Deflation for a Day

Cant be short here into what looks like an obvious rally, markets up for the first time in 8 sessions. We have falling rates, plunging commodities, and surging stocks. This is exactly what the tape will look like once the crisis is over. Sadly for us, the crisis has only just begun.

I’m not advocating selling short at the bell, but it might be a fine idea. In the meantime, gold is up, retail is up, and oil is down.

Bear in mind, the market isn’t forecasting some grim economic environment. We are merely bouncing. Don’t think about it too much.

Yesterday I alluded to the dumbest of all trades taking place — a decline in oil buttressing the idea that consumer related retail stocks were good. The rationale is strong, providing the economy in Europe wasn’t on the precipice of total annihilation. There are many things in the market to fear — but none as much as FX markets gone awry. When currencies and bonds are in play — bad things usually happen.

Having said that, I had the trade sentiment right but missed it this morning, as I sold out of all of my positions before they could propel higher. Do not fear, I bought the trade back again and now I will sit and wait for people to follow me into LULU and ULTA — super excited about the specter of yoga in the midst of WW3.

On the issue of oil: simply counter-trend action taking hold. Long term, I like them here. Short term, I’m with the idiots.

I can offer you meaningless words transcribed onto this bloggery, from which all you will gather is entertainment. “Look at that Fly guy acting up again — what a zany fellow he is.”

Here I stand before you a man filled with ideas and pride — effortlessly progressing throughout these markets with Space Alien Magician (SAM) precision. I show it all, yet you do not listen. I tell you what I think will happen, and then you ignore it and then ask me what I think will happen.

LISTEN TO ME NOW:

Markets will be ravaged throughout 2022 and into 2023. There isn’t a plan. There isn’t a rescue. It’s all black smoke from here.

Classic retard trade looks to be taking hold, in spite of it not making any sense.

But here we go.

NASDAQ -117
Natty -6.6% — SHOCKER
Oil soft

Retail strong.

We have names like CMG, SBUX, WING, and JWN all strong in the face of overwhelming bearishness. I’ve seen this trade before and the philosophy is such that it makes my head hurt, but here goes.

Because energy prices are down — plebs have more money to spend. Also, since governments are now announcing bailouts for plebs, paying their energy bills, the assumption is the poors will run outside and buy stuff. That is exactly what they’re going to do.

I am taking this trade in a small manner, about 55% long, 5% short Bitcoin and the rest cash. There is a high probability this “retarded trade” backfires on me; but I am going to take it nonetheless because why the fuck not?

Late day collapses have been something of a unicorn as of late. This is the hourly returns for IWM since 8/1. As you can see, the market dumps out in the morning and offers very little for the afternoon — sort of an anti-climatic collapsing of the close.

I closed out my TZA position and now am 100% cash, +75bps. This isn’t my permanent position — just for now. I’d like to get a better feeeeel for the tape before diving in.

Rates are through the roof, oil is once again rigged lower and yet no one really cares. It’s all just a giant game, albeit the best one ever invented.

My bias with my heart is to be short; but a market that doesn’t dive lower when it should is usually bullish.

I’m exhausted, following a weekend of walking around Boston. We walked every square inch of the city and did all of the touristy things to Mrs Fly’s delight and now I’m annihilated.

Admittedly, I expected a much sharper decline at the open. The Yen is getting poleaxed, -1.3% v the dollar and the Euro continues to slide, now less than 0.99 to the dollar. Oil is firm but natty is weak and the US 10yr is roaring higher, at 3.3% higher by nearly 12bps.

I had a handful of stocks in the portfolio this morning, all up, and once 5% position in TZA. I sold the stocks and kept the TZA and will now wait until we get a break lower in stocks.

It seems inevitable.

I did tell you this would happen. You’ve been reading me for a decade plus and have seen me pull rabbits out from my ass and into magical rainbow unicorns, yet you continue to defy me and my forecasts.

Part of what I do inside Stocklabs is give my ideas in real time, managing a portfolio live for everyone to see — the good and the bad. But that’s not the main purpose. The main purpose is to try to decipher human behavior and glean mean reversion signals that can help me time markets. As you could imagine this is a difficult task and there is much work to be done. But over the years I’ve demonstrated over and over again how prescient our oversold signals are and how valuable a tool when attempting to time buys into dips.

We aren’t there yet, but close.

Our intelligence tools are rendered using fundamental and technical data of all stocks with backtests. This is a real time algo and doesn’t require an oversold condition. When we flag OS, I will be buying TQQQ. I will buy it in 33% allocations and as many as 3 buys providing we get multiple oversold signals within 5 trading days of the last buy. This stratagem has produced returns of +15% this year with very little trades. For example, my last trade in that algo account was on 7/8.

Over the past month, risk sectors have been bludgeoned whilst bids provided in commodities. This is a market fearful of inflation, as shown by the soaring interest rates and raw commodities. It seems we are in a horrible position of inflation that re-emerges with vigor every time markers reflate. In short, the economy needs to be taken down severely in order for the Fed mandate to conclude, which of course will hurt stocks terribly from now until then.

I traded from my phone and successfully bobbed and weaved between bullish and bearish ideas — taking a little of this and a little of that — small wins and losses but on the balance wins.

My book at the close.

When I was a younger man I traded with enthusiasm and ego. This sort of attitude produced monster sized wins but also losses. It made the highs very high and the lows very low, probably the reason I went bald in my thirties since it’s not a trait in my family gene pool. I only began to understand day trading after I retired or left money management. Once I only traded my own money, my ego needed to be checked and that included reducing position sizes and admitting when wrong early rather than embedding myself in an ideology in an effort to produce big gains.

I’ve proven live inside Stocklabs that big gains (300% in 2020, 212% 2021, 53% in 2022) can be achieved without taking on outsized risk and it could be done in a manner on par with being both a gentleman and a scholar.

I always tell people to just mirror what I do since you’ll never be better than me; but that of course isn’t true. I’m not the best, but just very good and a professional. If you take anything from me, take the way I lose and accept when I’m wrong and how I don’t give up or take breaks — but trade through slumps and right back into winning streaks.

Have a great weekend.

We had every reason to rally today and now we are steaming lower. Russia announced FULL STOPPAGE of gas to Europe today citing repairs needed that are being delayed by western sanctions. Obviously this is nonsense.

I have been trading more than I should today since I’m in Boston and with the family. But a trader has to trade no matter what. This is my job SWEETY; you’ll just need to learn how to deal with it.

I’m 75% cash, 10% TZA up slightly for the session — just trying to avoid a weekend ruining session.

August payrolls came in hot at +315k — above expectations of 297k. The last two months were revised down by 100k, but no one gives a shit. The odds of a 75bps hike dipped a little and now we wait for the CPI data next week.

The economy is being artificially taken down and you can see it in this data, an otherwise booming economy if not for all of the inflation racking it with new expenses.

Markets are viewing today’s data as a reason to rally and price in less Fed hikes. You can see it in treasuries, gold, and stocks. The dollar s also down against the euro. At some point when we unwind this inflation business, the dollar will be a terrific short, in addition to heavy longing of gold and bonds.

Stocks are somewhat muted, +50 NASDAQ. I have little exposure and sold my hedge at the open because textbook says we should rally today.