Gimme Shelter

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Tracking Account Valuation January 4, 2022 – $1,206,085

Tracking Account Valuation April 18, 2024- $2,880,325  +138%

Intermediate-Term: ~ Downtrend

LOLR Trend: ~ Downtrend

Positions 12% VXX, 8% SQQQ, 27% TZA, 15% SPXU, 38% Cash

Hard stops: VXX 12.47, SQQQ 9.87, TZA 15.05, SPXU 32.88

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4:00:

Daily   LOLR     STS

Down  Down   Down

0/7       4/3       1/6

Breadth: 1015/170

NYMO:  -52 Rising Intraday

NAMO:  -48 Rising Intraday

NYSI is Falling

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Let’s start by acknowledging two undeniable truths:

  • Our current era is marked by its extraordinary nature.

  • The market is displaying unparalleled patterns of behavior.

In today’s article, we aim to unravel the significance of the latter observation and decode the profound message the market is conveying to those curious enough to heed its signals and prepare for what lies ahead.

I’ve spent decades closely monitoring and thoroughly analyzing historical data for the daily movements of the equities markets from the 1920s to the present. That said, Friday will stand out in the record books.

On Friday, remarkable anomalies were observed, unprecedented in the market. However, amidst these unconventional behaviors, a discernible pattern emerged, a rationale behind the market’s seemingly erratic actions.

We will illuminate this pattern and, crucially, delve into the implications of last week’s seemingly “peculiar” activity on the New York Stock Exchange.

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Following is Barron’s recap of NYSE and NASDAQ advances, declines, and volume for Friday, April 19, 2024:

We observe that breadth on the NYSE favored the positive side with a ratio exceeding two to one, with 1908 issues advancing compared to 893 declining. Similarly, breadth remained positive on the NASDAQ, with 2200 securities posting gains while 2030 experienced declines.

These positives, however, were in spectacular contrast to the behavior of SPX and COMPQ, as we display below.

Below, you’ll find visuals depicting the market averages for the NYSE and NASDAQ over the past thirty days, culminating on Friday, April 19.

The NASDAQ Composite, Standard & Poor’s 500, Dow Jones Industrial Average, and Dow Jones Utility Average are displayed.

Upon examining these four market averages, a striking and somewhat unprecedented bifurcation emerges: the NASDAQ experiencing a decline of over 2%, alongside the SPX’s decrease of 0.88%, juxtaposed with the Dow Jones Industrial Average’s rise of +211 points or 0.56%, and the Utilities sector advancing by +15.31 points or 1.78%.

Given the polarization described above, can the reader speculate on how many days the NYSE breadth has surpassed a two-to-one positive ratio in the last hundred years while the SPX has declined by 0.88% or more?

The answer: once – on Friday, April 19, 2024! Friday’s extreme divergence between breadth and SPX performance had never occurred in recorded history!

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Let’s delve into why the above observations are pivotal for comprehending the market’s message and essential for our success as traders as we navigate the turbulent waters ahead to our utmost advantage.

The reason behind Friday’s market behavior is simple though profound, and it has inspired the title of this article, “Gimme Shelter.” A tech bubble is bursting, prompting astute investors to seek refuge from the storm.

Gimme Shelter (Click to play)

Friday saw a significant downturn among what many regard the “magnificent seven.” NVDA, which plummeted by 10% for the session, and MSFT, which experienced a decline of over 5%, were among the most notable declines- though there were similar and worse losses across the tech sector.

We don’t have to remind soldiers among our readers that when the generals are retreating, the troops are sure to follow.

These deep losses in the mega-caps accounted for the steep declines in the COMPQ and SPX averages.

Two weeks ago, in an article entitled “The Little Things,” we suggested:

“When the “smart money” anticipates an oncoming recession, this anticipation shapes the trend as they shift money to defensive sectors ahead of the crowd. Defensive sectors tend to outperform the market as a whole BEFORE the economic changes become widely recognized. Those who focus on shifting sector strength are ahead of changing economic conditions. They adjust accordingly and welcome these changes as opportunities.”

Let’s be clear: this shift is underway, and momentum is gaining with each passing moment.

The article explored various “shelters from the storm” that attract smart money as the most discerning money managers anticipate looming trouble. Here’s a glimpse of how a few of these shelters fared on Friday amidst NVDA’s 10% decline:

  • VIX (+3.94%) 

  • Gold  (Printed all-time closing high)

  • Silver (Printed highest close since 2021)

  • Utilities (+1.78%)

Indeed, Friday’s market activity was far from typical. Despite the SPX experiencing a 0.88% decline and COMPQ plummeting over 2%, the breadth showed a positive ratio exceeding two to one. However, this seemingly contradictory behavior wasn’t without rationale. It carried a message for astute traders that would surely elude “the crowd.” It subtly hinted to those attentive enough to listen that the economic and financial landscape is poised for a profound shift, deviating from the familiar norms traders have grown used to.

In the words of Bob Dylan:

“Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you is worth savin’
Then you better start swimmin’, or you’ll sink like a stone
For the times they are a-changin'”

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As a final note, directed to the most aggressive traders, let’s touch on our proprietary “NSS” or NYMO Surge Signal, which we’ve referenced several times over the past two years. This signal emerges when markets are in a downtrend (as they currently are), SPX closes at a new low for that Downtrend (as it did on Friday), and NYMO closes higher for the day, positively diverging from recent SPX lows (as it did on Friday).

When this scenario unfolds, as it did on Friday, it typically signals a sharp counter-trend spike within the Downtrend, lasting approximately 2-4 days, before the markets resume their downward trajectory and reach new low levels. We anticipate this spike to commence as early as tomorrow morning, but regardless, expect it to occur sometime this week.

We are not changing our tracking account in response to the “NSS.” We align that account with the TREND rather than daily market rips and dips.

We’ll delve into the overnight futures activity here at 9:15 Monday morning, providing an overview before the markets open.

Trial Offer: $2 for ten days. Cancel anytime and pay nothing more, but still get the ten days

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