At the end of a big bull run… Price jump on some big news (NVDA earnings). And enthusiasm runs high. But, the market quickly sells off, creating an “Exhaustion Gap”. That happened today.

Not only that, but price also gapped up, higher than yesterday’s high. AND - price closed lower than yesterday’s low. That is called a “Bearish Engulfing”. It’s when price today fully engulfs yesterday’s price range.

So, today we had an EXHAUSTION GAP in the morning, and

Finished with a BEARISH ENGULFING.

At the end of a bull run.

The ultimate sell signal (potentially)

Not to mention…

The weekly set-up is bearish as well, setting the stage for another leg down. Today’s price action confirms last week’s signals. All signs point to lower prices. Across most equities, esp tech/AI. How low? And how long? Who is to say.

But since June, we’ve remained short.

Waiting…

Buying a lot more PUTS today, while remaining long in my retirement accounts.

That is called “tail risk hedging” - look it up. The idea is you buy long-dated PUTS for very cheap, against your portfolio of stocks. If the market caters, instead of selling and missing compounding returns over decades, you just cash in on your puts instead. Then, you use those new returns to invest further into the asset class in your portfolio, averaging down your cost with new fresh powder.

I think it’s more likely to go down, than up.

It might not happen tomorrow, or this week.

But if we go up, it’s going right back down.

Why?

Because it’s currently trading outside the Upper Bollinger Band on the 6-month candle chart.

A quick primer on Bollinger Bands

• Bollinger Bands represent a range for price distribution i.e. The Bell Curve

• The Upper Bollinger Band is 2 standard deviations above the mean (average).

• The Lower Bollinger Band is 2 standard deviations below the mean (average).

• And the mean (or average) is the 20 period simple moving average.

If you look at on the 3-month chart, it’s trading at the Upper Bollinger band. Meaning it’s at a price extreme on the larger time frames.

And the longer the time frame the stronger the signal.

NVDA is due for an 11% implied move today after market - if it rockets, I will just add to my Put LEAPs for next year.

Because with the fundamental headwinds, it’s way more likely we revert to the mean, than push further into the left tail.

Happy Trading

*Fundamental headwinds - which I believe are almost always reflected in price - include: Deepseek chips making NVDA irrelevant, export controls on the H20 chips to China, decelerating earnings growth (which is a sell signal for institutions). Yes, NVDA is expected to post mid double digit growth in sales, but that’s a significant deceleration from 200%+ in prior reports. Slowed growth = sell signal for the biggest buyers.

My decision is based on the long-term, quarterly candlestick charts. Remember, the longer the timeframe, the more powerful the signal.

For the more conservative trader, this is now the entry point: wait for a rise in price, then sell the rip.

The Q1 sell signal (red arrow) happened at the Upper Bollinger. It has yet to be invalidated.

Not only does Q1 reversal action signal that bears wrestled control away from the bulls, but it’s happening at a “price extreme”…

The thing I love about this trade is we have two dramatically different businesses, triggering the same sell signal. This is a very strong clue that we may be headed for a broader market sell off. It’d be one thing if one looked bullish while the other looked bearish.

But these charts are ugly…

For the bulls.

Let’s start with the rally in April. A lot of people (i.e. retail investors) have been pump faked by this hammer on the monthly chart:

But was it even a valid one?

Here is quick overview on hammers. The strongest hammer signals look like this:

• Hammer must appear after a “significant” decline

• Close near the highs (i.e. little to no upper shadow)

• Ideal lower shadow is 2.5-3X body length

Here, we have none of that.

• The decline, relative to the rest of the chart, was not significant.

• April did not close near the highs (very noticeable upper shadow)

• The lower shadow is one of the longest shadows I’ve seen on a chart - ever.

In fact, Steve Nison, the Godfather of candlesticks who brought them to the West, says if the lower shadow is “too long”, it signals a market breakdown and weakness. Especially at a market top.

More importantly, traders need to zoom out to avoid pump fakes. Take a look at this quarterly candlestick chart:

Not so bullish, is it?

