Do NOT Surrender (Your Portfolio)

But Here’s the Catch [Morning Reckoning] November 14, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Do NOT Surrender (Your Portfolio) Baltimore, Maryland November 14, 2023 [Greg Guenthner] GREG GUENTHNER Good Morning Reader, As stocks continue to explode off their October lows, powerful rallies are rippling through the markets, triggering some much-needed FOMO amongst the unwashed masses. If you’re one of the unfortunate souls who loaded up on bearish bets into this face-ripper, you’ll need to perform some evasive maneuvers to limit your losses as the melt-up rally accelerates into the holiday shopping season. Fortunately, all is not lost. There’s no reason to throw your hands up and surrender your portfolio to mediocre returns during the final few weeks of the year — even if the market’s sudden shift has caught you off guard. You haven’t completely missed your chance for trading greatness…not yet! In fact, even the world’s most pessimistic uber-bears can ride stocks higher as waves of sold-out bulls buy back the shares they sold back in October. There’s only one catch: You must act decisively. A trader stuck on the wrong side of a rally is a lot like a soldier getting caught in an ambush. Bullets are flying, so staying put is not an option. If you’re suddenly taking fire — real or metaphorical — your enemy probably has you right where they want you. Sitting on your hands only makes your situation worse. Last week, we discussed how the rally evolved, why the market bounced where it did, and how to regroup if you missed the initial move off the lows. [Click here if you missed it]( This week, I’m going to dig into specific actions you can take to play the rally, including how to adjust your market strategy to benefit from a melt-up move. Plus, I’ll show you a hidden opportunity to trade against the herd and potentially outperform the averages into 2024. [Warning: Could Massive Civil Unrest Come To U.S. Cities In 2023?]( [Click here to learn more]( The streets are mayhem… Everyday supplies at the grocery store are cleaned out… In the parking lot outside, you see a large guy yelling at an elderly man… The big guy has something in his hand, and rage in his eyes... Things look like they could get out of hand at any moment. Is this disturbing scenario set to play out in U.S. cities across the country? [Click here now for an urgent warning from a former advisor to the CIA and Pentagon](. [LEARN MORE]( Fundamentally Flawed First things first: It’s time for your annual lobotomy. There’s an endless supply of bearish news available for consumption. In October, we were faced with poor market breadth and a near-total evaporation of new highs — all while the major averages threatened to sink to five-month lows. And that’s just price action! The news was even worse. A fresh war in the Middle East had investors on edge as World War 3 and Black Monday began trending on social media. Even mainstream financial pundits were expecting cataclysmic events to rip through the markets, sparking a historic crash. Instead, the market gave us a quick washout below key support to set up the rally that’s unfolding right now. Sentiment tipped extremely bearish at the exact wrong time – a normal period of market weakness that perfectly aligned with seasonal trends. Investors who are unable to change their minds fast enough are now forced to watch stocks explode higher without them. Or worse, they’re left to frantically cover short positions into the powerful holiday melt-up rally. The market’s going to chew you to bits if you get too caught up in fundamental arguments during these important turning points. Sure, some stocks are falling apart after badly missing earnings estimates or lowering expectations. But most stocks are catching higher with a strong seasonal tailwind aiding their rise. To be clear, I’m not suggesting economic or fundamental concerns are wrong or completely useless. But you’re wasting your time trying to fight a rally during this incredible seasonal strength. Your best bet is to table those bearish thoughts until January. For now, the best strategy is to turn off your brain and buy. An Opportunity to Trade Against the Herd Mega-caps and other market leaders rolling over is a fairly reliable sign that the market is near the end of a drawdown. This is the exact action we saw toward the end of October — just as stocks were about to turn higher. Sellers come for the big boys last since these names usually act as “safe havens” for investors trying to hide from the carnage. These little washouts will typically scare some weak hands out of their positions. The dips