The Biggest Problem in the U.S. Economy

[Midday Momentum] Tuesday, May 24, 2022 [The Biggest Problem in the U.S. Economy]( By Garrett {NAME} Improving Sectors: Utilities Weakening Sectors: Technology, Cyclicals, Communications Watchlist: SNAP, LCID, DDOG, MSFT, CHK, ARLP, CTRA, COP, CIVI, CHK Dear Reader, "Wealth inequality" is not the biggest problem in the American economy. Information inequality is. Information is power. "Information" allows you to make decisions long before the masses can. In Washington, political insiders have knowledge about the state of the economy. Go back over the last 15 years alone. Congressional representatives ditched stocks in the days and weeks before the collapse of Lehman Brothers in 2008 and at the outbreak of COVID-19 in 2020. Federal Reserve members bought assets that benefited from the central bank's $5 trillion stimulus plans. Nancy Pelosi's husband owns semiconductor stocks that would benefit if his wife helped pass a massive stimulus package for that industry. Good grief. There is still no effort in Washington to force Congress to stop trading stocks based on the information they acquire. This just keeps dropping out of the news cycle. As of today, 60 Members of Congress have violated the Stop Trading on Congressional Knowledge Act of 2012, also known as the STOCK Act. No one ever goes to jail. No one is ever punished. The music just keeps playing. But it's not just about politicians. Boardrooms Bail Out Look at corporate boardrooms and when executives buy and sell their stocks legally. Last year was the strongest ever for executive insider stock selling -- $170 billion worth. Why is this? What would make so many executives sell their own stock all at once? Could it be that they had a deeper understanding of what raising interest rates would do to their stock prices? That they understood history and the role of investment fundamentals? Selling was especially strong in the fourth quarter as the Fed began to warn about the need to raise interest rates faster. It's unclear how exactly the wealth divide will drop when corporate executives have already sold off a lot of their stock (thus protecting their gains)... and institutions continue to dump overpriced stocks... all while national pundits keep telling people to "buy the dip" in the middle of a meltdown. CNBC and Bloomberg reporters fail to express - on the ground - what capital is doing in the markets at this very moment and why. Institutions have used any uptick in the market to sell stocks - capturing many retail investors in a bull trap. These institutions also have access to information that the average person does not. And the information they have tells them when to sell... which is the purpose of a market. The Four Phases of a Selloff Using momentum metrics, we aspire to be in Group 2 of people who move in a selloff. Group One: Insiders and institutions sell and we start to see steep intraday moves. The ProShares Ultra VIX Short-Term Futures ETF (UVXY) starts to pick up, and we move into a period of lower highs and lower lows. Group Two: Along with other fund managers, we detect a switch in momentum by measuring volume and significant price movement to the downside over a two-to-three-day period. We sell and move to cash once market-wide momentum goes negative, and we look to short at the beginning of this sell-off cycle. Group Three: Everyone else keeps trying to buy the dip, but we see strong selling into short-term rallies. The bag-holders are stuck and don't know what to do. Group Four: Anyone who just doesn't pay attention and capitulates in one day. This letter explains how momentum works and allows you to avoid the worst damage to your trading and investing accounts. But it also works the other way. We know what market moves represent a short squeeze and the beginning of a potential rally. We aren't afraid to miss two days of gains if we can get confirmation that a probable rally -- lasting two weeks or more - is on the horizon. We use a mixture of academic data, proprietary analysis of ETF flows, price momentum readings across 11 sectors, and insider buying/selling analysis to build stronger conviction. Today, on the [Midday Momentum]( broadcast, I want to discuss momentum plays, dig into our watchlist, and take your questions about this letter and our team's research. So get your questions ready. We'll do 10 minutes of Q&A today. I'll see you [at 12:30 pm right here](. MOMENTUM INDICATOR RED ALERT Recap: Another day, another short-squeeze. Low-volume trading pushed the Dow Industrials up roughly 600 points. But once again, this doesn't look sustainable. Institutions continue to sell into any short-term rallies. For this reason, I highly encourage investors and traders to examine what's working in this market... and what isn't. We see strength again in energy supply chains and utilities. Meanwhile, apparel retailers, asset managers, advertising agencies, and biotech are trading like a recession is imminent. THREE THINGS I'M WATCHING - 33: That's the number of companies in the consumer cyclical, technology, and communications industries that trade above 10 times revenue and have market caps above $10 billion. As valuation compression continues, all of these stocks are vulnerable -- especially ones above 20x sales like Lucid Group Inc. (LCID), Rivian Automotive Inc. (RIVN), Datadog Inc. (DDOG), and Snowflake Inc. (SNOW). There's ample opportunity to take aim at these overpriced stocks. - CREDIT PROBLEMS: I've said that credit problems are coming. Yet some pundits continue to argue that the health of the U.S. consumer is strong and that wage to home prices are still balanced. The problems start somewhere, and more and more people wake up over time if the data starts moving in the wrong direction. Well, here we go: [The Wall Street Journal]( on Thursday that more subprime borrowers are falling behind on their credit card and personal loan payments. Their conclusion: The healthiest consumer lending environment in recorded history is coming to an end. It always does. Equifax says the number of people who are behind on their credit cards (delinquencies) rose for the eighth straight month in March. Oh, and the acknowledgement that the number of people 60 days late is rising at an alarming rate - tamped-down to read "faster than normal." This will hurt "buy now, pay later" firms - and credit card companies - well into the fall. - D is for Davos: Nobel Prize-winning economist Joseph Stiglitz spoke with Bloomberg at the World Economic Forum, and his message wasn't great. He warned that raising interest rates would hurt the economy and investment. He's not wrong. But more importantly, he explained that higher rates won't create more food. In fact, it could reduce the supply chain. Stiglitz warned that economists must embrace supply-side solutions to avoid a "depression" in our economy. There's a rule among economists that they should never invoke that word... unless they truly mean it. HOT LONG SHOT Today, Berstein downgraded Wayfair Inc. (W) - one of the worst online retail companies on the planet. Seriously, they sell broken furniture. Do you own anything from Wayfair? It likely arrived cracked. The investment firm downgraded the stock to $45. That's very bearish from the nearly $350 that it hit during the COVID-19 bubble. I think the downside is in the low $30s. And collapse is in the mid-$20s, where the stock fell during the March 2020 meltdown. The July $30 put trades for $1.45 and only has a 22.4% probability of profit. I'll be talking about another way to trade this garbage stock during my 12:30 session. WHAT YOU MISSED If you missed my Money Morning LIVE Summit appearance in Chicago last week, good news. You can watch my breakdown of insider buying and other sessions about the market for free on MiddayMomentum.com. I cover the history of insider buying, the stocks at the best "value" right now, and much more. [Check it out here](. See you soon for [Midday Momentum]( the main room]( at 12:30PM (ET). 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](. 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. 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