8/8 Daily Plan: Recovery Trajectory Now In Motion. This is a Massively Important Week.
Inflection Point Arriving (Discussed Below)
Hey Folks -
Short update today as I continue to do research in the background and update my DCF Models (will update members if/when any serious changes).
The observation shared yesterday was that the Nasdaq-100 (NQ) needs to see another U.S. domestic-driven catalyst to revisit that absolutely critical 18500 level that was lost to Bears from the NFP Jobs driven selloff. See blurb below.
It is now clear to me that the market cares less (still cares, but less) about global issues (Yen Carry trade) and cares more domestic U.S. economic data.
The rally inspired by dovish Bank of Japan comments did not hold.
The rally inspired by less-worse-than feared unemployment claims is holding (for now, with 2 hours left to the close).
In this jittery market, I believe the number of positive catalysts to outweigh negative catalysts requires a ratio of 2:1 or even 3:1. Meaning my interpretation is that it will take 2-3 positive catalysts to cancel out the technical damage from 1 negative catalyst.
To cancel out the Japan Carry Trade selloff we needed 1.) Bank of Japan walking back hawkish statements AND 2.) Unemployment Claims being in-line with expectations.
Today’s unemployment claims was less bad than feared and that is now inspiring a 4th attempt for NQ to clear 18500.
1st Attempt on Tuesday 8/6: Failed at 18480 around 230pm
2nd/3rd Attempt on Wednesday 8/7: Failed at 18400 in the overnight session and failed at 18550 in regular cash session around 11am
4th Attempt on Thursday 8/8: Now in motion.
Given that many of my DCF Stocks showed they were in the Bear Case levels, I again shared yesterday with members that I believed a bounce will occur on the SOXX ETF names that are in that region.
All names are seeing massive rallies today. See blurb here.
Now why do I keep mentioning this 18500 level on NQ? It’s because I personally think it’s incredibly, incredibly important.
I’ll discuss with Members below why.
Below is the Weekly Chart for the QQQ ETF (which is the investor ETF that tracks NQ)
We can see that this past week has seen a painful liquidation type of selling pressure that has broken the long-term macro uptrend that has been built since the 2023 bull market started.
I believe it is absolutely critical that we re-enter this uptrend channel as soon as possible. The more time the market spends away from this trend line, the more challenging (still possible, just harder) it will be to reclaim it in the future.
As of this post, we are very close. That trend line seen in the QQQ ETF chart below corresponds to approximately ~18500 on NQ, which is why I keep referencing it.
IF (this is a big if) we can re-enter this upside channel with force tomorrow or next week, this week will count as a massive failed breakdown on higher timeframes and algorithms will be trend-following bullish bets from here again over the intermediate/longer term.
Upside however will always come with its characteristics (higher lows/pullbacks/choppiness before next legs higher). It won’t be a straight line.
The lows of this week corresponded with seeing the Bear Case across almost all stocks within my DCF analysis on Semiconductor companies.
My Bear Case scenario are all deep-recession oriented scenarios that would play out only if there is severe profit margin deterioration, dramatically tight financial conditions from hawkish Fed, and greatly reduced valuation multiples.
As of now, my personal thinking is that there is about 65% chance that we reclaim this channel. I give it a 65% chance because we saw my DCF Bear Case on Semiconductors (the market’s leadership group) get tested twice, and they’re holding in both instances.
There is a 35% chance that it fails. Where does this 35% chance come from? Unexpectedly weak U.S. economic data. Investors are laser focused on domestic economic data. If economic data is weak, my Bear Case on semis may get tested again, but this time I am unsure if it will hold and I will be forced to revise my positive outlook.
I really would like to NOT see my Bear Cases tested again on Semis and Big Tech. This would be very bearish in my opinion, and I’d be forced to issue defensive guidance (raise cash, etc) out of responsibility.
Among all the future economic data, I think the most important is anything related to labor market data (even PMIs and ISMs are more important now). Inflation is important but now secondary to jobs market proxy data. The Fed’s language regarding the jobs market is more important than their commentary on inflation. This is because the jobs market directly impacts DCF Values through margin expectations whereas inflation hits margins through secondary-order effects.
Important DCF Tables Below (This will be included in each Email as reference points).
Exhibit 1: SOXX Semiconductor ETF Names