Transcription
Well, we got exactly what we wanted, which is an old-fashioned gap fill. And that's what you want to see. You want to see some breath come out of the market, come back down and hold. Couple things here that I really don't like, and I'll get to that. And then I saw one thing that I thought wasn't going to be a problem. That looks like it might be a problem, but we got the gap fill. And that's what we want.
Let's start going through what went well, what went wrong, and what we have to look forward to with the new Fed chair because it's actually a really good thing. Those traders are reacting to the institutional levels. What we're trying to get you to do here is to know what they're doing ahead of time. Subscribe. Click all notifications. What we go over here is timely by hitting the bell. You don't get it after retail's already in. The important thing is you get the information education that you need. Subscribe. Let's get to it.
Now, let's just start with the basics. This is from CME Fed. And I'm just going to open this up here. We're going to drill into this. For those that are newer, we do these in formal and we do them unedited and raw just so we can pack it in. If you look right here, you'll see a number. And that number is going to be 74%. You're going to have a hike. Now, out of that hike, you have a 74% chance of a hike by the October 30th. And that is saying that you're right by you have a 74% chance of a hike by October 30th. And then if you go and take a look down here, and now we'll open this up a little bit, you can see where the current rate is. And then you can see where you were 1 day ago. And you had a 61% chance of staying at the current rate. And now you have a 25% chance. Now, what's happened in a day? The Fed. the Fed met. And you can see the skew now. You have a 45% chance of one, a 25% chance of two, and a 4.4% chance of three. I don't think that's where this is going. We'll talk about that. But what you have to take away from today is make no bones about it. This is a very different Fed. And we're going to get into that. And I know I say that and we are going to get into it because there's a couple things here that are important.
But I want to go through the cues and just point out the obvious and state that you obviously gap filled. This is actually really healthy and it's actually what you want to see. And what you did was you wedged in. So we're going to go to open, high, low, close for a second here and just show you this. So you came back to this area where we gapped down and we should actually really mark that one because that's where the gap was. You gapped down, those people were able to get out of the cues, got out, you reverse back down, and now you're back to where these people were. And so you're just about good old-fashioned gap fill. And that's really what you want. Get those flushed out. Makes it easier when you clean up supply for when you go back up and retest this level. So, this level becomes a support. Really, what you want here, I'm going to go back to the candlesticks. But really, what we want here is something like this where let's grab this where you come down. Let's get rid of that magnet. And you know, I don't know why I don't open this up more. There we go. And you come down and then you want something like this. Something in that pattern. And why you want that is you want to come down here, test that level, possibly rally back up, retest that level, and then go. And this gives you stability. That's what we want to have happen. Now, what we want versus what we're going to get, sometimes they're two different things. But this is really where we're going with this and this is what we're looking for. But you have to start with the gap fill. And then as we came back up here, we clean these people out. And then we go from there.
What didn't I like today was this. Now, if I go and take a look and just clean off this and drop in the 22. And then what we'll do here is we'll turn that white so that you can see it. We actually closed below the 22, which I really don't like doing. We're essentially on it, but we did close technically below it. With that being the 72367 and we did close at 722. Now you're up a couple points basis points after again but we did close technically below it. If we take a look at the spy I don't have to draw out the same pattern but it was actually a little bit worse. As you can see the 22 we are well below on the spy and that's not what we want. We did gap fill and we actually undercut that gap fill and we're just going to show you that right there. And when we have something like that we just have to be cognizant of it. And we can see that right here. We got right to that high, rejected, rolled over, and now we have the gap filled.
