Global Equity Indices Now All Weaking

I've been tracking a few countries that have had very resiliant stock markets in the second half of this year. We all know the U.S. equity market has had a major pull-back. Well, up until a month or so ago for Vietnam or just this week in some there has been relative strength. Others include Turkey and UAE even with a declining U.S. market. Vietnam finally had a technical correction in the end of September and UAE and Turkey yesterday. Turkey is still near it's highs on the year however.

Vietnam is still one of my favorite long-term investment prospects with their superior GDP growth and forecasts. Below are the respective charts of these countries equity indices. First is the iShares MSCI Emerging Markets ETF (EEM) that is near lows on the year.

The Vietnam (VNM) pull-back was pretty forcefull off the highs in September.

UAE just had a big red day coinciding with the geopolitical events and conflict. I expect to see more short-term downside here.

Lastly, beginning to weaken Turkey (TUR). I see an opportunity for a short on this market with uptrend levels being broken and the fact it hasn't had a significant pull-back yet. Also, there is the proximity to the conflict that just started in the region that may be bringing some uncertainty to the market there.

I see a short setup or a long put options setup in Teva Pharma (TEVA) based in Israel. I noticed the IZRL ETF that is the Israel Pharma ETF took a large downside move and has downside momentum going off a big gap down.

There is also a very good short setup in (TKC) Turkcell a Turkey company that has just come off a clear bear flag and is making new lows.

Defensive Opportunities In A Continued Risk Off Quarter

I continue to see a risk off environment in equities that has spilled over to emerging markets. The consensus from American conglomerates on China demand and now Chinese data itself is pointing to significant economic contraction in China. The markets in Turkey (TUR), Vietnam (VNM) are holding strong. Vietnam continues to be my favorite opportunity in emerging markets over the long-term.

Last week Bitcoin saw increased selling and volatility. This just adds to the risk off sentiment as Bitcoin, one of the best performing assets this year is joining in on the selling. Below is the breakdown of the trend support currently in the works on Bitcoin. I alerted on the recent top for Bitcoin here on the blog in early 2022.

In light of this overall market weakness I see opportunity in pharmaceuticals with ETF's like VanEck Pharmaceutical ETF (PPH) and I-Shares Pharma ETF (IHE). The ETF's have recently broken out to new 52 week highs and shown relative strength in the market. I'm particularly bullish on the sector because breakthroughs in AI machine learning should improve drug development costs and increase speed of discovery and research.

I've done extensive research on the newest AI via large LLM's(large language models) and the promise of smaller ones. Drugs and biotech are some of the industries they will transform initially. They are the perfect fit for industries where scanning large language databases is key and processing large amounts of data is needed.

The pharma ETF PPH is coming up on a key support level.

Merger Arb Opportunities

There are opportunites in merger arbitrage with Spirit Airlines (SAVE) and I-Robot (IRBT). Spirit is trying to get an all cash deal done with Jetblue for $33.50 a share. Amazon has been in the works and shareholder approved to buy I-Robot for all cash or $51 a share too.

Oil and Gas Energy

Apart from pharma I have seen relative strength in energy stocks. I have particularly been looking at oil and gas stocks as natural gas has pretty much been written off. I'm not particularly bullish on natural gas but the contrarian trade now is nat gas as harsh winter weather is likely not priced in. The best gas ETF is US 12 month Fund (UNL) at it holds long dated contracts and thus has less decay than ETF (UNG). Nobody is bullish on natural gas prices as the technicals have shown a bottom formation forming.

Some of the energy stocks I added to my watchlists were VAALCO (EGY),Helix Energy (HLX), Nextier Oilfield (NEX), KLX Energy (KLXE).

Solar Weakness Continues

Another industry that caught my attention was Solar. It caught my attention as a short opportunity as the weakness in solar continues as evidenced by the Invesco ETF (TAN). I noticed short selling technical setups in stocks like JKS and MAXN too.

I'm bullish on the prospects of breakthrough technology like quantum computing with the help of AI. The quantum computer ETF is Defiance Quantum ETF (QTUM). I also particulary like the quantum computing stock Rigetti Computing (RGTI) as they have one on the cloud.

I continue to believe the investment of our lifetimes going forward will be in artificial intelligence. The best plays on this are the actively managed Roundhill ETF (CHAT) and long established Global X AI ETF (BOTZ) and Robo Global ETF (ROBO).

One good speculative investment opportunity I saw was in the Nigeria country specific Nigeria ETF (NGE). Nigeria NGE has a trailing twelve month 16% dividend yield. 0.83% expense ratio. Politics might be a partial driver of the 28% YTD performance of Nigerian stocks.

"The Tinubu admin also formed a committee on fiscal policy and tax reforms headed by Taiwo Oyedele, signalling the possibility of critical tax reforms"... " Banking and oil gas stocks have been very strong drivers of market performance. Oil and Gas stocks have been on the rise since they took out fuel subsidy from the sector. Added with banking, they are the top two sectors.”