That “hammer” is actually forming into a Hanging Man, which is VERY bearish at the top of a market… If we closed the candle out today, it’d be a major sell signal. But we still have 5+ weeks for this candle to finalize…

So, back to my original thesis: no matter where we end up on June 30th, the candlesticks will be bearish.

• If we go higher and close at the highs, it will be a “melt-up”. Bearish.

• If we go back to the open for Q2 on April 1st, it will be a long-legged doji. Bearish.

• If we close below where we opened on April 1st, it will wipe out May gains. Bearish.

The only scenario where we end up bullish is if a) we go back to the lows of April, and b) then rally to the highs of May. All by June 30th.

Very unlikely, but anything is possible.

DISCLAIMER: I remain long my LEAP Puts on

This is a bet on a significant market decline over the next 9-18 months.

That’s great, and I agree that the market is due for a pop, but…

I’m not bullish. At all.

Why?

Because no matter which way the candlesticks end up this quarter, it will be bearish.

Let me explain. Here is a look at the best bell weather for stocks, the S&P 500… each candle represents 3 months (i.e. a quarter).

Q1 formed a Bearish Engulfing on the charts. This signals lower pricing, but needs confirmation. What a bearish engulfing means is that the market GAPPED up on January 1st, only to close LOWER than the open on October 4th (the last green candle). In other words, price action for Q1 “engulfed” Q4… very bearish because it’s a huge sentiment shift.

Looking at the latest candle…. which has yet to complete…

• Q2 opened on April 1st at 557.45.

• If we close at 557.45 on June 30th (when the Q2 candle forms), we will have formed a Bearish Dragonfly.

• If we close at the highs of the quarter (567.42) or higher, we will have formed a Bearish Hanging Man.

• If we close where we are today, or lower, it will be a bearish continuation.

No matter where we are on June 30th, it will be a bearish signal CONFIRMING the Q1 Bearish Engulfing of Q4 2024…

“What if we rally above the highs of Q1?” - if that were the case, it would be a “melt-up”, in and of itself a bearish signal. In other words, if we rally super hard, it will be a sell signal Melt Up.

If you’re playing it long, be nimble. Take profits if you’re up. If you’re a long term investor, dollar cost average your way in over the next few months.

Me? I remain short by going long Put LEAPS on tech

And I’m long call LEAPS on and and

But one thing caught my eye that screams “BUBBLE” — there is a 5X leveraged (!!) ETF for the Mag 7, available in obscure markets like Milan, Italy:

Before I explain what this means….

A quick primer on ETFs…

ETFs are a way to invest in a “basket” of stocks for certain industries. You can buy an Oil ETF or a Mag7 ETF. If those stocks go up 1%, the ETF goes up roughly 1%…

Leveraged ETFs just add fuel to the fire. If the Mag7 stocks go up 1%, the leveraged ETFs go up by 2X, 3X etc. - 2% or 3%.

Same goes for if the stocks go down… which can accelerate a sell off due to panic.

5X Leveraged Mag7 ETF in Foreign Markets

In this case, we have a 5X leveraged ETF tracking the Mag 7 - in Milan, Italy and the London Stock Exchange! An ETF with that kind of leverage isn’t even available in U.S. markets.

Meaning — Retail investors in ITALY and LONDON are propping up the price of the Mag7 stocks. Not institutional investors in America (who are quietly dumping the stock)

And because it’s 5X leverage, if there is a decline, you can bet that everyone will rush to sell their ETFs. Panic will reign. And the Mag7 will collapse….

Why ETFs are a Bubble

The problem with ETFs is that there is no utility to the investment dollars. The money from a retail investor goes straight into the hands of the fund manager, who turns around and buys Mag7 stocks with that money, PLUS borrowed money (that’s where the leverage comes from). All these ETFs do is create leverage in the system and pass the losses onto Retail investors. All while institutions quietly sell their shares to these greedy fund managers.

The Mag7 is a bubble, and it’s about to pop.

Magnificent 7? Will soon be Horrific 7.

Basically, you look for intra-week reversals on the VIX… which measures fear. When the VIX peaks i.e. fear is at its highest - the bottom in stocks isn’t too far.

