Weekly Market Overview October 31, 2021

Rather than trying to jam analysis across many of the different markets, this week I decided to break it down by asset class, Equities, Crypto and Other (if it warrants it). 

Today's newsletter will focus on equities, later this week I'll send out a separate one for crypto.

First of all, let me tell you...

There are seasons in markets, sometimes we are in a highly profitable market for shorter term trading, sometimes we are mean reverting, sometimes we are trending. And sometimes, we are in a MAJOR bull market, like we are in crypto right now. I've gone through a couple of these major crypto bull runs, and what has worked for me is to reduce involvement in traditional markets, focus on crypto, and even better, don't F it up! 

I know I said this one will be about equities, we'll get there, I promise. 

Crypto is in a mega parabolic bull cycle right now, a separate regime type than I usually write about. This is where multiple 1000% can be made in 1-2 years periods, with a very large chunk of it happening in the last portion of the bull run, which is where we are just getting started with in crypto right now (most likely).

When we find ourselves in this regime, I really taper my market activity and focus. 

I eliminate almost all of my FX and Futures swing trading and narrow it down to day trading futures, and swing trading equities (1-2 month swings) and sitting tight in crypto. 

Crypto markets work in cycles (until they don't), so my job is to be in when the cycle is best, and step away. My work with market regimes makes this substantially easier to accomplish than if I was to try and follow someones opinion about what governments aren't going to do or let happen, or Bitcoin's going to be the worlds reserve currency or any other irrelevant ideas. 

Irrelevant? Absolutely, none of that has anything to do with how I position myself in the crypto markets, and more importantly how I time my exits. Themes, narratives, headlines or any other non-quantitatively measured method is illogical when we have the ability to organize and measure these markets. Less witchcraft, more rigor. 

Back to equities...

Tesla $TSLA is a fantastic example of this. If you were to believe what every cranky angry Tesla hater in the world said (The narrative) and shorted $TSLA you would have lost a lot of money. You can "what about this, that or the other" all day long but price is truth. 

Removing narratives from your methodology seems counter intuitive, literally every talking head on CNBC or angry "bear porn" writer in your inbox has been bearish on $TSLA, the S&P 500, $FAANGM (now MAANGM or whatever), the dollar, the US Economy and civilization since the bottom of the Global Financial Crisis in 2009. 

They were bearish in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020 and still bearish in 2021.

Meanwhile this is what the $FAANGM stocks have done during that time.

Be honest with yourself, do you want to have this wonderful sounding bearish narrative that makes you seem highly intellectual, like the rest of the world doesn't get it, but when they do, "oh boy will I be there to run my victory lap saying I told you so!"

Or, wouldn't it have been a better plan to be long FAANGM the whole time, and 10x'ed your money?

Of course with the benefit of hindsight it's really easy, but what if I buy this today and it's the market top? This is what has kept many investors out of a monumental bull run and probably a lot of people out of crypto to date.

The key is momentum. If you can enter at the beginning of a new momentum phase early on, you can get in on these bigger moves. 

And we are smack dab in the middle of the best market regime for making money, the Bull Quiet Market Regime in the aforementioned FAANGM stocks, the high flyer momentums stocks, as a whole. 

The characteristics of a Bull Quiet market regimes are that prices rise steadily, and these angry perma-bears are driven absolutely bonkers by this regime (an added bonus!).

In the Trading Lab we are currently in $NFLX, $AAPL, $GOOGL, $COIN, $F and $DBA, 

These trades typically return 4R to 8R and last about 30 trading days, or a month and a half on the calendar. 

Let's look at $NFLX which is currently up nearly 4R, and 19 days in to our 30 day (or so) trade window. There is still potential to go a full 8R on this trade up near the $800 level. 

The histogram on the bottom indicates which market regime we are in, the dark green represents Bull Quiet, while the blue represents Bull Volatile. 

Characteristics of Bull Volatile, like Bull Quiet prices rise, but they rise muuuuuch faster and tend to peak out for the cycle, which is happening as we get closer to the end of the 30 trading day cycle.

It's the transition from Bull Quiet to Bull Volatile that we are trading here.

Now let's look at $AAPL. We are currently in $AAPL from the $144 level, and 11 days in. The regime is Bull Quiet, and outside of Thursdays earnings volatility, we are trading as if we are in Bull Quiet, it all lines up. 

$AAPL got up to about 3.5R as it reported earnings and the full 8R move would be approximately $165, easily within reach within the 30 trading day window.

Notice that we are picking the high momentum stocks, THEN utilizing Market Regimes to guide us and price action to trigger the trade, instead of news, earnings or narratives.

Let's return to the $TSLA example, and right away I want to be clear I did not get in to this one, so I'm not taking credit for it. This is the data from my backtest.

On September 24, 2021, the signal to get long was generated at $774 and as of Friday Oct 29, the price closed at $1122.90. 

In the backtest, we used options, long calls at the money. 

Long Dec (monthly) 2021 $770's at $66 per contract.

As of Friday, Oct 29, 2021 they were trading at $339 per contract, 27 trading days in, up 7.36R. That's how you turn a $5k position in to $20k position.

This is the power of trading momentum stocks in the proper market regime and using the right tools. As I talked about at the beginning of this email, this is a strategy that takes very little time to trade and implement and most importantly, this doesn't require a huge account to implement.

I will be releasing this momentum strategy later this month, but if you want access to this and all our other live strategies, you can join the Trading Lab and get early access. 

Trading Lab