New Bear is Born.
Weekly Plan 10.1.23
Good morning traders-
Welcome to another installment of the weekly plan where I share my personal thoughts and opinions on a variety of topics- both short and long term.
Monday is a brand new day. A brand new week. A brand new quarter.
First let us get some important ADMIN stuff out of the way. Since October tends to be historically very active and a volatile month, I am offering a one time discount, to be redeemed no later than Monday. One of my biggest offers ever. Use it or lose it. Not a bad deal considering my long term vision is to increase pricing of this service to $100/month but you will be grandfathered in, if you do not resubscribe.
Speaking of the time frames, let us get some important concepts out of the way.
Many new readers have asked me if I am bearish or bullish - and my answer is depends on the time frame. Traders understand this inherently but someone super new to this may struggle a bit. This is a blurb for those who are super new. If you have been there, done that, please skip to the next section titled “Meat and Potatoes” ;) …
For instance, on the day to day and weekly time frames, I can be bearish and bullish in the same session. This is reflected in my intraday chat updates, my daily and weekly plans.
However, on a longer term basis, which can be thought of as a year or two out, I have been a bear on the general market from January 3 2022. Long term readers know my long term bias, however if you are super new to this, then some of this may not be 100% clear.
Yes, I became a bear on all market at 4800 and my ultimate target, where I think I will become longer term secular bull again will be closer to 3300-3400. Now in terms of such a long time frame, short term puts and calls may not make any sense. From my perspective, I will address this by having cash at hand, if and when such a level does trade or thru LEAPS. For anything lesser than that, I personally think options and futures are better ways. Main issue with a market like S&P500 is that it is a very thick market in terms of order book. It is a global risk sink. This means that it can have large swings against BOTH a very bearish or bullish bias. Swings of 400-500 points are not uncommon in the S&P500.
I do think there is a good chance that we will see a 3300 tested but due to the reasons outlined above, timing such events is hard or it is hard to time it in context of short term options.
If you are super new to the S&P500 market, except the 2022 bear market, in last 10 years or so, whenever we have lost 30-40 % on this index, it has been due to unforeseen events - whether that is the so called flash crash, volatility leading up to Trump election, or the China trade wars, or the events of 2020 (to name a handful in last few years)- these bear markets, if they can be called that, were to a large extent unforeseen events.
It is only recently in 2022 that I would say a proper bear market has been born, outside the events of 2000 or 2007. So unlike unforeseen events, let us say a brand new war, trade war or otherwise, the proper bear markets can be brutal to lull folks to assume the worst is behind us.
In unforeseen events, possibility of a quick V shape recovery is always there. The underlying fundamentals have not really changed. It is just a sudden event which has taken every one by surprise and folks who are fearful are quick to sell, only to see the market often recover in a V shape. This is why we see extreme fear and volume on such down moves.
However in proper bear markets, these markets can last any where from a year to 2-3 years. Average bear market can last about 18 months. Large counter trend moves are possible.
However, when to know this is not a counter trend move but a new bull market- in my opinion if this market makes a new high, for instance it takes out 4800 and closes above it, then this is a new bull market. There is no right or wrong way to define these. This is just the way I like to use personally.
In my case, I have been pretty consistent in maintaining my long term bias last year and a half- which is bearish. I am not a permanent bear or anything. However I do think we could see more volatility ahead.
Almost for 15 years we have heard the argument from the bulls - DO NOT FIGHT THE FED. With good reason.
The FED has for most part of the 21st century been actively printing new money and the markets have liked it. Stocks like NVDA and TSLA have returned almost 1000s of percentages.
This was all Goldilocks when the inflation was sub 2%. Now for the first time ever in years, the FED is tightening. They are selling assets. Not buying them. Is the old time adage “DO NOT FIGHT THE FED” not true in this instance?
I think it is. And these are main reasons why I remain a long term S&P500 bear with a view that I think we will probably test last year’s lows and then some.
Eventually, I will become bullish on every thing again. Eventually demoralization will set in and folks will think the sell off will never end. I may be a bit early and we could see more 200-300 point raids against the levels where I become bullish and I will gladly accept well deserved trolling for being early ;)
However, I do not see that happen any time soon.
Now outside of this context, I have shared how I view concepts such as DCA and all.
Bottomline being- there are no absolutes. There is no one answer that fits all. There are millions of people active in markets - each one with different time frames, different objectives, different styles. To assume that every one must think like YOU AND I, and want the same things as us is just silly.