Most times, it’s within a few days:

I’ve blogged about this many times. VIX peaks at an extreme (i.e. Upper Bollinger), stocks bottom. VIX peaks, stocks bottom…. VIX peaks… stocks bottom. Go back far enough, and you’ll see it happen all the time.

Most of the time.

Two weeks ago, we had a peak in VIX fear…

But this time, I didn’t write about it. Why? Because I have some clues that my signal might be… a false signal.

Why I think my “buy” signal is a false signal (this time around).

First, despite a “peak” in fear… fear has been trending up, and second, the leaders like look like they’re going to crater.

Clue #1 - the VIX has made a series of higher highs and higher lows… meaning, fear is trending up (see blue lines) and could moonshot (i.e. send stocks plummeting)

Clue #2 - Leaders like NVDA and META look like they’re going to crater.

, , and more - all have multiple sell signals, at price extremes (once again, the Upper Bollinger Band).

1. The Bearish Engulfing, sell signal which invalidates at $121.74. So basically, NVDA has to rally beyond $121.74 on Monday, to invalidate the Bearish Engulfing that formed on the Q1 candle.

2. Long Upper Shadows - i.e. these represent major rallies and reversals in Q4 2024 and Q1 2025. This signals a lack of buying power. Even if the Bearish Engulfing is invalidated… the long upper shadows would still constitute a sell signal. Long story short, NVDA has to rally to $150ish by end of Monday to invalidate these sell signals. Not likely.

Not to mention, these stocks have major declining money flows by institutions. Pull up major tech stocks like the MAG 7, and you will see similar sells signals.

Remember, when leaders lead, they lead on the way up, AND down… if we’re seeing sell signals on the leaders, that tells me they could drag the market down.

The Final Confirmation: this weeks price action confirmed the false signal.

With those 2 clues, I stayed short… I didn’t add any more puts… until late this week, when we got the selling confirmation I was anticipating.

And as it turns out, this week we had an "intra-week reversal” (something I write about A LOT). It goes like this - early in the week we had a big rally, only to sell off and close negative.

The mind of the market says something is going to happen, and soon.

Knowing we have a major set-up on the charts… I always ask myself what news can manifest the signals I’m seeing? Not for a validation, and not for any type of bias you might think I’m not aware of.

But because the mind of the market predicts big news events. I’ve seen it so many times. Pay close enough attention, and when you see reversal candlestick patterns at Bollinger extremes, it usually precedes news that drives the price to manifest the signals.

Just like no single person knows what’s going to happen in the future, the mind of the market does. And although the mind of the market cannot predict exactly what the news will be, it predicts that there will be big news.

April 2nd is Liberation Day for the USA (or is it?)

Trump’s retaliatory tariffs is the potential news that could drive prices lower. But that’s the obvious answer. And markets don’t respond to obvious answers, unless investors dramatically discount them (like they did with Covid)…

What’s not obvious is how bad the tariffs will be. Or how out of hand the situation in the Middle East will get. But the stars are aligning as technicals and news events all line up.

The market looks like it will react horribly on April 2nd, and it looks like these sell signals will manifest themselves…

After all, we do have a confluence of factors.

At this point I’d say buckle up ⚠️

Author Disclaimer: I will never blog about something if I’m not throwing capital into it. For the record, I am short many technology stocks like NVDA, META, DKNG, MSFT, etc. via an array of mid- to long-term put options. Also important note, I am here to teach you about when to buy, and not necessarily what to buy. If you’re curious about what to buy and where, I’d just go to ChatGPT and ask away. Use this prompt: “I like this stock (insert ticker symbol), I think it’s going to go (up/down), what are some possible ways to play it?” or “I think world war 3 is going to happen, what can I buy that will go up, if it does? Please include inverse ETFs” etc etc.

Why?

Because the Mag7 and tech are all showing signs of major decline.

All being led by

Remember - in every bull market - winners lead on the way up. And in the bear market that follows, lead on the way down.

NVDA is screaming “sell”. Many stocks are following suit.

Facebook, Google, and others have glaring and blaring sell signals.

I won’t share all the charts with you - so you can go and see for yourself.

