From Summer Doldrums to Year-End Surge: How to Profit from Seasonal Trends in Precious Metals and Bitcoin

KEY

TAKEAWAYS

  • Bitcoin, gold, and silver exhibit similar seasonality patterns.
  • Bitcoin, gold, and silver prices largely reflect economic expectations.
  • If you’re bullish on bitcoin, gold, or silver, there are critical levels to watch.

Safe-haven investments like gold, silver, and now Bitcoin have had a bumpy and uncertain rise, but they’ve all ascended despite mixed opinions from analysts. This rise is due to fears of inflation (or slow growth with inflation), record-high US national debt, changing Fed rate expectations, and record purchases by central banks, especially among the BRICS nations.

Except for Fed rate cuts, which might happen sometime toward the end of the year, much of everything mentioned above is likely to continue in the direction they’ve been going—which is against the US dollar(‘s value of).

Bearish Near-Term, Bullish Long-Term

Aside from interest rates remaining steady, if not another hike (depending on the upcoming trio of inflation reports), there’s another reason to anticipate a potential dip before the next leg up: seasonality.

Gold, silver, and Bitcoin all experience summer doldrums. So, based on this expectation, should this seasonal pattern repeat this year, let’s assume there might be a dip in the near-term followed by a potential bullish surge toward the end of the year. If you want to get into any of these safe havens, might this summer be a time to load up on positions?

Tools for Analysis

The objective is to examine the seasonality outlook and compare it to the current price context. To do this, it helps to look at StockCharts’ Seasonality tool and the tools in StockChartsACP to fine-tune your analysis. This article will use the Fibonacci Retracement tool and the Money Flow Index (MFI) to fine-tune its analysis.

Seasonal Hot Summer “Dips” in Gold, Silver, and Bitcoin

Since you’re likely a stock trader or investor, let’s not just look at each asset’s seasonality by itself, but compare its seasonal performance against the S&P 500 ($SPX) to see its historical performance against the broader market (which may bear similarity to your portfolio).

Using StockCharts’ Seasonality tool, pay attention to the following two figures and note that we’re looking at a 10-year seasonality cycle:

  • The bars (and numbers above them) represent the % frequency of the asset closed higher, in this case, relative to the S&P.
  • The % figure at the bottom of the bar reflects the average return over 10 years relative to the S&P 500.

CHART 1. SEASONAL 10-YEAR CHART OF BITCOIN AGAINST THE S&P 500. Note the higher-close rate versus the average returns.

Bitcoin’s higher close rates and returns in June and July are decent, with August being the worst-performing month (summer doldrums). But almost all months tend to get dwarfed by the October higher close rates and returns (89% higher closes and a 22.5% average return).

Now, let’s look at silver’s ($SILVER) performance.

CHART 2. SEASONAL 10-YEAR CHART OF SILVER AGAINST THE S&P 500. Note the weakest performances in June and November vs. its outperformance in December.

Not quite as brilliant as Bitcoin, but silver ($SILVER) is the neglected sibling among the three. Compared to the S&P 500 (remember, we’re not looking at each asset’s seasonality on its own), June through November tend to hover from negative to almost no movement despite the higher closing rates in August and October. November is the worst month for silver, but December is the month the white metal tends to outshine the broader market, with a 67% higher close rate and a 4% return. Again, this supports the bearish to bullish pattern that the market tends to be expecting on a fundamental basis.

And finally, gold.

CHART 3. SEASONAL 10-YEAR CHART OF GOLD AGAINST THE S&P 500. December and January are the strongest months for gold compared to the broader market.

Relative to the S&P, gold’s ($GOLD) performance looks similar to that of silver’s, with November being the worst month and December (but also January) exhibiting the strongest relative performance, with a 67% higher close rate and a 2.3% average return over the last 10 years.

So, if you reshuffle your portfolio with these safe-haven assets, you’d have to figure out which assets you’d be overweight and when while maintaining your broader market portfolio.

CHART 4. DAILY CHART OF BITCOIN. The crypto is in a trading range, but momentum is declining.

According to some analysts, during the traditionally slower summer months, prices may seek a new catalyst, potentially causing Bitcoin to drop below $50,000. Also, note the slight bearish divergence in the declining Money Flow Index (MFI) line and the almost flat range, signaling a drop in buying momentum. Assuming that’s the case, prices would first have to break below support a few points above the 38.2% Fibonacci retracement level (see blue arrow). A drop below this level would likely find support above the 50% Fib level (see blue arrow), below which we see the $50,000 price mark.

There’s likely to be some technical buying activity near this level. However, should prices continue drifting lower, the range between 50% and 61.8%, an ideal buying range, would also coincide with a four-week historical congestion range (see blue rectangle) above which there may be strong support. You should reassess your bullish outlook if the price falls below this level.

CHART 5. DAILY CHART OF SILVER. Note the strong surge in silver. Is it topping or does it have more room to run?

The slight divergence in the MFI shows a stronger price surge against slightly weakening momentum. Still, it makes you wonder if silver may be topping. As an industrial metal, in addition to being a monetary metal, silver has a different fundamental path. Nevertheless, it has a similar seasonality profile to Bitcoin and gold—summer weakness and end-of-year strength.

If prices top at the current highs, silver would have to break below its swing low (see blue dotted line), coinciding with the 23.6% Fib level. A break below this would likely find support at the 38.2% line coinciding with former resistance (see blue arrow). The next swing low, also an ideal buying range for those looking to go long, would be near $26.25, where the 61.8% Fib level sits.

CHART 6. DAILY CHART OF GOLD. Gold looks like it’s topping. But there’s plenty of clear support below it.

It looks like an intermediate-term double-top pattern, but whether this ends up being a correction or a much longer decline depends on several factors, one of which is the Federal Reserve’s rate actions.

Assuming a correction, the blue arrows indicate clear market-based support (and potential resistance-turned-support) levels. These coincide with the 38.2%, 50%, and 61.8% Fib retracements. Similar to the Bitcoin example above, you can also see a downsloping MFI line from the overbought range, indicating a slight weakening in buying pressure. If you’re following the seasonal narrative, near-term weakness followed by a bullish run toward the end of the year, the range between the 50% and 61.8% Fib levels may be a favorable entry. Just be sure to buy when technical conditions, from patterns to momentum,  indicate a strong bullish reversal.

The Takeaway

When “buying the dip,” identify strong reversal patterns and signs of bullish momentum. Despite the mixed opinions analysts may have on these three safe-haven assets, they have all responded to inflation, changing Fed rate expectations, and strong central bank buying (concerning gold, but also as an indication of challenges in the global economy and the US dollar).

Seasonality-wise, these assets often experience summer doldrums, potentially leading to near-term dips before a bullish surge towards the end of the year. If you’re considering going long, this summer might present an opportunity to buy. Keep an eye on the Fib levels.


How to Access the Seasonality Tool

There are different ways to access the seasonality tool in StockCharts. 

  • Click the Charts & Tools tab at the top of the StockCharts page, enter a symbol in the Seasonality panel, and click “Go.” 
  • Enter the symbol in the ChartBar at the top of the page and select “Seasonality” from the dropdown menu on the left.
  • From Your Dashboard, in Member Tools, click on Seasonality.
  • Below the seasonality chart, you’ll find links to instructions and quick tips that give more detailed instructions.


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

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#Summer #Doldrums #YearEnd #Surge #Profit #Seasonal #Trends #Precious #Metals #Bitcoin

S&P 500 Makes a New All-Time High By End of June?

We’ve been covering the signs of weakness for stocks, from the bearish divergences in March, to the mega-cap growth stocks breaking through their 50-day moving averages, to even the dramatic increase in volatility often associated with major market tops. While Q1 was marked by broad market strength and plenty of new 52-week highs, Q2 has so far provided a much different playbook for investors. Both bulls and bears have felt validated by the recent choppiness for the major market averages.

