Is there value in this Substack?
Weekly Plan 11.26.23
Hope you all had some time off for some much needed tender R&R.
Let us cut to the chase and jump into the levels for this next week.
Levels for this week
Unless you have been living under a rock, you know S&P500 has been in a massive uptrend.
I was bullish on S&P500 at 4130 and expected 4450 to trade on swing time frame basis.
This call came to fruition about a couple weeks ago.
Recently I have had a bearish bias on the S&P500 near 4500 and 4550. This call has taken heat with the S&P500 market trading up about 70 handles above the levels where I thought longer term sellers could emerge. At time of this post we are trading at 4570 with no sellers in sight, longer term or otherwise. I have clearly been off on this thus far. I am not seeing any offers below 4500, let alone 4450 and that is a problem.
I still think the technicals near 4600 look pretty good for the bears. However, on the sentiment side, things appear a little bleak with negative sentiment quite strong, but of late starting to flip dimly to the bullish side.
This week as well, I do not see much change in my stance from last week's thinking, which is to say I had expected some sort of failure here near 4590 to drop back into 4550 area with expectations of greater volatility if we start seeing a couple of closes below 4550. We did see that drop but we had very little follow through below that 4550.
In terms of risk event, there is not much going on next week except that core PCE on Thursday.
Scenario 1: I expect rallies into 4600 to be sold down into 4526 area.
Scenario 2: For further trend development, I like to see some offers below 4526 or above 4600. I personally do favor some of the recent gaps near 4450 to fill which could act as support for a push back into this 4550-4600 area, if 4526 were to give up.
My main longer term premise remains that this 4500-4600 zone is quite a bit important. This is similar in importance to that 4130 area.
Regular readers will recall I said a few months ago that if the bears lose this 4100-4200 area, then if and when it is revisited, it could act as strong support.
This was said more than 6 months ago.
This level was recently tested and results are for all to see!
This is why I always say, you have to be willing to be a longer term reader. A couple of months here and there, jumping from furu to furu does not really work out that well. Neither for the furu, nor for the reader.
All furus (internet experts) more or less are saying the same thing. They all look at same trendiness. They all follow the same zeitgeist. They all sometimes are in agreement and when that happens, it is a recipe for disaster.
You have to be in awareness of continuous auction. When we shut down our terminals and close the charts for the day, the market does not stop. It is at play 24X7, non stop.
Some one who is very new to this may think that my scenarios are a bit generic. They think I need to be more specific.
However, if you think about it, they are not generic. Only other way I can reframe my scenarios will be to say “Hey, look I am bearish here at 4600 and I will remain bearish when it trades 4700, 4800, or 5000!”
Or “I am bearish at 4600 and I am so sure of this that I think this is going to be a 100% correct call. I have sold my dog and bought puts with proceeds”.
I am sure that will be a completely ridiculous statement. Yet, a lot of folks think that way. They think I should frame my scenarios that way which makes 0 sense to me.
What these folks are really craving is certainty. To feel some structure in an infinitely structureless environment.
As a trader you really can not think in those terms. There has to be a mental flexibility. When I crave certainty, I go eat my favorite comfort food on a rainy night, I do not trade futures on a 2% margin loan.
When we want 100% certainty, that means we are scared and insecure. If we are insecure and scared, then it will be near impossible to consistently be profitable on daily basis. That is because then we will trade from a mindset of “I am 100% sure this is going to work out in my favor”.
To make a statement like that you are implying you are 100% sure who the next trader anywhere in the world is going to be, to lift every single offer and hit every single bid at every single tick. Then you make being right a matter of ego. Once you do that, you can not accept being wrong and will not be able to remain an objective observer any longer as ego has entered the chat.
Now how ridiculous does that sound? And you want to think that way just based on a 1 minute chart head and shoulders? Come on now!
I personally like to trade intraday from a perspective of “I really do not know anything”.
I am serious.