On specific stocks on the long side I see a buy setup in Payments Holdings (PAY) as it saw large buying volume after earnings and is consolidating in a flag now. It needs to hit 14.05 for a long trade. The company has strong revenue and earnings growth. They recently revised quarterly earnings forecasts to the upside. Next years earnings guidance has been raised to $.24 EPS vs previous $.14.

Full disclosure: I have been actively trading the PPH ETF, RGTI. I have puts on JKS, long BOTZ, CHAT. May long NGE in future.

AI Wars Are Beginning In Tech: How To Invest In Artificial Intelligence

Hello loyal readers! Grab a cup of hot coffee or fresh tea. I have a good one for you today!

My goal is to find the best investment opportunities in artificial intelligence and robotics. After researching the technology in-depth I strongly believe this is the best growth industry opportunity to invest in since the 1990's internet boom. We are still early too! I will continue to put my ideas on the blog here, my Substack and my Twitter/X account going forward.



Microsoft recently made a large investment in OpenAI and has already incorporated AI chat technology into it's search engine Bing. We are continuing to see investment as Inflection AI just secured a massive $1.3 billion funding from major investors including Bill Gates.

If you are brand new to AI technology let me give you some quick background on it. Sam Altman and Illya Sutskever used computers to make a "neural network" that was modeled after the human brain. The computers use high powered "GPU's" graphics cards to process the information.

Deep learning has been going on since the early 2000's but it took major breakthroughs in compute to get us to ChatGPT-3 and 4. Previously, the computers were just not powerful enough. Scientists were also not sold on the concept of scaling up neural nets. This all changed in the last 5 years as computer tech advanced. The increased size of the neural nets combined with increased compute brought breakthroughs leading to ChatGPT.

These vast neural nets are called LLM's (large language models). They use NLP (natural language processing) to retrieve info and generate it. So instead of using code to communicate with the computer you can use words. These massive LLM's are being trained on the internet and thousands of books.

If you haven't checked out the future of chat search I recommend going to Bing.com and clicking the chat icon at the top and using the interactive chat bot which utilizes the ChatGPT technology from OpenAI ChatGPT.

Ask Microsoft Copilot to find your results like you would in Google or Safari. It is incredible and free. The difference vs traditional search is you can talk to it like a person and use more detail. Don't be afraid to test it's limits. It's a streamlined chat style search without the ads, unworthy results in Google's top 10, pop-ups, paywalls or wasted time scrolling multiple results pages.

Microsoft and OpenAI are adding things regularly. You can have it write stories, poems or even articles. They now have an AI image creator too. OpenAI is regularly adding features and plug-ins to ChatGPT-4 if you want to pay for the subscription.

I remember the early days of the internet well in the mid and late 90s. The first time I surfed the web it was with Yahoo search at my dads office because we didn't have it at home yet. I am getting the same vibe using AI powered search now.

AI Is Here To Stay

I think some people maybe even Wallstreet are jaded about AI tech from the over-hype of the recent metaverse and web3 and lack of real-world wide scale implementation. Trust me AI and LLM's(Large Language Models) is legitimate and is going to be revolutionary. How revolutionary? I believe AI technology is someday going to be more revolutionary to mankind than the internet, especially if AGI or something like ASI (artificial superintelligence) or any thing near a singularity is reached.

We still are not experts on what goes on in the brain. What exactly would it take to push AI to a level rivaling human creativity? Human innovation only comes from "learning" and experience after all. If we accelerate the learning as resesrchers are doing as I'm writing this how soon could major scientific breakthroughs occur?

It is already creative and solving problems. these models are still the early versions and are being improved. Eventually, from what I am hearing they could take an Albert Einstein, Sir Isaac Newton, and Nicola Tesla bot and have them theorize on advanced physics. This novice version we have with ChatGPT when you use AutoGPT can perform jokes and I'm hearing even a full comedy skit with a hook and final punchline like great comedians do.

Some people are afraid of advancing this technology that has given a massive technological breakthrough already for the average person. It can proof-read writing, fix spelling and grammar and make sentence structure more consice. It can write articles on any subject. It can write a business plan and do web development coding. Think of it like an assistant for your work or hobbies with the entire knowledge of the internet by your side.

There are crucial externalities like potential slowing investment and the overall economy that could slow down the growth of this technology. If things continue as they are going the research I got from using the Bing AI chatbot(now Copilot) paints a very prosperous picture for growth.

Future Growth

"According to Statista, the market for artificial intelligence (AI) is expected to show strong growth in the coming decade. Its value of nearly 100 billion U.S. dollars is expected to grow twentyfold by 2030, up to nearly two trillion U.S. dollars. These figures are regularly being updated by big banks and analysts as the demand for Nvidia GPUs remains robust.

