Dear Reader,
In today's unforgiving market, I've witnessed firsthand the risks of staying long and getting caught in the crossfire. Today's downward move in the Russell reminds me of the negative momentum shift back in March.
Despite the recent rally, concerns about a recession continue to grow. If you haven't already, I encourage you to familiarize yourself with our core momentum indicators like MACD, ADX, RSI, and MFI, instead of merely chasing overbought or oversold opportunities.
Typically traders will buy the SPY or IWM for a quick gain when RSI and MFI signal overbought/oversold, but that doesn't guarantee a lasting trend. For a sustained move, we look for RSI crossing over/under 50.
Last week, the Russell demonstrated a positive MACD turnover, and momentum effectively turned positive on Friday. But just as I feared yesterday, some traders were enticed into believing oil was headed for $95.
Remember, when Goldman Sachs says $95, we should approach it with skepticism. Over the past year, energy has consistently led the way during major sell-offs. This kind of narrative lures traders, particularly those unfamiliar with these patterns, to go long and end up taking a hit.
Classic Goldman Sachs.
Today I want to show you how to gain an edge in Goldman's dirty game.
Improve Your PoP
In the current atmosphere of uncertainty, I advocate adopting a more conservative strategy, such as selling calls, puts, and spreads that have a higher likelihood of success. Then if S&P 500 momentum turns negative, we exit these positions, and our losses are likely to be less severe. We're witnessing an erratic market, and if momentum turns negative, as we might see by day's end, things could drop significantly.
So, does this mean you should exit stocks? Not necessarily. Many companies are worth holding long-term. If you own shares in a company you truly like, consider selling a call on top of your position.
For long-term investors in stocks like Exxon (XOM), now is the time to sell calls. With the stock around $115 and volatility increasing, the May $120 call trades at around $2. Selling the covered call, you don't need the stock to move; you have a high probability of profit and short-term protection. This way, if the stock declines, you don't have to dump a solid company like Exxon or Occidental.
If momentum goes negative, Occidental's (OXY) downside is in the mid-50s. Instead of dumping the stock, I can sell a higher call. Currently, the 67.50 call trades for $22.12. If the stock reaches $69.80, I keep the difference between $69.80 and $64.27. If it exceeds that level, the gains go to the option buyer.
I can make 8.6% on my money with a 68% annualized rate and a high probability of profit. My break-even point is $62.15. If the stock drops, I still hold it. In the short term, if momentum turns negative, I don't need to dump the stock. I can sell calls repeatedly as a shareholder.
One crucial aspect I'd like to emphasize, which we discuss daily in our Flashpoint Trader premarket report, is the significance of the insider net buying-selling ratio. This represents executives buying shares of their own companies.
Concerns are mounting as we approach earnings season and look towards the latter half of this year. Time and again, I've pointed out that these rallies are deceptive bull traps or bear market rallies, a conclusion supported by an extensive study of executive behavior.
Focusing on the upper bound, we can identify instances of considerable insider buying relative to selling, all coinciding with major market events: '08 Lehman, '09 Operation Twist, 2011 European crisis, 2015 Chinese crisis, 2018 Fed pivot, and 2020 COVID. Despite efforts to buy at the start of last year, they proved unsuccessful, and executives have not returned since. I assure you, during pronounced periods of significant market movements-be it a Fed pivot, Fed buying, a growing Fed balance sheet, or a substantial rate cut-you'll witness a stark increase in insider buying compared to selling.
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Broad Market: Yellow
S&P 500: Green
Recap: The World's Biggest Indicator (Momentum) is Yellow...
Today, the S&P and IWM experienced a significant sell-off, likely in response to newly released data indicating a decline in the number of job openings in the United States during February. This decline is particularly noteworthy as it marks the first time in almost two years that job openings have fallen below 10 million, suggesting a potential slowdown in the labor market. As a result, it is crucial to monitor the situation closely in the coming days, as concerns about recession enter the narrative.
Flashpoints I'm Watching
- Privacy Plays: Germany is the latest nation to threaten a ban on ChatGPT. France and Ireland are reportedly in contact with Italy over the latter nations' findings that fueled its ban on the AI-driven search service. We'll see how this impacts the AI industry over the next few weeks. The larger pressure appears to be on Microsoft, which had integrated ChatGPT into its Bing search service.
- Bank Bailouts: The Wall Street Journal reports that executives at Signature Bank sold more than $100 million in company stock during the cryptocurrency surge over the last few years. Well, it wasn't Signature Bank that dropped $5 trillion from the sky (that was the Fed), and it wasn't this bank that printed trillions in stimulus (that was Congress). The outrage is lost on me when government created conditions that allowed for these executives to get rich. I'm sure they'll ban stock sales now (/sarc)
What You Missed
Are you ready to take your financial future into your own hands?
Well, whether you like it or not, the future of payments is digital - and the Fed's new digital payments system, FedNow, is about to hit the scene.
But don't worry, we've got your back. Nick Black is hosting a Digital Wealth Master class on Friday, April 7th, and you're invited!
By signing up for Nick's class now, you'll get access to all the information you need to succeed in the digital payments revolution. You'll learn how to use a digital wallet to your advantage, and stay ahead of the curve.
And that's not all - when you sign up today, you'll also receive 5 free reports to help you get started.
Claim your seat for Nick Black's Digital Wealth Master class today.
And if you're busy on Friday, don't worry - we'll send you a replay video so you won't miss a thing.
Are you ready to take control of your financial future?
Then go ahead and sign up now.
Stay Liquid,
Garrett
The post How to Outsmart Goldman's Dirty Game appeared first on Midday Momentum.
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.