Over the last week, the S&P 500 managed to gain about 2.7%, despite some hotter-than-expected inflation data and a mixed bag of earnings for the Magnificent 7 stocks. Does this set us up for much further gains, and a potential break to new all-time highs, as we continue through the second quarter? Or are we currently experiencing the “dead cat bounce” phase with a countertrend move to the upside before the great bear market continues?

Psst! Check out the January 2024 edition of this exercise, and guess which scenario actually played out!

Today, we’ll lay out four potential outcomes for the S&P 500 index. As I share each of these four future paths, I’ll describe the market conditions that would likely be involved, and I’ll also share my estimated probability for each scenario. And remember, the point of this exercise is threefold:

  1. Consider all four potential future paths for the index, think about what would cause each scenario to unfold in terms of the macro drivers, and review what signals/patterns/indicators would confirm the scenario.
  2. Decide which scenario you feel is most likely, and why you think that’s the case. Don’t forget to drop me a comment and let me know your vote!
  3. Think about how each of the four scenarios would impact your current portfolio. How would you manage risk in each case? How and when would you take action to adapt to this new reality?

Let’s start with the most optimistic scenario, involving a move to new all-time highs over the next six to eight weeks.

Option 1: The Very Bullish Scenario

If you think the April pullback was just another buyable dip within a primary bullish trend, then the Very Bullish Scenario is for you. This scenario would be made possible only if the Magnificent 7 stocks returned to their former magnificent ways, with stocks like AMZN and NVDA following GOOGL in making new all-time highs.

We’d need to see economic indicators, especially inflation readings, come in much weaker, which would give the Fed confidence to begin cutting rates at the June Fed meeting. By the end of June, we’d be talking about the S&P 500 breaking above 5500, and even 6000 could be on the table.

Dave’s Vote: 10%

Option 2: The Mildly Bullish Scenario

What if the S&P manages to hold the April low around 4950, but is unable to push to new all-time highs? Scenario 2 could mean that value-oriented sectors like industrials and materials experience a resurgence, outpacing the growth leadership stocks from Q1. But since these sectors are much lower weight in the S&P 500, it’s just not enough market cap to move the needle on the major benchmarks.

Perhaps the rest of earnings season yields mixed results, and by the end of Q2 we are left with more questions than answers as the Fed is unable to commit to aggressive rate cuts. Interest rates remain elevated, which creates a major headwind for growth stocks.

Dave’s vote: 30%

Option 3: The Mildly Bearish Scenario

Now we get to two scenarios that would mean a more bearish picture emerges in the coming weeks. Scenario 3 would mean the S&P 500 is unable to hold the April low around 4950, but we remain above a 38.2% retracement level around 4820. The Fed either delays its first rate cut or uses language that exudes little confidence in multiple additional rate cuts in 2024.

The Magnificent 7 stocks would be choppy at best, and as they stall out attempting to return to new all-time highs, investors see that as a signal of limited upside. Gold and gold stocks become the trade of the day, as investors are looking for anything other than stocks to try and generate positive returns.

Dave’s vote: 45%

Option 4: The Super Bearish Scenario

You always have to include a doomsday scenario, and our final option would mean the April selloff was indeed just the beginning. May and June are marked with lower lows and lower highs, and Q2 feels very similar to September and October of 2023. The S&P 500 breaks through Fibonacci support around 4820, and even pushes below the 200-day moving average for the first time since the October 2023 low.

What could cause this last scenario? Economic data could come in way higher than expected, and the Fed could then become unwilling to cut rates while the economy shows signs of renewed strength. The market braces for “higher for longer” interest rates, growth-oriented sectors like technology and communication services begin the lead the way lower, and defensive sectors bump higher as investors ignite the “flight for safety” trade.

Dave’s vote: 15%

What probabilities would you assign to each of these four scenarios? Check out the video below, and then drop a comment with which scenario you select and why!

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!


David Keller, CMT

Chief Market Strategist

StockCharts.com


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
Learn More

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#AllTime #High #June

Ready Yourself for 2024 With Macro to Micro Analysis

For the new year, we have given you an extensive 3-pronged look at the markets.

First, we have the general outlook for the economy and markets through the Outlook 2024. This is the general outlook for 2024, including the recap of 2023 and how the predictions I made then played out. It includes a comparison in inflation and disinflation patterns of the 1970s and now. It also includes all the indices and the general outlook for key sectors and the bonds, dollar, metals, and so on.

Moreover, we look at the Economic Modern Family and their outliers through charts and analysis. Also included are overall trends to watch, plus picks.

One other area I cover in the Outlook 2024 is the teachings of Raymond Lo and how he sees the upcoming Year of the Dragon. Part of my comments on his analysis is based on this statement by Lo:

“Many has the misunderstanding that the Dragon is glamorous auspicious animal and will always bring good luck. To the contrary, Dragon and Dog in the 12-animal system is called the “Gate to Heaven and Hell” or the “Net of Heaven and Hell”.

General Thoughts

2024 could see gains; however, we are agnostic and definitely looking to charts. SPY needs to hold 4600 as our line in the sand, and small caps need to hold over 2000. Plus, in January, we will have a 6-month calendar reset this year with the election; instruments that fail the calendar range lows could set the stage for a broader selloff, while instruments that rally above the calendar range highs can be the bigger winners, at least for the first half of the year. Nonetheless, we have keen eyes on junk bonds, which, despite rallying, have well underperformed the indices. If they hold, great; if not, we take that as a warning.

With the anticipation of Fed lowering rates multiple times, we also want to see Fed Fund rates stabilize and not fall too dramatically, as those could be the signs of recession that we seemingly avoided in 2023. Additionally, we expounded with Daily newsletters.

From Gold and Silver

For last year’s Outlook, I wrote:

Perhaps our biggest callout for a major rally in 2023 is in gold.

Here we are over $2000 and, although gold has not doubled in price, it did rise by 25%.

For 2024, we stay with our call for higher gold prices. I am looking for a move to $2400, provided gold continues to hold $1980.

That statement was from December 1st. To add to that statement:

Trends for 2024 — Gold and Silver start their Last Hurrah.

From 17 Predictions

With certain areas of inflation coming down, although still higher than what numbers suggest, the discussion of the rate hike cycle at the end is controversial. Statistically, there has been a major financial failure at the end of each rate hike cycle since 1965.

Currently, the catalyst for financial stress could be the rising debt, rising spending, geopolitical issues impacting supply chain and a contentious election year. And anything that gooses inflation will stop the Fed from cutting.

January 2024 will see a new 6-month calendar range reset — it will be very important this time, with many predicting the end of the first quarter with a selloff. Although the stats are on the side of a higher market, this year of the dragon suggests some irritation that could turn the market on its side with more volatility.

To be prepared check out our predictions.

From The Vanity Trade 2024: All About Me!

According to Wikipedia, “Self-help or self-improvement is a self-directed improvement of oneself—economically, physically, intellectually, or emotionally—often with a substantial psychological basis.”

In the Outlook 2024, I quote Raymond Lo yet again,

“The Dragon is considered a ‘Star of Arts.’ The industries that will perform better in the Year of the Dragon will be related to the Metal and Wood elements. Metal industries are beauty and skin care; wood industries are media, fashion….”

This got me thinking about the consumer and the habits of 2023 and how they could continue or change in 2024.

With disposable income still quite high, consumers who spent the last half of 2023 in YOLO or revenge spending go into vanity mode in 2024.

Fashion, beauty, skincare, elective surgeries, self-help, diet drugs, and maybe dating stocks do well.

This daily includes lots of picks to put on your radar.


