You Can’t Beat the Machines… But You Don’t Have to Roll Over for Them

Postcards from the florida republic: An independent and profitable state of mind.

It’s Amazon Prime Day…

Remember: Anything you purchase there today will help the e-Commerce giant reduce inventory levels – and associated overhead, of course, all while securing an interest-free loan at the expense of their vendors.

Funny how a shopping “holiday” can have so many microeconomic benefits that boost Big Tech while simultaneously hammering small businesses.

If it’s even remotely feasible, find the vendor through its website and buy directly from the vendor.

They’ll get the cash flow immediately – instead of waiting 45 days for Amazon.com (AMZN) to pay them. They’ll be able to put that money toward new production, paying employees, paying (high) rent, and much more.

In a world of anti-competitive practices, Amazon and other Big Box retailer invoice practices are… the worst.

But you know, that’s not all that’s hurting Mom and Pop these days. Let’s look at this chart…

I Found Out Where the Trend Went – It’s Not Pretty

In 2018, famed hedge fund manager Stanley Druckenmiller complained that the market lacked a trend. He lamented the rise of algorithms – “algos” - taking over the financial markets.

These soulless machines don’t care about macroeconomic data, consumer spending levels, or the headlines produced by hapless financial journalists.

These algos operate on technical rules, on momentum rules. If a stock is temporarily oversold and selling volume is cooling, the algos will buy the dip.

As he noted, every time the market went down into the third standard deviation from daily pricing, dip-buying became popular among the machine and chip-for-brains crowd.

But it feels like it’s accelerated over the last nine months – since October 2022 produced multiple central bank pivots around the globe. Tack on the record volumes of daily-expiration options – “0DTEs” in the parlance - which expire within 24 hours, and we’ve witnessed a market that has accelerated its intraday swings.

This year, we’ve had very few days where the market goes up or down by more than 2%. That’s a stark change from the movements in 2020 and 2022. Instead, I’m seeing a market with intraday shifts of 2% or more on the aggregate – where we fall by 1%, push higher by 1%, and then finish the day down another 0.5%. The stocks made the journey, just not in a way that signals any possible trend has emerged.

Look at the behavior of the S&P 500 in the first hour of trading. The chart below displays a blue line. That’s Volume Weighted Average Price (1-Minute VWAP). The next lines are the first, second, and third standard deviations from the Blue line.

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In the first 30 minutes, the S&P 500 drops into the third standard deviation on the downside, and, like night follows day, we see immediate buying.

Then, it settles again at the bottom of the second standard deviation band. As volume levels cool, the bidding begins. And just like that, the morning selloff ends, and we move right back to where we were at the start of the day.

A Shakeup Is Coming

This shows that day trading can work with patience and timing.

I personally find it boring to stare at screens all day, hoping to find one of these opportunities. But these opportunities are across the markets every day.

A bird with a long beak Description automatically generated I prefer to trade this way on Fridays when options expire on many stocks, and there’s an opportunity to set tight stops on call options expiring that day if the stock or ETF falls to the second standard deviation band. I’ll be live this Friday from FreedomFest in Memphis and on Money Morning's Youtube, digging into one of the biggest developments in the history of the NASDAQ. You can RSVP for the event here.

Add event to calendar

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A massive shakeup is coming – that will make NASDAQ-related ETFs like the QQQ, SQQQ, PSQ, and TQQQ, run wild in different directions in the next 10 trading days…

It could be one wild rollercoaster for Florida Republic investors and traders. I’m looking forward to this one…

More on that tomorrow.

Stay alert,

Garrett Baldwin

Florida Republic Capital

(Available on Substack)

 

About the Author

Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.

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