In 2021, worldwide investment into AI companies increased by 115% since 2020, marking the largest year-on-year growth in AI investment for at least two decades. Total AI investment reached $77.5 billion in 2021. The global AI market, valued at 142.3 billion U.S. dollars as of 2023, continues to grow driven by the influx of investments it receives. This is a rapidly growing market, looking to expand from billions to trillions of U.S. dollars in market size in the coming years."

Best AI Stocks To Buy

Google is behind Microsoft right now with AI search. Bing chatbot came to market first. Bard finally came out but isn't competitive on financial searches. Anecdotally, I've seen mixed feedback for Bard. Googles (GOOGL) main revenue segment is search ad revenue. Google has already been struggling with declining growth in many segments and missing earnings estimates the last four quarters. This new consumer technology is a huge loss for them right now. They are losing some searches to Bing every day now. Granted ChatGPT and Bing haven't moved the needle the real threat is there now. Microsoft being first to market may turn out to be a huge advantage as Samsung has been publicly contemplating dropping Google from their devices.

I expect all major tech companies like IBM, Apple(AAPL), Nvidia (NVDA), Google(GOOGL), Microsoft (MSFT), Adobe (ADBE), Nvidia (NVDA), Meta Platforms (META), Amazon(AMZN) among others to develop advanced AI for the consumer. I see all of these companies benefiting.

Many hardware and robotics companies will do well too as the hardware needs to be updated to handle AI The two popular AI ETFs are Robo Global Robotics and Automation Index ticker (ROBO) and Global X Robotics & Artificial Intelligence (BOTZ).These ETFs provide exposure to companies that develop, deploy or benefit from AI. BOTZ is more concentrated and has fewer companies in the holdings. This means it is less diversified than ROBO. That isn't necessarily a bad thing though because it means it has potential to have more price gain or loss.

The newcomer in AI ETFs is Roundhill Generative AI Technology (CHAT) it is an actively-managed fund designed to provide exposure to companies involved in the theme of generative artificial intelligence, and related technologies.

Internet security as an industry will do well in the future as well. As it gets harder to distinquish a bot from a human security will need to be enhanced. Very soon, if not already voice security will become compromised as bots copy our voices perfectly.

Cyber Security ETFs

The safest way to play the future security growth is with ETF's such as First Trust NASDAQ Cybersecurity (CIBR),ETFMG Prime Cyber Security ETF (HACK) or Global X Cybersecurity ETF (BUG). These sport expense ratios well below 1%. BUG has the highest average daily volume. There are other ETF's but the daily volume is much lower. It is not uncommon for specialized ETF's to fail to deliver because of declining low volume.

Entertainment Will Boom

I suspect as many creative and coding jobs become replaced by machine learning the entertainment and movie industry will benefit greatly two-fold. Firstly, they will be bringing amazing new visual and creative masterpieces to movies and various forms of entertainment. GPT is already creating comedy sets by comedians that have passed. Large movie companies will improve their margins and have bigger profits.

Many people including myself believe a recession of varying magnitudes could arrive shortly. This is not necessarilly a bad thing for movies overall. During the Great Depression, with the advent of new and impressive film technology, people escaped their daily lives by paying for entertainment. Even though unemployment was high people would pay to see the new technological advances in film at the time.

The 1930s are considered the golden era of Hollywood cinema. During this time, the movie industry thrived. Technological advances such as color and sound made movies truly extravagant. The breakthrough of synchronized sound occurred at the end of the 1920s and that of full color motion picture film in the 1930s. Two companies I see potentially benefiting greatly are Warner Bros. Discovery, Inc. (WBD), and The Walt Disney Company (DIS). Both are publicly traded on the stock market.

Some Major Tech Companies

Microsoft is currently in the process of acquiring Activision Blizzard (ATVI) making Microsoft the third largest video game company. My hunch is they will be incorporating GPT into video games bringing a new level to interactive gaming. Duckduckgo.com search is even adding A.I. functionality.

Adobe (ADBE) has benefited greatly this year from incorporating AI into their Firefly image creator software. They are one of the leading image generators in terms of realism. They have beaten their earnings estimates every quarter this year and hit record revenue. I see them continuing to see much success.

I highly suspect having lived through the 90's that the long-term leader in this new tech will take time to emerge. I expect they will share market share significantly as I-phone people will use AI on their phones and Google people will use Bing or maybe Google or even another company not yet in our radar. The future will include deep learning A.I. advanced large language models (LLMs) are machine learning models that are very effective at performing language-related tasks such as translation, answering questions, chat and content summarization, as well as content and code making. They distill value from huge data sets and make that “learning” accessible out of the box.

I've also seen LLM's referred to as "life long learning machines" which is essentially what GPT does as it learns from your input and corrections. The feedback all companies can get from customers and clients from generative AI will be great for their marketing and profitablity. We are just in the beginning of seeing the benefits to large and mega companies. Imagine how big the impact will be when most small business owners are using AI in the future.

