Proof of a Crisis

financial crisis

Market momentum is Red. Markets continue to gap down at the open, followed by some short-term rallies into the close. Relief rallies were evident in the materials and energy sectors today. On the S&P 500, mega-cap stocks pushed higher today, even though the sector remains in a negative momentum channel. Nevertheless, I still highly urge caution, as concerns about a recession, higher rates, and economic data rattle sentiment into the weeks and months ahead. 

It feels like people are finally catching on to the potential of a financial crisis. On Friday, the Atlanta Federal Reserve lowered its Q2 GDP estimate to -2.1%, effectively predicting a recession in America. Investment banks are still in denial – protecting their clients’ interests and trying not to spur a continued selloff. Half of America is still talking about whatever reality show just debuted, and they’re working as hard as possible to keep their heads above water.

Even the media is publishing projections from banks and economists who remain very rosy about a “soft landing.” Me? I just got a little more bearish. For some reason, I don’t think people understand that we are truly in a financial crisis. And not just any crisis… Potentially the worst since the years of Reconstruction in the Civil War. It’s time to act like it.

Diary of a Crisis?

So far this year, the global stock and bond markets have shed $31 trillion in losses. To put that into perspective, consider that we ONLY saw a $5 trillion drop in the first six months of the worst economic downturn since the Great Depression. Do I have your attention? 

If that doesn’t capture the state of this market… then consider this. Bond prices are collapsing, and the U.S. Treasury market is on pace for a shellacking this year. I’m talking about a bigger downturn than the Great Depression, the 2008 crisis, and ANYTHING in between.

On an annualized basis, you must go back to the end of the Civil War to consider the wealth lost in our bond markets. 

And the equity markets don’t fare any better. I’m pulling these charts from a weekly presentation by Swiss investment company Syz Group, and I’m stunned to put into perspective the state of this market. 

This is why I use momentum and go to cash or buy the Dollar Bullish Index (UUP). Yes, inflation might be eating into my current wealth, but I’m not getting hit by valuation compression, rising interest rates, and capitulation in stocks. 

We can’t just click our heels together and hope stocks return to 2022 levels soon. I think there is a bearish case for the markets now into next year, and I won’t buy too much until I see positive momentum anywhere in this market. There is none today. So, I’ll sit back and look for other opportunities as they come.

Something Has To Work, Right?

When it comes to momentum, I remind you how the anomaly works. Weaker stocks tend to get weaker. Stronger stocks continue to get stronger. So, I invite you to do something VERY simple daily to understand what is working in this market. There are a few 52-week high stocks pumping higher for a reason. 

Over at Finviz, a series of graphs illustrate the real momentum in this market. As you can see, 4,063 tradeable stocks and ETFs (or 47.5% of the universe) increased today, while 4,219 declined. In a stunning display of negative momentum, consider that 1,041 ETFs and equities hit 52-week lows, while just 30 hit new highs. 

I use the screener to determine which equities (stocks) hit new 52-week highs. I was delivered a list of just 21 stocks and will deduct four of them for being SPAC companies that haven’t bought a company yet. So, I have 17 stocks at new highs, and I need to understand why. A few popped because of buyouts, while others have critical data around them. 

I’m intrigued by the five consumer defensive companies touching new highs on this list. That sector is typically a good place to find stocks in industries Americans must consume out of necessity. Grocery Outlet Holding (GO) and General Mills (GIS) are frequent members of this new 52-week high list, making them worthwhile momentum trades. 

I’ll show you how to trade something like General Mills tomorrow using a simple option contract known as a “call.” In addition, I’ll walk you through your “probability of success” trading options on GIS. Remember, for now, that cash is your friend.

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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