Bombs Away for this Market

negative market momentum

Momentum is Red. We are back in a negative channel right now. We’re looking for lower highs and lower lows. Capital continues to leave this market very aggressively. I wouldn’t be surprised to see the SPDR S&P 500 ETF (SPY) break under 390 in the next week, and then push down toward June lows in the 364 range. Money is gushing out of this market, but short-term bull traps are inevitable. Keep a close eye on the RSI of the SPY and the IWM for clues. I remain very bearish over the next two weeks.

Lower highs. Lower lows. That is the pattern that I anticipate this market will follow over the next two weeks. If you remember the last time that momentum went negative in June… the pattern is a negative channel. 

Today’s afternoon rally was entirely linked to short covering… and the bounce off the 3,900 resistance level. But momentum continued to move lower while that transpired – in a low-volume environment. Capital is fleeing this market. Don’t try to call a bottom yet. We need to see at least three days of positive momentum in this market. We’re a ways away.

Questions on the Election

This afternoon, my editor at Luckbox Magazine asked me if I was interested in writing an article about “winners and losers” in the 2022 election. The question was around what industries would benefit if Democrats won the House of Representatives… or who would win if the Republicans won. To be honest, I don’t think there will be any winners. 

I think this election is a nothing-burger. The key thing to remember is that interest rates are moving higher. Cleveland Federal Reserve Bank President Loretta Mester predicted this week that interest rates would hit 4% and remain at this level through 2023. 

Meanwhile, the Fed is aggressively increasing its sale of bonds and mortgage backed securities. This afternoon, the Fed released its report on reducing its balance sheet. This week, the Fed dumped $23.7 billion in assets. 

This is massive and could really hammer away at the bond market and, ultimately, the equity markets over the next 45 days. Anyone trying to make bets around this election should do nothing. 

There really isn’t any major bill in place that Democrats can or should pass with control of both houses. Spending money only pours more gasoline on the inflation fire. It doesn’t mean that they won’t do it…

But I struggle to entertain any notion that they will: 

  1. Increase taxes
  2. Increase deficit spending
  3. Try to pass Universal Pre-K or Universal Healthcare. 

There doesn’t seem to be a pathway in an environment of high inflation. 

Dump Energy

This selloff right now has me anticipating a drop in WTI crude to about $80 per barrel over the next few weeks and then a momentum reversal in energy. Speculative capital is leaving the market, and today’s drop in oil is clearly linked to demand destruction in the United States and China. 

Do not sell any puts in the energy sector right now. Wait for a positive momentum to happen before touching anything in this sector. I expect this won’t happen until October. Be patient. 

If You Can Short Anything In This Market

I anticipate that this market will continue to chop over the next two weeks. But that will create challenges for anyone who wants to short the market. We’ve been out in front of this momentum move since Tuesday. 

If I could short anything right now, it would be Apple (AAPL). I think AAPL has a downside target of $145 by October 1. We were already right about NVIDIA (NVDA) hitting $140… so I think you have to target “the king” of the market. 

When momentum is negative, ETFs must sell stocks as capital outflows accelerate. This stock is owned by more than 300 ETFs, and capital flowing out of this market is extremely bearish for Apple. I’ll be back tomorrow with more insight on trading in negative momentum. I’ve put together a full report on how to do so… so check it out right here.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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