Final Thoughts

Finally, as far as stocks go I see the most obvious alpha in shorting the companies losing to this technology right now. I am long May Google puts so if the stock falls I see profit. I plan on continuing to long puts as the market is not aware of the changes happening with chatbot search.

It's hard to pick the sole long-term winner with new technology as every other technology breakthrough has shown. Few would have pegged Amazon a lowly book seller as becoming the giant it is as just one example. With this in mind, going the ETF route like ticker BOTZ or CHAT with diversification is the safest bet. Even a Nasdaq 100 fund or Invesco ETF like ticker symbol QQQ is heavily exposed to big tech which are all building AI.

I expect many industries will benefit from this technology becoming acessible to consumers. Right now Microsoft, Google's Bard and Snapchat are battling in the war for large LLM's. More newcomers are popping up rapidly. Now there is Perplexity for Android and conversational HeyPi an AI assistant. These are certainly exciting times.

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Gold and Miners Poised To Make a Big Run

Throughout history there have been many years and even decades when gold outperformed equities. The question I am going to ask is "is this time different?" I am particularly interested at looking at the 1970's when the U.S. had high inflation and low economic growth. The FED is tightening yet many economic indicators are slow to point to a full-blown recession. Inflation has been hard to tame for Jerome Powell thus far. Stagflation is a probable outcome in this economic scenario. There is also the increasing potential for geopolitical events as it relates to oil as there is tension between eastern and western nations.

So far, many parts of the economy have been unprecedently resilient to higher rates. Housing has been one of them as many people are buying from fear of missing out and moving to cheaper cities. The second period in history that saw gold outperfrom equities was 2000 to 2012. This was following a long secular expansion and tech bubble collapse. We now are at the end of a long expansion and crypto and Bitcoin bubble burst.

Gold also did well following the 2008 banking panic but I am particularly interested in the years when gold rose as stocks fell. These are the years in the 1970s and 2001 to 2003. So, I see a couple likely scenarios economically. The FED tightening causes a recession that is mild or severe. If it is mild I see a possibility of inflation sticking around like the 70s. If it is severe and there are major bank panics it will likely be resolved quickly as 1907 was with J.P. Morgan helping bail out Trust Company of America and the 2008 panic were. In 2008 much of the deflation came in less than one year as housing collapsed and banking products failed. The Government in 2008 was fairly quick to inject capital and launch QE in 2009. Gold benefited from that.

In 2009 I predicted the pivot point on gold and was bullish right before its historic run. I said, "This chart sends a powerful signal. It is saying that it is more than likely that gold the commodity will continue higher. Let me rephrase that. Very likely." I had noticed a triangle formation on the gold chart.



What Can We Learn From The Past?

Let's switch gears and go back to the 1970's. It was a period of much uncertainty politically and economically. The highlighted regions show two periods where stocks fell and gold rose. Even the entire decade had stocks losing to gold. Gold traded for $35 in 1971 and went to over $850 returning 2,300% in ten years.

Next let us view the 2001 recession and gold and stocks. We see yet again periods when gold rose as equity indices fell in 2001 to 2003. This was during the recession of 2001 when unemployment rose from 4% to 5.5%. Then Fed Chair Alan Greenspan kept interest rates historically low during his tenure.

Here is a longer-term chart of equities and gold.

The gold market is now signaling extreme strength as the daily chart is showing a very powerful consolidation pattern. It is a bullish triangle formation as you can see below. Gold miners are alreading breaking higher from this consolidation like Franco-Nevada (FNV). I am currently long the gold ETF GDX calls. Other liquid ETFs include VanEck Junior Gold Miners ETF GDXJ and SPDR Gold Trust GLD. GLD doesn't hold physcial reserves though. Sprott Physical Gold Trust PHYS is a gold etf that holds actual gold.

Final Thoughts

Everyone is scrambling to find cheap gold mining stocks. As gold is consolidating at levels near last years highs I see a good possiblity of different scenarios. Over many recent years gold has been a "risk on" trade. Meaning it usually will only rise when stocks and other assets do. There were a couple days during the most recent banking troubles, however, where gold and Bitcoin had positive days while equities fell. Currently, gold is surpassing Bitcoin in this potential "flight to safety."

I see it rising as it did in 2001 and 2009 if the FED ends up reacting to a recession with QE like 2009 or with another extreme loosening like in 2001. The odds are stacked that we are going to get a recession with historic FED tightening and yield curve inversion. The other scenario is a recession with elements of inflation sticking like the 1970 and even a weak U.S. Dollar.

Whether one sees it as a stagflationary safehaven or an inflation hedge on a declining stock market. I see gold as a historically wise investment vehicle at this time and for many years to come as we sort out this economic cycle. It may start making new highs very soon or it may take months before the momentum starts but I see gold moving higher over the next year. Increasing allocation to gold just makes sense.