Click this link to get your free copy of the Outlook 2024 and stay in the loop!

Thank you, all my loyal readers, followers, clients and colleagues, for making 2023 so successful. Here is to a VERY HEALTHY, HAPPY and PROSPEROUS NEW YEAR!!!


This is for educational purposes only. Trading comes with risk.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at [email protected], our Head of Institutional Sales. Cell: 612-518-2482.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

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Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth.

Grow your wealth today and plant your money tree!

“I grew my money tree and so can you!” – Mish Schneider

Follow Mish on X @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Mish and team look at 2023 and make several predictions on commodities and trends for 2024 and vanity stocks in Benzinga Pre Market Prep.

Mish discusses gold, silver and why self care and “all about me” can trend in 2024 in this video from Yahoo! Finance.


Coming Up:

January 2: The Final Bar with David Keller, StockCharts TV & Making Money with Charles Payne, Fox Business & BNN Bloomberg

January 3: Real Vision IP Group Special Presentation

January 5: Daily Briefing, Real Vision

January 22: Your Daily Five, StockCharts TV

January 24: Yahoo! Finance

Weekly: Business First AM, CMC Markets


  • S&P 500 (SPY): 480 all-time highs, 460 underlying support.
  • Russell 2000 (IWM): 200 pivotal.
  • Dow (DIA): Needs to hold 370.
  • Nasdaq (QQQ): 410 pivotal.
  • Regional Banks (KRE): 47 support, 55 resistance.
  • Semiconductors (SMH): 174 pivotal support to hold this month.
  • Transportation (IYT): Needs to hold 250.
  • Biotechnology (IBB): 130 pivotal support.
  • Retail (XRT): The longer this stays over 70.00 the better!

Mish Schneider

MarketGauge.com

Director of Trading Research and Education



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#Ready #Macro #Micro #Analysis

With the Fed on Hold, Santa Just Revved Up the Sled; Think Value

The Santa Claus rally has left the station and is barreling down the tracks, as the Federal Reserve is on hold. 

Before I took a week off from writing this column for the Thanksgiving holiday, I wrote: “Regular readers of this column were not surprised by the rally, given the multiple alerts I posted noting the likelihood of a meaningful market bottom emerging due to the extraordinary technical picture which had developed in the bond market, and the ensuing gloom and doom in stocks as early as September 2023. And although there are no guarantees, the ongoing rally in both stocks and bonds has a great chance of continuing, due to the bullish seasonality which kicks into high gear with the traditional Thanksgiving rally.”

Here’s why we’re rallying. At least three voting members of the FOMC, including Chairman Powell, have made the following clear:

  • No easing in in the cards for now;
  • The Fed is prepared to tighten further if needed; but
  • Unless inflation data worsens, the interest rate hiking cycle is likely over.

All of which adds up to stocks moving higher in the short term, unless something bad happens that derails the bullish sentiment; think CPI, PPI, and the FOMC meeting, which are all approaching. Moreover, there is some evidence that overbought sectors of the market, such as technology, are starting to struggle, which means that some sort of sector rotation is well overdue.

So far, so good; but what’s next?

Bond Yields and Mortgages Continue Bullish Decline

The first part of the answer to the above question lies in the bond market, where rates continue to fall and seem headed lower at a rapid clip. The U.S. Ten Year Note yield (TNX) is now well below 4.5% and its 50-day moving average. Moreover, it just broke below the 4.3%-4.4% support area, and looks headed for 4%.

Even more impressive is the move down in mortgage rates (MORTGAGE), which looks set to test the 7% area and may move as low as 6.8%, the 50-day moving average for this series.

As expected, amongst the major beneficiaries of the lower interest rates have been the homebuilders, as reflected in the recent price action for the SPDR S&P Homebuilders ETF (XHB), which broke out to a new high on the latest decline in TNX.

In addition, the long-term fundamentals of supply and demand in the housing market remain in favor of the homebuilders and related sectors. These include real estate investment trusts (REITs), which specialize in home rentals and related businesses.

You can see the bullish influence of lower interest rates on Nuveen Short Term REIT ETF (NURE) which is now testing its 200-day moving average. This ETF specializes in rental properties. A move above $30 in REZ is likely to deliver higher prices.

Sector Rotation is Likely

The REIT sector is certainly a place where value investors can find excellent ways to put money to work. But it’s not the only area that has been overlooked by the market lately, and which should benefit from a sector rotation.

Over the last few weeks in this space, I’ve been focusing on value investing, a topic in which I recently expanded in my latest Your Daily Five video, which you can catch here. That’s because growth stocks have become overbought and are due for a pause, while there are still plenty of investors and money managers who missed the October bottom and are being forced to play catchup before the year ends.

You can see this dynamic playing out by comparing the action in the S&P 500 Citigroup Pure Growth Index (SPXPG) to the trend in the S&P 500 Citigroup Pure Growth Index (SPXPV) index.

The growth index has been trading ahead of the value index for the past several weeks, but is now struggling near the 15800 chart point. Meanwhile, the value index has extended its move with greater momentum. You can appreciate the differences in the strengths of the move via the Pure Price Momentum indicators (PMO) for both where the PMO for SPXPV is much stronger.

All of this suggests that the next leg up in the market, barring something bad happening, will likely be led by value stocks.

For more on homebuilder stocks, click here.

The Unloved Energy Sector

After the amazing summer rally in the oil markets, things have cooled off dramatically. At the center of the decline in crude and the fossil fuel sector has been an oversupply of product. On the one hand, higher well efficiency in the U.S. shale sector has increased supply. On the other hand, as usual, OPEC + has not fully stuck to its highly publicized production cuts.

Yet the recent collapse in the clean energy stocks puts a different emphasis on the traditional energy sector, which is why it’s worth looking at the action in the Energy Select Sector SPDR Fund (XLE), where big oil and gas companies are aggregated.

What stands out the most is that even as crude oil prices (WTIC) have come well off their recent top, XLE’s decline has been a lot gentler. In fact, XLE is still trading above its 200-day moving average, which puts it technically in a bullish trend. In addition, the ETF is starting to show signs of moving away (to the upside) from a large VBP bar near $85. Above, there is more resistance from the 50-day moving average and a cluster of VBP bars all the way to $89.

Nevertheless, with components such as BP Plc (BP) trading at seven times earnings while yielding 4.81%, you have to wonder how long before value investors come a-knocking at the door of this sector.

Aside from recommending multiple big winners in the homebuilder and technology sectors, I recently recommended an energy stock which likely to move decidedly higher regardless of what the price of oil does. Join the smart money at Joe Duarte in the Money Options.com, where you can have access to this ETF and a wide variety of bullish stock picks FREE with a two week trial subscription

Market Breadth is Now Bullish

The NYSE Advance Decline line (NYAD) is back in bullish territory, coursing above its 50- and 200-day moving averages. So, while there is improvement, we don’t have a definitively bullish long-term signal for the market’s trend, yet. If there is a downside, it’s that the RSI indicator is nearing an overbought situation. However, at this stage of the rally, NYAD’s rate of climb may slow, but does not look as if it will fully reverse in the short term.

The Nasdaq 100 Index (NDX) looks a bit tired and needs a rest. The index has struggled to move above 16,000. Both ADI and OBV are flattening out as profit-taking increases.

The S&P 500 (SPX) remained above 4500 and could well move above 4600. This is not surprising, as many value stocks are now pushing SPX higher.

VIX is Back Below 20

The CBOE Volatility Index (VIX) continues to fall, closing below 15 last week. This is bullish.