Why? Well, the Fed has a different stance right now. And that stance, I think a lot of people knew this. And then when they heard it, maybe they're going to change their opinion. So, let's go through that and then we can get into the rest. So, this is the 10-year bond. And we can obviously see that you actually sold off today on that, but you're still not above that 450 level. And that would have been a huge move if it happened. But, there's a couple things to go over. Number one is this Fed is going to be focused focused on price stability. Meaning what they want to do here is stay focused on price stability. What's that mean? Right now their goal is 2%. They want to be at 2%. So we have to understand that when he says we're going to be at 2%. How you going to get there? You're going to raise rates. What else did he do that was different? The chair did not use the dot plot. He thinks the dot plot I won't say silly, but he doesn't think it serves a purpose anymore. So, we're focused on price stability, not in the market, but the price. He even brought up the price of eggs. And that really what he's talking about is what do things really cost the American people right now. He uses something where he's looking at a mean CPI, meaning he's looking at more of a reversion number, which is actually pretty good because when you get to that, it's going to show that inflation's higher than expected. And when people start to understand that, that's why the market acted the way that it did. That's why CME went up and that's why you're seeing rate hikes even though we didn't do anything. It's important in my opinion. If you really want to get this, listen to the speech. And if you listen to the speech, you you'll understand it. And he is not using that dot plot at all. And I wouldn't be surprised to see the dot plot go away. He also said, "No more forward guidance." And this is the way it used to be. They didn't guide before. They didn't tell you what they were doing. There weren't these guys weren't speaking every single day and saying, "We're going to do this or we're going to do that." And the reason he's saying that is because he wants the members to have more flexibility on their decisions. Sorry for the tapping there. He wants the members to have more flexibility on their decisions. So no more forward guidance anymore. No more dot plot by the governor and I think they're going to get rid of it. And they're going after their mandates and their clear mandates are fighting inflation and making sure people have jobs. That is not worrying about the stock market. So if the stock market gets hit because he's got to worry about price stability, he doesn't care. When I was trading way back 84 years ago when I started, we didn't have a dot plot. There was no forward guidance. You had to basically beg Greenspan to tell you what he was thinking. And even then, he didn't want to do it. And because they don't want to interfere with the market, they don't want to interfere with the bomb market. They just want to act when they need to act. You shouldn't even know they're there, let alone know all their names. So this is a very big change and I don't think a lot of people are getting it. But overall, it's very good for the market. I don't want them constantly intervening with speeches and this it it's exhausting and it's been a long time coming. So, I'm glad that we're leaning this way. So, I for one, I'm happy with it.
But, it does do a couple things. Number one, look what the dollar did. The dollar absolutely ripped on this. So, if you are wanting to go long the dollar, look what the dollar did. Dollar absolutely broke out. I like looking at DXY, but you can look at, of course, the UUP as well, and you can see what happened there. And it absolutely just ripped up on this. And yes, that's actually a rip for the dollar. And why is that? Well, they're positioning themselves because they're saying, "Okay, he's going to raise rates and he's not going to really tell us what's going on anymore, which is going to add uncertainty to the market." We actually want that uncertainty as equity traders. We don't want to have to hang on every single word and every single piece of data and then wonder what the new speech is going to be and does this one want to change his mind or not. Vote, get it out of the way, and we'll see you at the next meeting. I think the next meeting is July 29th, I believe. So, and he's talking about these task force to go in and start looking at pricing power. And I'm not going to spend a lot of time on his a team. But what I really want to focus on with that is I think it's important that he's going to drill into this, get a real handle on what's going on, and go from there. Like him, hate him, I don't really care. But the bottom line is it's bullish if you're an equities trader in my opinion. And the reason for that is because I'm getting that uncertainty and getting paid for my risk again in the market.
What I thought was interesting, and I've been asked about this over and over again, and I've been blowing it off. I've been getting getting asked about this Japan yen carry trade. Japan just raised their rates, and then at the same time, we're talking about that the US may most likely raise their rates before the end of the year. So, does this run into a problem? You know, I would have said 48 hours ago, no, this is all factored in. It doesn't really look like it's factored in when I get a new closing high. So, do they unwind some of this tonight coming into tomorrow? Yeah, I don't know. I don't have an answer to that. I don't have a crystal ball. What I will say is that this carry trade or the exchange trade here, which is not really the carry trade, but part of the carry trade. You borrow from Japan, you buy US equities. We've gone through this before and I should probably just clip it out so people can just go back and review it. But the bottom line here is that's a new closing high. So, we have to look at that. And then we'd go and say, well, what did they do with gold on this as well? All right. Well, they sold gold off on this. All right. So, they're selling gold. And then if we go and take a look at the Japan US dollar versus the yen. So if somebody's in this, they might want to get out of it. And so when you see movement like this, and this is what they're referring to, and this is the thing that's concerning people. There was a similar trade back here. And this was April 24th on the 2024. And you can see that we have we wicked and then we got closed over that wick area. And then about two weeks later, we started they started this huge unwind no one was prepared for. And then August 5th, 2024. And if you overlay that with the market and go take a look at August 5th, 2024, and you can see it right in here, seems like So, where is that? Hold on, let me find it exactly. Sorry about that. There it is. I was going to say I didn't think of we went that far back. It's right here. So, they unwind that entire trade. When they unwind that trade, they also unwind the equities they bought with that money. The only reason this trade works is cuz it's levered through the nose. You know, 16 to1 or some something insane. I don't know the exact ratio, but I know it's up there. Or something insane like that. It's way more than 8:1. And of course, they can ratio it however they want, but it's pretty insane for the basis points they're picking up by doing it. The point that I'm getting at is this becomes the concern that they're going to have to unwind again. And if they do that up here, well then you could have another sell-off like this. The only reason that I don't think you're going to have something like that this time around is because we're all aware of it. If we're all aware of something, that means the people that are in the trade are acutely aware of it because they got crushed back there and they're not going to go through that again. So, they're probably hedging. But again, I say that and then at the same time, we have to understand how we're trying to break out of this area and what exactly is happening. That's going to be a little bit of a pickle and I would watch this tomorrow.
