Things You Need to Know
- What is a Momo trader and why is that important to understand?
- Volatility is back/ Risk Assets take a hit.
- Fed Speak, Gov’t data and Concerns over the labor market cause anxiety.
- All Eyes on Retail and NVDA
- Try the Alaskan Black Cod.
Econ 101 – What It Means to Be a Momentum (Momo) Trader – because this is important – since much of the action lately has been defined by what they do.
Imagine you’re standing on the beach…
You see a huge wave building way out on the horizon. A momentum trader is the guy who grabs his board and jumps right into that wave — not because it’s safe, not because it’s logical… but because it’s moving. They live by one simple mantra: If it’s moving — I’m going with it.
They don’t care about P/E ratios, discounted cash flows, or even fundamentals, they don’t care what some strategist thinks or what the Fed might do by Easter. Nope. They care about velocity — what’s getting bought and what’s getting sold, where the action is and where the energy is.
Most of them are type A’s. They live for the rush. They don’t marry (invest in) stocks. They date them – think of a quickie or a fling – happy to toss one out and move onto the next. Fundamentals? Don’t be ridiculous! Price action? That’s the driver. A momentum trader looks for what creates energy.
Stocks build energy mostly because the Momo guys are trying to get in (or get out), then investors pile in, and the retail trader has FOMO, and they pile in and the move gets exaggerated to the upside and then to the downside.
Now – let’s take the tech trade – how long have I been screaming that it is overbought, that traders have taken valuations to levels that are unsustainable? How long have I been saying do not chase tech? Now, hold that thought.
Ok – so the end of the shutdown did what exactly? It didn’t calm things down — it created more volatility.
Why?
Because suddenly we got a parade of Fed heads telling us how they see the world as we head into the next meeting (23 days away — hint: not dovish). The idea of a guaranteed rate cut is no longer ‘guaranteed’ (although I still think they will cut 25 bps). We got fresh speculation about what the now-delayed economic data might reveal. We have renewed concerns about the labor market. But what’s funny about this –
None of that is new. Not one headline. Those risks have always been there.
Investors know this – but the Momo guys just chose to ignore it, pushing indexes straight up — no pause, no pullback, no consolidation — until they ran out of steam. Look at the charts — the move was vertical. And when they got tired – they sold out of them – and when we pierced trendline supports then the algo’s jumped in – only putting more pressure on stocks….
And this is exactly why I keep telling you – Have a plan. Stick to it. Don’t get dragged into the noise. Investing in a marathon not a sprint.
And by the end of the day on Friday – the Dow lost 310 pts, the S&P down 3 pts the Nasdaq added 30 pts, the Russell gained 5, the Transports lost 45, the Equal Weight S&P lost 25, while the Mag 7 gained 54 pts.
Trend line action – the Dow is holding above short term trendline, the S&P pierced it, the Nasdaq pierced it, the Russell pierced it and is testing the intermediate term trendline while the Mag 7 pierced it. Now – what’s interesting to note is that the Equal Weight pierced both the short term and intermediate term trendlines and that is a flashing yellow light….Tells you the fast-money crowd (Momo traders, algos, hedge funds) has turned cautious or outright negative.
The Intermediate-term break tells you the bigger, slower, more disciplined money is no longer supporting the move either. So when the Equal Weight S&P — the cleaner, more honest version of the market — breaks both trendlines, the message is simple: Respect the risk.
Speaking of Risk – the VIX (fear index) shot higher last week (thus the pressure on stocks) and ended the week a bit elevated…up 16%….and this morning the VIX is up 3% as the sun rises over the Atlantic.
And just look at what they did to Bitcoin! They took it down – thru 2 trendlines only to test the long term trendline – it bounced and then tested again and boom – crash and burn….Bitcoin tumbled lower as the Momo guys and ‘overleveraged’ guys hit the sell button – and bang – down we go….down 11% last week – taking it down 26% in one month. Ethereum – it’s also taking the heat…. down 17% in one week and now down 38% since the August high. This morning – Bitcoin is up 2.3% while Ethereum is up 4.3%.
Bonds ended the week slightly lower. The TLT lost 0.6% while the TLH lost 0.4%. The 10 yr is now yielding 4.12% while the 30 yr is now yielding 4.72%. Shorter duration 2 yr treasuries are yielding 3.59%. 3 month T-Bills are yielding 3.78% on an annualized basis (think 0.98% every 3 months).
