Weekly Market Overview April 11, 2021

"We pay very competitive compensation at Amazon, but we have not created that kind of country-club culture where you get free massages and whatever the perks of the moment are. And I have always had a bit of skepticism about those kinds of perks because I always worry that people will stay with a company for the wrong reasons. You want people to stay for the mission. You don't want mercenaries at your company. You want missionaries.

Missionaries care about a mission. It's actually not very complicated. And you can confuse people with free massages. Like "Oh, I don't really like the mission here, but I love the massages.""

Invent and Wander (The collected writings of Jeff Bezos)

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The book Invent and Wander (quoted above) has been a wonderful read of Jeff Bezos writings. I personally love to read biographies or in this case, letters from the person who's usually being written about by another author.

I read the above quote early this week and thought about how it relates to the game we play, trading and investing in markets. 

For more than 22 years now, I've been trading and investing. I've participated in a lot of different markets, from raging bull markets, to world ending crashes, long drawn out bear markets and the always exciting, no where market. 

Taking Mr. Bezos's thoughts about Mercenaries vs Missionaries and analogize them to markets, the mercenaries are the people who are constantly searching for the secret holy grail indicator, subscribing to service after service, traveling further and further down worthless paths that ensure great riches and successes if you "just do this one thing." 

Like a mercenary who is paid to do a certain job without any commitment to who or what they are working for, these people just want to make quick money in the markets. 

The missionary is the trader/investor who is committed to the long term outcomes. Not that they are long term value investors (though they can be), It's more that they have a long term outlook of the work they are doing. And this is what a systematic approach to trading/investing is all about. The Mission. 

Creating a predictable, repeatable and scalable strategy that can help them achieve their mission. This is what the Systems Mastery Course teaches you and gives you the strategies to accomplish this.

Predictable - Not that they can predict the outcome of the future, but predictable that you are aware ahead of time that a trade is likely. 

Repeatable - The strategy happens often enough that you can manage risk appropriately. Instead of betting everything on the next big idea you have, you can take on a 50 basis points of risk with a 50% win rate, and 2:1 reward/risk ratio on the trade knowing that you will have 100's of opportunities per year. 

Scalable - The strategy will work over time and be able to grow with you as you follow it 10, 20, 50 years from now. To be fair, you will likely have to adjust it to new market products and regimes in the future...and you should.

An example of a non-scalable mercenary strategy would be short selling pump and dump penny stocks. The idea that a penny stock manipulates the market by press releases, engineered news events, catalysts that come out of no where, even just buying a big block of stock so that momentum traders get alerts of abnormally large volume and price changes. These actions are fake pumps, and a bunch of traders will try to borrow shares at many different brokers to short them. That isn't scalable and it certainly isn't a strategy for a missionary.

In the Trading Lab we focus on helping our traders achieve 3 things.

Stay in the game - this is our main objective, trading predictable, repeatable, scalable strategies that will keep you from blowing up your account. There are plenty of periods of big win after big win, and there are plenty of periods where things just don't work out. If you can stay in the game, even when things aren't working out, then you CAN be there when the big wins happen. 

Hitting 2%-10% returns per month - It may not sound like a lot but about 1/2 of the year is spent earning 2% to 10% per month. And if you are adequately funded, 2% on a $2 million account is $40k..in one month. 

Side Note: If you don't think you could ever get access to a $2 million account, I will be sharing our blueprint for that this week. 

Catch the big runners - If you can stay in the game, by avoiding risk, generating stable returns each month, then you will be well positioned to "luck" your way in to the big runners. When we find ourselves in a trade in the right market regime that consistently generates big runners, using the correct strategy for that market regime, we take low risk entries and add to them as they continue to move in our direction.

We continue to catch these big multi month moves because we are so focused on low risk ways to avoid getting kicked out of the game. Whether it was buying $NQ at the Covid selloff bottom and adding to it 14 times after, and doing it again from November to March, or the big month long rally in $GBP from February to March or currently in our $DIA and $AAPL positions. 

We go over these ideas and trades every trading day live-streaming at 1130 AM New York Time. We record each one of these and our entire library is available to members of the Trading Lab on demand. We also collaborate with each other 24/7 through our private Slack group.

