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The Florida Republic is in the business of insurance.
Stock market insurance.
We literally give it away for free every single day with our Equity Momentum reading. When it’s green, you’re clear.
When it’s yellow, a storm is on the horizon.
And when it turns red, it's time to take action. Whether it’s moving to cash or selling calls on existing long-term protection, this is the ultimate form of insurance.
And it’s free. Maybe if enough people follow it, they won’t lose money in the markets… and they’ll buy some auto insurance. I think that’s a fair ask.
And, wouldn’t you know it, today, the S&P 500's momentum turned red before kicking back to yellow. But our broad Russell 2000 EQM reading is now officially red.
As the day winds down, reducing risk, setting hard, tight stops on positions, and hedging accordingly are important. This negative cycle could last two days… two weeks… or two months.
All we know is that we are getting out of the way.
Let’s look at a few recent examples. The house caught fire, but there was still time to purchase insurance.
On June 8, 2022: Momentum turned red in a similar intraday event. I was getting a shot in my spine on a doctor's table when my indicator went red. I had to close positions on an “operating” table. We didn’t know why momentum went red for nine days, but the S&P 500 slumped more than 10% in a week. We found out the following week that it was the largest hedge fund selloff in 15 years.
On September 15, 2022: Momentum turned red. We got out of the way. The markets cratered into the final week of the month. We didn’t know for another week, but the entire British pension system nearly collapsed. We avoided that selloff and bought back after the central banks all pivoted.
On March 7, 2023: Momentum went red. We didn’t know why at the time. But we got out of the way. A week later, every single newspaper blared a headline about a regional banking crisis. If you look at Google News before March 7, only one article (in American Banker) discusses stress in the banking system—just one. A week later, the markets had melted down.
A red EQM reading is a reason to protect yourself.
Think of it as... a License to Chill.
While everyone else panics, we focus on other things in life. We put down the hurricane shutters, protect our asses, and then get on with other things. There will likely be a lot of noise over the next two weeks. You won’t find me panic selling at any point soon.
Rules of Negative Momentum
With momentum now negative, it’s time for you to dig deep into a previous article I’ve written called “Six Rules for Negative Momentum.” Like it says on the box, it's how you tackle negative momentum.
The importance of building cash reserves.
What to do about existing positions.
The opportunity to trade credit spreads around volatility.
But when I publish it in the future, I will add a rule to this list that I want to share with you today.
Rule 1: Enjoy Your Life
Typically, I’d put this rule somewhere in the middle. But I am not in the business of sitting around and panicking about the financial markets. While everyone else is losing their mind… panicking over headlines… or trying to short the market… we’re taking a step back.
What’s the purpose of such stress? One of the best times of my life was back in 2008 – living in Florida. The entire financial system was burning to the ground. I was working on a book on a beach, and when I finished it… I had one of the best memories of my life.
Mortgage banks were collapsing. I was standing in the Gulf of Mexico, a drink in one hand and a CD player in the other – listening to “Don’t Get Lost in Heaven/Demon Days” by Gorillaz. I was dancing – and no one else was around.
I had no trading exposure to the markets that day. My mind was clear. There was chaos all around me… but there was nothing to fear.
I welcome those moments in the future.
I want those for you as well.
Secretary of Finance
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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.