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Full disclosure: I am long GDX call options currently and may take positions in stocks mentioned. I have no physcial gold holidings. I have approx. two dozen silver coins.

charts courtesy bullionvault.co.uk and stockcharts.com

Market Direction

I'm watching the major indices very closely day to day. Fundamentally the economy is resiliant in the face of FED rate moves not seen in decades. History shows that when the yield curve is inverted as long as it is there is a recession. I believe we had a recession in Q1 and Q2 of last year as GDP went negative two quarters in a row. That is the time tested measure of a recession. The definition of a recession was tinkered with but to me we had a mild recession thus signaling the effect of the rate hikes.

I think many bears are ignoring that possiblity that the recovery was quick and rates were not high enough to bring a double dip recession. I don't know if we will get another this year but it seems it is going to take much higher rates to bring it about. The Covid stimulis and FED action was massive and it appears underated. It is very likely PE multiples are now high as they were in 2009 also because the market is forward looking. It very well could be that growth will continue even with rates at current levels.

One thing is for sure the economy is different now with secular labor and supply chain issues. Work from home is still common with many companies. Maybe all this has something to do with why the economy keeps spurting along. Housing has been resilent too with rates high. The bear thesis doesn't make sense if employment is still low and the housing market ok.

Technically, the market is uptrending currently and many support levels were found on the October low last year. I'm leaning more to major US indices going higher the next month or two but we shall see.

Stock Market Top Bull Trap Set

You may remember my blog post from late October where I outlined the scenario of a stock market bottom. I gave the exact levels it would need to break through to confirm and had a good read on the price action down there. The very bottom came on CPI day in October. It was also a bear trap. A bear trap is where the price action begins to go lower enticing sellers and short sellers to sell. What happens though is the momentum quickly shifts back to bullish as price fails to continue to go lower. We saw an epic bear trap on that October day. It was one of the largest reversals from a 52 week low in history.

You may or may not have noticed that on CPI day this week the market shot up early but fell after the CPI news. It was another trap!! And on CPI day again! Maybe it's a big coincidence or the CPI and inflation expectations are the main driver of equities during this time. Inflation is one of the biggest economic factors affecting consumers and businesses these days and not to mention the FED's decisions. We can see the two CPI days in this chart and how it is breaking the uptrend line. It tried to reclaim trend support on the CPI day which was yesterday and that is when we got the big failed signal. Failed signals are powerfull. It will take something special to continue higher from here. I'm not yet fully committed to this being the top but if we see a break of the yellow line around 389.50 on SPY it's game on for more lows.

We've got some obvious rounding top formation going on in small-caps.

Stock Market Bear Rally In the Works?

I have been looking at the major stock market indices closely lately for signs of a real rally. The Russell 2000 index of small-cap companies ticker IWM has shown rising support levels in an uptrend. There isn't confirmation of a new trend up yet but the setup is there. So many stocks are oversold near-term I see a bounce in the market as a likely scenario. If we don't bounce here there will just be a much bigger short-term rally in weeks to come. Here is the support area on the bottom yellow line for IWM. It's a pretty solid level that keeps getting support. There is also a downtrend breakout seen over the top diagonal yellow line. We are testing this level currently. It's roughly the same with SPY QQQ's.

You would think tech would need to be strong to see a market rally and it is making progress here. I put a bollinger band up on here and you can see when it breaks through either top or bottom the momentum continues awhile. I'd like to see it break over the red line also. That's been a key level. Let's see what it does next week.

The small-cap put to call ratio is showing historic signs of a bottom forming.

I noticed the energy sector is making multi-month highs. XLE has been very strong. My understanding is that crude oil is in a sweet spot for their margins. Still I wouldn't expect such a big move and if the market is going to rally a bit something has to lead right?

Long and Shorts Continue To Work

It sure has been awhile since I posted here. I've been busy with daytrading full-time. I continue to be amazed at how many long biased traders there are along with stocks running up staggering amounts. This past week we saw the IPO frenzy long and short. I've been shorting IPOS like FRZA and longing bounces on ones like PXMD. There is never a lack of opportunity long or short in this market. It's such a bullish market at times stocks with high short interest and 30% of the float short or more have been squeezing. Stocks like APRN FAZE VERU. FAZE might just run again. You can also find easy opportunity on the short side shorting multi-day breakdowns on stocks like PETQ YSG. There are crazy supernovas to short like NERV recently as well. I recently started using Tradersync.com to track and analyze my trades. I have found a lot of success trading Crude Oil long and short with options and stock via USO. It trades well off technicals in trends.

I recommend Tradersync if you are investing even as it tracks your performance. The other popular one is Tradervue. You can just save your trades from your broker with a couple clicks and upload directly to Tradersync or Tradervue.

On the long side CLAR stock dropped over 40% on no news or catalyst. Management came out with a statement that they intend to buy back stock. I see some rotation into fertilizer plays like LXU CF BIOX now. I like the fundamentals on NU going forward. Looks like they will grow earnings very well.