Recently some of our members have been running month long systems builds where a group of traders collaborate and build out their own trading strategies. The most recent build team even hired a coder to automate their strategy for them. 

Two of the best things I ever did was learn how to build systems to trade and build a community of traders to work with to improve! I would love for you to join us!

On to the markets...

As I've been going on and on about, the end of Q1 2021 was going to be violent and different, it was. There was the Archegos blow up, there were interest rates nearly doubling from .91% at the beginning of 2021 to a high of 1.77% within 3 months. When we started 2021 you could hardly find anyone who would have thought that the dollar would be up over 6% in less than a quarter, yet here we are. 

A big trend we are positioning for is to take advantage of the impeding hyper inflationary environment that even the government and economists are starting to realize. Nevermind the house across the street from me sold for nearly double what it was pre-covid, it doesn't count unless it's a PPI on track for double digit gains apparently.

Economics and Major Markets

The 10 year US Government Bonds Yield has been something I've been watching this year, and I rarely pay attention to these things until we entered into a Bull Volatile market regime in March. 

When a market finds itself in Bull Volatile there are a number of characteristics that are common. 

• A parabolic blow off top of 10% or higher
• Eventually an 8% (or more) selloff but could be substantially more
• The daily change is over 1.5% consistently
• The eventual selloff, when it does happen, starts quickly and violently in days not weeks or months usually

Looking at the 10 Year T-Note Futures, you can see the it (rates rise/bond prices drop), parabolic blowoff, bear volatile regime, >10% move. If/when (and it looks likely that it's forthcoming) the reversal comes, the measured move target would take the 10 Year $ZN to the $150 level which means the 10 Year Interest rates would be negative.

This isn't anything I'm trading but I'm sharing this to help you get an idea of how incredibly different the world is and will be going forward. 

I bring that up because we are at a historically volatile level on the $RUT vs M2 Ratio, to say the least. 

Every time we've hit this level on the ratio, a major market occurrence has happened. From Long Term Capital Management debacle, Dot Com bubble, Global Financial Crisis, Volpocalypse, 2018 Q4 melt down and Covid crash. 

I don't see this as an indicator that another 9/11 is coming to the broader markets. Much like a breakout level becomes support, it could very well happen that this historically violent level get blown by and we enter a completely new mega bull regime. 

The apprehension that so many have about this market right now is exactly the fuel we need to take markets higher. 

Remember when we enter a bull volatile regime, we need a few things before a major market move down happens, most notably we need a parabolic move higher.

This is a chart of $DJI+$SPX+$NDX+$RUT, you will notice that according to the SQN indicator below, we have entered into a bull volatile regime, BUT we have not yet broken above the parabolic line. 

Remember also that the minimum move higher after entering the bull volatile regime is *generally* 10% higher, and can go substantially higher than that.

The measured move higher from here puts this composite above $60,000 (currently at 54k).

If the Russell does fall apart as the RUT/M2 ratio historically suggest, the major indices could move a lot further along, as the Russell would drag down the composite. The $RUT is up over 15% year to date, there is room to take a breath.

While I have no plans to short $RTY, I want to be long the others and we are currently long $DIA (calls) and $NQ (futures) adding to both as they continue higher.

$FTSE

Last week in the Trading Lab, we got long $FTSE or $UK100. The FTSE index has still YET to reach it's pre-covid highs of 7696 which if the UK can continue to recover as well as they are, relatively, we have a measured move price target of $10,340, that's 3300 points higher from here. Just as we did with $NQ in 2020 and currently doing again along with $DIA, we will be taking any selling as opportunities to be convinced that the bull quiet is on. When the best looking sell setups fail, we add!

The white line is the FTSE, compared to the French CAC40, the German DAX and the Japanese Nikkei indices the UK has a lot of ground to make up. 

With how fast the UK has been vaccinating their population, second only to Israel, the opportunity here is higher that we see a big rebound on the FTSE.

SOURCE: Our World In Data https://ourworldindata.org/covid-vaccinations

Equities

A LOT of you reached out saying you would prefer to subscribe to a service like the Deep Out of the Money (DOTM) Options swing trading strategy instead of being taught the strategy. This is a swing trading strategy for US Equities that takes positions for 6 months to 2 years. While it can be done with the stock and doesn't need to trade options, options do work better. 

