Stock market technicals, cycles, sentiment and money flow point to lower prices.

[00:00:00] Speaker 1: Good morning, traders. It's Tuesday, October 20th. Taking a look at the charts, we've got equities under pressure again this morning. We got AI fears kind of roaring back, reversing the tech space back down after yesterday we saw one of the data center companies drop about 32%. Now it's a tiny little company on some crazy exchange, but overall the fears are back about AI overspending and we are seeing technology pull things down this morning. We got the S&P 500 down a quarter of a percent, nothing much. The Nasdaq's down seven-tenths of a percent. If we take a look over at the mags, they are down as well in pre-market a little bit and semiconductors are kind of the main one pulling down, trading down below the lows from a few days ago and starting to show a lot more fear in this space. And that's kind of what we've been worried about was when the AI bubble starts to pop and things have been getting a little bit weaker and weaker, things can get pretty ugly. When we zoom out on this chart, obviously there are some huge moves in price. If this becomes a topping formation, if this here is a top and it starts to break down, things could unwind very quickly to the next level and then who knows where they go from there. Obviously that could spark a very big bear market in equities once we see all of these start to break down. So we do have our markets telling us to stand aside, be aware money's been flowing out, momentum has stalled out, and so we are kind of on the sidelines just letting the markets figure itself out and give us an opportunity to take advantage of it or at least give us the opportunity to avoid a market crash if this was to start to pick up speed. We definitely do not want to be holding any stocks. So remember the S&P 500 and the NASDAQ both are in a short-term downtrend. Our system says it's unfavorable. You should not be holding any stocks. There may be the odd sector that moves higher like energy that has been moving up with oil, but overall that's the needle in the haystack. It is still very news-driven. It's just a high-risk play with lots of volatility. And really when the stock market is not favorable, I don't care how many different sectors and stocks somebody owns. They are all stocks stuck in the stock market. The odds are they're all going down eventually together with the stock market. So that is a pretty core belief and strategy that we follow is if the stock market is going down, don't hold stocks, period. Anyways, let's go take a look at where else money is flowing. We do have bonds moving up today, so we've got bonds having a little bit of a bounce. Overall, again, they're trying to figure themselves out. I think we saw yields top out. We've seen bonds put in a bottom. I wouldn't say they topped out permanently, just a short-term bottom in bonds and a short-term top in yields. If we go and look at the 10-year, this is just pulling back towards the 50-day. This, I think, will strengthen and probably continue to go higher unless the economy and the bear market starts quicker and quicker. Then maybe we start to see the Fed stop raising rates and potentially start slashing to try and save things. But they are really stuck in a pickle because inflation is high and we're going to get into, well, we already kind of are, but things could get much uglier and dropping yields rates might not be the right solution. Who knows? We're going to find out very soon as all of this starts to unwind. Today, money is flowing into bonds. It is flowing into oil again. We're seeing oil push higher. Oil spiked all the way up to 110. Moving up to our next upside targets, which is like the 115 and 120 area. So we are in striking distance for that. And it's showing some volatility here, big pop-up and a pullback. And that's why we're seeing energy stocks moving strongly the last few sessions as well, really picking up speed with the price of oil. Now it will be interesting to see what equal weighted stock market does. RSP, which is the equal weighted S&P 500, it has been moving the opposite of technology. So it'll be interesting if we see the NASDAQ, the S&P 500 more or less start to sell off. Then we might actually see money want to rotate back into these other stocks, right? And we might start to see this outperform and push higher. That's what we have seen in the past. The NASDAQ fell off a cliff here and we saw money flowing into the general stock market. So we'll see, we're kind of at this pivot point here. Are we going to see another leg up in RSP and is it going to buck the trend? Or are we going to see actually broad markets selling where everything sells off? That's what we're kind of holding out to see. But we can see on the volume here, we've seen big volume moving into this space. And of course, during that time, we have seen, let's just go to the tech space. We have seen big volume. This doesn't show it quite as much, but just the tech sector in general, big volume has been moving out of technology while it's been moving into the equal weighted stock market. So again, the market's holding up somewhat, but we are definitely seeing money sloshing around, trying to find safety. And again, remember, the financial system is built for buy and hold and investors and funds are not allowed to just liquidate. They have to stay invested. And so this is big money moving, looking for safety. When we see money rotating from sector to sector, different size stocks from small caps, mega caps, whatever it is, that is a sign of fear. That is a sign of big money trying to figure out how to protect it. And unfortunately, as I mentioned earlier, when the stock market sells off and crashes, everything goes down. There is no real protection. It's just which one falls the least, right? So stock market could fall 50%, but maybe you're holding an asset that only falls 25%. Either way, you're still taking a beating. You're stuck in that waterfall. Anyways, that's really it for today. There's not a whole lot this morning going on other than selling. And we're on the sidelines as this market shakes things up. If we go and take a look at the VIX real quick, VIX is up a little bit, still elevated and holding quite a bit of value. So we might actually still see another bout of selling here with the AI space. We might see a spike in the VIX. But overall, again, investors are nervous and the market is showing uncertainty, which is part of how our strategy gets us to the sidelines. We don't want to be involved when volatility is high and things are flipping and flopping. It just makes it for an emotional roller coaster and puts our accounts through a lot of volatility and risk that we don't need to be exposed to. Anyways, that's it for now. Take care. Bye-bye.