Sneak peek at the type of premium content you get as a member of Stock Market Mentor – October 11, 2022
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Today I was on CNBC’s Power Lunch, I think I was on for 4 maybe 5 minutes or so, these segments are always kind of too short to really go into detail. So today for our Premium members I recorded a 30-minute video that kind of covered the same thing. While it is typically for Premium members, behind the wall, as they say, I am just going to make it available to everybody. So here’s today’s Strategy Session, I hope you check it out.
I thought I would do something a little bit different today. Hopefully, you saw me on Power Lunch today at CNBC. It is actually the first time I have been on in quite a while, for various reasons, it’s just all kinds of business stuff, but it looks like I am going to be on a little more often, which, more than every 2 years is probably a little more often.
I wanted to explain in a lot more detail what I was saying there because I do think this is really important stuff. And you are always limited to like 3 or 4 minutes and it could even be cut off for various reasons so I try to be pithy and all of that. Let me just go through these charts and I will tell you what I think about things.
This is the first chart. The things that I am going to show you, I believe they showed all of them in the segment. This is the S&P 500 ( INDEXSP: .INX ) Weekly Chart. And in order for me to give a price target I said, and do believe that the bottom, I think we are going to at least probe the 3,000.00 level. Not tomorrow, not next week, I will show you just kind of what I am looking at here.
To me, this looks about right, this 3,000.00. And how did I get that level? Well, you can see there is this little breakout here. Okay, why is that important? Well, it was pre-COVID, it was pre-anything. It was, obviously, before the election so there wasn’t any kind of political stuff that had to do with anything. This was just the market doing what the market is doing.
I actually kind of look at this as kind of a normal aspect of a bull market. Right up there, nothing remarkable about this, it’s all the same stuff. A long base, a nice uptrend, choppy chop, choppity chop, chop, chop, chop, chop, base, boom, moving up again. So that is all perfectly normal. And then here we get, we’ll just call it COVID, and then all hell breaks loose, we know this.
So I look at this, I have never really seen a sell-off this fast, this happened really, really fast. We had a 35 percent correction in 5 weeks, in 5 weeks this fell 35 percent. That’s not normal even for, climax, crescendo puke fests. That’s a huge sell-off, that’s like Wiley Coyote falling off a cliff, and it takes a long time before you see the little dust cloud at the bottom; 35 percent in 5 weeks, that’s here.
And then the Fed takes rates down massively. They were at 1.25 percent and the Fed took them down to .25 percent. So they knocked off 80 percent of the Fed funds rate and boom, just like that, which freed up a bunch of money. And then, at the same time, the Federal Government, I don’t know if this was the PPP or whatever it was but it started pumping a lot of money into the system too. I make no judgment or opinion about whether that was a good thing or a bad thing.
It is always easy for an armchair quarterback, I’m not going to play. I am just going to say there was a lot of money being pumped into the system because of this. The pandemic was real, who knows what’s going on?
This is an abnormal market, this big huge V here, that’s abnormal. I look at the ensuing rally here right until the end of 2021 as abnormal. And you could say, Well Dan, it’s just a trend. Why is this time different? Well, it is just because of this, because of the Fed doing what it was doing and then continuing to do what it is doing, all the money coming in. This is a very, very unique, I will call it kind of a mechanical market.
The Fed wouldn’t have been doing what it was doing. The government wouldn’t have been doing what it was doing if it wasn’t for this big pandemic and the big downward spike. This was breathtaking and I am not even talking about the other aspects of this pandemic, with the lockdowns and the way that impacted people’s buying habits.
The way it impacted suppliers, meaning retailers, the middlemen, the manufacturers, and the way it impacted what they did in response to this. I don’t need to go through them all because, frankly, I don’t know them all. But I know a boatload of them and so do you. There was just a lot of stuff that I am saying was unnatural.
So why is this important? Well to me, it is important because then I look at all of this, I look at this, I look at this as null and void. I see all the pain, from a psychological standpoint I see what’s going on. The further down a stock goes and the faster it gets there, the more pain it leaves behind. So this decline here has left a lot of pain in its wake.
