The Trifurcated Market
Did you catch my talk with Garret this morning? We both made a lot of good points and of course Garrett has the biggest brain around and dropped a real knowledge bomb on you guys right alongside me.
We talked about the Fed balance sheet and what we should expect in the coming weeks in regards to the next move by the Fed, the market’s reaction to that move, and what else you should be watching to know how to anticipate that market reaction. I got you a recording because this is an EXTREAMLY important precursor to the rest of today’s email.
Honestly, I just love using that word. I was going to say bifurcated, but what the hell…
This market is split into three different subsets of traders. Just like most people when I use that $3 word, the market is confused. There is a lot going on and with the market being pulled in so many directions it’s causing some real turmoil.
Typically, the market is bifurcated there is risk-on and there is risk-off. This means the market is just
being pulled in two directions, it’s a game of Tug-o-war.
Here are the three chambers…
•Technology and FOMO Trade:
I know some of you hate that I keep using the *F* word but in a months’ time youll be coming back and saying “ooohhhh yea, he was right.” This is the area of the market that investors are currently moving their money to in droves.
Investors are moving their money here because there is a lot of money on the sidelines right now because the retail investor is sitting this play out but they know they’ll be back later in the game.
o Tech
o Discretionary
o Health Care (more specifically Biotechnology)
This is the area of the market that you can play in for a little bit longer but eventually youll have to find another place as people are going to start clearing out. The Jobs report this morning is your first indication that people are going to start pulling out of these trades and hitting the road.
These sectors were beaten to a pulp over the last few months and thrown to the side, now people are picking them back up for a quick buck but, that ball won’t hold air forever and will come back down.
Takeaway for this Chamber: Ride these while the momentum lasts
•Realistic Trade:
This is the power play in the market. If you are here, it’s a truly good place to be positioned. The reason I say this is because you are going to get the excitement of the high return trade and it is going to work in your favor because it’s based in reality, not emotion.
o Banks
o Industrials
o Utilities
This is a bit of a double-edged sword. These sectors are trading on their merit right now. They have been going flat or trying to hang on.
The big one of the groups is XLF and it’s doing a bit of the financial shuffle. This morning they were up more than the rest of the market was down. Keep an eye on this you might see something interesting happen.
They will be the slower bleeders of the market that will start to roll over and give you a ride to the downside instead of a freefall.
Takeaway from this chamber: These are trading on their merit and the merit isn’t great
•Questionable or Denial Trade:
These are the ones that are trying to make sense in a market that’s nonsensical. They are looking for the thing that is going to keep it going higher.
The problem with trading in these sectors is, when the other foot falls, it is going to start falling even faster than some of the Tech stocks the FOMO traders are in
o Energy
o Materials
o Staples
Takeaway from this chamber: These are trading against the riptide of the economy and the fed
How To Position Your Portfolio Right Now?
With the new information ive just given you there is probably a whirlwind of thoughts going through your head right now… Don’t worry I have a plan.
Keep your eye on the FOMO traders. Short term, over the next two weeks, the first area to start getting deflated is going to be some of the high running FOMO stocks. Look for that to be the easy trade as they start to break down below their Bollinger Bands and even their 50-day moving averages.
As for the realistic trades, don’t fall for the easy trade on these. At the same time, as we start to see more of that risk adverseness come in, these positions are going to start getting more attractive. so, this pull back we are seeing in the utilities sector is going to start presenting some opportunities as people start to rotate through the market again.
As for the third chamber we talked about, watch for what the Fed does. We are 47 days away from the next meeting and you are going to start hearing murmurs get louder and louder. The next indicator for what the Fed is going to do is the next CPI number, if it comes out hot that’s when they are going to get busy.
Haiku Fri-yay!
Now that the fun stuff is out of the way lets get down to the nitty gritty and show you the real work.
We had an impromptu Haiku Friday! Without any planning you guys still showed us that you have the chops for trading and writing!
All of the summations were so good that Brandon and I couldn’t pick a winner so I’m going to call it and say there are winners all around, and give each of you a shout out today.
All of them were amazing some were fun some were trading related and that’s how my community is we have fun while we make money, personally I like Ryan’s (or as Boom calls him Broadcaster #9. if you didn’t see the morning show its BOOMs last day but he will be back so thanking you for all you do for MMLive, it’s not goodbye, it’s just a see you later)
If you want to heed broadcaster #9s words don’t miss out on the oncoming downturn of energy I have a special deal for you, call Gabe and you can get into my Night Trader for $999 a year! If that isnt good enough and you are still on the fence ask about a monthly deal I’m sure he can work something out for you. But I can only offer this until next Friday at 5 PM. Any later and you may have already missed the boat on positioning your portfolio for energy’s next leg down. Give him a call ASAP (877) 212-9163
See you All next week,
Chris Johnson
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August 05 2022