Personally I think once you really accept you don’t know anything and that any thing can happen at any time, then you are free to trade up and down freely without any fear. You cut down on loss when wrong without any mental drama, you take profit on trades that go your way without feeling like a genius, and you just lay in wait for the next trade rather than nurse the one that has gone against you 580 ticks because you thought it was going down 100% based on that 1 minute heads and shoulder pattern shared in furu discord.
Once you are able to accept you don’t know anything, you gain superpowers of complete mental flexibility and are now open to receive the price action based signals rather than forcing your own will on an infinite system of limitless bids and offers.
What ultimately happens is that if there are lot of folks bearish here, 2 outcomes are likely -
They will prevail and 4600 will act as resistance for a push back into 4200s.
They will be overpowered by the bulls. If this happens, and we come back into this area for a pullback a few weeks or a few months from now, this area can act as a potentially good support.
This is really how the flow state works. There are absolutely no guarantees of any type. Sometimes levels work, sometimes they fold. What matters much more is the execution which in general boils down to the speed of cutting loss and hopping on the next momentum train.
Now let us go back to the existential crisis question of whether there is any value to this Substack thing. If you think there is, you are smart enough to take advantage of the insane Cyber Monday sale below. If you don’t think so, I wish you the very best of luck in your quest to find that 100% accurate discord server. I know I tried for years before giving up :)
But seriously, why start a post with such a title?
It is because a lot of folks assume that if something costs less, then it must be of lesser value. They confuse price with value. They assume services with hundreds of dollars a month are better.
Nothing could be more untrue. The reason some of these services costs several hundreds of dollars a month are simply a) they do not have enough folks paying for the service so they need to jack up the prices to pay for the electricity bill b) these publishers know that average retail will not last longer than 2-3 months so they want to fleece the retail before the retail is inevitably bagged. Both are insidious reasons.
Some times it is easy to get lost in nitty gritty of every day auction and forget if what we do adds any value or not. I think it is crucial to step back and reflect on how some of the observations and calls shared by me in last 3-6 weeks fared?
Yes there will be doozies. Not everything will go per the plan. But are there good ideas that outweigh the duds?
Let us take an objective look at below names shared by me at critical support levels in last month and a half alone. Since this section of the newsletter is open to all, I am not sharing the exact support levels, but generally speaking most of these names are up 10 to 20% (or even more) from my shared technical levels.
NVDA 0.00%↑ (400 to 500)
COIN (70 to 115)
DIS (80 to 95)
Countless Support and Resistance levels in SPY and ES, almost on a daily basis. Check the chat below.
Frankly I can go on with some other names but this is a good sample. Now there were duds too in all transparency. Like my bearish view on AFRM and CVNA which did not pan out as envisioned.
My point is not to flex in any way but to simply share if I personally think value in this publication.
Now can we continue to share such ideas in future?
I have no idea. Ideally, smaller the audience, the better the prognosis of any idea. You do not want to see a lot of folks get too bullish or too bearish on any one name for when the boat gets heavy, it sinks.
That part is easy to control. I can always increase the rent and fewer readers will be able to receive the updates, which will solve the issue of too broad an audience.
However there are factors beyond out control. For instance, the nature of the market itself.
Then there is also the question of the nature of markets in future. Can the markets forever continue to move? I do not know. There have been periods in past when the markets did not go anywhere for years and years.
There have been periods in early 20th century when the markets were actually shut down totally for 2 + years due to wars. So anything can really happen.
The current spunkiness in the markets in the US is solely due to the reserve status of its currency. This is what defines the US and its markets. Will that change one day? I am sure it will but no one knows when and where and how. At the time of this post, if you look up last 100+ years of history, S&P500 delivers on average 8% a year. Can that continue for next 100 years? No idea.
Now for active traders in us, this will be a huge impact if the markets were to shut down for war or hyperinflation. I will say it will be a huge setback, a negative impact.
But for any longer term investors, does it really matter?
What I am saying is that for long term investor, I do not think it even matters whether the market is open or closed.
If you shut down the market for 2 years, and I own the business of making Lululemon pants, I do not think it matters one bit. If this is a well run business, run by strong management team, folks who love what they do, which is to say they make quality yoga pants, which is a profitable operation and continues to grow its market share and profits, I do not really think it will matter if the NYSE shuts down for 2 years and shares of $LULU can not be traded, sold or bought for two years.
