Is this the End?
Weekly Plan 1.12.25
Hey traders-
On the weekly time frames, from last Sunday, my main expectation was to see sellers come in at 6034 for a move down into 5900s. See below.
Both of these were good weekly time frame levels, but we managed to break this support and turn this support into resistance on Friday after stronger than expected payrolls came in.
You can see on the emini S&P500 chart that most of the week’s action was around my levels shared above. And then when we did break the support, this support became a fairly nice resistance. The intraday support on Friday was almost the session low from that level I shared on Wednesday’s Daily levels with our subscribers.
Now the million dollar question everyone is asking this weekend is, that is it over?
We had a good bull run and ironically its demise is being talked upon now at cusp of Trump Presidency.
If you are in the camp of those who say that the bull run is over, then the Chart below will please you to no end.
On this chart above you can see, if this is indeed a bear market, there is really a lot of room to fall. We are talking about 40% or more declines.
Now the question whether the bull market is over or not, is meaningless to me personally.
That may not be the case for you or anyone else, but as far as I am concerned, I don’t loose sleep on it. Let me explain why:
First off, the reason I am nonchalant about this is because I have multiple time frames I view the markets from. My longest time frame is “never sell”. This is a 10-20 year plus time line and this is not very different from you buying a home as an investment or a Classic car which you expect to go up in value over a period of 10-20 years. Now, farther the market drops, more I like it because then I can buy a percentage here, another percentage there and let’s say the market drops 10% tomorrow, that percentage goes to 5%. Now this will be weird to someone who just went all in, 100% of their account at 6170! I get it. But that’s not me.
Now, as far as intraday time frames go, I am not going to go home with any positions overnight. Often, I could be both long and short in the same session. Multiple times. In this case, you can see how fruitless it is to worry where the market will be a month from now. A year from now. I will say it is unproductive to think even where the market is gonna be tomorrow. If you go flat every day at end of the day, what do you care? The sauce in intraday is in expectancy not predictions. Expectancy is a function of your win rate and your win to lose size. So a trader who wins only 40% of the times, but when she wins she makes 100 dollars and when she looses, her loss is 50 dollars is a more profitable trader than a trader who is right 70% of the time but when he is right he makes 50 bucks and when he looses, he is gone a 150 dollars. We all want to be more like that first trader.
Now the third aspect of this equation and perhaps the most important one from a perspective of predicting the markets is swing time frames on options and stocks. If you happen to be this type of a trader, then it matters. A lot. If I am a swing trader, and I wanna buy a stock like AAPL or NVDA, it is very important to have the general market provide a tailwind for me. For instance, I right now believe NVDA is at a good price point here near 130. I think it ought to go back to 150 at some point. For this trade to play out, I give myself 2 months and a 8 point stop loss, for instance. Now, while NVDA may be sound fundamentally and technically, if the general market does not stop going down, this trade will go to 0 (stop loss hits). I need a stop loss on swing trades, I don’t put a stop loss when you buy an investment property; do you?
So this third point above, is most significantly impacted by where the market is headed next. Now while I used logic and real examples to prove that market prediction and direction is meaningless when it comes to investments and day trades, I have just now conclusively proven that market direction is significantly important for time frames in between those two.
Now generally, the way I manage this is by not swing trading at all when the general market headwinds are too strong, or trading small, or spreading my trade over a larger range. This is why you will notice I will have a lot more setups in “bull markets” and very few in “bear” markets.
Now why do I share this? Why not just go to the levels for this week directly? Because there is value in developing and honing this mindset. This is a community of traders and I am sharing my thought process around this volatility and how I may react. If you spend a lot of time trying to find a strategy that is right all the time, you are wasting your time. Instead focus on finding a strategy that pays 200% when you are right. Focus on the win size rather than win rate.
This is also a cue that you need to sort out your time frames. Find out what type of trader you are- are you short term or very long term. And then try to design your strategy where these type of moves do not hurt you more than they have to. Personally for me, these strategies really are: a) don’t trade b) trade small c) break down your orders into a much larger range rather than go all in at one spot d) none of this should apply or matter to investment time frames and day trading time frames, well except perhaps that point C.
Now as a side note whatever I said right now is more relevant for someone who has time on their side. If I am retiring tomorrow, and the market drops 25% tonight, this is not relevant or helpful. Now I will assume anyone who is retiring tomorrow has already taken steps to not to be in this situation and when I say that I really mean I am not all in NVDA at 150 and TSLA at 480! That my buy point basis is much lower. If you have more time on your side, your drawdowns can be larger. A 50% drawdown for a 30 year trader is not the same as a 25% drawdown for a 70 year trader.
Now while predicting what these markets will do is anyone’s guess, I do wanna share my educated guesses on what I think they may do next.
So if you are a longer term reader, you know this 6170 level was first shared by me in November as resistance for a move down into 5800s.
On the downside, we are now a 60 points above a key level where if we dip lower, it will erase all of the gains made since Trump’s reelection night.
The current bout of volatility is due to fears about resurgence of inflation. I called for a bottom in yields at 3.7% and here we are now trading near 5%. I think these fears about yields are misplaced. Even if you think Trump is going to fail, and yields are gonna spike and inflation will go much higher again, I think he will not fail without a fight. So that gives us perhaps a good one to two years to see how this plays out.