Cautiously Long

I have a bunch of long positions on in my account. I'm as lean as I can be though with about 50% in cash. I am short XRT Retail with EMTY but other than that I have about 15 to 17 long positions. More than I would like to have but if the setups and opportunity are there I take them. I just put a buy stop order to snag SPY short with the 3X ETF SPXS if SPY actually tanks tomorrow. If I traded options I would be looking for some additional protection. The more the markets quickly go straight up the more likely they are to come down just as fast or faster. When the complacency becomes standard mild to severe crashes can happen. I feel like we are due another algo driven flash crash. Maybe it will be 10% higher in the S&P but it seems inevitable. Corrections are healthy. There is nothing wrong with them and no reason to not be prepared.

 I've been brainstorming what individual companies I would like to buy for the long-term the next time a major correction or bear market comes. I'll do another blog post on this soon.

This Is Sector Rotation

The sector rotation is going out of big tech and into financials, healthcare, possibly defense and transportation. This is essentially a strong bull market move. It's interesting tech is not leading the way but people are obviously positioning for the presidency and congress. I was wondering if the fall in tech had something to do with possible tariffs coming on tech companies in Asia if we start taxing China. I think it might have something to do with that but its just capital going from one sector to others here regardless.

The call I made here on the blog to buy biotech and financials was pretty epic the other day. Biotech is outperforming big-time. The other macro thing going on here is long term US treasuries are continuing to crash. Ticker TBT is the way to go as I have been talking about here for some time.

After surveying some scans and putting things together I have a great watchlist. I really like this small-cap Scorpio Bulkers SALT. It's a shipper. Breakout on trend on high unusual volume, earnings guidance is trending up and is improving. "I have to be able to draw it in crayon" -Peter Lynch

HEAR needs 1.45 to start to clear this long flag.

On the short side I like HADV EA GORO short. From Twitter Marc Lehman ‏@markflowchatter Sell side desk indicating 2 leading $EA titles are being discounted 40% at Target and Walmart = slow pre orders for holiday sales

The Stock Market Amid Elections

The major US equity markets have been consolidating for days going into this past weekend. Today, November 7th we are seeing a surge in high beta names and corporate bonds. I strongly believe this is a clear signal that this recent downturn was simply a bull flag. It's not to late to back up the truck long equities for the rest of the year. I especially like financials via the etf (XLF) and the biotech sector with (IBB). Financials are breaking out here. Biotech has just put in a confirmed pipe bottom formation near multi-year support. I see confirmation of follow through in equities in looking at high yield corporate bonds. They gaped up big in the morning. A Hillary Clinton or Trump presidency will be pro banks and financials.

full disclosure: long UYG and BIB the double long XLF and IBB etfs

Market Direction

I'm not worried about Europe impacting US growth significantly. That being said I see a very good chance of another down range day on the US indices today Monday the 27th. There could easily be a mini crash. By mini crash I mean at the least enough of a percentage move to trigger circuit breakers. Such a surge in the VIX and a wide ranging day on the major indices like Friday usually produces some follow through. Especially in todays market with all the bots and high frequency trading.

If there is any bubble big enough to produce a sustainable crash it would probably have to be in an industry that represents a large share of GDP. The top industry as a share of GDP in 2015 was finance, realestate and insurance at around 20% of GDP. In 2006,2007 this sector was around 30% of GDP before the housing crash. I don't see any real "bubble" in any particular major sector. That's not to say there can't be a recession. There's nothing wrong with a recession. The stock market has been around resistance for awhile now and this could end up being the move that will drive it down for a short term correction at the least. I've been long Smith and Wesson SWHC which has turned out to be a great long for the week or so I've been holding. It was up Friday and is up even more pre-market over $26 from my mid $23 entry. I'm hedged with QID and want to trade any crash today with orders out to long YANG and FAZ.

Is The Tape Manipulated Again?

The US stock market keeps ripping higher with mediocre global economic data at best. Company revenues and earnings locally here in the US aren't stellar either. Take for instance Caterpillar (CAT). The company reported quarterly earnings yesterday that were abysmal. The company is still practically in a death spiral. And they may be one of the best indicators of future growth. The stock has been in a strong downtrend but surged higher on heavy trading volume the day of the earnings announcement. It even followed through more today!

Just looking at the major indices the steady climb higher reminds me of the surge off of the 2009 lows. It looks like the aftermath bottom following the 2010 flash crash and the mini flash crash of last fall. What did all of those have in common? One thing. High frequency trading (HFT) or program trading. Here is a video from the summer of 2009 where an institutional trader talks about HFT. He said it just overwhelmed the tape and no one can fight it.