A rising VIX means traders are buying large volumes of put options. Rising put option volume from leads market makers to sell stock index futures, hedging their risk. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying. This causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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#Fed #Hold #Santa #Revved #Sled

In Bullish Trends, Seek Value and Momentum; Three Sectors to Watch as Year-End Rally Progresses

The combination of a pause in the Fed’s rate hikes and strong year-end seasonal tendencies have created an opportunity for investors to end the year on a positive note. The fly in the ointment, in the short term, could be a bad set of readings on the upcoming Consumer (CPI) and Producer (PPI) price gauges. Aside from that, the negative sentiment on Wall Street is still thick enough to push prices higher.

As I noted last week, “The stock market seems to have bottomed, as short sellers panicked and recently frightened buyers rushed back into the markets. It’s about time, as the signs of a pending reversal have been in place for the past two months, namely a slowing economy and fears about the Fed’s rate hike cycle, which have been mounting as investor’s pessimism rose to a fever pitch.”

On the other hand, Fed Chairman Powell proved once again that a few words can kill any rally, when he noted the central bank was “not confident” that inflation was fully vanquished on 11/9/23 and stocks sank. Whether that was just tough talk or a sign that he knows what the CPI and PPI numbers will show is anyone’s guess. Thankfully, the market recovered, although, as I discuss below, breadth remains weaker than one would hope for.

That said, there is no substitute for being prepared for any eventuality. For now, the trend is bullish, so here are three groups that should move higher, barring any unpleasant surprises.

It’s What’s Inside That Matters; Three Sectors Worth Watching as the Year End Rally Develops

Most investors focus on areas of the market which are exhibiting strength. That’s because, in bull markets, strength usually leads to further strength. This, of course, is the essence of momentum investing.

At the same time, it’s also useful to review the action in weak sectors, as underperformers are often future areas of value. Moreover, it’s important to know what you’re buying. Here is what I mean.

The software sector encompasses a wide swath of companies ranging from security companies to app developers, along with those in the increasingly popular AI sector. With so many companies, it’s often more practical to buy into a diversified portfolio, such as an ETF.

One such ETF is the Invesco Dynamic Software ETF (IGPT), recently renamed Invesco AI and Next Gen Software ETF, which is closing in on what could be a major breakout. But don’t let the title fool you; this ETF holds the usual large-cap tech stocks that typically rally when the tech sector moves into a rising trend, such as what is currently developing and is evident in the price chart for the Invesco QQQ Trust ETF (QQQ). QQQ holds many of the same companies, but currently trades at ten times the price of IGPT.

So, you can pay ten times more for QQQ, or get the same general market exposure via IGPT for a fraction of the price. Consider that IGPT is currently trading below $40 per share, which means you can own shares in Meta (META), Alphabet (GOOGL), Adobe (ADBE), and even NVDIA (NVDA) for a fraction of the price of each of these blue chips.

And here’s what the price chart is telling us regarding IGPT:

  • The ETF is back in bullish territory, as it just crossed above its 200-day moving average;
  • Accumulation/Distribution (ADI) is moving higher after a recent consolidation as short sellers leave the scene;
  • On Balance Volume (OBV) is in an established uptrend, as buyers come in; and
  • A move above $36 will likely take this ETF higher, as long as the bullish trend in the technology sector remains in place.

Another bullish sector which remains undervalued is the uranium mining sector, as in the Global X Uranium ETF (URA), in which I own shares and which is a core holding at Joe Duarte in the Money Options.com. Nuclear power is slowly becoming an option for areas of the world which are trying to find a compromise between clean fuels and reliable power generation.

URA’s appeal has been boosted by the demise of the renewable power sector over the last few months, due to the expense burden and supply chain challenges required to build wind turbines. Note the difference in the performance of URA versus the First Trust ISE Global Wind Energy ETF (FAN).

For one, URA is in a bullish consolidation pattern after its recent breakout. Note the excellent support at $26, where the 50-day moving average and a large Volume-by-Price (VBP) bar continue to attract buyers. Moreover, note the bullish uptrend in OBV as buyers sneak into the shares.

Certainly, FAN is in a consolidation pattern of its own after its recent collapse. Note, however, that neither ADI or OBV have turned up yet, which means that there is currently little interest in these shares from bullish investors. On the other hand, from a contrarian standpoint, it’s not a bad idea to keep an eye on this ETF as the cycle works itself out. All it would take for this sector to bottom out would be something like a large infusion of government cash, such as what may be materializing in Europe, according to reports.

I recently recommended an ETF which is now breaking out in a big way. Join the smart money at Joe Duarte in the Money Options.com, where you can have access to this ETF and a wide variety of bullish stock picks FREE with a two-week trial subscription.

Bonds Retain Bullish Tone Ahead of Inflation Numbers

As I noted last week, bond yields have made at least a short-term top. In fact, just three weeks ago, the U.S. Ten Year note yield (TNX) hit the 5% point, an event that unhinged both stock and bond traders.

Since then, things have quieted down and TNX has settled into a trading range, with 4.5% and the 50-day moving average as the floor.

If the inflation numbers are bullish, and TNX breaks below 4.5%, expect a big move up in stocks.

Keep an eye on the SPDR S&P Homebuilders ETF (XHB), specially the $78-$80 area. If CPI and PPI are bullish and bond yields fall, XHB should rise as short sellers get squeezed. Note the improvement in ADI, as the shorts cover their bets, while OBV is still holding steady, as buyers remain patient.

I’ve recently posted several detailed articles on mortgage rates, bonds, and homebuilders at my Buy Me a Coffee page. You can access them here. For the perfect price chart set up, check out my latest Your Daily Five video here.

Market Breadth Lags Rally as Indexes Outperform

The NYSE Advance Decline line (NYAD) has bottomed out, but has yet to cross above its 50- or 200-day moving averages. So, for now, NYAD is neutral to slightly positive. If it doesn’t show a bit more pop in the next few weeks, it may signal that the rally will have short legs.

In contrast, the Nasdaq 100 Index (NDX) is nearing a breakout after rallying above its 50-day moving average. Both ADI and OBV turned higher as short sellers cover (ADI) and buyers move in (OBV). A move above 15,800-16,000 would likely extend the rally further.

The S&P 500 (SPX) is also lagging NDX, but has delivered a minor breakout above 4400. SPX is well above its 200-day moving average, returning to bullish territory after its recent dip below 4150. Moreover, it has now survived a test of the 4350 support area.

VIX is Back Below 20

The CBOE Volatility Index (VIX) is well below 20. This is bullish.

A rising VIX means traders are buying large volumes of put options. Rising put option volume from leads market makers to sell stock index futures, hedging their risk. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying. This causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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Santa May Be Warming Up His Sled; What’s Next? Watch the Fed and the Bond Market

The traditional year-end rally may have started with last week’s liftoff on Wall Street, as the Fed’s rate hikes start to bite and the economy shows signs of slowing. Investors hope the economy slows just enough to reduce inflation.

The stock market seems to have bottomed, as short sellers panicked and recently frightened buyers rushed back into the markets. It’s about time, as the signs of a pending reversal have been in place for the past two months, namely a slowing economy and fears about the Fed’s rate hike cycle, which have been mounting as investor’s pessimism rose to a fever pitch. Moreover, the self-perpetuating talk of doom loops led to a bout of panic selling, which reversed as the Fed held rates steady and Friday’s employment report showed a cooling in the labor market.

Of course, there are no certainties in any market. And this rally could easily fizzle. But the longer stocks hold up and bond yields remain subdued, the higher the odds of the rally intensifying.

Buckle up! Santa may be warming up his sled.

