What’s Goin on Everybody?

Two days ago, I got excited.

I thought the Russell had a squeeze in it.

Then the market decided to do what the market does and rolled right back over.

I've seen this chart before, going back to 1987, so that's where I started I'd Trade That this morning.

You can check out the replay below or just read the recap

We're in a very high caution environment, and I walked through what to do in it, including the 25-cent ticket I bought live on the show in case this goes the wrong way.

Pull up the Invesco Russell 1000 Equal Weight ETF (EQAL). It squeezed off its 200-day moving average (the average close over the last 200 sessions), ran up to its 20-day and rolled right back over.

We call this the 1% pattern. It's tongue in cheek and kind of flippant, but it's how markets have behaved. The selling cools off, nobody brings real volume back in, and we squeeze up just a little.

That's a bull trap (a bounce that sucks buyers in right before the next drop). The gilt crisis looked like this. So did the trade war and the Nikkei crash: sell-off, little bit of a squeeze, dump.

We're also sitting square in the middle of a sovereign debt crisis in Europe that can spill into pension systems here in the U.S. Energy could move higher if the war escalates, and analysts expect earnings growth of just 2.5% this season.

The Note From Bank of Montreal

I want you looking at the MicroSectors FANG+ 3X Leveraged ETN (FNGU) every day. You don't need to trade it. These are signals.

It isn't a basket of stocks. It's a bank note out of Bank of Montreal holding a pile of swaps to copy the FANG+ index at three times.

If you're reading that going, "What are you talking about?" welcome to modern finance.

Microsoft, AMD and Palantir sit in breakout conditions, which adds up to $5.5 trillion in market value. The biggest name breaking down is only about $300 billion. The big stocks are holding up, so FNGD, the inverse twin and our crisis signal, keeps burning lower.

When FNGD clears its 200-day, you've got forced selling and margin calls. The last pop had nothing to do with how many chips Nvidia sells. That was Leopold Aschenbrenner's AI fund getting margin-called and Citadel buying his book.

The stress right now lives in the banks. A lot of them bought long-duration bonds after COVID at 1%, 1.5%, maybe 2%. Yields went up, those bonds lost value, and some of those balance sheets look, well, in some cases maybe even insolvent.

That helped fuel the Silicon Valley Bank run in 2023, and rates run higher today. So I'm on the sidelines with regional banks, and I'm not trying to call the bottom.

Not a lot of good things happen under the 200-day moving average. Going back to COVID, when we break under it, we really break under it. The bounces came when somebody stepped in, like Japan's $135 billion stimulus last November.

The only way out of this, and I hate to use this terminology, is you kind of have to shoot your way out of it. Everybody's banking on the ECB to ride to the rescue, and the ECB says it isn't there yet with France. Nobody wants to lend money to France while it's on fire.

On Sunday, the general manager of the BIS (the central bank for central banks) admitted their "temporary" support became permanent. The market's waiting for somebody to pat us on the head and say, "We got this." It's not coming yet.

You know what happens on weekends? Everybody gets into a room, and Sunday night you get a nice press release announcing a new facility with, I don't know, something stupid for a name. They'll swear it isn't quantitative easing.

If that comes, you're going to have a buying opportunity. Right now, remember, cash is a position.

Two Dogs and One Bathroom

So bring your trading down to a day. Oil at 120 by November? I'm not thinking like that.

I have a house full of girls. At 8:00 in the morning, everybody's running around with their hair on fire, one of the toilets doesn't work, and both dogs have to go out at the exact same time. I'm thinking about the next 20 minutes, and that's the market right now.

What's right in front of us is VWAP (volume-weighted average price, the number institutions get graded against). Citadel said earlier this year that the average duration of everything on its books runs under 72 hours, so we care about the last 24.

Our Marvell (MRVL) trade from yesterday hit right away.

Go to TradingView (it's free), pull up a one-minute chart, add VWAP, then add an anchored VWAP (the same line, started from a moment you pick).

We anchored Marvell to 4:00 a.m. Tuesday, when everybody gets up to make the donuts, and at 2:15 yesterday afternoon it ran from 281 right up to that line.

You're trading range to range: buy an option at one line and sell one at the other. Optionsprofitcalculator.com shows you where you're down 10%, 15% or 20%, so you know your exit before you get in.

PepsiCo (PEP) reported this morning and it's already chopping around psychopathically. Anchor to the release and trade around that line tomorrow, when the weekly options and hedges unwind.

The companies reporting today, we trade tomorrow. Write that down.

Mid-show, I got a very ugly text on the S&P 500.

If you want a cheap shot at the downside, look at the Direxion Daily Small Cap Bear 3X Shares (TZA). The Russell went negative on August 28 and hasn't recovered. TZA slow-burned from 38 to 48, and now it's sitting right above its eight-day moving average, the spot where it's taken off before.

I bought two of next Friday's (Oct. 16) $55 calls at 25 cents, struck at TZA's 200-day. That's $50 on a lottery ticket, and the odds are low.

Keep in mind, you're betting against central banks, and they could step in this weekend.

Mark Sebastian joined me at the end and made the case for a tradable bottom in bonds. I'd rather give money to Amazon than the United States government. I don't think we're at the end of this liquidity cycle, and if I had to estimate, this runs into January.

People keep asking me my number. Probably 6% on the 30-year, because you get to six and all hell breaks loose. They'll have no choice but to choose inflation over a debt deflation problem, and that's when I buy bonds.

I'll be back tomorrow at 9:20 am to talk you through the markets and the opportunities…

See you there,

Garrett