But we are looking at rearview stuff here. Now, I’m looking ahead and I am saying, “Okay, is this really a support level? It’s just a little ripple in a weird unnatural market move. How about this? No, not really, this is all part of this mess. So I look at this level here as the last normal breakout level.
I remember talking about this before the whole COVID thing, that this is a continuation head and shoulder pattern, an inverse head and shoulder pattern. Yes, there is such a thing. So this was a really good move, it was a nice move off of this V, that consolidated here, boom, we expect this kind of move when it happens.
When it starts the market is exactly what we expected it to do. But I don’t look at any of this stuff as “valid” when it comes to assessing where the market can go when the bubble finally pops, and it did. That’s how I get this 3,000.00 level. Plus, the fact that, do you know what? Traders, like even numbers.
You are not going to see anybody unless they are using Fibonacci lines or something, you are not going to see anybody say, According to my projections, the bottom is going to come at 3,115.00. People pick the even numbers, this is why you never want to put a stop at an even number.
Like you bought the stock at 107.00, are going to put your stop at $100.00? No, things come back and bounce all the time off of these even numbers. Well, I’m not going to buy it at 110.00 but if it falls back to 100.00, then I’m in. And so your stop gets triggered right when somebody is saying, I would like to buy your stock at $100.00.
My point being is, that these even numbers are meaningful to markets, particularly at significant turning points. So I am looking at this and saying, “I kind of don’t think we’re done going down.” First of all, I misspoke, the Fed, when they ultimately started jacking up the rates I said that they jacked them up by 80 percent and that was incorrect, it was a lot more than that, from .25 I think it will be at 4, something like that. It was like a 400 percent or an 800 percent increase, it was a lot. I don’t have all my notes with me right now.
But the Fed totally just dropped rates to zero and then as the market is coming down the Fed starts raising rates precipitously. And the reason that the Fed is doing this is that they are trying to kill the economy. And I don’t mean that in a bad way, but they have basically said there’s pain.
We are willing, we, meaning us on behalf of them are willing to accept some pain, we have to go through this pain. They are kind of trying to crush the economy, they are trying to knock markets down. They’re against the markets right now. That is not right or wrong, it just is. And so the prior 2 bear markets were the exact opposite.
In the 2002, 2003 bottom-seeking campaigns, pay attention to time and price. From top to bottom, right here, the market corrected by 50 percent in 2 ½ years, 2 ½ years of declines. But by the way, during that time there were like 25 percent rallies, and that’s good for us. I want you to be thinking about this, during this nasty period there were plenty of times to make money. But there was a great opportunity all along the way to give it all back and then some.
So if you were careful and you picked your points, and you got on when the market had reached an extremely oversold level and then rode it up and didn’t expect too much (we’re looking at technical levels) you did really well.
You weren’t exactly crushing it because of what was happening in the market but you were making money because you simply weren’t losing money on the way down. You took the trade, you got out of the trade, and then you backed off out of respect for the downtrend. So anyway, back here it did take a 50 percent correction in 2 ½ years.
Now, this is what you also need to know, the biggest sell-off happened 2 years into the correction and 1 year after the bear market started. In other words, after the S&P ( INDEXSP: .INX ) fell 20 percent from the high. It sold off 33 percent in 4 months. Why is that important? It is important because, you know that whole song, The Best Is Yet To Come? I think, in this case, you kind of flipped out on its side a little bit and say, No, the worst is yet to come, and it will come fast and furious at some point.
We can’t predict when that is going to happen but we have got to know that it will happen because it always does. And then if we look ahead and we see, I say it’s the housing crash but it really was the whole financial meltdown for various things. I think just the popping of the housing bubble kind of started it. Watch The Big Short, you will get it all. So this saw a 60 percent correction from the market’s peak in 2007; 60 percent from top to bottom it took a year and a half. It took a year and a half.
Now, in the current bear market that we are in, it is just a little cubby bear, it’s just a little teddy bear. This thing, we are only 9 months into it since the January peak, and the correction is about 25 percent. So if we turned this around right now, this would be an amazing feat of magic. Because it would buck the historical norms by a lot. Since 1900 the typical bear market has, on average, lasted 410-days, which is about 14 months, something like that; 410-days a typical bear market has lasted. That’s the bear market after it falls 20 percent.