The Signs Were There

I’ve been expecting a major reversal in both bonds and stocks since September when the selling in the U.S. Treasury market, and the subsequent rise in yields entered an absurd trading pattern. I chronicled the entire process, including the likelihood of a pending reversal in bond yields on October 15, 2023, when I wrote:

“The slightly-hotter-than-predicted PPI and CPI numbers certainly put a temporary damper on the recent short-covering rally in stocks and bonds, raising investor fears about further interest rate increases. But, as I’ve noted recently, fear is often the prelude to a buying opportunity. Such an opportunity may be developing in the U.S. Treasury Bond market and related interest-sensitive sectors of the stock market, such as homebuilders, real estate investment trusts, and select technology stocks.”

Prior to that, I had suggested that a historic buying opportunity in homebuilder stocks was approaching, while providing an actionable trading plan for such a development here.

Last week, in this space, I wrote: “The stock market is increasingly oversold, so investors should prepare for a potential bounce before the end of the year, especially given the usual bullish seasonality which begins in November and can run through January.”

Bond Yields Crash and Burn and Stocks Respond with Bullish Reversal and Broad Rally

What a difference a week makes, especially in the strange world of the U.S. Treasury bond market. Just two weeks ago, the U.S. Ten Year note yield (TNX) tagged 5%, a chart point which triggered heavy selling in stocks from the mechanical trading crowd, also known as commodity trading advisors (CTAs) and their hedge fund brethren. The selling was further enhanced by headlines about mortgage rates moving above 8%.

But as I noted here, the selling spree had the smell of panic, especially given the lack of a new low in the RSI indicator, when the New York Stock Exchange Advance Decline line (NYAD), as I describe below, made a lower low. The key was whether NYAD broke below its March lows, which it didn’t. This provided the perfect setup for a massive short squeeze, which is currently unfolding.

Here are some details. The U.S. Ten Year Note yield has rolled over, with two significant technical developments occurring:

  • TNX is now trading inside the upper Bollinger Band, which is two standard deviations above its 200-day moving average. This marks a return to a “normal” trading pattern;
  • It is also testing its 50-day moving average and the 4.5% yield area. Normal trading action suggests that a consolidation in this area should occur before TNX makes a move toward 4.3%; and
  • Bullishly for the homebuilder and housing-related real estate stocks, as well as the rest of the market, mortgage rates seem to have topped out as well.

Moreover, as I discuss below, the rally seems be quite broad, as measured by the New York Stock Exchange Advance Decline line. In addition, money is moving back into large-cap technology stocks, as in the Invesco QQQ Trust (QQQ), which also rebounded above its 50-day moving average. Especially encouraging on this price chart is the rally in On Balance Volume (OBV), which signals that the rally is being fueled by real buying along with short-covering, as evidenced by a rising ADI line.

Big tech certainly got a boost, as Microsoft (MSFT) continued its recent climb and is approaching a potential breakout which, if left unhindered, could well take the stock to the $400 area in the next few weeks.

But it’s not just big tech that’s rising. A less obvious member of the QQQ stable, food producer and packager Mondelez (MDLZ), has been quietly moving higher and is now approaching its 200-day moving average. MDLZ’s On Balance Volume (OBV) line is rising nicely as money piles into the shares.

Huge Potential Gains Lurk in Homebuilders

Even better is the unfolding rebound above the 200-day moving average in the SPDR S&P Homebuilders ETF (XHB), where OBV is exhibiting an equally bullish trading pattern. As I noted above, I issued a Buy alert on the homebuilders a few weeks ago, and thus subscribers to my service have been well-positioned for this move in the sector.

Consequently, the rally in the homebuilders may just be starting, especially if interest rates don’t rise dramatically from current levels. As the price chart above shows, mortgage rates may have topped out, along with bond yields. This reversal is already being reflected in the bullish action visible in the homebuilder stocks. Note the following:

  • Rates are still trading above normal long term trends. 
  • The upper purple line on the chart is two standard deviations above the 200-day moving average.
  • Since mortgage rates follow the trend in TNX (above), the odds favor a further decline in mortgage rates, with the first downside target being 6.5%.

Note the nearly perfect correlation between falling bond yields (TNX), falling mortgage rates, and rising homebuilder stocks (SPHB).

Join the smart money at Joe Duarte in the Money Options.com. You can have a look at my latest recommendations FREE with a two-week trial subscription. And for frequent updates on real estate and housing, click here.

Incidentally, if you’re looking for the perfect price chart set up, check out my latest YD5 video, where I detail one of my favorite bullish setups. This video will prepare you for the next phase in the market. 

Market Breadth Reverses Bearish Trend

The NYSE Advance Decline line (NYAD) did not remain below is March lows for long, and has now nearly fully reversed its bearish trend as it approaches its 200-day moving average. The price chart below shows the similarity between the unfolding market bottom and that which occurred in October 2022. The circled areas highlight this super cool technical phenomenon where the lack of a new low in the RSI, when NYAD made a new low, marked the bottom. Also note the double top in VIX, which is also repeated.

The Nasdaq 100 Index (NDX) rallied above its 50-day moving average, with both ADI and OBV turning higher as short sellers cover (ADI) and buyers move in (OBV).

The S&P 500 (SPX) also rebounded above its 200-day moving average, returning to bullish territory after its recent dip below 4150.

VIX is Back Below 20

The CBOE Volatility Index (VIX) didn’t stay above the 20 level for long, which is a bullish development.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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#Santa #Warming #Sled #Whats #Watch #Fed #Bond #Market

Follow the Smart Money; Technology and Homebuilder Stocks Loved Last Week’s Reversal in Bond Yields

The fear on Wall Street is rising to a fever pitch, as put option buyers recently accelerated their bets against the market while sentiment surveys reached levels of bearishness not seen since last October. As I’ve noted recently, fear is often the prelude to a tradable bounce. When fear runs high, it pays to follow the smart money, which is starting to flow back into stocks.

Fear is Reaching Extreme Levels

With so much fear among investors, stocks have now entered a familiar type of uncomfortable period; specifically, the type where even though the market is oversold, investors continue to fret and sell stocks in panic, as worries of higher interest rates continue to rise. The CBOE Put/Call ratio reading of 1.60 on 10/4/23 and the recent reading of 17 on the CNN Greed-Fear index are both bullish from a contrarian standpoint.

Of course, oversold markets can stay oversold for longer than anyone expects. Yet as long as the market does not make new lows, the odds of a tradable bottom building continue to rise. On the other hand, there is a light at the end of the proverbial tunnel, and that light is not an oncoming train. A sustained top and a subsequent retracement in bond yields will likely trigger a rebound in stocks.

Here’s the laundry list of worries:

  • The Fed continues to push for higher interest rates;
  • The market’s breadth has broken down; and
  • Bond yields remain near multi-year highs.

Yet that may all change rather quickly, as the market’s breadth is showing signs of recovery and bond yields are looking a bit top-heavy. Moreover, it looks as if bargain hunters are moving into two key areas of the market.  

Smart Money Sneaks into Tech Stocks

It wasn’t long ago that Wall Street realized that AI stocks had risen too far too fast, and we saw a breakdown in the entire technology sector. Yet, money is quietly moving back into many of the same stocks that broke down when the so-called “AI bubble” burst in August.

The Invesco QQQ Trust (QQQ) is heavily weighted toward a handful of large-cap tech stocks, including Microsoft (MSFT) and Alphabet (GOOGL). And while it’s still early in what could be a bumpy recovery for the market, given the Fed’s continuing talk of “higher for longer” interest rates, QQQ, which often bottoms out before the rest of the market, may have already made its lows for the current pullback. At this point, the $350 area seems to be decent support, while $370 is the key short-term resistance level. Accumulation/Distribution (ADI) and On Balance Volume (OBV) are both improving as short sellers leave (ADI) and buyers start moving in (OBV).

A perfect example of the quiet flow of smart money can be seen in shares of Alphabet, which has remained in an uptrend throughout the recent market decline and is now within reach of breaking out.