The elephant in the room for me is the transition period that begins next week. Is it going to be chaotic, how will the promised draconian deportations be handled? All these are key variables which I cannot predict. But generally if a draconian deportation regime is put in place, this will lead to a spike in food prices as well as wages. So higher inflation. The stock market does not play nice with higher inflation.
These are all key unknowns and we have to rely only on price levels to make sense of this uncertainty. Let us assume for a second, that this is not the end. If this is not the end, then what do I like most in the year or so ahead?
TLT
TLT, as a proxy of long bonds has been hammered. It’s only 5 dollars above a 2+ decade low. The market I think is getting too ahead of itself, we all know bond yields are high. A lot of folks tend to think these may be headed higher.
Maybe.
But in the short term, if you look at next 6-8 months, I think these yields have run their course so close to being 5% and I am calling for a move back down into 4% may be tad lower.
I think TLT is fairly close to a meaningful bottom here close to 80 and I think this could be headed back to 92-93 area.
PLTR
PLTR is an extremely old Substack stock which has been tremendous for the bulls. Recently it has sold down quite a bit from its highs and is now trading near 66, having risen about a dollar and a half from that support level I shared with folks last week.
These type of stocks in my view have no fundamental value but they are Wall Street’s momentum darlings. When you do not have fundamental sponsorship, you tend to see these large moves of 20-40%. This is normal for such stocks.
These companies are headed often by charismatic leaders who just are good at playing the masses. The masses do not and cannot think for themselves- they want reassurance and deeply desire to be told what to do by larger than life leaders and this phenomenon becomes a STOCK cult. This used to be exclusively a phenomenon in poor countries because in developed world, folks are too busy by good paying jobs, recreational activities and mowing their beautiful green lawns to care for all this. But as economic opportunities contract for masses, they have to vent out all that energy somewhere and often it ends up expressing itself as a cult built around a few men.
Understanding the socio and political climate is very crucial in markets. Socio political events/trends are closely related to economic and stock market trends.
Generally in a very dysfunctional system, the richest people and the biggest companies tend to be closely related to the ruling classes. They are one and the same.
This is true for any super dysfunctional country. There are countless examples of this from Gazprom to Aramco to Santander and Petrobras & Reliance.
I know there is a lot of chatter amongst analyst community about valuations and such. In momentum stock, valuations can be extremely tricky. This is not your Apple, Coke or Colgate, so have to adapt.
If you are not happy with PLTR at 150 billion market valuation, then buy it at 30 dollars. But there is no guarantee that we will trade that any time soon. I don’t have a Line in Sand on PLTR per se but I would think it becomes more attractive for me on drops. In the short term, I guess the whole $50 to $60 or so remains a potential good support for a move back to claw back some of its losses.
As always remember, I am sharing this as a personal journal. I have been active in markets for over 20 years and this is what I have learned over the years which I am happy to share as a personal story.
META
So META has gone full MAGA now and mainly it’s due to the fact that Mark genuinely feared being jailed for his obvious political favoritism last 4 years or so. I do commend him for deftly setting aside all his values and reversing his positions on almost everything overnight that he stood for last 4 years which means he really did not stand for anything.
Anyways, I digress. The crucial information in all this flip flopping was that Mark disbanded the entire DEI unit at META, which apparently saved the company some 5 billion dollars.
At 30 PE valuation, this is 10% of the current market cap of the company. On top of that, you have Zuck now openly whine about AAPL to try & get some sort of concessions from Apple in this new age of use of AI to harvest your user data and what not. This is just the nature of mega caps in the US today. I don’t think they add anything of value per se for improving the society other than continue to mine user data and serve ads or sell services built around this walled garden.
The reality is none of these mega caps, with perhaps exception of AMZN and NVDA add any value or has done any “innovation” in last decade. These are speculative assets, like crypto, which are widely held by large funds & rich entities worldwide as they are very liquid. They just happen to make some software, or some car as a side hustle. This trend will continue until we begin to see 9-10% bond yields emerge. When the government bonds pay you 10% a year, why would you take all that risk in stocks?
And that is when I believe a true bear in stock market begins. Not before that.
When that happens is anyone’s guess, may be it happens when the US dollar loses its preeminent status. For now it is making new highs.
Now back to META, due to its DEI savings alone I think META is a 640-650 dollar company, not a 600 one. Short term Line in Sand will be at 590-600. I don’t think the auctions look too bearish on META but know what I just said a few minutes ago about the general market. These type of crowd favorite momentum stocks like PLTR, META, NVDA and TSLA need general market tailwinds. I share a couple ideas which are not necessarily so dependent on the general markets.
This brings me to the general market level for the week plus my thoughts on few earnings and a few stocks which I think can outperform.
This is a fairly event risk heavy week with PPI and CPI as well retail sales on tap. On top of that you kick off bank earnings as well earnings from TSM. I think this market is setting up for huge moves and you do not wanna miss these.
Generally, if you are super bearish here, you need to see stocks like NVDA break 130, you want to see TSLA break below 370. Look at small caps for instance. IWM is now 215. You need to see small caps break below 200. IWM looks interesting here at 215 and I think if it holds these lows near 200, this could retrace back to 235.