An Extremely Important Week Of Data; Understanding Technical Analysis


Forex diagrams and stock market rising lines with numbers

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Matthew Tuttle and Rob Isbitts discuss this week’s extremely important data (0:10). T-Bills yielding over 5%, quickly changing sentiment and market technicals (3:00). Monster-size US debt (7:20).

Transcript

Matthew Tuttle: This is an extremely important week of data. So, we’re talking about this on Thursday. Yesterday, we had the quarterly refunding and we had the FOMC. Quarterly refunding, bullish. FOMC, Powell stuck to the script, would argue bullish. Tonight, we’ve got Apple (AAPL); tomorrow we’ve got non-farm payrolls. If the bulls check the box on those, then you know, I think Santa Claus is coming to town.

If the bulls don’t check the box on those, then I think this is another short-lived bounce that reloads opportunities for me and you to short.

Rob Isbitts: Go back to what you said for a second with Powell. So, yes, it was bullish. Bullish, but in what realm? They’re not likely to lower rates anytime soon. The higher for longer or stable for longer is likely to be there.

Now, we’ve seen the bond market go haywire in both directions, zipped up the 10-year treasury to a neat 5%, allowing a couple of well-known billionaires to exit their positions. I reduced mine probably by 70%, but still hold some.

But then it just seems to me like we’re sort of in that crazy season, which comes along more frequently than it used to, where the moves are so quick and the reversals are so quick that you have to decide, are you a trader or are you an investor? It’s hard to be somewhere in between.

MT: And I think it’s hard to be an investor in a market that moves like this. Throw in the fact that if you are an investor, bonds are your risk reduction mechanism of choice and we’re going on a two-year bond bear market.

I don’t know where the Barclays AG is right now, but I know I looked at the 5-year return like a week ago and it was negative. So, yeah, I think this is a tough time if you’re an investor.

RI: To me, what a lot of the news driven back and forth does is it stunts price growth, it stunts investment potential. And I think this may be a downtrend until proven otherwise.

It used to be that even as a trader or intermediate term investor, you could get a clean 10% to 15% up move in a stock or an ETF. And now it’s like 3% to 5% maybe a little bit more.

And that in turn forces investors to make that choice. Do they want to embrace the short-termism and be much more active than they were in the past?

MT: T-bills are yielding over 5%. Take advantage of that because it does seem like the Fed is done raising rates. These moves happen so quickly. Sentiment changes so quickly.

If we were doing this a week ago, the sentiment was totally different. The whole world was bearish. And now we’ve got a massive upswing. What are we on, like the fourth or fifth green day in a row? A complete 360 degree turn.

Once the charts tell you to do something else, you ignore that at your peril. I don’t know about you, but my biggest losses come when a chart is telling me something and I’m thinking something else and I’m trading based on what I’m thinking. And I try very, very, very, very hard not to do that. Sometimes I think I’m really, really smart and it turns out the market’s smarter.

RI: So on August 18th, the S&P started a rally. Went from about 4,335 to 4,541, close to 200 points. Happened pretty quickly. And then it was over. On the 3rd of October, it was all the way down to 4,216, rallied 100 points, about 4,315, then it was over.

And then less than a month later, on the 27th of October, which is the one we’re talking about now, 4,100 right on the nose, as if there were something magic about those numbers, like many technicians now involved in the market, which is why you have to understand technicals, I think. Even if you don’t use them, you have to know what the technicians are looking at.

This last move, 4,100 to 4,301 as we’re talking here, another 200 points. Well, we got these knee-jerk reactions in 2022 also. So, all I’m saying is, look, maybe one of these will go, but what am I really looking for?

In S&P terms, the move that I want to capture is from strongly above 4,300 to about 4,800 and beyond. That’s a 10% rally that gets you to all-time highs and then through, and then we can say, hey, guess what? Despite all the issues we have in the world, it’s a bull market again.

MT: A few things there that are really important. And one is the technicals. I always tell people that, you know, as individual investors, which I would think most of the people listening to this are, you have one massive advantage over the institutions. The institutions are too big to use technicals.

