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Sunday, July 29, 2018

SUNDAY UPDATE: WHEN THINGS CHANGE QUICKLY

“Oh market Oracle, where did market liquidity go?!”

Have you ever seen a market … any market …  go from absolute euphoria, 
where no price is too high [Wednesday late afternoon], to absolute panic 
selling [Friday morning into the P.M.], within 48 hours? And the dirty little 
secret is, you ain’t seen nothing yet … the loss of NDX100 liquidity, meaning 
the price change from one bid/offer price to the next one a fraction of a second 
later, widened about 5X on Friday, from more normal daily liquidity.

And with Facebook losing $150 billion in market cap within 2 hours, the largest 
in history for any company, the proverbial handwriting is on the wall for the 
rest of the market when SHTF going forward. What you saw on Friday, will 
pale in comparison to a true market meltdown, but the thing to focus on is not 
the price change per se, but the loss of liquidity during the price decline 
“there won’t be any is the point, and you could see the bid/offer in NDX100, 
plunge faster than you ever thought possible”.

On Friday, almost every long trade I made was up money at some point off a 
bottom … and then, in an instantaneous blink of the eyes, I’ve just seen 5 - 10 
index points lower change in the bid/offer, turning a winner into a loser, and 
away we go to the downside ala “Thelma & Louise”. This is likely to get worse 
over the next few months into the midterm elections … “the way I see it, the 
‘deep state’ has no problem causing a market panic to the downside into the 
midterms, in its effort to cause the House [and maybe the Senate] to change from 
“R” to “CD” [Communist Democrat] … the FAANG stocks are so over owned 
and held by ETF’s, ETN’s and hedge funds, the declines over the last couple of 
days is simply the tip of the iceberg, and these 5 stocks represent over 50% of the 
value of NDX100 … all of the good news on the economy is out, and global 
growth going forward isn’t anything to cheer about … and then there is China 
and their overt, out in plain sight and in your face, Yuan & Reminbi devaluations 
… you want more trade war? … this is how you get MOAR!! … and all into the 
chaos of the midterms, where everybody knows the insane ‘D’s will impeach 
Trump given the chance if they get power in Congress … somebody explain to 
me, with everything I’ve said so far, how this translates into FAANG stocks 
powering upward and carrying the NDX100 [and by proxy the SP500] to ever 
greater heights of price? Especially given the nature of the runup we’ve seen and 
how over extended the market actually is on an historical basis”?

Simply put, I think between now and the midterm Congressional elections on 
November 6, 2018 [about 100 days], we have the highest probability of some 
kind of market meltdown on the order of 2008, where the NDX100 sees a 5 or 
4 hande in front of it, maybe more, and an entire generation of people get 
wiped out, and swear off stocks forever [“like they did after 1929, 1938, 1966, 
1987, 2003, & 2008”]. To be sure, there will be insane rallies, as some will 
perceive value after drops, but many more will be looking to STFR, rather 
than BTFD … and I haven’t even factored in the redemption liquidations 
from ETN’s & ETF’s that come every morning on the opening if things get 
“messy” … remember, they don’t have a choice; if an investor redeems his 
shares, they got to sell on the open, regardless if the NDX100 is gonna be 700 
lower … in essence, they are their own worst enemy.
 
My update today is a special one in this regard; “In addition to attempting to 
buy bottoms, and then scalping out on rallies, I’m looking for opportunities to 
sell rallies in the NDX100, and position ourselves short for longer, massive 
moves lower. Given the right circumstances, I’d be willing to hold profitable 
short positions through rollover and into Asia and the next trading day, but 
never over a weekend, where there is simply too much risk … I’ll start with 
smaller positions off highs, where the “Explosion Algorithm” has the RSI above 
the top red line [85.74], indicating an overbought short term top … if that bears 
fruit, and the market moves lower, I’ll “position scale” the trade to a larger 
volume by selling more … this way our position will always be up money. If the 
price comes back we’ll get out with a small profit and start over. Until the 
midterms, I think this is the way to trade, cuz the risks here are clearly to the 
downside by a wide margin … quite frankly, since the financial crisis of ‘08, I 
believe market valuations have gotten to the insane level, and tech stocks in 
particular are the new “tulips” from 1636 … add up the economic, financial, and 
especially the political calculus over the next 100 days or so, and there has never 
been a time more fraught with danger for investors than this, to see massive 
market drops that wipe people out … this is the highest risk time period I’ve ever 
seen in my lifetime bar none”!