But here’s what to look for….

How to See These Sell Signals for Yourself

1. Pick your favorite Mag7 or other tech giant like or or etc.

2. Use quarterly candle charts - where each candlestick is 3 months. This will give you a “birds eye” view of candlesticks - meaning, 2 candlesticks = 6 months… 12 candles = 3 years, etc.

3. Next, strap on Bollinger Bands, default settings (20,2)… and look for price at the upper Bollinger, meaning, price is at an extreme.

4. Look for candlestick patterns like the Shooting Star and Bearish Engulfing, meaning, there is major reversal psychology at play.

5. Add the Chaikin Money Flow, and look at the decline in institutional money flows, meaning, the big boys are quietly unloading shares.

6. Look at volume and notice it’s declining, meaning, bulls are running out of steam as institutions quietly sell, and the public becomes the new “bull”.

What will you see if you follow these steps? Signs of a major reversal in almost anything you look at.

Brace yourselves.

It feels like it’s going to be a steep decline.

- the tech darling that lead the most recent rise in stocks is ready for a MAJOR collapse.

Above is the chart of NVDA with 3-month candlesticks. Here we see very long upper shadows accumulating, meaning major selling pressure. And if you notice at the bottom of the chart, volume has been declining. This set-up alone is enough for me to bet against it - because remember, the longer the time frame, the more accurate the signals….

Here’s another chart, this time with weekly candlesticks.

Here we can see MAJOR selling pressure and declining momentum.

These major sell signals, coupled with the fact that every day people are talking about buying NVDA, means NOW is the time to sell (or short, or buy puts).

I am long puts for May through September, and adding more after any “rally”.

This is going to be the trade of the year.

Happy Trading 😊

But, I can’t imagine that the market continues much higher in the face of so many potential risks. Something’s gotta give…

To be safe, I’d rather give up potential gains to protect my capital in the face of uncertainty.

Like Warren Buffet says, investing is like being at bat without any strikes. You can just wait for pitch after pitch, and hit the one you like.

Right now? I don’t like any pitches.

I’m raising cash and shorting some technology

I’ve raised cash and I’ve actually shorted some technology stocks by going long put options - Through year end.

Proceed into 2025 with caution. My gut feeling is it’s not going to be that pretty.

Here is the skinny: when the Volatility Index (i.e. the VIX) skyrockets passed the Upper Bollinger Band, that means “fear is overbought”.

So what do you do? Fade the fear…. by going long.

When fear is overbought, there is a VERY good chance stocks rise, and soon.

Just see for yourself with this chart of the VIX. I’ve overlaid when the bottom in stocks was………

You can go back in time too, and see how accurate this signal is. Don’t take my word for it. Pull up a chart and call my BS, if there is any.

Now is the time to buy. If we go lower, it won’t be much longer, and it won’t be for long.

Pending any World War 3 that spreads from the Middle East…… buy, buy, buy.

Stocks I’m watching… AA and CFLT are next purchases.

Be bullish, but be cautious. New bull markets climb a wall of worry….

And I firmly believe we are in a “buy the dip” era.

As of now, any dip will get bought up and fast.

This new theory of mine - that we are in a “buy the dip era” - is being put to the test right now. The market has sold off, and I will be looking for signs to buy.

How to Buy the Dip

The Volatility Index (VIX) is trending up, and it’s a great indicator of when to buy.

Understanding the Volatility Index is imperative to timing the market.

So when do you buy? When the VIX exceeds its Upper Bollinger Band. In almost every instance, the market rallied when VIX extended beyond the Upper BB on the daily chart.

As you can see, we are NOT quite there yet, which means prices could go lower before higher. But once VIX retreats (preferably intraday) from the highs, that’s a good time to go long stocks.

Strategy to Buy the Dip: Buy Into Fear

Save for any dramatic news to markets, expect investors to buy the dip. Wait for VIX to exceed the Upper Bollinger band, only to retreat. Intraday reversals are amazing trade set-ups.

Peak Fear is evident in the chart above (every red arrow). Sell fear when you see it at these extreme levels (i.e., buy stocks).