then lead to abrupt upside reversals as stocks find buyers and begin to push off their lows. The “Magnificent Seven” mega-caps have outperformed all year by a wide margin. That’s no secret! Professional and Main Street investors alike have been hiding in these names since the broad market rally began to cool in July. I don’t think these stocks are going to suddenly fall off a cliff. But I do think other stocks have a better shot at producing faster gains into January. Instead of piling into stocks like NVDA and META that are already pushing to new highs, shift your trading focus to the more rate-sensitive growth names in tech. I’m talking about the stocks that took big hits over the past three months as the market corrected. Software stocks, biotechs, and the former tech-growth darlings are ripe for huge short-covering rallies into the holidays. Fundamentally flawed names sporting hot charts will be the best trades over the next seven weeks. They probably won’t magically become market leaders in 2024. But they will give you the opportunity to play catch up as the market roars higher into December. Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [PREDICTION: The Next Trillion-Dollar Stock]( [Click here to learn more]( In 2007, he predicted Facebook would become a $100 billion company. In 2010, he predicted Apple would reach a three-trillion-dollar valuation. In 2013, he called Bitcoin -- before it rose 50,000% and ultimately reached a trillion-dollar market cap. And now, this A.I. Genius is stepping into the spotlight to predict the next-trillion stock. [To see his shocking new reveal, go here now](. [LEARN MORE]( In Case You Missed It… Rate Cut Rally in 2024 Sean Ring, Editor [Sean Ring] SEAN RING Dear Reader, My friend and erstwhile colleague Greg Guenthner wrote a peach of a piece for Tuesday’s Morning Reckoning. [In it, The Gunner wrote]( Despite the three months of choppy descent we experienced after the averages topped out in late July, last month’s drop shouldn’t have set off any alarm bells. Not only are pullbacks and downside moves perfectly normal events, there are also seasonal trends the market has closely followed this year — specifically how the S&P performs during a pre-election year. Earlier this year, I showed you the pre-election year cycle roadmap, specifically how the S&P tends to top out during the summer months in the pre-election cycle and remain in a range until a year-end push. One important caveat when dealing with seasonality data is it’s the trend that counts. And for the entire year, the S&P is more or less following these seasonal trends. Is it a perfect match? Absolutely not. But our composite continues to offer a general idea of what we should expect heading into 2024. I couldn’t agree more. And as far as Presidential cycles are concerned, 2024, an election year, is poised for a big rally. In fact, [election years produce rallies 82% of the time.]( But a specific confluence of events is occurring right now that confirms Greg’s technical hypothesis and bolsters it. This is despite the general economy getting smacked in the mouth. Let me build the story for you. Things You Already Know Debt is Out of Control Of course, you’ve been hit over the head with the national debt nearly every day. Heck, I know I write about it enough. But the truth is we’ve gone parabolic on our debt now, just like all those “alarmist” Austrian economists said we would. So awful is the US national debt, it’s growing faster than the country’s GDP. [chart] Credit: [@SchumanKimm]( The debt-to-GDP ratio is Greek-like. [chart] Credit: [@GameOfTrades_]( These are the debt payments on that national debt: [chart] Credit: [@WallStreetSilv]( Yes, that’s a trillion dollars pissed away on interest payments. That’s higher than the defense budget. Hard to believe, I know. And that’s the problem. With elevated interest rates, the US government can’t afford the payments. Something has to be done. But we’ll get back to that in a moment. Of course, with rates on the up, that’s exerted pressure on the dollar. Dollar Has Rallied Hard Since July, the USD has roofed it. It’s only starting to level off. [chart] But it’s not just the Fed. It’s the all-important Eurodollar market. As eminent colleague Jim Rickards wrote in yesterday’s [Daily Reckoning]( Eurodollars are dollar-denominated deposits held at foreign offices of major banks, and therefore fall outside the jurisdiction of the Fed and U.S. banking regulations. The Fed actually has very little influence over the global dollar market and the exchange value of the dollar. The old currency metrics of balance of trade and moves in capital accounts are