Monthly rollup | June 2023
Stocks Mentioned: Apple (AAPL), Paxgold (PAXG), Solana (SOL), Uniswap (UNI), Quant (QNT), NVIDIA Corp (NVDA), Tesla (TSLA), MGM Resorts International (MGM), Wynn Resorts (WYNN), Las Vegas Sands Corp. (LVS), Credit Acceptance Corp. (CACC), GSCI Commodity Index ETF (GSG)
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June 02 2023
June 03 2023
One criticism that has been levelled at me off and on is that I don't pay attention to Technical Analysis. I started out in the Ben Graham school of value investing so that was very true in 2016-17, even 2018 to an extent. I read Edwards & Magee in 2018 and since then, I've come a long way in schooling myself on the art of TA. Drawing lines on a chart is one thing - using those squiggles to guide decision-making is quite another.
I have a bearish bias based on the macro environment and the fundamentals. So far, I've been early/wrong. The TA says that might be about to change.
Due to its sheer size, as Apple (AAPL, MCap $2.85 trillion) goes, so goes the market.
That's a massive rising wedge (classic bearish setup signaling an imminent reversal), a close above the upper Bollinger Band, an RSI that is near historic peaks, and a doji on Friday's close, give or take a few cents.
The Nasdaq 100 (QQQ) is also at the upper Bollinger Band, with RSI through the roof, and a massive rising wedge that looks set to come into play.
However, the Nasdaq weekly chart is bullish. Although the hammer candle above the upper BB indicates a local top might be in place short-term.
Whether you use a daily or weekly timeframe, it's hard to make the case for buying tech (~54% of QQQ is just the top 7 tech stocks) here. The primary trend is still bullish on the weekly chart, but this is the aspect of TA that the bulls ignore. Charts don't predict the future, they merely help with probabilities. And the probability of the primary trend staying bullish on the weekly is extremely slim. It took outsized moves in megacaps to get to these levels. The broad based rally in January couldn't do it. If the megacaps roll over, the collapse will be swift. Sector rotation, like we saw on Friday, won't save the market.
The lack of fear is unprecedented, and it's all driven by the AI bubble and investors considering tech a safe haven during a recession. Let me rephrase that. Investors are steering clear. It is the quant, momentum and technically driven funds that are chasing the market higher here.
The momentum driven rally has reached such heights as they all scrambled over one another to buy the top, paying little attention to the exit door getting smaller and smaller. Daily traded value is approx. 2% of market cap for AAPL and NVDA. What do you think happens when a small portion of long-term holders begin to take profits? There's absolutely no one left to buy! Like portfolio insurance causing the 1987 crash, the quants are going to cause the 2023 crash. AI is not new. Tech changing the world is not new - we've seen this hype since the Radio Corporation of America bubble in 1929.
Prominent FinTwit accounts are saying the bears don't get it, that this is a new paradigm, that AI will change the world, that valuations don't matter during market cycles, etc. They are all dead wrong.
This is a bubble fueled by the Fed's $350+ billion in money printing in March. And it's way past its Sell By date. I'm short to the hilt and I'm not covering here. As Stanley Druckenmiller says, there are times to be a pig and this is one of them.
Call me irresponsiblyshort but I've done the work and I believe in my trade.
Oh, and keep in mind that the Treasury needs to raise $1.4 trillion by issuing debt, both to replace their Treasury General Account reserves at the Fed and to fund the insolvent US govt so it can keep spending more than it collects from taxes. The Fed isn't going to buy the debt. Neither is China or Saudi or Japan. That's going to drain liquidity straight from the US financial system. But of course, facts like this don't matter to the quant and momentum algos until it shows up in the price. And then, BAM! We get a crash. Not a matter of if, but a matter of when. A week? Two weeks, tops? Certainly sometime in June.
June 06 2023
Rejection candle on AAPL. More power to the bear thesis. One day does not make a trend. I'm cautiously optimistic that the top is in for tech, but this is still a dangerous time to be positioned long or short since this bubble has been wildly unpredictable.
June 09 2023
Paxgold (PAXG) is a crypto token where each unit represents 1 ounce of allocated gold stored in LBMA vaults in London. The company is as trustworthy as it gets in the crypto space. While gold is trading at $1965/oz, PAXG is at $1927, a roughly 2% discount. I am long term bullish on gold, which makes the current price a bargain. Holding it in this form is superior to owning the GLD ETF in your brokerage account.
Nasdaq posting a reversal candle after topping out at 14,687.5. A lower close today would be a positive for the bear thesis.
June 10 2023
Solana (SOL) is correcting in response to the SEC FUD over it being security. You can stake SOL for a 7% yield while you wait for the next bull run. The current price ($17.9) offers a good entry for a long-term position. I'm long and looking to add to my holdings.
Solana, Polygon and Cardano in free fall due to forced selling. Buy order in for Polygon at just below 70 cents. Already completed my long term position in Solana.
I've been pretty much sitting in cash since February on my crypto account, waiting for an opportunity like this to get long on a buy it and forget it basis.
