Support" - Part 2 (Bubblicious)

““Men who can both be right and sit tight are uncommon.””
— Jesse Livermore

In the previous post we discussed the first known bubble (Tulipomania). In this post we will assess other more tangible examples that should help you forget the notion of "Now or never" with stocks you want to purchase. 

BUBBLICIOUS

We've all at one point or another tried to blow the biggest bubble we can. We dance that fine line of trying to get it as big as we can without it snapping gum back in our face. The analogy of a bubble is quote symbolic, and in turn, quite perfect. When you're first blowing a bubble it takes quite a bit more effort than it does to actually pop it at the end. That said, there is also an inflection point where it doesn't take much effort to actually make the bubble get bigger. Physics takes over and the volume inside the bubble is optimal for growing it. That is of course until it's not. 

If you recall from the previous installment we talked about the first known bubble, Tulip mania (or Tulipomania). Since it's hard to grasp relative to today's terms let's use stocks and indexes to illustrate what a bubble looks like and what happens when the gum snaps. 

.COM (1995 - 2001) 

Sure many of you have heard of the .com boom/bust but how many of you have actually taken the time to investigate just how big it really was? Fear not, we'll take a look at some of what went down during that era. 

The point to take away from the above is not that there is any prediction about a foredooming situation in the markets. The point is that when markets start to break the accelerant behavior of the market selloff is vastly greater than the rising behavior in an uptrend.

Let's take a look at some individual names from the .com bubble. Most of these companies still exist today. 

Some of these companies eventually recovered (AMZN AAPL) but most do not and never do. 

HOUSING SUB PRIME

Soon after the dot com bubble dust settled we were in the middle of yet another cataclysmic bubble, the housing bubble. In many cases this was significantly worse than the dot com bubble because it impacted many sectors across the board and scarred many investors for years to come. Some of the stocks that were resilient through the .com collapse (namely banks) were absolutely obliterated after the housing crisis. Unlike tech stocks that were a “new paradigm” the housing market was built on the notion that “everyone needed a home” and that homes and investment property in general functioned as a “store of value” which was infinitely “safer” than the bogus paper of the .com stocks. Just like tech stocks however, these stocks and this sector was overplayed by the greed of the investors and facilitated catastrophe in the end.

Take a look at just how big some of these decays where. 

As you can see, most of these names still have not recovered from that beatdown they suffered

POP

So what did we learn? We learned that typically when markets take off things get vertical pretty quickly and they last for multiple years. We also learned that when they break, they fucking break. The breach of trend is typically at least a 50% correction and that correction is much more violent than the uptrend. If the market leader turns out to be the cause of the bubble, that break is typically significantly more than the 50% correction and usually 80% or more is lost. 

That said, we need to remember our rules. We need to stay disciplined when things break trend and learn to get out when our stops are blown. Even though we don't need anymore reminders, let's conclude by going over the basic flow of a bubble. 

I’d like to end this by simply reminding you that this is not a forecast of doom and gloom to come. This is just an explanation to you that history has a funny way of repeating itself over and over again. Whether it’s tulips, railroads, tech stocks, housing or maybe the future cure for AIDS, investors have always and will always overplay their hands causing the majority to be left with the pain in the process.

With that said, the investment vehicles that are left standing at the end of the day have always, and without exception, fucking lasted through capitulation.

Let the games begin.

 

 

Life "Support" - Part 1

Life "Support" - Part 1

“Markets can remain irrational longer than you can remain solvent.”
— John Maynard Keynes

I'd like for you to read the quote at the top of the page and let it soak in. Take a few moments and read it over and over and out loud if you have to so that you can become a believer in that statement. There is no greater cause for money lost than conviction in the wrong direction. This post goes hand in hand with the first post of this thread "Stick to the Plan." 

The purpose of this post is to reassure you that neither I, nor you, nor your mom, nor your best friend, nor Goldman Sachs, nor the Market Maker, nor Warren Fucking Buffett know where the market will ultimately go. We have our charts, our technical analysis, our valuations, and we play the odds but ultimately that is all we are doing -- playing odds in our favor. 

The stock market's prices are strictly an indication of future value based on speculation. As such, the "game" of speculation is determined based on future favor. Simply put, an equity's price is basically what people are willing to pay for it now  based on where think the company's value will go later. That said, how is a stock's price often determined? Let's address this below. 

People often mistake a company's market cap as the value of the company. That is not only wrong, but it will certainly mislead you into believing a company is good/bad depending on its size. A company's market cap is simply the total dollar value of a company's outstanding number of shares. In layman terms, market cap is the total number of shares a company has x the stock price. 

  • Market Cap Example: Company A has 500 shares available for sale at $2.00/share. Company A's Market Cap is $1000.00.

So what's the point? Why does any of this even f'ng matter? 

The point of this is to remind you that when you're wrong (you being everyone, myself included) you need to admit defeat quickly and get out of your false assessment. Markets move irrationally, and when that irrational behavior takes over against you, it will cost you more than you'd typically imagine. I will highlight this irrational behavior below with several examples, some present and some from previous days. To start, I will highlight the craziest one of them all -- the Tulips. 

TULIP0MANIA

For those of you who don't know, Tulip Mania or Tulipomania was a period during the Dutch Golden Age where in 1593 tulips (yes the flower) was brought over to Holland from Turkey. They started off as a novelty and the flower quickly became sought after and ultimately pricey. Fast forward a bit and the flowers contracted a virus called mosaic that didn't kill the flower, but instead changed them causing "flames" of color to appear on the flower petals. This made the flowers more "rare" and "unique" flowers. This ultimately drove the price of the flowers through the roof. The flowers were subsequently priced based on how their virus alterations were valued, or desired. Seriously, people were putting different prices on the same flower because they thought one was more valuable than the other. Soon after, everyone began "dealing in bulbs" and boom a speculative tulip market was created and believed to have no limits. 

Bulb buyers (the garden centers of the past) soon started to fill up inventories for the growing season. This only limited the supply further and increased the demand and "scarcity" of the tulip.

That's when supply and demand took over and irrational exuberance set in.  

Prices started rising so fast and high that people were selling and trading their land, life savings, and their loved ones (joking here... I think) so they can get their hands on more tulips. 

Now if you think I sound like I'm crazy you're right. I sound like I'm fucking nuts. But sadly I'm not, and I'm not making it up either. That really happened. So how high do you think the cost of a tulip bulb went in the 1600's? 

  • $20?

  • $30?

  • $50?

I wish it stopped there. 

Prices moved nearly 20-fold in a month in an already insanely overpriced market. At it's manic peak, an average bulb could be sold for 160-200 Guilders.  

 

Put into perspective at today's prices, tulip bulbs (even the bad ones) sold between $48,000 and $64,000.

Tulip prices From November 12 1636-May 1 1637.

The point I'd like for you to take away from this is that markets set themselves. Let your positions run as long as you can afford to, respect your stops, and never think you won't have another opportunity like this again. It takes two sides to make a market and in doing so the market is always binary and always wins. Secondarily, whether it’s tulip bulbs, houses, .com stocks, crypto assets, or any other future novelty that will come; this shit is nothing new. It is all the same. The intrinsic value of whatever asset you hold is determined based on the scarcity of the supply and the perceived value at any given time. With any asset or store of monetary value there is always an inflection point where the risk paradigm skews in favor of releasing the “asset” and returning to “cash.” Cash here is in quotation marks to account for the different permutations of “cash” that have existed and will exist throughout time.

In the next post we'll cover the previous story using other, more practical, examples.