Weekly Market Overview September 12, 2021

“The way people tend to work most effectively, especially in knowledge work, is to sprint as hard as they can while they feel inspired to work, and then rest. They take long breaks. 

It’s more like a lion hunting and less like a marathoner running. You sprint and then you rest. You reassess and then you try again. You end up building a marathon of sprints.

Don’t work like a cow grazing on the field all day. “People who say they work 80-hour weeks, or even 120-hour weeks, often are just status signaling. It’s showing off. Nobody really works 80 to 120 hours a week at high output, with mental clarity. Your brain breaks down. You won’t have good ideas.”

Naval Ravakant https://nav.al/work-hard

---------------

This philosophy really summarizes what successful trading/investing is all about. As much as we try to make our work (and more importantly our returns) as consistent and day in/day out as possible, the reality is it's quite chunky. 

So how do work like a lion knowing that a big part of our edge comes from consistency?

Create the daily habits, as James Clear calls them, Atomic Habits, that reward the outcome we are after. 

With habits in place, we can then focus on working like a lion on the big things that really move the needle. We need to be able to snap in to action, we need to be recovered, we need to be clear of mind, we need to be focused, we need to be capitalized, we need to have the energy for the sprint and the endurance to thrive all the way through. 

The last part of August was a great example of working like lions, it was high energy, the market was firing on all cylinders, we were ideally positioned and it was lovely. This past week it was slow in comparison. 

---------------

It’s easy to be right in hindsight.

It’s easy to have a big opinion. 

It’s hardest to get the timing right.

Being right but early means you take a lot of heat (drawdown, margin calls, liquidation) until you are eventually proven right. It’s no good being right after you’ve lost all your money waiting for markets to do what you think it should do, you’re broke, who cares?

Being late is hard because what if you are too late?

Having a clear quantitative repeatable method to get you into a position early enough that you can benefit and late enough that you don’t take massive drawdowns is the sweet spot.

Real professional trading has nothing to do with dooms-daying, reading a bunch of "the world is about to end" bear porn, ZeroHedge type of stuff, because that isn't a quantifiable business. 

Having an opinion that the world is going off the Dollar reserve currency, and the US will self destruct is a fine opinion, feel free to have it. But I recall many people saying such back in 1999/2000, 2003, 2007/2009, 2012, 205, 2016 during the election, back in 2018 during the meltdown,  and certainly every day since COVID, but you'd be broke now if you tried to short it just because you had that opinion. 

Any one in the world can have a prediction about the future, then of course point back to it and say "see remember when I told you X would happen 5 years ago" thinking that being early with a prediction is the real edge.

Knowing when to act is far more valuable than predicting what will happen. 

On to the markets...

There has been a lot of calling for a selloff in September, and the first trading week of the month did put in 4 straight down days (4 day trading week) on the NDX/NQ.

A lot of the reason that traders are calling for a major selloff in September is that the month has had some notable big down moves, like in 2020, last year when we sold the top of the COVID rally in September. The 2018 meltdown kicked off in September, and of course 9/11 attack happened in September (9th month of the year, 11th day of the month).

That's not to say that we won't sell off in September, but it isn't a good reason to be getting short this market. 

We use our trusty simple quantitative measurements of the Nasdaq 100 Index to help determine if we've met the requirements for a major market top or not. 

1st Requirement - Bull Volatile Market Regime as represented by the SQN indicator above 1.70. Currently the SQN is 1.26, we HAVE NOT met this requirement.

2nd Requirement - Monthly price close above the R3 Pivot. This requirement was met when the $NQ futures closed above 15,532 back in August. 

3rd Requirement - Parabolic price explosion above top of the trend. This is less of a binary requirement as we need to add a bit of price action to confirm. And the price action DID NOT confirm a parabolic expansion blow off top.

NASDAQ is trading as if it is in the Bull Quiet market regime, which it is based on SQN, with the price action confirming. 

Note: If you are looking for the ABSOLUTE BEST course to learn about Price Action Trading, Al Brooks is the GOAT (Greatest of all Time). I can't recommend this course enough.

Summary: Not a major market top, not expecting a major selloff.

In Bull Quiet, we look for the best looking sell setups in the world, to fail, and we use that as a trigger to add to our long position. 

Currently, we find ourselves with seven $NQ September contracts, and as far as our strategy indicates, we are still firmly trading in the bull quiet regime so we had to make some changes last week. 

In the Trading Lab we rolled 3 contracts to December $NQ Futures, and took profits on 4 September contracts. 

And now we look to add back to our long position when the best looking sell setups in the world fail. 

If all you did was complain about the market going higher day after day, and then remembered that September is a bad month sometimes, and a bunch of other people on Twitter say the same thing, you'd likely be short right now. 

And feeling pretty proud of yourself.

If however you've been long with us for a few months now, and took a little bit of profits last week, like we did in the Lab, you'd be happily sitting on your hands waiting for the "best looking sell setup in the world, to fail".

Friday's selloff in to the close after putting in a nice move higher earlier in the day would be disappointing for bulls. For bulls who pay attention to the perma-bears they'd be worried, so of course they sold into the close on Friday. 

This leaves a bunch of people on the sidelines, aka buyers looking for a place to get long, and shorts who will have to cover, if price moves higher. 

In other words, there is a lot of potential buying pressure to take us higher, once we get a failure of the best looking sell setup. 

The $NQ is in the Neutral Zone, with a slight bullish twist. 

The top of the Neutral Zone is 15664

The bottom of the Neutral Zone is 14699

About 1,000 points. 

The $NQ can drop all the way down to the bottom (and even potentially over shoot it) and it's still bullish. 

This is the hallmark of a truly effective Bull Quiet long campaign.

What we don't want, is what would signal the end to the party, for however long. What would end the party is very fast a parabolic ramp up higher, while in Bull Volatile and above that R3 pivot. 

The good news is that the R3 Pivot is 16276.50, so we have a long way to go for that to be in play. 

Ideally we have a few more opportunities to refill our long inventory before the train takes off on this long campaign, again. 

This week in the Trading Lab we will be monitoring this trade closely, along with our new long Silver and Gold positions at the beginning of their new long campaigns. 

In FX a major sell signal has fired off on the $DXY US Dollar Index. Suddenly everything has changed for the Dollar and we should expect dollar weakness with a move down to the 85-80 range rather quickly (quick in FX terms). 

Mainly we are using British Pound, Bitcoin and Ethereum to express this trade. 

That's it for this week, shoot me an email if you have any questions.