Bond Yields Are Now Totally Crazy

Much to the chagrin of regular readers, I remain fixated on the action in the bond market. That’s because, if you haven’t noticed, stocks are trading in a direct inverse lock step to bond yields. In other words, rising bond yields lead to falling stock prices and vice-versa. You can thank the robot trader farms for that.

Recently, I’ve noted the U.S. Ten Year Treasury Note (TNX) yield has been trading well above its normal trading range. Specifically, TNX has been above the upper Bollinger Band corresponding to its 200-day moving average since August 11, 2022, except for a small dip back inside the band. As I noted in my recent video on Bollinger Bands, this is a very abnormal trading pattern, which usually precedes a meaningful reversal.

Indeed, something may be happening, and we may be in the early stages of the reversal I’ve been expecting. On 10/6/23, we saw an intraday downturn in TNX after what was initially seen as a bearish jobs report delivered an early rise in yields which took TNX to 4.9%.

The above chart shows that bond yields reached a greater extreme reading recently, as TNX closed three standard deviations above its 200-day moving average on 10/2/23 and 10/6/23 (red line at top of chart), expanding the distortion in the market and likely raising the odds of bond yields reversing their recent climb. Rising bond yields have led to rising mortgage rates and weakness the homebuilder stocks, which as I recently noted to subscribers of JoeDuarteInTheMoneyOptions.com and members of my Buy Me a Coffee page here, may be poised for a rebound.

As the chart below shows, rates (MORTGAGE) have skyrocketed in what looks to be an unsustainable move.

Such a move would be expected to trip a major selloff in the homebuilder stocks. But what we saw was the opposite, as the SPDR S&P Homebuilders ETF (XHB) is starting to put in a bottom as bond yields look set to roll over.

The take-home message is that homebuilder stocks are now marching in lockstep to the tune of the bond market. Once bond yields fully reverse, the odds favor a nice move up in homebuilder stocks.

Prepare for the next phase in the market. Join the smart money at JoeDuarteInTheMoneyOptions.com where I have just added five homebuilder stocks to the model portfolios. You can have a look at my latest recommendations FREE with a two week trial subscription. For frequent updates on real estate and housing, click here.

The Market’s Breadth Shows Signs of Stabilizing

The NYSE Advance Decline line (NYAD) fell below its 200-day moving average last week, but cemented its oversold status based on its most recent RSI reading near 30. Of some comfort is that the fledgling bottom in NYAD is developing near its recent March and May bottoms.

The Nasdaq 100 Index (NDX) has survived multiple tests of the 14500-15000 support area. ADI and OBV are both bouncing, which means short covering (ADI) and buying (OBV) are occurring simultaneously.

The S&P 500 (SPX) found support just below 4250 and looks set to test the resistance levels near the 20 and 50-day moving averages in the near future. ADI is rising as short sellers cover their positions. If OBV turns up, it will be even more bullish.

VIX Remains Below 20

As it has done for the past few weeks during which the market has corrected, VIX has remained stubbornly below the 20 area. A move above 20 would be very negative.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity Continues to Tighten

Liquidity is tightening. The Secured Overnight Financing Rate (SOFR), is an approximate sign of the market’s liquidity. It remains near its recent high in response to the Fed’s move and the rise in bond yields. A move below 5.0 would be bullish. A move above 5.5% would signal that monetary conditions are tightening beyond the Fed’s intentions, which would be very bearish.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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#Follow #Smart #Money #Technology #Homebuilder #Stocks #Loved #Weeks #Reversal #Bond #Yields

‘Own what the Mother of All Bubbles crowd doesn’t.’ This market strategist expects stagflation and is investing for it now.

There’s always a bull market somewhere — if you can find it.

Keith McCullough encourages investors to join him in the hunt. You’ll need to be agnostic and open-minded, the CEO of investment service Hedgeye Risk Management says. If you’re wedded just to U.S. stocks, or the market’s latest darlings, you’re setting yourself up for disappointment — particularly in the hostile environment McCullough sees coming.

This coming challenge for U.S. stock investors, in a word, is stagflation, McCullough says. Stagflation — higher inflation plus slow- or no economic growth — is hardly a bullish outlook for stocks, but McCullough’s investment process looks for opportunties wherever they may be. Right now that’s led him to put money into health care, gold, Japan, India, Brazil and energy stocks, among others.

In this recent interview, which has been edited for length and clarity, McCullough takes the Federal Reserve and Chair Jerome Powell to the woodshed, offers a warning about the potential fallout from Powell’s upcoming speech at Jackson Hole, Wyo., and implores investors to discount happy talk and always watch what they do, not what they say.

MarketWatch: When we spoke in late May, you criticized the Federal Reserve for being obtuse and myopic in its response to inflation and, later, to the threat of recession. Has the Fed done anything since to give you more confidence?

McCullough: The Fed forecast of the probability of recession should be trusted as much as their “transitory” inflation forecast or a parlor game. People should not have confidence in the Fed’s forecast. The “no-landing” or “soft-landing” thesis is looking backwards. The Fed is grossly underestimating the future, doing what they always do, in looking at the recent past.

Their policy is wed to what they say. They claim they’re not going to cut interest rates until they get to their target. But any hint of the Fed arresting the tightening gives you more inflation. So there’s this perverse relationship where the Fed is the catalyst to bring back the inflation they’ve spent so much time fighting. 

Read: ‘The Fed is way late and they’ve already screwed it up.’ This stock strategist is banking on gold, silver and Treasurys to weather a recession.

MarketWatch: U.S. Inflation has come down quite signficantly over the past year. Doesn’t that show the Fed is well on the way to achieving its 2% target?

McCullough: A lot of people are peacocking and declaring victory over inflation when we’re about to have reflation that sticks. We have inflation heading back towards 3.5% and staying there.

Our inflation forecast is that it’s set to reaccelerate in the next two inflation reports, which will lead to another rate hike in September. The Fed’s view is that until they get to the 2% target they’re not done. A lot of people are really confident because inflation went from 9% to 3% that it’s getting closer to 2%, therefore the Fed is done. Given what Fed Chair Jerome Powell said, the next two inflation reports are critical in determining whether we hike rates in September. I think maybe even one in November. This is a major catalyst for the next leg down in the equity market.

The Fed is going to see inflation go higher, and they’ve already articulated to Wall Street that no matter what happens, that should constitute a rate hike. That’s a policy mistake. They’re going to continue to tighten into a slowdown. When the Fed tightens into a slowdown, things blow up.

MarketWatch: By “things blow up,” you mean the stock market.

McCullough: I don’t think the Fed cuts interest rates until the stock market crashes. The Fed is going to be tightening when the U.S. economy and corporate profits are at a low point, going into the fourth quarter. It’s not dissimilar from 1987 where all of a sudden a market that looked fine got annihilated in very short order. There are a lot of similarities to 1987 now; the market’s quick start in January, people in love with stocks. That’s a catalyst for the stock market to crash.

When the Fed has an inconvenient rule, particularly for the U.S. stock market, they just move the goal posts or change the rule. If they actually started to cut interest rates, inflation would go up faster. This is exactly what happened in the 1970s and what Powell explains is the risk of going dovish too soon – that he becomes [much-criticized former Fed chair] Arthur Burns. That’s why you had rolling recessions in the 1970s; the Fed would go dovish, devalue the U.S. dollar
DX00,
-0.21%
,
and the cost of living for Americans would reflate to levels that are prohibitive.

People can’t afford reflation at the gas pump, or in their health care. It’ll be fascinating to see how Powell pivots from fighting for the people to bailing out Wall Street from another stock market crash, which will therein create the next reflation.

‘The Federal Reserve has set the table for a major event in the U.S. stock market and the credit market.’

