Don't panic!

This was the note I sent to my Family before opening this morning.

Even though I was sure a snap back rally could start any moment, I didn't expect such a huge turnaround today: S&P crashed by 140 points at its worst during the day but ended with a 12 points gain!

Unbelieve but also showed how the market is often doing during an extreme panic!! My portfolio got killed by nearly 20% at the intraday worst point to end up with 20% gain. 

I shared a few trades with my Family today betting for an oversold rally and this TQQQ did the best for me just within hours:

I'm also betting on a fast fading of VIX for now. So far so good😇

Of course, it is too early to be too happy as you never know what the market will do these days. Having said that today is the first day in the past week or so that the market didn't sell off towards closing but rather jumping high. At least this is a good bullish sign, suggesting a true turnaround may be coming!

Here is the note from a friend: 

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There's panic in the air, and blood in the streets.

Financial assets are getting crushed…

The S&P 500 is down more than 8% so far in 2022. Treasury bonds are down 3%. Bitcoin has lost 21%. And, Cathie Wood's ARK Innovation Fund (ARKK) – the most widely touted ETF of the past two years – has given up all of its gains from 2021 and half the gains from 2020…

Folks are bearish.

Last week, the American Association of Individual Investors (AAII) reported that the percentage of survey respondents looking for a rally in stocks over the next six months was just 21%.

Those looking for a decline topped at 46%. That's the lowest percentage of bulls, and the highest percentage of bears in 18 months.

That means we're probably not too far away from the start of a rally.

Investor sentiment is a contrary indicator. When everyone else is bullish, it's usually a good time to be cautious. And, often the best time to put money to work is when everyone else is bearish.

Nobody was "buying the dip." Most folks were buying puts and betting on even more downside in the days ahead.

Of course, anything can happen. Maybe those put buyers will be right, and the financial markets will continue to get crushed this week.

But, the stock market typically does not reward popular trade.

S&P 500: another 200 points lower?

Right now, we see blood everywhere in the market and  S&P 500 ETF  SPY is forming a bearish "Megaphone Top" chart pattern. Without going into details, this bearish signal indicates that the stock price may fall from the current level to the range of $415.00 - $421.00. The pattern formed over 54 days which is roughly the period of time in which the target price range may be achieved, according to standard principles of technical analysis. It means another 20+ points lower from here, which means over 200 points downside for S&P 500!

Of course, this is a pure TA analysis which may not necessarily materialize as such, however, this is the likely potential for the near term as the magnitude of the correction for the market. In the very near term though, judging by the panic extreme we are seeing right now, it feels like the end of the world but the market has a habit of not dying like that. My gut feeling is that we will see a decent rebound very soon that may go up as high as towards 465ish, which will then be followed by another plunge if this technical setup indeed plays out as such. So fasten your seatbelt for the next few weeks! A lot of volatility will surely come up. 🤓😉

Blood in the street!

We see blood everywhere these days!

As shown above a few mega-cap stocks like Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT) are only down 5% to 10% from their all-time highs, 

but many smaller stocks are down 20% or more. This graphic also shows the weakness in the tech and biotech sectors and the strength among energy stocks, 

almost all of which are within a few percentage points of their 52-week highs (not surprisingly, as Oil Prices Hit Seven-Year High on Rising Geopolitical Tensions).

The start of 2022 suggests a good year for Energy and Value (by SentimenTrader)

The dollar loses its medium-term trend

A well-known seasonal pattern, originated by Stock Trader's Almanac, suggests that how investors behave in the first 5 days of a new year sets the tone for the rest of the year.

In theory, this is silly. There is no reason why such a short-term move would have any impact on returns nearly 12 months later. In practice, it's not so easy to dismiss.

Instead of rehashing the familiar, let's look at sectors and factors and see if there is any reason to be especially bullish or bearish on their prospects for the rest of this month and this year depending on how they were treated during that first week. Based on that theory, things are looking good for Energy, Financial, and Value stocks. High-beta investors might have a reason to worry.

When we look at how first-week winners performed for the rest of the month and the rest of the year, the results were good. 

Taking first place was Energy, which added to its gains during the rest of the month only 52% of the time, but during the other approximately 247 other days in the year, it rose a whopping 90% of the time. 