I’m not upset about Friday’s loss … I got long when I had to in order to 
attempt to outperform the NDX100 index; what caught us on Friday was the 
utter lack of liquidity when a small rally fizzled and then price turned lower 
violently … fills were excellent, nothing but kudos to the LP’s in this market 
“winner, say hello to loser, and you got less than a second to decide if you 
want the loss to be larger”! Even during February’s decline, the market was 
somewhat sane to the downside … not this time, and Friday was the first 
serious message the market is sending to trading professional across the globe 
“beware the long position Skippy, and don’t take a pee break, cuz you may 
definitely not like what you see a few seconds later, as funds liquidate boatloads 
of tech shares on rallies and price immediately adjusts sharply lower … and the 
sicker the rally, the harder the subsequent next break will be”. 
 
And, the PAMM on Friday did outperform the NDX100 from the NYSE open 
… only not how I want to do it, obviously. My job is to outperform the passive 
investment ETN’s & ETF’s investment schemes in tech via the NDX100, and I 
intend to keep doing that. Going forward, I’m well aware of the fact that 
liquidity has dried up in these so called trillion dollar markets … “it’s there 
‘till it ain’t”, and on the downside if you get caught long, you pay the price.  
“Yup, I got the message loud & clear, and our long positions going forward into 
the midterms [maybe longer depending] will be to liquidate on the rally and dump 
before price turns … if it goes higher, so be it, cuz I’m not gonna get caught like I 
did on Friday, thinking liquidity would be there, and then it wasn’t”. 

Every other market on Earth, is stuck in mud … we simply can’t trade crude 
oil cuz of the logistics of the scumbag LP banks, who refuse to make a “fair & 
honest” market … outside of that there is only tech … FX, metals, and 
whatever other cat you drag into the equation is going nowhere … a literal 
manipulated, bank run, stop hunt bonanza run by central banks. Tech runs 
the SP500, and over the last 10 years it’s only Tech that has mattered … and 
since it’s the only stock index where the Turnkey Forex LP’s, not only give us 
the best spread in the biz, they execute your trade fairly with no slippage I’ve 
seen or experienced … what you see on the screen is what you get on the 
bid/offer fill. This is the reason the PAMM has its focus firmly on tech … it’s 
the only place where there is consistent action and treats us fairly. And, I 
might add, it’s where investors all over the world are piling money into on a 
WEEKLY  basis that almost exceeds $1 billion dollars … “it’s simple; you want 
to invest in Campbell Soup or a tech company with a story to tell”? This is why 
we’re here, and the only way to honestly judge my performance is to 
benchmark it to the NDX100 index. So far, we’re beating the index since I’ve 
started to exclusively focus on NDX100 trading, but from my perspective it’s 
not good enough to “lose less” on down days … Friday was more the 
exception than the rule, but knowing that market liquidity has dried up 
considerably, gives me all the info I need to adjust my trading execution on 
long positions. And, at least until the midterms, selling rallies should provide a 
very big boost to returns.
 
So, tomorrow is another day, and it’s back in the saddle … don’t get  
“spooked” by Friday … from here, we’re positioned well to face what the 
market brings in the next 100 days and outperform. I’m not sayin’ this is 
“doomsday”, but simply the probability of some really nasty down moves hasn’t 
been higher than it is now, in a very long time. We’ll see what happens.

Well, ‘Google Sheets’ isn’t allowing me into my spreadsheet files … don’t 
know what the problem is, but they won’t open … ‘Google Docs’, which I do 
the blog on before transferring to the website, works fine. In any event, I’ll 
have the PAMM Spreadsheet updated when it’s working again … until 
tomorrow mi amigos … Onward & Upward!!

Have a great rest of your weekend everybody!!

-vegas

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