This is why it is so important to know what each one of us is uniquely good at. May be I am one trade a year guy, may be I am a 100 trades an hour guy. Each one to their own. As long as we can recognize and understand this simple fact that every one is unique in their approach to markets, we can begin to focus on what we are personally good at rather than find faults in others.
Ok I will get off the soapbox but I felt it was important to reiterate my view on long term things and how I personally view time frame concept.
Let us get to the week that was.
Well the week was very treacherous. The range was small however due to whatever reason I think we had a lot of folks short near 4250 and a lot of folks were bullish near 4400. Only to see the market close in middle of the range, frustrating every one.
In my own updates and plans, I had a bullish bias towards the lows and I had a bearish bias near 4380. In particular, Thursday and Friday’s sessions were extremely choppy, seeing about a 2% swing that really went no where.
Levels for this week
With this out of the way, let us look at some of the technical factors and potential events that could impact the general market this week.
Back in March when deflation was the buzz word, I predicted we had not yet seen the worst of inflation behind us and I thought with higher oil prices, we could still see an uptick in the inflation numbers. At that time nearly every one had believed that inflation had peaked and will never go up again.
Yet here we are, with oil again at 95 dollars a barrel.
Now almost every one believes we are going back to the old highs in inflation. I beg to differ. I think we are not. I think we are in a deflationary trend in most products and services - this incudes housing, cars, electronics etc. However, one thing that remains perked up in the energy prices which are a policy error and are not due to classic supply and demand situation.
So, in that sense, I think the FED is missing the point that it has very little control over high energy prices which are directly a result of federal energy policy and some geopolitics which the FED really can not do much about in my view. Now this means, the US economy is in soft shape already and on top of that it has to contend with sky high US interest rates due to the FED which in turn means the entire world, EM and the West have to deal with this as Dollar dominates everything else, especially in the EM.
This is a classic FED mistake the results of which are not immediately evident to everyone. This is also a case of the FED walking into its own trap. The way they measure the CPI is based on hedonic and surveys which is far removed from the reality many times.
For instance, they put a lot of stress on core PCE or Core CPI because it “filters out” the volatility of energy prices. But if you look at the core PCE now, it has collapsed! It is going down. Why not look at the core PCE now and begin easing? Because it is not real. In real world, the gas prices are still high and putting pressure on every day budgets.
Now on the risk event side, the US Government shutdown was averted over the weekend so I think that should bring some immediate relief to market jitters. Then we have the FED chair speak on Monday as well as key NFP data on Friday. Both of these could be important events. Powell has a delicate task with TLT below 90 and Oil above 90.
My levels for this week:
Now I am going to borrow my technical context from last week. Last week I saw support come near 4280-4300 and selling come near 4400. I think this could still remain in play this week, until we see a clear break away from this range. This is an important range going back to early in the year and I do not see a resolution until we break away from this area. On classic TA (Technical analysis) side, we did briefly breach below this 4330 area. You can pull up any chart and see why that is important, but we did not spend a lot of time below 4330 and in fact closed on it on Friday.
This is a not a great sign if you are a short term (st) bear, I think you would like to see us remain below this area, not above it.
I am on watch for below 2 scenarios:
Scenario 1: I think if we remain below 4330, this could be a sign of weakness and we could target 4280-4300 area.
Scenario 2: If we remain above 4330, we could target 4380, which could present resistance for a move back into 4350 area.
For a directional trend move, I will like to see a Daily/Weekly level close above 4380 or below 4280. Generally I think if we remain below 4330, that in itself is a sign of softness. In a nutshell, the 4330 level remains super important for both the bears and the bulls. I had shared this last week and I think it remains key this week as well.
Other related markets
Few thoughts on some other related markets
Gold
Gold has taken a beating. It looks in a bad shape. It has had a double whammy of a stronger dollar as well as the deflationary trend that I talked about. Gold is historically an inflation hedge, but can it hold up under deflationary forces?
I personally think this sell off is unfair and I think it is due to this market thinking short term and not taking a longer term view.
Having said that, the short term momentum is quite weak in Gold and I think we could retest 1830 on Gold. I see resistance come in on Gold near 1856-1858 level for the weekly time frames. The spot price at the moment is about 1850 and the futures are near 1865.
Gold is not the only commodity that is under pressure, in fact the entirety of the commodity space is under quite a bit of pressure and it can not all be explained by the Dollar strength.
In fact, if you look at some of the carry currencies like Australian Dollar, Kiwi and the Canadian Dollar, you can see that some of the softness in those is due to the commodity softness - again, it looks like they are in unison with me about the impending deflationary period.
TSLA
With TSLA, there are going to be additional factors on top of the general market moves next week in terms of its delivery numbers.
