Weekly Market Overview July 12, 2021

It has been a few months since we've taken a look at the indices compared to the Money Stock (M2), that is how much cash, mutual funds, checking and easily convertible assets into cash. This ratio allows us to take a better look at how expensive an indice is compared to how much cash is available. 

When there is a bunch of cash available, then people are able to spend more, invest more, because they feel "wealthier" than when they had less cash in their wallets. This opens up that whole "inflation" can of worms, which isn't anything that we're going to look at right now. 

When comparing the amount of money in supply to the indices we can compare to where we are in relation to historical times, when markets were in true bubbles. 

Let's start with my favorite Indie ratio, the $NDX/M2

While we are at pretty high levels historically we still are a good ways away from the 1999/2000 Dot Com bubble levels that were incredibly frothy. Most of the companies in the Nasdaq back then had no earnings, possibly some products, and many were flat out Ponzi schemes. 

Today the major components of the Nasdaq are Google, Apple, Amazon, Microsoft, Nvidia, Facebook, Intel and Tesla to name the bigger players, and each of these prints money hand over fist with incredible profit margins compared to their old economy counter parts. 

Moving on to the broader S&P 500 we can see that it is even further away from the frothy Dot Com bubble. However it is neck and neck with the Housing Bubble and the COVID crash.

And this point is important to note, if you are only looking back to the most recent crisis, you miss out on the bigger picture. 

Our favorite fear mongering Twitter accounts are great at doing this, they throw up a chart and say something to the effect of "The last time this indicator was at this level was right before the Global Financial Crisis" or 9/11 or COVID crash, or name your salacious event.

if you are going about your life thinking that prices are so extremely expensive on equities, then you are missing the bigger picture here. 

Compared to 2020, 2018 and even 2007 yeah, the ratio is up near its peak, but compared to 1999/2000, we really aren't that expensive. 

Comparing to Pre-Covid, 2018 and 2007 is not a good comparison. March 2020 and beyond is hardly comparable to many times in history, certainly not a time we have measured in these charts. 

Finally we have a look at the Dow Jones Industrials compared to M2 $DJI/M2.

What's interesting here is we see just how "expensive" the Dow was after 10 years of post WWII economic stimulus and the post war boom was to the Stock Market. It took nearly 40 years and the next big advance in society (the Internet) to reach those levels again.,

As bits continue to increase profit margins over atoms, it hasn't materialized in the Dow Jones Industrials yet. 

I take this to mean a lot of wind behind our sails in the equity markets. 

Last week we talked mostly about the $NQ Nasdaq buy signal, and we added to that position again on Friday. We will continue to add to this long position as it pulls us into more low risk exposure. 

If we end up above 15340 before the end of the month of July, on the $NQ Futures, that's when I'd be looking to tighten up my stops or lighten risk. 

Until then we will be adding to this position and raising our trail stop all along the way. 

Last week I posted a Tweet comparing the US Dollar Index $DXY to the Argentine Peso for a comparison. While it's common stock market lore that the dollar is a shitcoin and about to be devalued into oblivion, I find it useful to take a look at the dollar going back to just before 1971, though volatile, we are clearly in a median range. 

When we drill down to the Major Currency crosses with the US Dollar since the COVID bottom we can see the clear directional move with the Dollar declining while all other USD Pairs rose.

What's also clear is that since about March 2021, the FX pairs have been trading in a sideways range, ending the Quarter about where they began the quarter in April. 

This is a highly effective trading environment for mean reversion strategies, where the big trend traders tend to get eaten alive and mean reversion traders make a killing!

In the next few weeks we'll be live trading in the Trading Lab to get as many prop traders who are currently in a prop tryout or wanting to start a prop tryout, funded. 

Whether you want to spend 10 minutes a day at the end of the day swing trading or a couple hours day trading we will be focused on both. 

There are incredible opportunities at these prop firms to get hundreds of thousands or millions of dollars of capital to trade with. 

The catch is, only about 5% of traders who try out at these prop firms actually pass the try out and trade their capital. That means that nearly everyone who puts up the $500 (+/-) to try out is just sending these prop firms money every week/month. For the prop firm, they make money on all the traders who think they are going to magic their way to being consistently profitable without any discipline, a repeatable risk appropriate strategy and a true market edge. 

However if a trader does pass a tryout and makes consistently profitable returns, the prop firm shares in the profits with the traders, usually to the tune of 50-80% of the profits in favor of the trader. 

Starting next week in the Trading Lab we will be getting everyone up to speed, you can join us by Signing Up.