I find that I'm actually much more comfortable buying panics than the chartists who need to wait for confirmation. That was true for bitcoin in the June panic bottom, and true for altcoins today in the SEC panic bottom.
We're in bear territory so there will be a lot of false breakouts and failed buy signals. Waiting for the charts to align perfectly will just result in endless chop. Instead, buy panic and sit on your hands while the situation clears. You are likely to lose money with this approach, but that's true for TA based trading as well. Take comfort in the fact that liquidations cannot last, rather than seeking comfort in horizontal breakouts.
Flash sale going on in crypto. Uniswap (UNI) looking attractive here at $3.93.
The trading long in Quant (QNT) got stopped out today. It briefly dipped to $95.71 before rebounding to $100+. This is the time to get back into crypto investing. The volatility makes it hard to trade, but the bargains are great if you zoom past the Robinhood/SEC fears. Crypto isn't going anywhere, although Gary Gensler might just get his walking papers once his personal vendetta against the crypto community backfires.
June 11 2023
A blast from the past. Don't be like Robert - oil falling is a massive warning sign.
"The stock market is a game of confidence, and it feels like confidence has been restored to some degree," said Robert Philips, president and chief investment officer of Walnut Asset Management. "Oil falling is obviously very helpful for that."
Next week holds the CPI on Tuesday and the FOMC announcement on Wednesday. Hold on to your hats, it's going to get wild.
My guess is CPI surprises to the upside and increases month on month, putting pressure on the Fed to hike instead of pausing. Given the rally in stocks last month and the wealth effect, that seems logical. But nothing about the economic data (339k payroll increase in May vs 190k expected) makes sense these days. So maybe CPI comes in much cooler and the Fed pauses.
I'm not trading this. I continue to remain short Nasdaq, semis and NVDA. Let the smoke clear - we're going to see the indices re-test last October's low before this bear market is over.
June 13 2023
If something can't last, it won't. This is going to end very, very badly for the momentum chasers.
US CPI increased 4% year on year, with food inflation at 6.7% and energy inflation down 11.7%. Core inflation excluding food and energy is at 5.3%. Inflation increased 0.1% month on month.
Investors are cheering these numbers, but the Fed is in a fix. CPI was at 8.6% in May 2022. That's 12.9% in 2 years or 6.3% annualized. That's a far cry from the 2% target and inflation has been stubbornly above 2% since March 2021.
A Fed pause now, with promise of more hikes later, would be seen as capitulation. If the Fed pauses, the market will start pricing in cuts.
What's the problem with that? The problem with that is energy prices. So far, oil has been trading as though the US is about to enter a recession. But if the Fed signals it's done with hikes, will oil stay below $70? That's the crux of it. If the Fed brings inflation and oil prices down, while avoiding a recession, it would be unprecedented in modern history. Can happen, but I just don't see it.
Whatever they announce tomorrow, there's no bull case for stocks unless they resume QE and risk inflation accelerating. Although the CPI numbers were below consensus estimates (remember, I called for Peak Inflation having passed last August) I don't see today's print as a reason to flip my stance on equities.
Band squeeze setting up on natural gas. Waiting for the breakout.
30Y bonds screaming bloody murder ahead of an expected Fed pause tomorrow. Something doesn't add up here.
June 14 2023
The Fed left rates unchanged but left the door open for BOTH further hikes and rate cuts. Market is in buy the rumor, sell the news mode. No telling what happens next. All eyes on the press conference.
Now that they have paused, the market will be expecting further pauses followed by rate cuts. Absent an imminent recession, the inflation trade should come roaring back. But absolutely no telling what happens next, so I wouldn't rush to put on positions while the algos are running around hunting stops.
June 15 2023
Hourly bitcoin futures chart. Someone put in a massive sell order on Kraken (not on other exchanges) that temporarily crashed the bitcoin price to a low of $23,282.
Nothing else got dinged this badly. Not ETH, not Solana. Just bitcoin. The March up move was on low volume, so I can't say I'm surprised that it's reversing hard. I'm only surprised over how long the market stayed resilient in light of deteriorating macroeconomic conditions. Interestingly, the post FOMC rally in AI meme stocks did not translate over into crypto markets. If you listen to influencers like Raoul Pal, they would tell you that the Fed Pause is mega bullish for crypto, just like in 2019. But we got a rally along with rate hikes, and a correction going into the pause. And crypto decoupled from the broader tech bubble.
I have given up on trying to predict the timing of the next big crash (although I've staked my portfolio on it) but it very much feels like the quants have failed to convince real humans that it's safe to buy the peak. I'm on FinTwit a lot and there's nobody crowing about how they made money in AI (not even the ARK or Raoul Pal crowd) which is in stark contrast to last year when my feed was bombarded with oil bulls talking about a new paradigm. This is a pure quant and CTA driven bubble and when it crashes, we're going to see new lows in the Nasdaq and the end of the dominance of 7 tech stocks in what are supposed to be broad indices.
As much as I've written about bear market rallies, I did not imagine it would get this far or last this long. The dominance of trend following strategies has fueled this - which means trend following is going to mean revert as well. In markets, no edge lasts forever.