Oil keeps teasing up and then down. Last week we tested a low of $58.34 – this morning – oil is trading at $60.15 – leaving us within the trading range we defined a couple of weeks ago – $55/$62 range. There is nothing new to discuss here – Prices are expected to trend a bit lower until we work thru the supply glut that is coming in early 2026….
Gold – which began the week on a plus tick – trading up 6% by Wednesday – turned lower by Friday – falling back by 5% to end the week at $4084. This morning gold is down $7 at $4077 and is down 8% off the October high of $4,375.
The weakness is a direct result of the idea that the FED may not cut rates…and if that is the case then guess what the Momo guys will do? Hit the SELL button….and that’s what they did – sending gold lower. Trendline support is down at $3950…. a level that should find decent support.
Now it’s a big week for retail earnings…. WMT, TGT, LOW, HD and these reports will give us an inside look about the state of consumer spending – which is the main engine of our economy.
But let’s NOT forget – it is a big week for TECH as well… NVDA is due to report on Wednesday after the bell and as you can expect – this is a CROWDED TRADE – lots of Momo guys here…Now the options markets are pricing in a 90% chance of a ‘substantial beat’ on the numbers and they are pricing in a +/- 7% move after the announcement. Now while NVDA is up 41% ytd – they did take 28% out of it last week…They pierced short term trendline support and they tested intermediate term trendline support ($178)– which held. The stock ended the week at $190 – $21 below its all time high in early November… so this could go either way – it will depend on the mood of the day…..Sit tight….
Eco data this week includes Empire Manufacturing and Construction Spending (today). Later this week – Industrial Production and Capacity Utilization, Factory Orders, Durable Goods and the FOMC mins. But let’s not kid ourselves…..Friday brings us the all important NFP report for September – yes September (last week, they told us that we may never get Octobers due to the shutdown). For me – at this point – I do not find any value in this report – but it is what it is….
US futures are up. Dow is +12, S&P’s +15, Nasdaq +100 and the Russell is +2.
European markets are lower after opening higher. Some of it is earnings and some of it are economic concerns. Markets are down by about 0.5% across the board.
The S&P closed at 6,734 – down 3 pts. On Friday – tested short-term trendline support at 6700 – only to trade down to 6646. Once we broke it the algo’s got more aggressive to see if the bulls would defend the position or if they would step aside to test the anxiety level? They stepped aside and then swooped in to buy stocks at a discount.. while futures are up this morning – I remain cautious……trendline support (6700) is key here. 3 times we tested it and twice it broke but rallied back – let’s see what happens next….
The market is betting that NVDA will save the day…..Ask yourself – How dependent is your portfolio on what NVDA reports? It’s all about ‘risk management’. As a long-term investor make sure you are diversified.
Stick to your plan – remain disciplined, talk to your advisor if you are concerned, patience is a virtue – especially when the markets get nervous.
Call me at 561-931-0190 – to give you a no obligation review of your portfolio. It’s all about risk management – let me help you assess the risk of the portfolio vs. the risk you are willing to take.
Countdown
Black Friday deals are happening.
23 days until the FOMC announcement.
38 days until Christmas
44 days until the ball drops in Times Square
Take good care,
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.
The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.
Alaskan Black Cod
If you’ve never had this – you need to try it.
This fish has a rich buttery taste, and its fatty texture lends itself to a great meal.
I order this from Jerry’s Meats and Seafoods (jerrysmeats.com – 1-877-789-0789) in Juneau, Alaska – it come flash frozen, packed in dry ice. ….it is now a family favorite…I have never seen this fish at the local fish market – so I order it from Jerry, and he sends it via UPS overnight.
You need – the fish, butter, s&p, fresh lemon juice, dry white wine (you can use chicken stock) and capers.
Set your oven to 400 degrees (bake).
Defrost it in a pan of warm water…let it defrost slowly…. Once it’s defrosted – rinse and pat dry.
Season it with s&p, fresh lemon juice and melted butter.
Place in the oven and let it roast for 10 mins…. then add a splash of dry white wine – Pinot Grigio Santa Margherita and capers. Allow it to roast for another 10 mins…. You can baste is with the butter and wine while its cooking….
When done, remove and place on your plate – (one-piece feeds two people). I served this on a bed of wild rice with roasted butternut squash and a large mixed salad. A chilled glass of the Pinot Grigio finished the meal.
Buon Appetito!