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[Midday Momentum] Tuesday, May 10, 2022 [This Email Brought to You By the Letter “L”]( By Garrett {NAME} Improving Sectors: Energy Technology (day trade) Communications (day trade) Weakening Sectors: Consumer Defensive Watch List: ARKK, UPST, GM, GE, UBER, INBK, TSLA Dear Reader, It happened quickly yesterday. A radical selloff hammered the markets. It was the second-worst day we've experienced, dating back to late 2020. The worst... was last week. At some point yesterday, an eerie silence came over CNBC. In the afternoon conversations I had with hedge funds and institutions, I didn't get many answers. What was happening? The bond markets are not calm. The 10-year is pushing the market into a selloff frenzy on high valuation tech and communications names. But something bigger happened yesterday. The Big Headline It appears that "liquidation" is underway. This sell-at-all-cost situation is one reason why we opened a position yesterday on Cathie Wood's ARK Innovation ETF (ARKK). We'd taken a 20% gain off the table in the World's Biggest Trade in less than an hour. The rest of the position moved higher as ARKK handed back its gains during the first 20 minutes of trading this morning and looks prepared to plunge under $40 in the coming days. This environment is fast and furious. Holding trades for multiple days can be a losing prospect. You have to trade momentum. You have to see the market for its purpose: "To Sell." And when forced selling and liquidation happens, EVERYONE runs for the exits simultaneously. As we continue to hold lots of cash, this is one of the most exciting times to short weak momentum and look for cheap, cash-rich companies trading at rock-bottom valuations. Momentum is our guide to finding the bottom, maximizing long-term returns, and popping champagne, while hedge funds and reckless speculators receive their spankings after two years of irrational exuberance. This is our time, momentum traders. MOMENTUM INDICATOR RED ALERT Recap: On Monday, there appeared to be some liquidation in the market that will take time to uncover. However, after a brutal selloff, we've now had two of the worst days for the market since 2020 in the last four trading sessions. Momentum is fragile, and we cannot tell if today's uptick is a relief rally or the start of a bottom. We need to see two or three days of intense buying (and higher volumes) OR a wave of insider buying to project a near-term bottom. I recommend that investors stay in cash, day-trade upswings, and exit by the end of the day. Holding overnight can quickly turn a significant gain into a loss. Momentum remains very negative, with 85% of stocks under their 50-day moving average. THREE THINGS I'M WATCHING - It was a stunning development. The ARK Autonomous Technology & Robotics ETF (ARKQ) purchased General Motors Company (GM) shares as part of its portfolio. GM is making big moves in the electrification world of vehicles. It just so happened that the purchase coincides with a large insider purchase by GM CFO Paul Jacobson ($1.357 million in shares). Maybe it's on purpose. On the other hand, perhaps this is a coincidence. Regardless, this position has a higher probability of success. - Gasoline prices are back at a new record high. Of course, real prices would need to hit $5.30 to hit the inflation-adjusted high of 2008. We're heading into driving season here in the United States, and the mismanagement of our energy resources continues to be a serious political issue. The White House asked Brazil's Petrobras (PBR) to drill more oil this week. The energy giant said, "No." Despite the short-term difficulties fueled by China's weakening demand, I stress that the lack of supply is a problem. Stay bullish... VERY bullish on oil prices. We just did a credit spread on Occidental Petroleum Corp. (OXY) that would let us buy shares at $45 if that somehow ever happened. - Hedge fund manager David Tepper said he'd covered his Nasdaq short hedge. "The selloff could be concluding," he said. Between Tepper's bottom call and the significant buying of bitcoin at 30,000, I'm looking for some semblance of a bottom starting to form. But I must stay committed to my typical rules: Two to three days of solid buying with high volumes... OR massive insider buying. I'll discuss this more after lunch. HOT LONG SHOT I'm looking at this market, and the ugliness is based on heavy outflows. The bet remains on Tesla Inc. (TSLA) or Apple Inc. (AAPL), experiencing a significant selloff that would send the market into a much lower range. Both companies are holding up. Institutions and ETFs own both at very high levels. But we want to look at the remaining universe of extremely expensive stocks that trade at high price-to-sales ratios. Lucid Group Inc. (LCID) is rocking an insane P/S of 1,044. So, let's go low probability, well out-of-the-money. If market momentum is negative, let's bet against this stock going into June. WHAT YOU MISSED Yesterday, I explained how a company like SweetGreen is getting crushed by valuation compression. No one is safe in this environment, particularly companies trading at a price-to-sales (price to revenue) over 10. Upstart Holdings Inc. (UPST) is the latest victim. Today, shares fell more than 50% as the struggling fintech lender took another significant hit. Multiple Wall Street firms slashed guidance on Upstart. Why? Valuation. After two years of Wedbush and Goldman Sachs dismissing high valuations, they too are recognizing the similarities between today and the massive valuation-driven selloffs of 2000/2001 and 2018. Everything trading over a P/S of 10 is susceptible to a dramatic selloff. I will talk about Lucid Group, another company facing rising costs, supply chain issues, and a monster valuation problem. MARKET MOMENTUM, MY FRIENDS If you're looking for a real-time understanding of momentum in the market, look no further than Cathie Wood's ARK Innovation ETF (ARKK). It continues to sell off as hedge funds and other institutions dump holdings in stocks like Tesla, Teladoc, and more. This is a pure momentum fund. We will short it during times of negative momentum by purchasing puts on it or owning the inverse position in Tuttle Capital Short Innovation ETF (SARK), which replicates the negative performance of ARKK. Want to learn how to trade these two names for big wins? I'll explain today. Join me today at Midday Momentum at [12:30 pm EST in the main room](. Stay liquid, Garrett {NAME} You are receiving this e-mail at {EMAIL}, as part of your subscription to Midday Momentum. To remove your email from this list: [unsubscribe here](. 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