Tuesday (June 13) was the 13th consecutive trading session that Tesla (TSLA) shares finished higher, marking the longest surge by trading days in Tesla history. The stock previously traded higher over 11 straight sessions in 2021.
This is not normal
June 16 2023
I wouldn't short bitcoin here, but would look for a bounce off temporary oversold conditions to initiate a short position. RSI looks terrible, OBV is declining (note that OBV did not confirm the move leading up to the $31k top), multiple candles penetrating the lower Bollinger Band. A bounce shouldn't last, especially given the macro. Use dips to build long-term positions, bounces to initiate short trades.
Now's a good time to short bitcoin. Stop at 1.5 9-day ATR, or roughly $1.2k above entry.
June 17 2023
June 18 2023
The bigger picture. Recession or not, gasoline inventory is way below average going into summer driving season.
June 22 2023
The down move in the Nasdaq has been relatively mild so far. The bulls have pivoted to saying that the market was overbought and is merely working off overbought conditions, as expected.
Their underlying message is buy the dip, that valuations don't matter if you chant AI 1008 times when you wake up. The permabulls like Raoul Pal expect the Fed to cut rates and start printing money soon, which makes every other factor irrelevant. Meanwhile, the Fed heads are on the speaking circuit and the most dovish of them is saying rates need to be held steady at these levels until year end. There's a big disconnect between the expectations of the bulls and the Fed policy makers.
If you believe Powell, there are more interest rate hikes coming. The Fed hasn't paused so much as skipped. Meanwhile, crypto has shrugged off all the SEC drama and is rocketing higher. All this in the backdrop of Fed Quantitative Tightening, a EU recession, heavy UK inflation, and global central banks realizing too late that they have let inflation get out of control (refer to posts above where I show that CPI needs to go negative to offset earlier readings).
What happens next?
You can't prick a bubble and have it inflate back up under tighter liquidity and higher interest rates. The QE-driven inflow of liquidity into US assets has permanently reversed. That's the end of a 14-year old trend. The USD as a store of value is done. US assets as a safe haven are done.
Let's zoom out and look longer term. The CPI rose in 2021 and 2022 in spite of dollar strength. What happens to inflation when the dollar goes the other way - hard and fast?
This is the time to be short equities and long hard assets, in anticipation of another inflationary cycle. The Fed printed so much money in 2020 that to go back to doing more QE now would hasten the demise of the dollar. Especially when other central bankers seem to have found religion and want to avoid being responsible for hyperinflation.
My expectation is a mean reversion, i.e. continued QT and probably a rise in magnitude of QT. They need to do this until they cause a deflationary bust that kills inflation and takes CPI growth into negative territory.
That little blip higher in liquidity in March was enough to trigger the AI bubble. Imagine the consequences if they actually embark on QE. Central banks printing money and keeping rates zero or negative has become "normal". That's the world we've lived in since 2008. That world ended with the Fed's rate hike campaign in 2022. It's not coming back until the CPI goes negative and we see true deflation. Expect "tighter for longer" to put pressure on equities and make valuations matter again. Expect the end of USD strength caused by loss of confidence in the Fed to make inflation great again.
Long energy, short tech.
A question I get asked is: Why not simply trade the momentum? Sure, you've spent 7 years in finance learning the ropes, from Austrian business cycle theory to security analysis to statistical and technical analysis, to inter-market analysis, and used all that to build your framework. But if you just chased momentum on an intra-day or even day-to-day basis, you made money in this market. So why bother doing the work when you can get rich quick trading the momentum?
This is a valid question, and a friend asked me the same question a little over two years ago. Back then, he was asking me why I wasn't buying the shitcoin bubble or day trading it. Now, I'm asked this question with regard to the AI meme stocks.
It's a point of pride that I'm asked this question actually. If I billed myself as a value investor focused on Japanese blue chips, I'd never get asked this question. I follow multiple markets and am aware of more bubbles as they happen. If one of the thirty markets I follow ends up in a bubble, I'm aware of it. The question is: can I see it coming and position for it beforehand? The momentum chasers run screens and identify bubbles as they are forming. They trade the momentum in a single stock or sector, then leave it be and jump to the next momentum signal. In dull markets, they sit on their hands. That's a completely different trading style.
I spend time understanding the macro and the fundamentals. I don't build breakout scanners. I end up spotting a lot of bubbles, but my style is not suited to chasing bubbles. I've caught some bubbles, but only because a fundamental-driven position ended up going into a blow-off top.
This style may not be popular right now when everyone is fixated on chasing bubbles, but markets change, bubbles burst, and fundamentals always matter. When it does, my work will pay off.
22 years later, Cisco shareholders still haven't been made whole. A similar fate awaits the bubble chasers who stay long.
Gold is getting really oversold here. The momentum chasers are all out by this point, making it perfect for accumulation.
June 23 2023
Close the short positions in casino stocks MGM and WYNN (LVS already got stopped out in April).
It's not that I don't believe in the trade. I'm just doing a little housekeeping by clearing out open recommendations since I'm not actively trading for a while. This leaves short CACC and Nasdaq, long Century Plyboards India and GSCI Commodity Index ETF (GSG) as the only remaining open trade recommendations.