leftovers from the world of fixed exchange rates, which have been gone for decades. What drives the dollar is the Eurodollar market, as conducted by the world’s largest banks in London, New York and Tokyo. It’s here where global liquidity and interest rates are actually determined. The Eurodollar market needs a constant supply of depositors parking their money in offshore offices of major banks. Right now, this market is in contraction. Derivatives are being unwound, balance sheets are being trimmed and interbank overnight lending is being financed with collateral. And these banks are demanding the best collateral. They won’t accept corporate debt, mortgages or even intermediate-term U.S. Treasuries. The only acceptable collateral consists of short-term U.S. Treasury bills, the shorter the better. This means 1-month, 3-month and 6-month bills. Those are denominated in dollars, of course. In order to get the bills to post as collateral, banks have to buy dollars to buy the bills. This has created enormous demand for dollars. And that partly accounts for the strength of the dollar. So, we have high debt, high rates, and a strong currency. Next are some things you may need to be aware of. Things You May Not Know Unemployment is Getting Worse Sure, the unemployment rate is still historically low. And initial jobless claims are also still pretty low. But continuing claims are starting to blow out. [chart] Credit: [Trading Economics]( High levels of continuing jobless claims indicate a sluggish job market, limited job opportunities, or structural issues within specific industries. If employment was the last domino to fall before a recession, consider that done now. The Fed Has to Cut Sooner, Faster It was always “higher for longer,” but the bond market no longer buys it. Jared Dillian, editor of the Daily Dirtnap, tweeted: Credit: [@dailydirtnap]( [Porter Stansberry retweeted]( Dillian and added: Correct. And the real concern isn’t the recession, it is how corporate balance sheets & regional banks are going to weather big reductions in consumer spending. Stocks at 25X earnings with 10-year rates at 4% aren’t going to react well to double-digit declines in revs. But Dillian wrote to buy 2s. What does that mean? The Bullish Steepening We’re seeing the 10-year yield come down. That means investors are buying US Treasury 10-year notes. (There’s an inverse relationship between price and yield. As investors buy, the price goes up, and, as a result, the yield goes down.) What Dillian and many other investors think is that the Fed will be forced to cut harder and sooner. Thorsten Polleit mentioned this in my interview with him. Next Tuesday, we will air that on our brand-new Paradigm Press YouTube Channel. If the Fed starts to cut hard, the “short end” of the curve will drop dramatically, and dramatically more than the ten-year yield has fallen. That would “un-invert” the yield curve, potentially putting 2s (shorthand for 2-year yields) lower than 10s (10-year yields). The yield curve would then be normal or upward-sloping. We call this a bullish steepening because bond buying creates this type of steepening. Hence, buying, and therefore higher bond prices, make this bullish. [chart] Great, but what does that mean for the rest of the asset classes? What This Means For Assets in 2024 If the Fed panics and cuts quickly - the opposite of the panicking hike it did during 2022 — then stocks, bonds, real estate, gold, and crypto can all roof it. Rate cuts would mean a weaker dollar, and that’s filip for US asset prices. Of course, stocks and bonds like lower discount rates. In our clown world, economic bad news is good news for the stock and bond market. It means Nanny Fed has brought back the punch bowl. Gold has no yield and will find it much easier to compete against bonds offering lower yields. The same goes for crypto, which would probably price in a “disaster premium,” and rightly so. Real estate will also benefit from lower cap rates. As 2024 is the last year in the election cycle, all this is perfectly plausible. So the last thing you want to be now is short. And you certainly don’t want to panic and sell on economic bad news. Wrap Up Hold. Hold on for now. Things will look like they’re about to fall off a cliff. But there Jay Powell will be to rescue us — well, his rich buddies, but we’ll benefit as well — from the impending doom of a sell-off. The punch bowl will be brought out, and there’ll be drinks all around — if you’ve kept your nerve. I can’t wait for the new year myself! Have a lovely day. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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