EB Daily Market Report - Quick Update - Thursday, December 15, 2022
I am using this morning's weakness to build a larger leveraged position. I am NOT recommending this for members. Leverage results in much more risk, but potentially higher returns. It is certainly not for everyone. If you consider yourself to be a cautious investor/trader, then I'd stick with the ETFs that track our major indices, like the DIA (Dow Jones), SPY (S&P 500), and QQQ (NASDAQ 100). I prefer the QQQ as its more growth-oriented and I believe, over time, that this is the area that will lead our secular bull market resumption.
Here are many of the reasons why I like being more aggressive at this time:
- The more bullish 2nd half of December starts tomorrow
- This morning's futures are suggesting the NASDAQ will open almost squarely on max pain (point at which market makers can render the most pain to options traders)
- These gap downs, with subsequent rallies, have become the norm (see Excel table below)
- On the QQQ, 280.47 is the lowest open or close over the past 5 weeks; in pre-market action, the QQQ is now trading at 281.86, which is down 1.62%
- The biggest driver of the QQQ is technology (XLK) and the XLK is set to open almost squarely on its 20-day EMA
- The intraday QQQ:SPY relative ratio that I provided in Wednesday's DMR shows that money has been moving into the more growth-oriented QQQ during the trading day
Yesterday I updated the manipulation spreadsheet that I've been tracking throughout 2022 and it continues to suggest that Wall Street is accumulating, not distributing, shares. I've broken down the QQQ performance between 5 different timeframes - opening gap, first 30 minutes through 10am ET (amateur hour), 10am - 11am, 11am - 2pm, and 2pm through the closing bell. This breakdown can be seen below during the bearish manipulation phase (when Wall Street was rotating into defense as the market set fresh all-time highs), the distribution phase (selling indiscriminately throughout the day), and the bullish manipulation phase (sideways action and rotation since May 20th). Here's what it looks like:
Focus on that bottom line. Since May 20th, the NET of all opening gaps is -36.58 AND the QQQ has traded down another 20.16 on a NET basis in the first half hour of trading. This is action prompted by the news and media. Many traders will sell into the early morning manipulation, which Wall Street is happily buying. I was on CNBC.com this morning and I saw stories with headlines about how the Fed's actions will result in a recession ahead. Many investors, when they see constant negative headlines like these, and then see big drops at the opening bell, decide to sell to end the pain that's been inflicted throughout 2022. Look at the action above, however, from 11am to the close. The QQQ soars. The QQQ, from the May 20th close through the December 13th close (Tuesday), gained a measly 0.59 points. But it went down 56.74 between the opening bell and 10am and then sprang back up 57.33 between 11am and 4pm. Interesting!
Brainwashing might be a strong term to use, but there's no doubt in my mind that we are constantly manipulated by the big Wall Street firms. Check out the distribution phase from early January through May 20th. Now THAT is what selling looks like. So the first period above was the start of Wall Street repositioning to prepare for the 2022 bloodbath. Then came the outright selling. But since May 20th, I really don't see much selling. Sure, it's been volatile. And yes, it's been frustrating. This morning's gap lower, though, is Wall Street doing what it does best during these manipulation phases - scare us into selling, while they accumulate the balance of the day.
It'll be very interesting to see if this morning's weakness leads to an afternoon recovery now that max pain is no longer an issue and a MASSIVE number of net in-the-money calls have been wiped out.
Personally, I try to use these gaps to the downside as an opportunity, especially when the market still shows bullish characteristics on the charts. While the QQQ has recent price support at 280.47, the biggest level of support is the opening gap from November 10th, the day that the October CPI was released. The QQQ opened that day at 276.01.
My strategy in the short-term will be to use current weakness to build a more leveraged position (QLD tracks the NASDAQ 100 at a 2 to 1 clip) as the QQQ drops. I'll be adding to the QLD from today's open all the way down to the QQQ reaching 276.01. If the QQQ closes beneath 276.01, I will exit all of my leveraged position.
Here are the December 16th through 31st returns on the S&P 500 since the turn of the century:
- 2000: +0.62%
- 2001: +2.23%
- 2002: -1.09%
- 2003: +4.11%
- 2004: +0.51%
- 2005: -1.78%
- 2006: -0.62%
- 2007: +0.03%
- 2008: +3.99%
- 2009: +0.65%
- 2010: +1.81%
- 2011: +3.44%
- 2012: +0.89%
- 2013: +4.11%
- 2014: +3.48%
- 2015: +0.03%
- 2016: -1.03%
- 2017: -0.08%
- 2018: -3.58%
- 2019: +1.96%
- 2020: +1.66%
- 2021: +1.20%
- 2022: ?
As you can see, a move higher between now and December 31st is NOT a slam dunk. I'm talking odds here. Since 1999, the S&P 500 has climbed during the 2nd half of December 16 times and it's declined 6 times. We've only seen one decline of more than 2%, while we've seen the S&P 500 gain more than 2% on 6 different occasions. The odds suggest the market will move higher - that's the tendency.
But it's not a guarantee.
Happy trading!
Tom