What’s Goin on Everybody?

This morning on I'd Trade That, I started with a number that should bother anyone holding an index fund.

I also showed a chart that has lined up with nearly every major bottom of the last 21 years… and it's elevated right now.

Watch this morning's show next or let me walk you through it in the wrap up below…

The dollar index (DXY, the greenback against a basket of major currencies) sits at 102.2, and the 10-year yield moved back up to 5.3%. Gold, silver, and oil are all priced in dollars, so a stronger dollar leans on all of them.

The euro's down to $1.12.

On Friday, the spread between French and German 10-year yields hit 160 basis points, which is basically sovereign crisis territory, yet we don't want to admit we're in a crisis. I told everybody back at the start of August that sometimes decades happen in weeks.

Those Flows Don't Care

One of the four charts I check every morning is 3X Inverse Leveraged ETN (FNGD). It's an exchange-traded note, a promise from Bank of Montreal with nothing tangible behind it. It moves three times opposite the 10 big tech names in the NYSE FANG+ Index, and we watch it rather than trade it.

Why does it matter? Because the biggest stocks in the ETFs ride on passive flows. Retirement money hits S&P 500 index funds every two weeks, and eight cents of every dollar goes to Nvidia (NVDA), more than the bottom 296 stocks get combined.

Those flows don't care about the P/E ratio. They don't care. They just buy it, whatever it is that month.

Then you've got the dealers. If somebody buys out-of-the-money calls on Nvidia, Jane Street buys Nvidia stock to hedge the position it sold.

None of that has anything to do with Nvidia's forecast. It comes down to what these rules-based funds have to do, so FNGD only breaks out if the rules go the other way and they're forced to sell. We saw that in June, in February, and in the Nikkei crash of August 2024.

Would You Buy It at 300?

The stress right now sits in the banks, and Direxion Daily Financial Bear 3X ETF (FAZ), the 3x inverse bank fund, just hit its 200-day moving average (the average close of the last 200 sessions). That's typically where we look for a reversal. Just saying.

So I'm getting a little more contrarian and looking to bid into the banks. Bank of America (BAC) went from 64 to 53, and nobody wants to touch it. We have people projecting it's going to implode. No. Reserves are ample.

One setup I ran: sell the BAC December 47/45 put spread (you collect cash up front and keep it as long as the stock stays above 47). It showed about an 84% chance of making 10.5%. That math is a few days old, so rerun it.

JPMorgan (JPM) sits around 333. Would you buy this stock at 300? You better.

I want to own JPMorgan for the very long term. They sit at the center of the refinancing of the global repo system, and they're winning the crypto war.

What does all that mean? They control the plumbing of the financial markets.

We were told crypto would make banks obsolete, and it only made them stronger. They told everybody crypto was rat poison, and by the time we all looked up, the rails had ended up with the Treasury, the clearing groups, and the biggest banks. They won.

I'm not afraid to say maybe I'm wrong. Maybe this rolls over, we have a crisis into November, and the Fed has to step back in. The good news is you're back at a 200-day moving average, so that becomes your entry point.

Nine Out of 10

The chart I mentioned up top tracks the insider buying-to-selling ratio for the S&P 500, going back 21 years, from secform4.com. These are executives buying their own company's stock with their own money. They file a Form 4, and it goes public within two business days.

This isn't Berkshire Hathaway buying Lennar. This is Ryan Cohen, the CEO, buying GameStop (GME). He's put more than $60 million into his own stock since September 10.

The spikes on that chart have lined up with bottoms: Lehman, the start of QE1, the European debt crisis, China's devaluation, the Shanghai Accord that Janet Yellen denies ever happened, Powell's pivot after the late-2018 drawdown, and COVID.

Right now the five-day average of insider buying to selling has hit levels we haven't really seen this year, in the number of filings and in dollars. Executives get paid in stock, so they're always selling. When they put money down on the table, that's typically bullish.

Nine out of 10 times, it's right. It was wrong in January 2022: we got a two-and-a-half-week pop, then sold off into the March Fed meeting. But I'm always looking for a reason to be bullish. Always.

I modeled five scenarios for the fourth quarter. The median return came out to 0.5%, but the tail upside is a 10% move… and this market may find its bottom in October. It's very hard to time, which is why this is a trader's market.

So trade level to level with anchored VWAP (volume-weighted average price, pinned to a moment you pick, so you see what everyone's paid since then).

Marvell (MRVL) sits at 267 with its line at 274, anchored to 4:00 a.m. Friday. Buy the 268 call and sell the 274, with a 15% to 20% stop. On JPMorgan, buy the 330 call and sell the 335 into Friday so you're not holding through earnings next week.

Keep an eye on Brazil, too. The runoff is October 25, Lula against Bolsonaro's son, and it's two percentage points apart. Energy traders in Europe are telling me more is going to come out on Banco Master, and that could put Brazil's financial system under pressure.

We were bullish Petrobras (PBR) around $20 on the potential diesel ban. For the next three weeks, anchor PBR and iShares MSCI Brazil (EWZ) to this morning's first trade. That's your line in the sand, and I'd look for the market to fade back to it into the vote.

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

See you there,

Garrett