So officially, the bear market started right here. We have been in a bear market for all 4 months, so basically only about a year to go if we are going to hit the average. Do you see what I mean? I am not saying give it time, it will go down to zero. And I am not saying that there are not going to be great money-making opportunities along the way, there will be and there are going to be a lot of them.
What I am saying is, if you are sitting here waiting for stocks to return to normal and for the bear market to end and the bull market to resume, it’s going to take a while. There is one key difference as well, during the .com bubble pop and the housing financial bubble pop the Fed was on our side. The Fed was dropping rates, it was printing money.
Remember good old Ben, the Helicopter guy printing money? This guy, a buffoon, engaged in the biggest prop trade in the history of this entire planet and he sucked the rest of the world along with him because we have the world’s currency. And because of that, every other currency in the world has to have some kind of relationship with the dollar that will give that currency some stability.
So what the US does; what the Fed does controls what the rest of the market does. And I do find it (I am editorializing here a moment so please bear with me), I do find it quite ironic that Ben Bernanke has just received a Nobel Prize for handling the financial crisis. This guy has put on the biggest experimental prop trade in the history of mankind, which made him look good and set the market up for the biggest fall in history. He’s holding the trophy while everybody else is holding the bag.
Now the good thing is, for him, the Fed plays musical chairs. Like when Ben retired to accolades, Oh, Ben, you’ve saved the planet, you’ve saved us. Oh Ben, I love your beard, buff up that head, you’re great. I thought, this guy is riding off into the sunset as a hero and he’s really not. He just got out early before the music stopped.
I remember Guy Adami saying on Fast Money, at that time, he said he did not think Ben Bernanke should even be allowed to retire until he closed the biggest prop trade in the history of financial markets. He was talking about what I am talking about, this big huge financial experiment based on some cheesy ass research that he did, about how the depression could have been avoided if only the US had printed an infinite amount of dollar bills.
So this guy is all theory and he puts his theory into practice and it worked like a charm all the way up until the time that it didn’t. And now is the didn’t part. And so do I think this is a big deal? Yes, I kind of do, and I have never been ambiguous about that. I do think it is kind of a big deal. And you may not want to hear this and that’s fine, turn the video off, I won’t mind, because I won’t know about it. But this is a big deal that we are dealing with.
The Fed is against us now. Again, not a bad thing, not a good thing. It is just, that’s the way they are, they want to bring things down. They want to take the temperature down a bit, whereas in the past they have wanted to help things out. And so it should make a difference in your assessment of your trading decisions, it has to. You have to be more selective.
And like I told them, in a way, trading and investing are actually easier now, as long as you temper your expectations. As long as you are not swinging for the fences or expecting huge returns on any given position or any given stock you are going to do fine because most stocks suck.
Most stocks are crap. That means that you are fishing in a really small pond. The one thing you want to be doing is, you want to be only looking at stocks, at the bare minimum, that are above their 200-day moving averages. This is what many, many savvy large traders and money managers do.
I have mentioned this many times before, but Paul Tudor Jones says he doesn’t even see stocks that are below their 200-day moving average. He sets filters, they don’t even come across his screen. That means that he doesn’t ever have to look at them and make a decision to do something stupid. He limits what he looks at and it is only stocks above the 200-day moving average. That is basically to get in the door, just a basic bottom-line thing.
And these are the things that we want to be looking at. It is just really important to understand that. It is also important to understand that markets anticipate the end of recessions. There is a lot of talk about us going into a recession next year. I’m not even sure what they mean. If they, whoever they are, if they are saying we are not in a recession now but we will be going into a recession in 2023. I don’t even understand that because the definition of a recession is 2 consecutive quarters of negative GDP growth and that is what we have already had.
