Before the Bell April 25

Inspiration 

Just like on any journey, if you are open to the directional markers along the side of the road, you will find your destination. In your trading journey, its no different. It’s all about understanding, recognizing in real-time, then defeating the negative emotions and actions that undercut you and your performance on a daily basis. It’s about slaying dragons and that is tough work. One of the interesting things I have discovered in talking to struggling traders is that they already know what the problem is.  Whether it is position sizing; ignoring or not having stops; or adding to losers because they can’t accept being wrong they keep on repeating the same mistakes over and over again. At a certain point, whatever your specific issue is, tackle it head on. You’ll eventually have a breakthrough and then you’ll be on your way. Keep at it. You can get there!

Earnings

This will be a pivotal week of earnings as much of mega-cap tech reports. Make note of when the big names report, especially if you are in the Q’s or individual names. These names can / will move the entire market.

Weekend Video

Yesterday I did what I consider an important video where I identify the key market internals to watch to look for signs for a capitulation low.  If you missed it, take a look. Run the Video at 1.5x. Find it HERE

Today’s Companion Video  

The video is a detailed technical review of the indexes and FATMAAN names. All the key trading levels are identified along with commentary and trade plans for each ticker. Trade ideas are also discussed.  Run the video at  1.5x to maximize efficiency without loss of clarity.

Find the Companion Video HERE

Macro Data Releases Week of April 25

• Monday –  Chicago Fed; Dallas Fed
• Tuesday – Durable Goods; New Home Sales; Consumer Confidence; Case-Shiller Home Prices; Richmond Fed; 2 yr Bond Auction 1pm
• Wednesday – Intl Trade; Retail & Wholesale inventories; Pending Home Sales; Oil Inventories; 5yr bond auction
• Thursday – GDP; Jobless Claims; NatGas Inv; KC fed; 7yr Bond Auctions
• Friday – Personal Income; Employment Cost index; Chicago PMI; MI consumer Sentiment

Bears take Control

Rather than trying to craft a witty narrative, I am just gonna do a thought stream of bullet points.

• US Markets
  • Bears took firm control Friday with all sectors and even commodities succumbed to selling pressure.
  • All eyes now on the Feb / March lows.
  • Potential for panic flush today.
• China Demand in Question
  • While the world emerges from draconian covid lockdowns and restrictions, China has gone full Stalin with cities having the population of Florida are locked tight.
    • FoxConn reported yesterday it is suspending production at 2 AAPL facilities due to covid
  • This is whacking commodity demand and causing more logistical nightmares.
    • Iron Ore futures in China were down 12-15% last night
  • Port Backlog.  First Panel shows the ship congestion around China’s shipping ports. Hard to find blue water. THe 2nd panel is a graphical representation of the same thing.  Looks like the Mother of all Backlogs forming.  What you may hear in the days ahead is that the backlog at our US Ports is dwindling, but that will be because ships from China cannot load and leave.
  • 

• China Equities crashing
  • 1. ChiNext down 7%;  2. China Margin debt rolling over 3. China Tech vs US Tech

• China Stress:  YUAN devaluation on par with 2015 deval.

Macro Framework until further notice

Shrinking Liquidity

The combination of aggressive rates hikes and balance sheet run-off are bearish for markets.  Markets thrive in times of ample liquidity and starve in times of low liquidity.  JPOW & Co. now have a singular mission to knock down inflation by the reverse wealth effect. These guys won’t stop until the market is down substantially. There will be lots of trades both bullish and bearish between now and then, but they’ve made themselves clear, they will insist on the market going down. This will be the over-arching theme from now through the summer. Here is an excellent 75min video that explains the linkage between global liquidity and capital markets.   HERE

Persistent Inflation

While inflation may moderate later this year, I think that inflation will be persistent for at least a year. The FOMC’s rate hikes will tighten financial conditions and thus make it tough on financial assets, but it wont affect oil or gas prices, a grain shortage or a myriad of other commodity based inflation inputs that are the root causes of the problem.  s

Commodity Super Cycle

“Spot Prices cure Surpluses; Long-Term Contracts solve shortages”  Jeff Currie Head of Commodities at Goldman Sachs.  Commodities, historically speaking, tend to trend in broad 10 year Boom –  Bust cycles. This is also coincident with capital funding of the sector. The commodity boom of 2000-2008 was met with a wall of capital investment. THis greatly expanded capacity of all manner of commodities. Then from 2012 – 2020 was a period of capital destruction and collapsing returns. The emergence of ESG has constrained re-investment into these “dirty Sectors”.  We are now in the upswing of the commodity cycle.  We are probably in just the first year of the upswing. We are literally YEARs away from seeing supply expand because no capital is yet flowing into the sector.  The exception of course is a recession. A recession will kill demand and cause most asset classes , including commodities.  Here is a 60min podcast that summarizes the commodity situation.  Find it HERE

Earnings Season & Bracket Trades

As earnings season kicks into gear, a reminder that this is prime time for Bracket Trades. Bracket Trades are those trades created when a stock gaps up or down from a news driven event. Bracket Trades are set up as “2nd day trades” where you alarm the high and low of the prior day’s trading range, then patiently wait for price to either break lower or higher from the range.  You then follow price out of the range. I will do my best to help identify them for you, but you can easily find them yourself by doing a sort for “GAP ups” and “GAP Down” on your trading platform.  I add additional filters for only stocks above $10 and at least 500,000 shares traded. You can add additional filters to cut down the sort further. Generally speaking, stocks favor continuing in the direction of the gap higher or lower.

You can find out more about Bracket Trades in the video Run the Player at 1.5x      HERE.

Trades about to Happen

$IAI Broker – Dealer ETF

$MS – Morgan Stanley

$GS – Goldman Sachs

$SCHW – Schwab

INDEX CHARTS

Use the following pivots and levels in your active and swing trading. Added color is provided on the video.  Link above.

IWM Daily

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