We saw some interesting twists in the sector signal summary today. I’m going to break that down and explain the importance of knowing where the money is migrating to in the markets.
Think of the market as a closed system. In relative terms, the money that is in the market is finite. It could just be sitting in cash or it could be fully invested, but whats there is there.
By recent measures, investors were fully allocated in November, EVERYONE was invested in technology and a few other high flyers. That is why we had the experience we did because the market was in a euphoric stage. For those of you who are not caught up this week, euphoria in the market is not a good sign. People will start to think nothing could possibly go wrong, they stretch themselves a bit thin and boom… the markets roll over and starts its descent and we enter a stage of disbelief. (Here is a quick video breaking down this concept if you missed it.)
When this happens we will start to see money move from its big money alpha sectors into the more ‘safe harbor’ investments like utilities, consumer staples, health care, and the list goes on. This is where people go to weather the storm.
Right now, the disbelief is being fed by the markets having a little bounce, it’s going to lose steam and roll back over. When this happens, we will enter the expectance stage which, in 2008 cost you 47%. That’s why I am here today, I don’t want my community to be the ones suffering due to ignorance or denial.
How Do I Find Opportunities In The Market?
If you are not already familiar with this chart, it is my Night Trader sector signal chart. It shows me bullish and bearish signals from each sector. Once we see where the money is going we can dive into any sectors that are looking a bit extra juicy to find our trade.
There are many reasons you should know where the money is moving in the market. The more money being put in one sector, the more volatility we will see. What do we say about volatility, c’mon let’s say it as a group…
“Volatility is a trader’s best friend.”
This chart is just step one to finding a trade of course everything that happens successfully will typically have a repeatable process so it can be recreated, tested, and scaled accordingly. I have been scaling and testing my processes for decades and this right here is one of my most crucial steps. I can pull random charts and find a trade with my technical analysis but, without this chart Ive realized you don’t have much direction.
This lends its hands to some catastrophic trades because you turn to headlines and emotion, which is where mistakes are made. Even just one puzzle piece missing from the box means you’ll never get the full picture.
The Palm Reading That Is Money Migration.
you can see that last night, in the chart above, utilities were seeing some bearish signals. We were also seeing a bit of outflow from the Health Care sector.
Now there were also a high number of bullish signals in health care, this may be a bit confusing. A majority of the Bullish signals were not just normal health care companies like Humana or Anthem. They are Bio-tech companies like Fate Therapeutics and Cassava Sciences, there are really just tech companies so they sway the sector signals a bit. Like I said it’s about having all of the pieces to the puzzle to get the full picture.
We are also seeing 14 bullish signals in the tech sector. Tech has been VERY HEAVY to the bearish side for the past two months. We are starting to see that money flow back in a bit.
This is where things get interesting…
Let’s zoom out even further. Take a look at the totals 49 bullish signals and 20 bearish… you might be thinking that means the market as a whole has a bullish bias, you might be right, but only for right now.
These number should be significantly higher. We really should be reading two or three hundred signals.
Does this mean the market is running out of steam? Is this a true leg up? Maybe just another bounce?
When we are trading we need to look past the right now moments, we have to look at what is to come in order to pull the real profits out of the market. Things move too quickly to trade the events, we have to find the next trend. That is what will last. That is how we make the real money.
How Do I Use The Sector Signals?
If you are looking to skip the work and blindly trade, great you can do that. Go for those Bio-tech companies specifically ones like LABU or XBI those are the way that you want to trade it. You can also skip the work by getting down into the nitty gritty of the market with me and find the specific companies within the sector that are actually making the moves by taking advantage of my special 6-month Night Trader offer, take a look at what we do and I am posotive you’ll want to stick around and be a part of my crew
Over the next few weeks this view of the market will become increasingly more critical. I share this with my Night Traders just about every day, and every single day this chart tends to change.
As we start to see the money go back to the bearish side and the money is flowing from the hot sectors to those safe haven positions, you may find yourself standing in a bit of a soft spot in the market. People are going to start to doubt themselves again. When people start to have doubt in the market, the people who can’t quickly recognize the change in sentiment and adjust to the atmosphere are going to be in some deep waters struggling to stay alive.
There is a method to my madness when it comes to using this chart and every last one of the tools in my arsenal. It is imperative that you are prepared for the coming months because it won’t be pretty if you havent
Mark my words on this next statement it is going to be vital for you to know if you want your portfolio to survive the bear market.
The moment that we start to hear that it is over, that we are ready for the market to move up to a new 52 week high on the S&P 500, this is it and everybody starts putting their money back into the market. It will be a mini euphoria stage. The market is going to be a bit bi-polar before we start to get depressed and roll over.
Watch the media very closely as we make our way through earnings, ill decipher it for you ive been doing it for decades and I’m going to show you what they are really saying and what is going to happen.
Quantitative Specialist, Penny Hawk
July 21 2022