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Tuesday, September 13, 2022

Market Update 9/13/22 - How to Trade the Most Hated Rally of the Year

 This rally is starting to look a lot like the previous one. $SOX isn't leading tech, and money continues to flow into defensive sectors, and speculative trades like Silver, and crypto.  

Still it was a good trade. Very predictable, and tradeable. $FAS - and most other 3X leveraged bull ETF's are up nearly 20% from where I called the bottom of wave A, and nobody seems to be excited about it?     

I haven't had any trouble trading this rally, after calling the bottom last week, but apparently some traders, and even quite a few hedge funds have.... so, I thought I'd offer some tips, and clear a few things up. 

Why would traders prefer to hate a rally, than make money trading one?

1. Overwhelming bearish sentiment can leave you like a deer in the headlights, when you should be pulling the trigger on a bottom. You'll have to figure out how to get over your own bias, on your own, but I have a couple tips. 

a. Charting the $VIX helps me get past my own bearishness. If the $VIX isn't showing any fear, and it's not trading at complacency levels (below 12 for instance), then the fear is only in your own gut. 

b. Fear is contagious, so tune out social media, and trade alone. Many folks will try to convince you that you shouldn't trade alone, but most of them have something to sell you. When I trade I don't want suggestions, or outside opinions.    

c. Tune out the overwhelmingly bearish news. Most times the news is not that bad. What's the market worried about today? That the fed is going to raise rates too much, or too fast. and cause a recession, although we won't call it "recession"? 

Look, the fed has come out and said, "we're going to fight inflation", 100's of times, and the lame stream media, has reported it over a thousand times, but in actuality the fed has done everything in it's power to NOT act, and a year later, rates remain at ridiculously low levels, historically speaking. There's an old saying, "money talks, bullshit walks".     

Now you hear the official narrative change to one of "deflation", or
"disinflation", just in time... and just as I have been predicting for months. 

29 minutes ago: 

The Fed is fighting inflation. Could deflation be its next battle? cnn fake news 

What's "transitory", as it turns out, is the feds empty promises to pull the punch bowl away, in an election year, but I digress!   

2. Learn Elliott Wave Theory - Elliott Wave Theory may not be a magic bullet, but it sure is a great tool to have in your tool box.  I recognized that last weeks, "Tuesday surprise" (shakeout) looked like an oversold condition, and counted like a "zigzag" (on the $VIX). If you knew what a "zigzag pattern" was, you would've had a good idea about was probably about to come next.

AAPL - Trades into an oversold zigzag - looks like an oversold wave "b" (of wave iv) possibly. Wave c is powerful, like an impulse.   

3. Markets are cyclical - how many times do I have to point out that money managers return from vacation in Sept. and their job is to put money to work. Sure, some years Sept. may not be a great month, but what if the market is already oversold..?  

I had a lot more I wanted to get to today, but I think it's better to teach a man how to fish, than hand him a fish.    

How much longer can this rally last? 

1. This rally already seems to be losing steam, and I suspect the momentum is about to grind to a halt, but you know how this market is. It's seems to continue trading stupidly, for much longer than one would expect. Some of this probably has to do with the timing around Friday's Monthy OPEX. 

2. This is just a much harder market to trade, with machines, and retail traders making their decisions based on meaningless moving averages, and so much dumb money still in the system. 

3. The fed printed so much money, and the government continues to spend hand over fist, and that money remains in the system, and has to go somewhere. 

 Here are some places I see the dumb money going: 

1. Crypto 

2. Healthcare 

3. Utilities 

4. Commodities 

5.  Real estate bubbles 

When this all unwinds, I'm not sure where the money goes, but into the bottomless pit? This is what deflation is all about, and there will be few places to hide...   

Take Care, AA 

P.S. related news 


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