So according to the traditional models then we are already in a recession. For these lemmings to now be saying, Oh, we’re not really in a recession, it’s Putin’s gas hike, and all this and that. You can put whatever color of lipstick you want on the pig but when you get all the lipstick wiped off, it’s still a pig. So whatever the reason for the 2 consecutive quarters of negative GDP growth, whatever that reason is it doesn’t negate the fact that we’ve had 2 consecutive quarters of negative GDP growth. What am I missing here? Somebody throw me a bone. We are already in a recession.
Now, it’s a bummer but it’s not really a bad thing because at least we can be honest about it. At least we can also know that wait a minute, markets do anticipate. They do anticipate the end of a recession. Even as the data continues to just absolutely be brutal, stocks start ticking up, markets start moving up because that’s what markets do, they move.
And so we need to be focused on finding the winners that are here, that are emerging. Be focused on making lists, checking them twice, and all that. Don’t be naughty, try to be nice. I could keep doing this all day long. We need to be focused on just getting a select group of stocks that we are looking at. I actually have them, not to the extent or the organization that I want but that is just kind of a basic filter that I use. We need to be doing that, rather than, Hey, what’s everybody trading today?
The most important thing, I digress just a little bit, listen to me here, I’m giving you pearls. The most important thing for you to be doing, I just mentioned it a few days ago, what is your time frame? That was in Monday’s session. What is your time frame? Your trading decisions and your analysis have to match your time frame. If you are day trading you don’t need to look at MarketSmith and look at fundamentals. If you are investing for a long-term trade and for dividends you really don’t need to look at intraday charts, just do your thing.
So your trading actions, your decisions, need to match your time frame. And that is one of the biggest mistakes that I think people make. They don’t really have a time frame. You have to have a time frame because, without it, you don’t whether you are good or bad. You don’t know whether you’re doing well or whether you are not.
Getting kind of back on point, a couple of stocks that they wanted my take on, Apple ( NASDAQ: AAPL ) because I had said that I think Apple ( NASDAQ: AAPL ), for people to be looking at this like, Oh this is a great stock to own. Frankly, I would rather own some of the crap than own Apple ( NASDAQ: AAPL ).
Why is that? What do I have against Apple ( NASDAQ: AAPL )? Nothing, I have my Apple ( NASDAQ: AAPL ) watch, though it is on low power right now. I have an iPhone. I have 2 different iPads of varying sizes because, well because. I have the earbud thingies. So I am an Apple ( NASDAQ: AAPL ) guy.
But this thing, at some point the prettiest rose on the bush starts wilting and that is really what’s happening here. A nice uptrend, here’s the 40-week or 200-day moving average, you can see all the times it has tested it. It tested it here for a cup of coffee and then fell down, that’s new. You could say that’s a shot across the bow. And then this comes back up and it didn’t hit this level. I don’t even think it hit this level and then it rolls over and then right back down here.
So again, this breakdown here was a shot across the bow. It falls down here, Oh my god, Apple ( NASDAQ: AAPL ) is done. And then it rallies back up above the 200 and everybody breathes a sigh of relief. Few noticed that the 40-week or 200-day moving average is now drifting sideways. Whereas before, it had been going upward, it has flat-topped now. Now, we’ve got Felix the cat here. A couple of ears and it’s looking to me like we are going to start printing the right side of the face. And so I look at this type of thing and it is literally a classic topping sequence.
Also, as I mentioned, I would qualify Apple ( NASDAQ: AAPL ) as a leader, historically speaking, I think I got this from Richard Jensen’s book, Stock Market Blueprints, I’m pretty sure that’s the book I got it from. Historically speaking, the big market leaders, once they break down have a curious way of doing this, 80 percent of the big leaders, once they break down will fall at least 50 percent; 50 percent of the leaders, once they break down will fall to 80 percent.
So once these big leaders start to roll over it is kind of like, I think it was Hemingway that was talking about this or writing about this one of his books. Somebody going into bankruptcy and he said, slowly at first and then all at once. And that’s, I think, what we are ultimately going to be seeing here. You can’t be looking at Apple ( NASDAQ: AAPL ) to prop up the market. If you are saying, Oh, I want to buy Apple ( NASDAQ: AAPL ), you are either in it for a short-term swing trade, which is fine, nothing wrong with that. Or you are just kind of lazy and not really imaginative.