The consensus on Wall Street seems to be about 440-450K units sold in Q3. Over the years I have learned not to believe any estimates from Wall Street analysts. I personally think the TSLA deliveries will be on the higher side of 450K than lower. Asia deliveries I think will be high, the real wild card is the US market with interest rates so high.
On the technical side, I shared this 240 support several months ago for folks here in Substack and it has been a decent support since. If you are a TSLA bear, nothing will bring a smile on your face quite like this 240 level giving up. However, as long as it holds, we could still retest some of the upper levels around 270.
The main bear argument I have on TSLA is not about demand (sales numbers) but it is about margins. You can argue lower margins in the short term are a negative but on longer times frames, if price cuts bring more drivers to TSLA, you can argue it is good for the company.
Tesla still sells a fraction of the cars that the legacy auto makers sell. What is that even look like in percentage terms? 1 in a 100? 1 in a 1000?
So there is a lot of room there to grow. I will say once you get a driver in the TSLA ecosystem, he or she will not go back to any other brand. So this is a plus longer term, whereas the margin pressure and the high valuations are a drag in the short term. I like the stock longer term and I am a buyer longer term if it ever dips into 100-135 area.
ABNB
ABNB was recently included in the S&P500 index and I think there is some level of support due to this. Once a stock is included in a major index like the Nasdaq or S&P500, it can have long term positive impact for it as hundreds if not thousands of fund managers have to include it in their own funds.
I think if it holds up the 130 area, we could see it go higher still into 150s. Outside of these shorter term levels, it remains one of my favorite smaller caps (relatively speaking). I shared this around 100 bucks here in the Stack, before its move into 150 earlier in the year.
SPOT
The general market has a large influence on any stock but especially the lower cap ones like ABNB and SPOT.
In SPOT, I like this consolidation on the weekly time frames.
I think as long as it holds 148-150, we could see it retest near highs around 170. It is near 154 at the moment.
Outside of this, not seeing a whole lot of set ups at the moment. It is also that when the general market is range bound, I think it is a little tricky to try and find a whole lot of set ups as it is a premium burn trap. In my view, if the general market breaks out or breaks down out of this range, we will again see a tremendous number of set ups, whether up or down, like we saw a few weeks ago.
Until then I am just in waiting mode. This is obvious thing about the markets but some folks do not want to understand it. It is not like a normal 9-5 where the events and the results are for most part certain. You show up and you get paid.
In markets, you show up sometimes and nothing happens.
In markets most of the moves can happen within a few weeks of the year and then you sit and watch paint dry for rest of 45-46 weeks. The key thing is to be ready. It is to have a good source of information and solid methodology, like OrderFlow, that when things do start moving, you are not left waiting.
Compare this to a lot of furus (internet experts), they are very active when the market is not doing anything and they are not doing anything when the market is very active. I want to avoid that. This is why I ask folks to commit for 1-2 years to see this in action rather than make assumptions based on few weeks of membership to this OrderFlow school of thought. OrderFlow is an extremely different perspective, one based on liquidity rather than charts and indicators. Hundreds, if not thousands of old time readers can attest that. Use the special offer below to try it out.
BTW if you like the content, make sure you like, share and subscribe as this is the only way to make the Stack more visible and the message of OrderFlow reach out to wider audience. More audience we have, the better it is for the methodology as more folks learn and educate themselves and free up from the indicator hell/jail.
GNRC
Last but not the least, I am also curious about something like GNRC.
With GNRC, again if you have read my blog for longer than few days, you know I was a bull on it near 100 before it rallied into 150.
It has since sold off and is now back near 100.
California state has legislated companies like GNRC into oblivion. California has this quixotic goal of outlawing anything that runs on gas. Whether that is stove, lawn mowers, generators, cars, trucks. GNRC is one of them.
However, I personally think the EV transition led by TSLA is going to sky rocket in next 1-2 years. EV, in particular TSLA cars will be every where.
Whether that is good or bad thing is beyond the scope of this newsletter, however I do think there will be a transition period when the EV are in every household, and the US grid can not handle the added pressure of all this electrification at once! This may last for 3-4 years, may be even more. Now sprinkle in some issues in the grid due to weather, geopolitics, old age etc and you have a perfect recipe for a disaster.
Gas generators are very common in emerging markets like Asia and Africa but they are a novelty in the US. I think that is about to change. Gas generators could be ubiquitous in the US and rest of the West and I think GNRC could benefit from it. If this happens, I think we could see GNRC retest its highs or at least 250-300 dollar range again.
What do you think? It is plausible or far fetched?
Leaving you with some food for thought.
~ Tic Toc
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