• In the last 5 weeks, received multiple hot inflation reports, but yields point to lower and assets point to higher. Just remember, in a bull market, bulls shake off bad news. And in a bear market, bears shake off good news.

• Pull up a 6 month bar chart (where each candlestick is 6 months) and you will see MAJOR sell signals on yields, which means they’re going down soon; which means asset values will go up soon.

• If you look at the underlying breadth of the market, you will now see that more and more companies are participating in the rally, beyond the Magnificent 7 dragging indices higher…

• The leader, despite a parabolic rise in price, still only has a P/E of 60 (price-to-earnings ratio). For an insane growth company like them, that’s pretty low. And what’s that tell me? NVDA has much more room to go higher, because it’s not that overvalued; and you can bet any pullback will be bought-up. This is NOTHING like the Dot Com Bubble… NVDA can justify its rise because of insane earnings. After all, what else are equity investors really buying? Hint: real, fast growing, earnings.

• Artificial Intelligence and Private Credit are booming. AI is bringing more efficiency to the economy, and private credit is filling the gaps left by traditional banking. This efficiency and new access to capital has arguably staved off a recession. It’d be super interesting to see data on this…. that’s just my gut speaking.

• In private credit, banks are now jockeying for leveraged buyout deals which have been filled by private credit lenders the last few years. This means that private equity will now have access to cheaper bank lines of credit in order to buy other businesses. There’s no gap to be filled; it’s just that banks are putting out money at cheaper rates… dragging yields lower.

The stars seem to be aligning fundamentally in public and private markets…

Expect the Market Will Buy Every Dip

We are firmly in a “buy the dip” market. Look for the pullbacks. Buy the dips. Save for any outliers, expect asset values to go UP.

Here is what I own right now. Me personally, I only like to own high revenue growth companies with earnings. Each one here fits that, for the most part.

heart disease tech that uses vibrations to clear arteries

solar mounting systems selling to manufacturers et al

aluminum company with nice money flows on a MAJOR base-low

uranium ETF which, like aluminum, is coming off of a major base-low with rising money flows

SWAV and ARRY I’ve held on to for a while, and CENX and URA are new purchases.

I’m looking to add and in the coming weeks.

Buy, Buy, Buy - But Be Careful

Bull markets climb a wall of worry. My worry is less now. Save for any outlier event in the Middle East or otherwise, you can expect markets to go higher. Money flow is insane, and lots of good companies are coming off high money-flow lows.

One great way to do that is with the Chaikin Money Flow indicator. Robert Chaikin has accurately predicted so many major market turning points, in numerous stocks, and other asset classes. You, too, can use his indicator to do so.

How Chaikin Money Flow WOrks

Here is how it works: it follows the institutional money flows. If institutions are buying, then you want to be be buying. If institutions are selling, then you want to be selling.

All you have to do is look for divergences between price and money flows. See the charts below. So, what are institutions doing?

Institutions are Selling to At-Home Investors

Institutional dollars have fled the market as at-home investors entered the market. In other words, the unsophisticated investors are the ones buying stocks from the institutions who are quietly selling 🤫

Money Flows are a Predictor of Market Activity

The Chaikin Money Flow predicted the following bear market / collapses:

• 2000 - August “Dot Com” Bubble Top

• 2007 - October top - “Mortgage Crisis” top

• 2018 - October top - Interest Rate top

• 2020 - January top - Covid Top

• 2022 - January top - Interest Rates Recession

Now, we are at a DOUBLE TOP with the January, 2022 highs… but on very weak money flow….

Here is the Dot Com Bubble - double top on declining institutional money flows.

My Strategy in 2024: Playing it Safe, Taking Gains

I am on the defensive. There is ALWAYS opportunities to buy - why buy now when the market has no underlying strength? I’m waiting to buy when institutions jump back in the market. And being on the side of the institution is the path of least resistance to success, so why not?

