Watchlist 17th January 2022

Once again most of the moves made were pre market followed by extensive selling into every pop. Once the fed minutes were released spy managed to break HOD and put in a new high 0.38% compared to the day prior. Which was immediately sold into followed by a gap down. All while rejecting the 10ma.

QQQ continues to reject the 10ma and then gapped below yesterdays low, recovering once again on low volume.

For the past few weeks the pattern is the same. We somehow manage to gap up when most market participants are not involved and then sell heavily into the opening drives. To me this feels like an attempt for large money to exit positions into liquidity, liquidity that is being created by false pretences in pre market moves.

Following on from this point all the major indexes look extremely weak no matter how I look at them. The 50ma on QQQs has just pushed through the 100, the 10ma pushing through the 200.

On SPY we’re seeing the same thing.

Following on from this a lot of the “leaders” which caused this rally in the first place are experiencing slowed growth, earnings misses and weakness. Essentially meaning the names that caused the markets to rip are actually failing and doing so in a dire fashion. All of the “hype stocks” with little fundamental support have collapsed between 50-70%. Those same stocks are now reporting ZERO or negative earnings growth, a lack of cash reserves and no revenue.

Meanwhile GOLD has built a 10 year cup and handle followed by a 2 year bull flag which it’s just broken out of to the upside.

The housing market is now more overpriced than 2007-2008 ever was; thanks to practically zero interest rates floating around for years. Rates which need to be raised. Most of these loans in the UK were taken out just after covid with the average fixed term being 2 years. Meaning most are now coming to an end. I’ve been tracking this for a few years “Yes I’m a nerd” and just last year the cheapest deal you could get was 0.79% for the first two years before it hits “variable rate”. In the last 4 months the cheapest rate has rallied is now 1.39% for a 2 year fixed. The percentage increased on 5 year fixed has jumped even higher.

Should these increase to 3-4% variable which is pretty much guaranteed then a lot of people once again won’t be able to afford their monthly payments. Which means once again they’ll need to sell, however because borrowing costs have increased the price of houses comes down and they’re negative equity. The maths is so simple and is never wrong.

So basically I’m seeing an overextended market, which looks bearish on all time frames. Most of the leading names which helped fuel this rally are missing earnings, slowing in growth and breaking down. Whilst interest rates and inflation push higher and people pile into gold.

Now I just trade the charts, focus on facts and always refrain from keeping a bias. The truth is people allow their emotions to take hold and blur their vision. If you just recently bought a house on a short term fixed rate you’ll want to disagree. If you bought this inflated stocks at highs you’ll want to disagree. If you bought into the pipe dreams of terrible companies who over promise and under deliver; you’ll want to disagree.

Focus on the facts, focus on what the market is telling you and not what you want to tell the market.

If we focus on names which miss earnings with slowing growth they’re unlikely to gap up on any good news. If they do they’ll also likely be sold into. This is EDGE.

I have these kind of thoughts running through my mind every day and just wanted to share briefly, how I decide where the edge is.