Apple ( NASDAQ: AAPL ) is not going to get it done for you. Though I do like that new sports watch. My wife is getting one of those. I am kind of pouting because I don’t get one, I already have one that works.
Tesla ( NASDAQ: TSLA ) is the other one that I was talking about. Remember that pre-COVID level where things were still kind of normal? Well, that’s kind of here. A different time period but it was the same type of thing. Where you get this sideways consolidation and then a big move up from the 150.00 level here, to clear up reaching 400.00. You know there was a stock split along the way. So when we look at this type of thing it is pretty easy to see another 30 percent down just to reach this level. And essentially form a box around this. This would be a whole new topping pattern here.
I am definitely bearish on the stock. I will tell you this, I have mentioned this many times before, if Tesla ( NASDAQ: TSLA ) gets any appreciable rally I really think you want to be shorting the snot out of it. But if it just continues to fall that is really a problematic short. It is very risky because what is undeniably going to happen is, as soon as we put on a short, boom, the stock is going to whipsaw. So you kind of have to wait for it to have it be a lower-risk trade.
But to me, this stock certainly has a 150.00 handle on it. Possibly a lot lower, by the way, this is a logarithmic chart. It looks like an arithmetic chart, which creates these really big extremes. Logarithmic is actually smoother and we still have this nasty kind of top going. So Tesla ( NASDAQ: TSLA ) would be one of these stocks. Again, I am just telling you, if you are looking at it to buy for anything other than a swing trade or a day trade, something like that, I really caution against that. It was a big monster leader and it’s rolling over now.
I like Elon Musk, I think any guy that is drilling holes in the earth, launching rockets into the stratosphere to spit out the Internet, Starlink satellites all over the place so that everybody, including those in the Sudan in their tepees, if they have tepees, can get on the Internet, and the guy that is literally and creditably trying to set us up to go to Mars, you go ahead I will stay here. You can’t count that guy out. And so I am not saying that this is an indictment on Musk. It is just an observation on this chart, this is a really bearish chart. So you have to be realizing that, you have got to be recognizing that.
There were a couple of stocks, we just didn’t have time to get to it. Molina Healthcare ( NYSE: MOH ). I don’t think this is a buy right now. Just so you know, what I say on TV is different than what I say here. Why is that, Dan? That doesn’t seem right. No, it’s not that. It is just a different audience and it’s a different time frame. Because when you are speaking in that venue there are money managers, there are people that don’t trade, and everybody in between watching it.
And in this case what I am talking about here is just this trend, this big uptrend. And right now it looks like we are just coming onto the tail end of this kind of consolidation. And you can say, and you would be wise to spot this, Well Dan, this looks like a shot across the bow to me. What do you think? And I would say, Well, you’re right. And so this is a big deal, you have got to watch for it. But as long as the stock stays above this 40-week or 200-day moving average I think we are all good.
But if you remember, this is exactly the kind of thing that I was talking about here in Apple ( NASDAQ: AAPL ). Once it broke down that was a shop across the bow and then it recovered. So if we see Molina ( NYSE: MOH ) doing the same thing, it broke down, it recovered. The 200-day or 40-week moving average is still trending higher but this is one to be really cautious of. And so that is why I felt like I could mention it there but not here.
Another one that I mentioned several times, and I was actually thinking about adding it to the Active Trade List today, was Toro ( NYSE: TTC ), lawnmowers, and such. This is a weekly chart, I just like this breakout. I have mentioned this breakout last week but I don’t feel strongly enough to say, Hey, this would be a good buy. Because it still looks like it’s a little bit early and we’ve just got this crossover, where the 50 is just now above the 200. But this is definitely one that we want to be watching.
That is pretty much it. DoubleVerify ( NYSE: DV ) today, came down to 25.87 so we would be stopped out of that. I’m not going to say it’s unfortunate, stocks are just going to do what they do. So we are stopped out of that. TBT ( NYSEARCA: TBT ) is fine. What happened to Twinkie ( NASDAQ: TWNK )? Twinkie ( NASDAQ: TWNK ) is doing fine. Lilly ( NYSE: LLY ) is doing fine as well.
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