2/14 Daily Market Note: Comeback Attempt. Will it work?
Today marks the 3rd local attempt to break CPI blues
Hey Folks - happy Valentines Day.
Markets attempt a recovery in today’s session, and as of this post, have regained about 1/3 of yesterday’s lost ground.
I’ve diagrammed below my thinking over the past 2 sessions where there have so far been roughly 3 attempts to break the CPI-induced selloff which was in the neighborhood of 1.3% and 1.8% for the S&P 500 and Nasdaq-100, respectively:
An attempt yesterday morning (failed)
An attempt yesterday afternoon (a strong squeeze)
And an attempt this morning (in motion)
In today’s pre-market note, I witnessed another potential session where markets were being (almost) entirely supported by Semiconductors again. Based on the math of their weightings in the index, I estimated that any intraday upside from the opening gap may be limited to about .5% (50 basis points).
At the same time, if there were to be a re-tracement back to the flat line, I expected some type of bounce.
For the Morning session, this appeared to be validated as we have seen an early peak get reversed. Yet the fade had its limits at the flat line for SPX (SPX was flat at one point today), and we saw a modest bounce since.
I make no comment on the Afternoon session because once a move in alignment with my thinking has occurred, I would need to come up with another plan to assess the Afternoon.
Obviously, I hope that it works out in Bulls/My readers favor. Even though I want to see lower prices, it is because we get to trade it from more attractive levels on the Long side not because I want asset prices to fall for the sake of it.
This type of Intraday commentary provides tangible power to those who understand what I’m doing, and potentially helps to avoid buying at local highs and being patient for local lows. And even if one doesn’t trade Intraday, it shows that I’m actively observing the pulse of the market.
The one area of the market that I do not currently understand is how long these high asset prices will persist. Today’s equity prices, to be very upfront, do not make sense fundamentally to me. Putting on my trader hat, I do not let this perception change my daily commentary/action and ability to profit, but I really do question how sustainable today’s elevated levels can be from an investing standpoint.
The U.S. market structure is very lucky in that it has a forced buying system where everyone’s 401Ks is automatically plowing money into passive index ETFs every two weeks due to the Bi-weekly corporate America compensation system. However, many of these new retirement purchases may result in cost basis too high, and these allocations are likely to be underwater at some point later this year. In other words, I think many retirement accounts across the U.S. are DCA-ing too high into the index and may find flattish returns from here. Baby Boomers have most to lose if America falls into recession (which I think has already happened, but not been made official).
That being said, just a reminder that Everything that I share is simply my opinion. The market may or may not align with my thinking. It could go further parabolic and prove me to be too conservative. If it does advance further, I will have no choice but to trade the market higher. It is simply my belief that we make MORE money when markets fall, and later rebound. Yesterday’s CPI selloff was a great example. The opportunity at NQ 17560 was powerful (now 17780). Such opportunities do not exist without Red days. When markets simply grind higher, this isn’t opportunity in my eyes.
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