MarketWatch: Speaking of a Powell pivot, the Fed chair speaks at Jackson Hole this week. Last year he put markets on notice for rate hikes. What do you think he’ll say this time?

Powell’s going to see inflation accelerating. I think Jackson Hole is going to be a hawkish meeting. That might be the trigger for the stock market.

Take the bond market’s word for it.  The bond market is saying the Fed is going to remain tight and seriously consider another rate hike in September. The reasons why markets crash in October during recession is that the fourth quarter is when companies realize that there’s no soft landing and they need to guide down.

The Federal Reserve has set the table for a major event in the U.S. stock market and the credit market. We’re short high-yield and junk bonds through two ETFs: iShares iBoxx $ High Yield Corporate Bond
HYG
and SPDR Bloomberg High Yield Bond
JNK.
 On the equity side the best thing is to short the cyclicals; I would short the Russell 2000
RUT.

MarketWatch: What’s your advice to stock investors right now about how to reposition their portfolios?

McCullough: Own what the “Mother of All Bubbles” crowd doesn’t. The things we’re most bullish on include gold
GC00,
+0.21%
.
 The Fed is going to keep short term rates high and both the 10 year and 30 year go lower. Gold trades with real interest rates. I think gold can go a lot higher, towards 2,150. Our ETF for gold is SPDR Gold Shares
GLD.

Also, you can be long equities and not take on the heart-attack risk that is the U.S. stock market. I’m long Japanese equities — ETFs for this include iShares MSCI Japan
EWJ
and iShares MSCI Japan Small-Cap
SCJ.

We’re long India with iShares MSCI India
INDA
and iShares MSCI India Small-Cap
SMIN.
Both Japan and India are accelerating economically. Were also long Brazil iShares MSCI Brazil
EWZ,
which is weighted to energy. We are bullish on energy. 

MarketWatch: Clearly accelerating inflation and slowing economic growth is an unhealthy combination for both investors and consumers.

McCullough: What I’m looking for, with inflation reaccelerating, is stagflation.

Stagflation pays the rich and punishes the poor. You want to be the landlord. The prices of things people own are going to go up, and the prices of things you need to live are also going to go up. So for example, we are long energy, uranium and timber as stagflation plays. ETFs we’re using for that include Energy Select Sector SPDR
XLE,
Global X Uranium
URA,
and iShares Global Timber & Forestry
WOOD.

One positive thing that happens from stagflation is that because it’s so hard to find real consumption growth, there’s a premium on the growth you can find.

If there is something that actually accelerates, then those stocks will work, which puts a nice premium on stock picking. You can be long anything that is accelerating because so many things are decelerating. So avoid U.S. consumer, retailers, industrials and financials, which are all decelerating. Health care is our favorite sector, which we own through the ETFs Simplify Health Care
PINK
and SPDR S&P Health Care Equipment
XHE.

Instead, people are betting we’re going to go back to some crazy AI-led growth environment. Now everyone thinks everything is AI and rainbows and puppy dogs. I’m old enough to remember we were in a banking crisis in March. From an intermediate- to longer-term perspective, I don’t know why you wouldn’t want to protect yourself until this inflation cycle plays out.

Also read: Jackson Hole: Fed’s Powell could join rather than fight bond vigilantes as yields surge

More: Will August’s stock-market stumble turn into a rout? Here’s what to watch, says Fundstrat’s Tom Lee.

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The Smart Money Changes Gears; As Tech Weakens, New Leaders Appear

The Fed is flying trial balloons about the end of the interest rate hike cycle, but the technology sector is ignoring them as the smart money move to energy continues.

Last week, Philadelphia Fed Governor Patrick Harker, in a Philadelphia speech, suggested the central banks should pause their rate hikes. Moreover, even though the CPI inflation numbers were relatively tame, markets seemed to focus on the more negative details inside the report, such as persistently high rents and car insurance prices.

Interestingly, producer prices (PPI) rose as well, but much of the climb was due to an increase in fees by money managers – hardly a widespread expense as compared to gasoline and food. Meanwhile, consumer confidence is flat and inflation expectations are improving.

Still, money flows in bonds and stocks suggest otherwise. That’s not a good turn of events, if not reversed, especially when the Fed is trying to gauge the market’s response to a potential extended pause on its rate hikes.

As Tech Weakens, New Leaders Appear

Last week in this space, I noted “short sellers are starting to smell blood in the water in the tech sector.” This week, the evidence piled up further as the bloom is wearing off the AI rose, at least for now. You can see that sellers have gained the upper hand as the Invesco QQQ Trust (QQQ) has broken below its 50-day moving average, as both Accumulation/Distribution (ADI, increasing short sales) and On Balance Volume (OBV, buyers turning into sellers) have also rolled lower.

But QQQ is not alone. A more focused picture of the selling in AI and robotics-related stocks can be seen in the shares of the ROBO Global Robotics and Automation ETF (ROBO), which has fallen back to what may be long-term support near $54. If ROBO fails to hold in this general area, which features two very large Volume-by-Price bars (VBP) and the 200-day moving average as key markers, the decline will likely accelerate.

A stark example of how rising costs are impacting emerging technology companies was the collapse of solar tech company Maxeon Solar Technologies (MAXN), whose shares cratered after the company missed its earnings estimates and lowered forward guidance, citing “falling demand” for its products while partially blaming the situation on higher interest rates.

Meanwhile, shares of energy stocks, such as refiner Valero Energy (VLO), continue to power higher as the fuel supply and demand balance is steadily tipping toward the energy patch. This view is supported by the steady downward pace in the weekly oil rig count. There are now 125 fewer active rigs in the U.S. compared to the same period in 2022.

VLO is emerging above a stout resistance shelf, marked by a large cluster of Volume-by-Price (VBP) bars extending back to the $107 area. A move above $140 would likely lead to higher prices in a hurry. I recently discussed how to spot the smart money’s footprints and how to turn them into profits; you can check out the video here.

Over the last few weeks, I’ve asked whether it’s time to sell the tech rally. What should you do with your energy holdings? And what about the homebuilder stocks and the REITs? The answers are in the model portfolios at Joe Duarte in the Money Options.com, updated weekly, and via Flash Alerts as needed. You can have a look at all of them and my latest recommendations on what to do with each individual pick FREE with a two week trial subscription. And, for an in-depth review of the current situation in the oil market, homebuilders and REITS, click here.

Bonds, Oil, and Stealth Inflation

The lack of enthusiasm from bond traders about the CPI numbers, quirky PPI numbers and a Fed governor suggesting the central bank may stop raising rates soon suggests there is more going on than meets the eye. The answer may be future inflation related to limited supplies of products and services, which are not likely to increase anytime soon, along with the unknowns about the future of global energy prices.

The U.S. Ten-Year Note yield (TNX) briefly dipped below 4% on the CPI news. But the rally didn’t last. And by week’s end, yields were once again moving toward the higher end of the trading range, which has been in place since October 2022.

More concerning is the lack of interest from bond traders regarding deflationary news from China a day earlier, which suggests the bond market is not a believer in the notion that inflation is slowing to the point where the Fed can stop raising rates.

In the present, you can blame their disbelief on the oil market, where volatile supply data and demand news, combined with ongoing reports that U.S. oil production is being curtailed, is moving prices higher.

Moreover, as evidenced by the action in MAXN, above, it’s becoming evident that the ongoing transfer from traditional energy to renewable energy will be more expensive than initially thought. All of which suggests that inflation is becoming stealthily embedded into the system. When you factor in the expected rise in U.S. Treasury bond issuance by the U.S. Treasury and the increasing budget deficits, the indifference from bond traders makes sense.

In other words, even though CPI may have slowed its gains for now, the bottoming of PPI may be a prelude to the near future. Thus, forward-looking bond traders may be considering future shortages of key minerals, the energy to fuel the transition to clean energy, and tight labor.