So, I was talking to a big hedge fund manager a while back, who was having some issues with timing. And I said, hey, look, you ought to be looking at the charts. He’s like, “Matt, I can’t.” When I want to get in or out of something, it takes us a week. So, yeah, your chart could say, “Hey, here’s a buy signal, but I don’t get my position on for a whole other week.” So, we can’t look at that stuff.

So I think as individual investors, again, whether you’re following the charts or not, you need to be cognizant of these levels. You know when the market hit 4,100 and bounced and — that’s just – it’s not a great risk reward to be getting massively short there.

Gil Morales, who’s a guy I think is brilliant, especially on the short side. And he talks about the piggy principle. When you’re feeling too piggy on the short side, you need to be careful because you’re about to get a reversal.

RI: So they used to talk about the Fed put, okay? There is something that to me could be the stock market’s covered call, meaning it kind of puts a ceiling on the market and this is the kind of last piece of weekly recap information I’d like to run by and see what you think.

So the debt, okay, the U.S. debt, it is so big. And we’ve got nothing on Japan, China, and Europe when it comes to monster-sized debt. And it’s only getting worse. So, yes. You said at the top of the program that the refunding was better than expected. Great. It’s still pretty bad. And it’s not going away.

I mean, U.S. debt is going to exceed military spending, transfer of payments, et cetera, paying interest on all that debt. So it would be great if rates crashed for the sake of the government not having to lend for so long at 5% plus, but to me, that is the stock market’s covered call rate.

It’s the upper limit because first, the debt issue has to go away in the minds of investors, and I think it does at moments like this, but not long-term. And that is going to, look, I mean, the buyers of treasury bonds, a lot of them have disappeared.

And that’s a secular issue right now, a longer-term issue, probably the next several years at least. That probably puts a limit on how far the stock market can go.

MT: I think it puts a limit on how high rates can go. So, you know, Powell is talking about, our target is 2%. What if we don’t get there? What if inflation ticks back up again?

What do they do? Well, the toolkit says, we’re going to raise rates, we’re going to raise rates. At some point, he’s getting a tap on the shoulder from Janet Yellen or Joe Biden saying, you know what, you’re kind of crushing us here.

Does this help cause them to maybe abandon that 2%? Do they raise rates more from here? And I think they don’t. I see these economic numbers that keep coming out economy strong, economy strong. But I look at stuff and I talk to people and I am just not seeing it.

So I think that either those numbers just aren’t right or at some point we start seeing some numbers that are really, really ugly. I mean, we got 8% mortgages. And home prices haven’t come down. I mean, who can afford to, I mean, you got kids, I got kids, I mean, they’re never going to be able to buy a house, they just have to hope we die and give them mine.

And the regional banks, the stuff that’s on their balance sheet, I think Fed keeps raising rates, there’s a whole bunch of stuff that’s going to blow up. So, I think a lot of that keeps a lid on rates. Where that ends up, what that means for the market remains to be seen.

RI: I mean, the consumer, I mean, whatever third quarter numbers were for consumer driven businesses, I don’t know at some point the money you’re able to borrow runs out doesn’t it?

MT: I would argue it has. Credit card rates are 25%. There are a bunch of numbers saying consumers are maxed. The car loan numbers are really, really ugly. So, I think something’s got to give on all that stuff. I’m watching the rally in these financial names licking my chops.

On the short side we’ve got a 2x inverse regional bank ETF ready to go in about two weeks. And I’m just hoping we get a massive rally up until then because our timing could be perfect.

RI: With that, I want to thank everybody for listening to Wall Street Breakfast Sunday Edition. Nothing on this podcast should be taken as investment advice of any sort. At times myself, Rob Isbitts, and my co-pilot Matthew Tuttle may own positions in the securities mentioned.

You can follow me at Seeking Alpha under the profile names, Sungarden Investment Publishing. Matthew Tuttle, Seeking Alpha profile name is Tuttle Capital Management. Follow the Wall Street Breakfast podcast on Seeking Alpha, where you’ll find full transcripts of all episodes.

To take full advantage of Seeking Alpha become a premium subscriber. You can learn more about that at seekingalpha.com/subscriptions. For Matthew Tuttle, I’m Rob Isbitts, talk to you next time.



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