Many stocks were driven higher with uncanny price action. One that comes to my mind in particular from 2009 is Beazer Homes (BZH). If you are familiar with "truly" manipulated penny stocks aka pump and dumps this chart will ring a bell. This is BZH in 2009. See how it goes up day after day without consolidating? And any red days are met with a continuation of the uptrend. Then it soars at the end and crashes.

Here is the current S&P 500 index in its sharp uptrend

They say officially that 50-60% of the volume on the exchanges are high frequency trading. I've always been skeptical and assume its closer to 70 or 80% or more. I don't personally have any problem with HFT.

I think we are seeing a high frequency trading bottom being put in here on the major indices. When we are going higher everyday don't fight it. I wouldn't be surprised if this keeps up for weeks. It smells like QE is here or is coming.

Leading Indicator of Stock Market Is High Yield Bonds

Sometimes there are strong leading indicators in markets. A leading indicator is when one market leads another. One will go up or down and the other will simply follow a little behind. The two are correlated. You can gauge the next movement by seeing what the leading indicator is doing. An example of this is crude oil and the US stock market in late February early March of 2009. Crude oil was a leading indicator for the market. In October of 2007 the Chinese stock market was a leading indicator for US markets. This year corporate bonds specifically high yield corporates are a leading indicator of the stock market. The correlation is continuing even this week. Tickers like JNK, HYG and LQD are leading. Here's JNK the high yield bond ETF beginning it's trading range breakdown in early June.

The S&P 500 didn't really fall significantly until August. You could maybe argue very late June it had a scare but it held in. Still late June is far from early June. So what does this mean? Watch friggin bonds folks! HYG and JNK lead the way again 4 trading days ago when they started breaking down again. The market followed the very next day. We are one or two days behind now. JNK just printed a nasty shooting star yesterday the 22nd. Bearish prints on both of these. I'm writing this early morning here on the 23rd. The downtrend is strong and intact on HYG and JNK. They are coming off of a clear bear flag and it appears the lows will be tested.

Video Blog #2

This is my second video blog ever. The first one I posted on my other blog . I was looking for a good desktop recording software and ran across this one called HyperCam. I'm still working out some bugs with the audio to video sync. I forgot to mention the rounding top that Under Armor has. In the video I discuss my UA short and look at crude oil and natural gas. Which way will crude go from here? Watch and find out.

Under Armour UA Overvalued

We all knew Netflix NFLX was overvalued with a PE multiple of a whopping 200. It's been taking a beating in the recent downturn. I'd like to propose Under Armour UA as overvalued. It's a great company and leader in its industry just like Netflix but the valuation is still to rich. Under Armour currently trades at 88 times earnings. It also trades for 6 times sales. Earnings are expected to grow roughly 24% a year going forward. With a PE of 88 and at 6 times sales perfection is "baked in" to the companies future performance. There is a lot of market cap that could quickly get trimmed on a bad quarter or future guidance. Or how about a market correction! This looks like a correction and an industry leader like Under Armour could get sold off like a Netflix or Apple. I see it happening here in the charts. Let's look at a 6 month chart of Under Armour below.

See the red line that is forming a round top? A rounding top is a bearish top formation. Some people call it a head and shoulders. Under Armour is a high beta stock and this chart is essentially mimicking the major indices. So yeah we are very close to confirmation of a top in the market. What is does after the pennant bear flag below is key. It looks to me that with the shooting star candles on UA we are going lower next. I am short some Under Armour at 94.52. I successfully shorted Netflix the other day at 116 and covered at 110. I cataloged that trade on my trading blog .

Wild Monday

I'd like to start this off by emphasizing the current situation in US equity markets. Putting it in perspective we have been on a historic bull run since the March lows of 2009. Nothing compares historically to the 1982 to 2000 run but this has been up there. Lately the market has been going straight up. These kinds of corrections in bull markets are good because it keeps the pace slow and steady and avoids a bubble crash. Let's face it valuations have been getting a little ahead of themselves on US companies. Netflix NFLX was trading at a price to earnings multiple P/E of 200. Other big tech companies like Amazon AMZN, Apple AAPL were getting expensive to. Geez, not even mentioning Tesla Motors, GoPro, Alibaba etc etc. These are all falling. They are right to fall.

The media gets over-dramatic about other economies. The US economy has been doing pretty well considering the rest of the world. Don't quote me verbatim but roughly a 1% change in GDP in Europe only effects US GDP 1/4%. It is a global economy now but I'm not convinced the US is going to go into a deep recession because of China or any other Region. There may well be a recession. I don't think it would be a bad thing. Recessions are a healthy part of economic growth. Greenspan did everything he could to prevent them and look at the bubble it created. Bernanke to.  Slow and steady is good.

I just did a post on my trading blog Dynamitestocks.com about some of the things that went on early Monday morning during the US session. I don't know if all of the media is reporting it but we did in fact trigger circuit breakers within 30 minutes of the open. Circuit Breakers are "safe-guards" the stock exchanges put in place to stop a crashing market. A drop of 7% on the Dow Jones or S&P 500 index triggers a level one circuit breaker and the market is halted for 15 minutes. We reached that 7% threshold on the S&P just minutes after the open.