Specifically, along with poor demand for solar technology, the bond market may be quietly worried about the ongoing problems in the wind energy industry, where costs are reportedly out of control, to the tune of having climbed 20-40% since February 2022. Meanwhile, reports of major technical problems with turbines continue to plague the industry, while governments are beginning to evaluate how much more money they’re willing to put into subsidies.

NYAD Struggles, Major Indexes Extend Losses

The long-term trend for stocks remains up, but the short term is weakening further. The New York Stock Exchange Advance Decline line (NYAD), has broken below its 20-day moving average and may be headed for a test of its 50-day, and perhaps the 200-day, moving averages.

The Nasdaq 100 Index (NDX) has broken below its 50-day moving average and looks headed for a test of the 15,000 level. Accumulation/Distribution (ADI) and On Balance Volume (OBV), remain weak, as short sellers are active and sellers are overtaking buyers.

The S&P 500 (SPX) remained below 4500, and its 20-day moving average, as it approaches a test of its 50-day moving average. Both ADI and OBV are nowhere near uptrends. Support is now around the 4400 area.

VIX Struggles at 20

I’ve been expecting a move higher in VIX, and it seems to have arrived as the index finally moved above the key 15 resistance level. The good news is that the index has yet to break above 20. A move above 20 would be very negative, as it would signal that the big money is finally throwing in the towel on the uptrend.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity Remains Stable

Liquidity is stable, but may not remain so for long if the current fall in stock prices accelerates. The Secured Overnight Financing Rate (SOFR), which recently replaced the Eurodollar Index (XED), but is an approximate sign of the market’s liquidity, just broke to a new high in response to the Fed’s move. A move below 5.0 would be more bullish. A move above 5.5% would signal that monetary conditions are tightening beyond the Fed’s intentions. That would be very bearish.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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In a Double Barrel Bull Market, AI and Housing Rule the Roost

The Federal Reserve is still talking tough via its dot-plot, which forecasts two more interest rate increases before the end of 2023. But the markets are not agreeing. My money, for now, is with the markets.

As I pointed out in my January 2023 video for StockCharts TV’s Your Daily Five, despite constant worries from perplexed traders and dark pundit banter, a credible bottom formed. Since then, stocks have risen and now look set to move higher, likely with occasional pauses. That’s because the rally is broadening out via a rapid improvement in the market’s breadth, which is accompanying the new highs on the major indexes, as I describe later in the article.

In fact, we are currently in what I call a double barrel bull market, where two major groups are pulling the rest of the market higher. The one everyone knows is AI. The other, more quiet but equally bullish, is the housing sector.

Since lots of people have missed the rally and are now playing catch up, the upward momentum will keep going for a while. Of course, this rally can’t, shouldn’t, and won’t last forever. But if history is any guide, the rest of 2023 and much of 2024 have a built in upward bias, at least based on the phenomenon known as the Presidential Cycle; whose major premise is that the Fed raises rates in the first two years of a presidential term (which it has) and lowers them in the last two years (which seems highly likely).

AI Poster Child Makes New Highs

The poster child for the AI rally is the Invesco QQQ Trust (QQQ), as it houses the large-cap tech stocks, which are moving higher based on expectations of large profits in the future from increasing automation and whatever AI eventually delivers.

Last week, QQQ made another series of new highs. But, by Friday, it looked at bit tired. Thus, it makes sense to expect some sort of consolidation. A move back to the 20-day moving average is not out of the question.

Lennar’s Goldilocks Quarter

For the past several years, I’ve written extensively about the homebuilder stocks and related sectors. That’s because this area of the market continues to move higher. Moreover, the more negative investors become on the sector, the higher it goes.

In fact, as I detail in this Your Daily Five video, the homebuilders are in what can only be described as a bullish Megatrend, which shows no sign of slowing.

Take, for instance, the recent action in leading homebuilder Lennar (LEN), a longstanding holding in my Joe Duarte in the Money Options portfolio, and a personal holding. Its most recent earnings report blew past analysts’ expectations on both earnings and revenues as the company again offered a positive outlook. Naturally, the shares broke out to a new high.

What makes Lennar’s earnings most interesting is the company’s management of its inventory – not too hot, not too cold. Moreover, the company’s Executive Chairman Stuart Miller noted that home buyers have come to accept the “new normal” status of interest rates, adding “demand has accelerated.” He concluded by noting: “Simply put, America needs more housing, particularly affordable workforce housing, and demand is strong when price and interest rates are affordable.”

In other words, unless interest rates climb significantly higher, the housing sector, from the point of view of homebuilders, is in better shape than many investors may think.

And here is something else to consider. Lennar is trading at a P/E of 9.46, while Nvidia (NVDA), the biggest benefactor of the AI trend, is trading at a P/E of 54.91.

Bond Yields Hold their Ground

Bond yields remained below their recent top level of 3.8% as 262,000 Americans filed for unemployment benefits, an increase of 17,000 from the prior week. In addition to the stable inflation pictured in CPI and the rolling over of producer prices (PPI) released earlier in the week, bond traders breathed a sigh of relief.

Buried in the jobless claims number were over 7,000 new filings in Texas, the highest number of new claims in the U.S. for the week. Let’s put this in some perspective. Based on recent U.S. Bureau of Labor Statistics numbers, the Lone Star State accounted for 7% of the total U.S. GDP. Moreover, in Q4 2022, Texas accounted for 9.5% of total U.S. GDP, which means the largest economy in the U.S. is starting to feel the pinch of the Fed’s rate hikes.

On the other hand, Texas has received the largest number of new residents of any state in the post-COVID period. All of which means that for now, even in a slower economy, there is still a tight supply of housing combined with high demand. Texas is not alone, as the sunbelt remains attractive to many people looking to escape high taxes and challenging employment situations.

This confluence of data, rising initial jobless claims, slowing inflation, and a coincident slowing of the Chinese economy has led to an encouraging reversal in U.S. Treasury bond yields, which will likely benefit the homebuilders. That’s because, with lower bond yields, we’re already seeing an increase in mortgage activity, as the chart above shows.

The 3.85% yield on the U.S. Ten Year Note remains 3.85%, roughly corresponding to 7% on the average 30-year mortgage. So, if yields remain below this level, the odds favor a continuation of the steady performance of the homebuilder sector.

Incidentally, I have expanded my coverage of the housing and real estate markets in a new section for members of my Buy me a Coffee page, where you will get the inside scoop on what’s happening in these important sectors. This crucial information complements the stock picks at Joe Duarte in the Money Options.com You can start by reviewing my extensive report on the outlook for the homebuilder sector here

NYAD Improves SPX and NDX Look to Consolidate

The New York Stock Exchange Advance Decline line (NYAD) continues to improve. As long as it’s above its 50-day moving average, that’s signaling stocks are back in an uptrend.

The Nasdaq 100 Index (NDX) moved above 15,000 and is due for a pause. But in this market, any pause may be short-lived. ADI and OBV remain in bullish postures.

The S&P 500 (SPX) moved above 4400 and looks set to take a breather. As with NDX, any pause may not last. Both ADI and OBV look to be in good shape.

VIX Makes New Low

The CBOE Volatility Index (VIX) broke to another new low last week as call option buyers overwhelmed the market. As I noted last week, this is probably a little too much bullishness all at once, so I expect a bit of a bounce in VIX, which will likely lead to some backing and filling in the market.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity is Increasingly Stable as Fed Holds Rate Hikes

With the Fed on hold, the market’s liquidity is starting to move sideways, which is a positive. A move below 94 on the Eurodollar Index (XED) would be very bearish, while a move above 95 will be a bullish development. Usually, a stable or rising XED is very bullish for stocks.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
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