We will be working to get this service up and running to everyone soon. 

Additionally we do offer the Monthly Marcro ETF service that is similar, we send out any changes before the first trading day of the month so you can put the trades on. It only takes about 15 minutes to read the email and put on any new trades. As of the beginning of April this strategy is up over 26% year to date. 

Or you can join us in the trading lab and get access to the DOTM options signals, the Monthly Macro ETF signals and work with a team of fellow market participants to make this your long term mission!

Commodities

As I expected, ag's are starting to step it up with Corn really starting to move again after spending a few months in that high base pattern.

Wheat is back in the neutral market regime vastly under performing the other ag's and what I'm keeping my eye on most as inflation continues to punch outside its weight class.

We've taken long positions in $DBA the Ag ETF

Last week I covered $GC Gold as a trade we were looking at in the Trading Lab. We got long last week on a first entry and expect to move from bear quiet regime back into bull quiet or even bull volatile. The only way we get there is by the price going higher. 

Nearly 90% of the time Gold trades in blended bullish regimes, so the statistical advantage of higher prices is really high.

Price action gives us clues of the market regime, it works both ways. When we know the characteristics of a market regime, we can apply that and find an early bull quiet regime before it starts showing bull quiet in the SQN. 

The main characteristics of a bull quiet regime

• price goes higher (duh)
• average daily changes <1.6% 
• the best looking sell setups fail
• price quietly drifts higher

Failed low base (best looking sell setup, failed), with a power reversal (thrust) higher after a troll bottom (these are all systems and setups we use in the Trading Lab). 

With some wind in our sails we can start looking to target our measured move price for $GC up near 2252. Like always we will be looking to add when the "the best looking sell setups" fail. 

Currencies

As the end of Q1 came so too did a change in the currency markets. A lot of what was working in February and March, has stopped working. We took profits on our trades and have lowered our risk per trade until things get more clear. 

Last week saw the Dollar and Pound cool off while most notably the Euro, Yen and Swiss Franc caught a bid.

Most have moved back to test their breakout levels, like $GBPUSD which did pop into bull volatile AND go parabolic, however briefly. 

Currently the Canadian Dollar has been working out and is my main focus via CADUSD and CADJPY

While CADJPY is obviously running hot it put in a nice VBO2.0 last week, which pulled me long into that trade. We can see a head and shoulder forming here, potentially (which bears will use as a reason to get short), and it is indeed in Bull Volatile, but it also has held up so far.

I've raised my stop to breakeven for all those reasons.

I will send an update out specifically on Currency markets later this week with a special video we did last week in the trading lab. 

Crypto

This chart was shared with me by one of the Trading Lab members, Ira. Courtesy of Bitcoin Magazine. 

Bitcoin is structured far differently than currency, futures or equity markets. There is limited amount of $BTC that will ever be produced, 21 million BTC, and each halving in block rewards creates a very highly bullish price environment shortly after usually peaking 16-18 months after the halving event. 

Our most recent halving happening in May of 2020 suggesting that the peak price will happen sometime during the summer (northern hemisphere) of 2021.

My current analysis has my price target per 1 Bitcoin at $384,000, and this analyst seems to round up to $400k. Either way, those prices are very close. 

The really important news this week that I am keeping a close eye on is the "Berlin" Update to $ETH on or around April 14th. I don't have any opinion on price reaction that I expect with this event but it is a big important update to the network. 

Conclusion

As the new quarter moves on, we head in to earnings season midweek this week which should bring some good volatility to the indices. As some companies miss and we get negative market reactions, I will be looking at those as opportunities for the market to tell us what is really happening. 

It isn't so important the initial reactions to bad situations but how the market resolves itself the following days/weeks. 

For the missionary, our long term objective is to stay in the game long enough to take advantage of a big move when we find ourselves well positioned. 

My mission is to help people take advantage of a permission-less meritocracy, (that is you don't need permission you just need to be good) by getting funded at a prop firm, play the long term game, and meritocratic-ally succeed. 

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