But the market seems to fundamentally be breaking down here in favor of bears. Here are 5 technical reasons why:

1. The first signs came July 27th, when we had a major bearish engulfing - a very high predictor of lower prices.

2. Then we fell below the 50-day moving average which usually acts as support.

3. We rallied since last Friday, but today we failed at the 50-day moving average.

4. Price also created another bearish engulfing. A sign of more to come, especially as it happens at the 50-day MA (that’s called confluence; when the “stars align” for a trade)

5. All happening on lower / declining money flows.

Here is a chart as of today of the S&P 500:

These are all very strong indicators that the market is breaking down in favor of bears.

Not to mention, in this entire bull run, the Dow hasn’t really participated. For a market run to be durable, all equities must participate.

Bears look like they’re back in control, as this is a fundamental breakdown of the technicals… buckle up — the bottom is about to drop.

I’ll be sharing some potential breakout stocks this week with paid subscribers only. Want in on the action? Upgrade your membership today.

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Right now, I’m seeing the SAME exact set-up on three highly-rated IBD stocks. Each one has a major economic force behind it, supporting higher prices.

Why Buy High Instead of Buy Low?

Stocks that break out to a new or recent highs tend rocket, because:

1) traders see this activity and manifest price levels, and

2) short sellers have to cover by purchasing the stock, which fuels a rally.

The “buy low sell high” mantra is a MYTH.

There’s a reason stocks are low and there’s a reason stocks are high…

You want to buy high, and buy higher to play the breakout.

And it looks like it’s about to happen on these three stocks…

Read more

People always say “Buy low, sell high”, but that’s a myth.

You really should buy high and buy higher. Why?

Because when a stock is high, that means there is buying power behind it (duh, lol).

Now, follow this logic…

When a stock is approaching all time highs, that means there is NO ONE that owns that stock at a higher price…

…and if no one owns that stock at a higher price, then no one is “losing” on that stock.

And if no one is losing on that stock, then no one will sell it to "get out at break even” when it hits a higher price…

Think about it.

If someone buys at $100, and price goes to $75, many investors will sell it at $100 to break even.

But if price is hitting an all-time high, there’s no supply above to be sold!

Apple is approaching all time highs. Buy now, and buy more later.

This resistance level was prior support at

• 2021 lows, and the

• Early 2022 lows (before the dip lower last year).

Once that key support level broke, it became resistance.

~4,170 served as a ceiling or resistance for stocks, in

• May, 2022

• August, 2022

• January of 2023

Remember - and I’ve said this a million times - prior support becomes future resistance, and prior resistance becomes future support. Learn why.

Back to the May 1st post…

As price approached this level ~4,170, we saw insane money flows. This, combined with a gridlock in DC, led me to believe it would serve as resistance no more.

In my May 24th newsletter, after stocks failed to breakout (and looked like the bottom was falling out), I noted to NOT get caught up in the hype of a default, and to use this as a buying opportunity.

Here is an updated chart from my May 1st post, noting a potential breakout:

The fact that stocks recaptured levels above ~4,170 for a second time in weeks is huge for bulls. And since the stock market is a future pricing mechanism, probably good for the economy.

Speaking of which, check out this article from last week, confirming the action in stocks…

FINANCE

BlackRock bond chief Rieder says U.S. economy in ‘much better shape’ than doomsayers say

KEY POINTS

• Resilient government, consumer spending, improving homebuilder data, low unemployment and more tell BlackRock’s Rick Rieder that the U.S. economy is faring better than many expected.

• “I think the U.S. economy’s in much better shape than people give [it] credit” for, Rieder said Tuesday at an event at BlackRock’s New York headquarters.

• “I’ve never seen so much money sitting in cash, and a lot of it” waiting for a debt ceiling resolution before being deployed, he said.

Source: https://www.cnbc.com/2023/05/23/economy-good-shape-blackrock-rieder.html

Once the Market Makes Up Its Mind…

Once the market makes up its mind, there’s no stopping it. It appears to be that Bulls are squarely in control, and the potential 50% gain from the 2022 midterm lows is QUICKLY manifesting itself. The bond chief at one of the biggest asset management firms in the world thinks the economy is good, and he appears to be a lone wolf with his views… Watch everyone follow suit now.

If you’re not long… you’re wrong.

This is a new bull market.