From naked calls to naked puts

Act like schizophrenia

This was how I described the market as it swings its mood fast and swiftly. Back then I was talking about in weeks to months but nowadays, we are talking about in hours. Yes, you heard me right, in hours!🙄 Yesterday shortly after opening, I told my Family that I placed a naked call order for TQQQ, i.e. I was selling TQQQ calls outright without hedges. At the time, the market was still in green and TQQQ was still going up but I got the sense that the market mood was too euphoric and could change soon. Well, my timing couldn't be better. Nearly minutes later, the market started to fall.....And we continued to see heavy selloffs most of the time today. Then late in the afternoon today it seemed to me that the market mood was too depressing and it was poised to change. So I advised my Family that I covered my naked TQQQ calls for a quick nice overnight profit and I started to sell naked puts for TNA, betting on a quick rebound. Well it appears to be another perfect-timing call as TNA turned from red to green by closing. It is too early to call a victory yet but I'm confident in my call. So basically I swung with the market mood from euphoria to depression within 24 hours by playing my bets against its mood😜  

Since the bottom of the housing crisis in 2008/2009, the market has enjoyed a fantastic bull run, which even the centurial crisis of the COVID pandemic cannot not stop! But we are seeing more and more evidence that this bull run has come to, or at least very close to, its top. To prepare you for the inevitable upcoming bear market, I will show you some strong evidence that often comes up during the market top formation. Here is one example: the cratering of the market's strong performers. I first warned about the potential faltering of ARKK back in Mar last year. After it fell 30% from its peak, I warned again that it could fall another 20%.  Looking back now, it was certainly a spot-on warning as ARKK has lost 49% from its top! When the top runners cannot continue to run, it is an early warning sign that the trend may soon change its direction!😣

Before finishing, let me share one interesting note I got from my friend about market fools. I hope my friends won't be such fools.🤓

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Last September, Bank of America reported $1 trillion had flowed into global equities up to that date from the beginning of 2021. That was more than the previous 20 years of flows combined... Every last fool came out of the woodwork last year and went all-in on stocks.

They saw markets marching straight up for several years and eventually got tired of watching everyone else get rich. Last year, they finally deemed the well-established trend as safe enough to pour money into – somehow believing it would continue forever. So fools did what fools do... they put more money at risk last year than in the previous 20 years combined.

But here's the thing they don't realize...

After they've bet (not invested) every spare penny they have, there's nobody left to buy. A stock price can't keep soaring higher if no one out there is willing to pay that level. Pretty soon, many more shares are offered for sale at any given moment than are bid on to buy.

For now, though, the fools still have enough to keep the party going... JPMorgan Chase (JPM) analysts said that this past Monday was the third consecutive day when retail investors bought more than $1 billion worth of stocks.

Monday's $1.07 billion total retail buying put it in the 93rd-percentile of historical data. That means fools have only been more foolish 7% of the time... At this rate, they're a shoo-in to get a chapter (or two) in Lack's next book.

A bullish case for gold

U.S.-Russia talks Monday got off to a promising start. But during yesterday's round, it became clear Washington simply will not give in on one of Moscow's key demands — that Ukraine be kept out of the U.S.-led NATO alliance.

"Some senior Biden administration officials," said The Wall Street Journal, "have weighed stringent sanctions on Russia including disconnecting Moscow from the SWIFT international banking system and preventing Russian institutions from using the U.S. dollar."

If this really becomes reality, what will happen? Well, I think it will be a huge booster for gold! 

You see right now "the global share of U.S. dollar-denominated exchange reserves declined to 59.15% in the third quarter," writes financial blogger Wolf Richter at his Wolf Street site. Here's the trajectory going back to those early de-dollarization meetings in 2014.

This de-dollarization process has moved at evolutionary speed. But if Washington kicks Russia out of SWIFT and denies Russia access to dollars altogether? Then the de-dollarization process will accelerate much faster. Over the years, an "Axis of Gold" — Russia, China, Iran and Turkey -- has been pursuing a payments system that's "free of hacking, tracking or interdiction by the U.S. and free of U.S. dollars. This gold-based payments system will dilute and ultimately eliminate the impact of U.S. dollar-based sanctions. If Russia is kicked out of SWIFT, the net impact on the dollar won't be positive but hugely negative over time and global markets will lose more confidence in the dollar. Probably this is the reason why US$ had broken down from its important support, the 50 DMA yesterday. If the trend continues, US$ will weaken further at a faster pace. As such, this may be the trigger for gold to start its next leg up.  

50% net worth in Bitcoin!

Billionaire investor Bill Miller puts 50% of net worth in Bitcoin

"I think the average investor should ask himself or herself what do you have in your portfolio that has that kind of track record — number one; is very, very underpenetrated; can provide a service of insurance against financial catastrophe that no one else can provide; and can go up ten times or fifty times. The answer is: nothing."