As an investor, not as a trader, I want to find businesses which are in business of making profits and can continue to grow these profits year over year, decade over decade. Is AAPL one of those companies? If MSFT one of those companies?
I think they are.
The only question then is for me personally, I have found such great companies which are making profits hands over fist, what is an attractive level to get in, if this is my first stock in that company? Is 190 an attractive price to pay for AAPL for me?
It may be. Dependent on a few factors.
If I use technical analysis alone, then technical analysis is slave to the time frame in which it is applied.
For instance, if I look at AAPL from an year over year perspective, it may look very expensive. In fact when AAPL is making a new all time high, in terms of price alone it is very expensive. This is undeniable. If you do not believe it, pull any time frame chart.
However in my opinion the charts can not predict is AAPL is expensive in relation to next 10 years for instance. Why? Because the charts look at the history. They can not look at the future. No one can.
Since the charts can not answer the question if AAPL is expensive in next 10 years, that leaves me with limited options-
If I really like AAPL, and I do not or can not want to wait, then I can buy some here now and I can add on dips, leading to a strategy called DCA.
If I like AAPL but I am hesitant to buy it here, then I can use n number of analysis, like look at the PE ratios, PS rations, do technical analysis and conclude that I will buy AAPL if it were to drop to 130 again.
I personally will be ok with either of these 2.
The problem arises when I am not clear in the head about my ability to hold thru volatility. Let us say I pick option 1 and I buy AAPL at 192 today and next month is is now trading at 160.
I am now down about 20% on my initial stake and I begin to question my resolve. I begin to question if I should add or get out for a 20% loss. I become wild eyed and I am now very disappointed in picking option 1 and I think to myself every 10 minutes that I should have picked option 2 instead.
My personal take on this is that it is almost impossible to time any thing over a long period of time.
If you look at any of the current mega caps, like MSFT, TSLA, AAPL, NVDA- they all have been in periods in past when they lost 50-80% of their values from their peaks. It has happened in past and I do not think I can say with 100% certainty it will never happen again.
Since I truly feel timing all this OVER investment time frames is a wasted effort, I would rather have a list of 10-15 top themes which I can add to over time. Other people may have different views on this, I favor this approach.
In terms of themes I do share with folks ever now and then what I really like but for my longer term ideas, I try to have a brand range of types of businesses.
For example, I may like AXP and OXY a lot. And I may like AMD and FAST a lot.
These 4 are as different from each other as different seasons.
AMD is unlikely to get into oil business any time soon and AXP is unlikely to start making semiconductors any time soon.
On top of that, there are times when an OXY may be in vogue and there may be times when it cools off and the semiconductors take off.
Unless it is 2020-2021 type situation, seldom does that happen in parallel at the same time.
These are also the type of companies I think are evergreen due to their strong leadership and MOAT like attributes.
Then you have things like SMCI, ZM, GME, AMC, MRNA- which are in bloom once in their lifetime, go up like rocket ship and then sink to a fraction of their former glories. These I park under speculative ideas. To me they are not necessarily DCA type candidates but get in and ride it till the momentum lasts.
For me, I have 10-20 staple ideas and then an n number of momentum driven, speculative ones.
Generally what separates staples from speculative is the presence of MOAT. It is the likes of PepsiCo, Hersheys, AAPL, Norfolk Southern, I think you get the gist. These are real businesses which are almost impenetrable to new comers. It is not a bunch of Stanford guys writing code over a Holiday weekend and creating a better social media mouse trap out of thin air within days. Companies like NSC, UPS, BA, LMT, PM take decades and decades to build. And take decades and decades to dethrone.
As market gets more volatile, and we begin to see some lower prices materialize, I will share more and more names which I like on longer term basis. If you have not already, please subscribe, like and share as it helps me a out a lot with the algos.
Limitations of technical analysis
Technical analysis is a useful tool but it is limited in its usefulness by the time frame it is used in.