Momentum Negative: Headline of the Year

[Midday Momentum] Thursday, May 19, 2022 [Momentum Negative: Headline of the Year]( By Garrett {NAME} Editor's Note: Greetings from Chicago. We're at the Money Morning LIVE! Summit today, and I just got off the stage with Olivia Voz and Kenny Glick. I'm now listening to Chris Johnson talk about his college days. We have an enthusiastic audience who are trading while we're talking. And who can blame them? The Dow is off a few hundred points, and the Nasdaq is chopping around. You can still see the conference [here](. Improving Sectors: None Weakening Sectors: None Watch List: None Dear Reader, Good night, stock market. Kansas City Fed Bank President Esther George said the quiet part out loud. I sent the headline over to Tim Melvin. He responded: "That's the first time that's been said in the last three decades... a massive change in unwritten policy... and really bnd news for most investors. The Fed put has expired worthless." Agreed. Alternative headline: "Fed to Retirees: Screw your 401k. We have to fix inflation." George said "we need higher interest rates" in a CNBC interview. It's another confirmation that the central bank is behind the curve on inflation. The Fed won't... and honestly can't... worry too much about equity prices. The Fed Put that everyone talks about... has expired worthless. Higher rates bring into focus a major subject that I discussed during the Midday Momentum launch: Valuation compression. Stocks trading at 10 times sales, 20 times sales, or higher are going to contract. Those stocks' prices will fall as their valuations revert to the historical mean. This is one reason why cash is one of your best friends. It's also a reminder that real opportunity exists in a few sectors. There are cheap companies that produce valuable goods in this economy. We should focus on buying opportunities in energy, packaging, and shipping. Stocks in those sectors continue to hit 52-week highs, and capital continues to rotate into them. I'll show you how to trade them in the weeks ahead. MOMENTUM INDICATOR RED ALERT Recap: As I forecast last Friday, the short-term trap pulled capital into the market from Thursday to Tuesday. After the VIX dropped, the bottom was pulled out. Now, the VIX has the potential to spike toward 40. S&P 500 momentum cratered yesterday -- a subject I'll discuss today. The broader momentum slumped again, and selling has accelerated again today. Cash is your best friend, and you can speculate on the downside for the next two days. Remember, Thursdays are the worst days for the market in 2022, followed by Fridays. Again... cash is your best friend. THREE THINGS I'M WATCHING - Bloomberg and a few economists that I follow are now parroting the thought process that I've stated about inflation: It's not going away. On top of ESG, the new BIG trend that people are talking about is the impact of de-globalization. As the West stops trading and engaging with authoritarian nations like China and Russia, the cost of goods will increase. The concern is that we'll see slower growth and higher prices over this decade. People ask me: How do I invest in a world where the United States has to move its supply chains home. The answer is industrial real estate, supply chain storage, and railroads. It's a big trend with a bigger realignment of capital over the next 10 years. - Is housing slowing down? I hear that foot traffic and construction are slowing in Texas, Washington, D.C., North Carolina, and more. Today, we learned that existing home sales hit their lowest levels since before the pandemic. Those headlines will start to drive fear of a big problem in the largest asset that Americans own: Their homes. Anyone who's purchased a home in the last 12 months might need to get comfortable with the idea of being underwater for a little while. But if you're an investor or trader, this slowdown is driving down the value of some top-tier homebuilders. I am looking to sell puts and call credit spreads to the upside in homebuilders trading at extremely low valuations: Look at Beazer Homes (BZH) and Taylor Morrison (TMHC). There's a lot of value and opportunity in trading these names. - The executive insiders (CFOs, CEOs, Board Directors, and other corporate leaders) are still not buying. The BLUE LINE is the five-day moving average of dollar-for-dollar buying/selling in this market. Until we see this figure rise to levels that rival what we saw at the end of January, don't try to call it a bottom. HOT LONG SHOT I've been laughing at the status of Kohl's Corp. (KSS). First, the company's board of directors rejected multiple bids at more than $64 per share. Then shareholders stupidly rejected an activist's board nominations. That would have cleared up the approval for a sale. Finally, the stock was in freefall after the company announced that inflation would drive down its profitability. Simply put, everyone should be sued. The board of directors should be sued for failure to accept a bid in the interest of their shareholders. And the shareholders who voted to keep the existing board should sue themselves for financial illiteracy. Kohl's says it will accept final bid offers from potential suitors in the next few weeks. WHAT YOU MISSED I know I've been pretty hard on Pete Buttigieg and the rest of the regulators responsible for terrible policy in our transportation and energy sectors. When it comes to bad policy that drives up inflation and makes life harder for Americans, I've said they're either stupid or doing it on purpose. Now, I know most people see these policies and think "there's no way this isn't intentional." But I learned something on the flight out to Chicago that I find of real value. It's something known as Hanlon's Razor. That's a fallacy inspired by a novella called Logic of Empire. Next, the character described a "Devil Theory" fallacy that states: 'You have attributed conditions to villainy that simply result from stupidity." The real terminology of Hanlon's Razor is this: "Never attribute to malice that which is adequately explained by stupidity." Yes, indeed. I said I didn't believe these people to be masterminds. You're either an evil genius, or you're incompetent. You can't be both. Whether it's Pete Buttigieg, Jennifer Granholm, or the rest of the kleptocrats who somehow have power and influence... they're just dumb. We just need to save ourselves from them with sound trading management and defensive positions. Stay liquid and get ready to be active, Garrett {NAME} PS - Tune into our conference on Money Morning Live to catch my session, Momentum Trading 101, at 2:30pm ET [right here](. 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](. To cancel, or for any other questions or requests, please contact our Customer Service team: [Online]( Phone: 888-384-8339 (North America) 443-353-4519 (International) Mail: Midday Momentum | Attn: Member Services | 1125 N Charles Street | Baltimore, MD 21201 Fax: 410-622-3050 Our Customer Service team is available Monday ‑ Friday between 9:00 AM and 5:00 PM ET. © 2022 Money Map Press. All Rights Reserved. Nothing in this email should be considered personalized financial advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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