The Economy and a Look At Major Indices

The dust is settling around the technology giants like Amazon and Google runs. So let's see what we have going on in the major indices. Let's take a peek at the Baltic Dry Index too.

I was listening to a radio program the other day and the guest was a perma-doom and gloomer. The only bad thing he could come up with on the economy was that commodity prices are falling. He said the recent weakness in oil and copper are leading indicators of growth. He failed to comprehend that oil is traded in US Dollars globally and pretty much all of any particular commodities movement is directly inverse of the dollar. Yes, the dollar is rebounding lately. So there you have the reason commodities are falling off. I suspect the strength of the dollar is on the back of the FED's latest news on rates.

The recent gains put up on the Nasdaq Index are looking like the index is in need of a cooling off. Looking pretty overbought. Especially in RSI 2. Biotech IBB is overbought as well. On the other indices like the S&P we are at resistance levels. Small-caps (Russell 2000) are not even running much nor bullish looking. Something has got to give on these indices because they will mimic each other eventually. This is because they are mostly determined by futures contracts. Yes futures contracts control the market.

Let's look at some charts. First is the Nasdaq itself. Looking very overbought. Vertical actually!! Needs to settle down. Doji candle printed today. Another trend reversal indicator. I circled the RSI and doji.

Biotech IBB is pretty much an identical chart except it has broken out a little more and is hanging even more overextended. It's such a bullish chart breakout though I don't know how much of a pull-back it will see. Same goes for the Nasdaq. I very well could be wrong and everything rips higher. Technically everything looks due for a pause atleast.

The Baltic Dry Index is running lately. I'm not convinced it is going to continue as it has had similar runs and corrections on trend. The trend is down. This could be the top of the downtrend as I drew on the chart below. We shall see shortly.

Chinese Stocks Are Not Crashing

I keep hearing on CNBC that China is crashing. Every day there is talk about how urgent the situation is. Let's refute this idea with some facts. First of all the current price to earnings ratio (PE ratio) of the I-Shares China 25 Index is a whopping 12. Yes, a PE of 12. A PE in the teens is not high for the largest companies in China let alone any stock of index. Around the high this year it was closer to 20. Still no bubble territory. In the 2007 Chinese crash the PE of FXI was closer to 40 than the teens.

In the 2007 crash there was a double top formation. There isn't a bearish chart formation here. The current chart of the China 25 FXI is actually bullish. The first chart below is the most recent trend line. It is being tested right now. The second chart is a long-term chart of FXI which shows the long trading range it was stuck in for years. It finally broke out of this range which is bullish. It just broke out this year. This is not a parabolic move to the upside. We finally just hit some highs! The red line on the top is the top of the trading range. The red line on the bottom shows the uptrend. If the index falls to the low 30s we are closer to a crash. A crash would be if the upper 20s get taken out.

Rising Interest Rates Play: Short Treasury Bonds

I think it is time to short US T-Bonds. I'm going to give you the fundamental reason and show what the market itself is doing. I'm basing this thesis on the theory that when interest rates go up bonds fall. Maybe it really is that simple. The tricky part has been figuring out when the FED will start tinkering with rates. I think they might do it this year. I don't see anything in the latest BLS employment report to make me think otherwise. You could say headline unemployment of 5% is to high to the FED. Of course the real unemployment rate is higher because they bake the numbers these days. But still real, unreal, semi-real unemployment rates are falling. I say 3% unemployment is unrealistic given the situation we have been in the last 8 years. I think anybody who is intelligent realizes the old days of conceptual thinking about target unemployment rates aren't possible now. Yeah, we could have 3% unemployment in a bubble economy. Let's just get 40% of the economy devoted to financial services(engineering) and see what happens! Any way you look at it unemployment is falling. Maybe I'm smoking dope on this report but this says wages are rising.

In May, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $24.96. Over the year, average hourly earnings have risen by 2.3 percent. Average hourly earnings of private- sector production and nonsupervisory employees rose by 6 cents to $20.97 in May.

For the next exhibit we have job openings. There are more job openings out there than there have been in fifteen years. There were over 5 million job openings in April.

Let's think about the gravity of the FED raising rates. Will a slight rise really matter that much? I think the banks can handle it. They will still be in a situation to prosper.

Finally, I believe the market itself is saying the top is in for bonds. Below is a five year chart of TLT 20 Year Bonds. The red arrow points to the spike top. A spike top or bottom is one of the strongest reversal chart signals. The top was tested in March and April. It was confirmed in May. The drop for bonds continued and we are in free-fall now. The stock TBT is a vehicle to short TLT. So the way I want to short is with TBT Proshares Ultrashort Treasuries. Any spike upward on TLT is opportunity to get longer TBT.