You're also going into, let's go to the stocks. You're also going into a level here. We gap filled and now we have this inside bar, but you're also going into a level here where you're going to have a lot of talk on Friday when we're closed about Iran and what's going on there. And there's a lot of saber rattling and they're trying to get this signed as soon as possible because you're seeing some fractured among some of the people that are for it, etc. Either way, if we take a look at the socks, you have that inside day. We should come back to that after we take a look at crude oil. If we go and take a look at crude oil to me is telling us exactly what we want to know. So crude oil here and we go take a look at the top of that control bar and then take a look at the bottom of that control bar, you will note that you finally have closed below that control bar. So that is to me telling me exactly what is going on with oil and that they are getting out of the oil trade and I think that is getting clearer and clearer. If you take a look at something like Gush, they're continuing to unwind that trade and that probably is something that continues to unwind. That's actually a good thing because that is helping companies like the airlines and when you see Jets, that's why Jets moved up. That is why you're seeing names like CCL or RCL. They moved up pretty strong. Let's clean this off of that. And of course, you're going to give some back today because people are going to start getting out of the way of this trade because they don't want to be in a situation where something in my opinion happens over the weekend. That was the that part of the trade. For me, the real movement here came in semiconductors and some of the movements of those semi. So, as always, we have to look at one part of the trade and then the other part of the trade. And I'm going to do a Saturday as always. We do a Saturday deep dive. So, that's why I always tell people to subscribe. Our videos start with Saturday and then they roll in during the week on how that that's playing out. Saturdays are are deep dives on the market. But anyway, if you look at the socks, we gap filled and then we have an inside day. Well, anybody, any index would love to have an inside day right now, right? If you look at IGV, this is super interesting. Lower low. That's the opposite of an inside day. All right, that's not what you want to see. And you have some strength in some other areas. People are looking at the XBI and the move out of there. And I think that's good. I do. I think the diversification's good. I think the way the XLI moved today and hit another new high before it came back and you're seeing some really strong movement in the XLI. I'm sure you guys are all seeing GE and how that's playing out. So, we're getting what we want there, right? We are getting what we want to see in an area like that. But really, at the end of the day, what is this telling us? Well, from my standpoint, what it's really telling us is that we still have to watch the semi-trade because if we lose the semis, we don't have anything.
So, let's do the basics again and then we'll go from there. Everyone can see my trend line. I'm not going to draw it. If you come there. I'm not trying to be angry about it. Just for time sake, I'm not going to draw it. So, if we take a look at the socks, well, it's definitely outperforming what the NASDAQ. So, if we're going higher, why not buy the highest relative strength? Why do I want to buy this the sectors that are doing worse? So, in other words, if IGV might hold the 55 or might not, like, why do I want to play that game? I probably don't. It doesn't seem to make sense to play that game. What game do I want to play? Well, I'm glad you asked. I want to play the high relative strength game that tends to work for me. You should do what you're comfortable with. But the high relative strength out there is semiconductor. So the socks inside day amongst all of this and this is what we have. And I think it's really important. There's some other secondary names that look good out there. And you know, for time sake, I'm not going to do it. I'll do it on Saturday. But there there's some names out there that held exceptionally well. The Neocloud, some of those names look fantastic. But this is what I think is important. Take a look at the ESOCS and look at how you closed low a day. Look at the ASOX and look at how you closed. So, this is where it gets really interesting to me because AAT today completely broke out and then gave it all the way back forming what you formed a gravestone here. It's called the gravestone dogee where you you're hitting a new high and then end of the day opens and closes at the same price. These tend to mark tops and so that's going to be something to watch. Lamb research hit a high reversed closed at the low. KAC nothing very different than what we were expecting right because these were the names that were moving hits a high reverses closes at low of the day so the cap equipment manufacturers came in what held or what held better and again I just want to show something so if I show you the ASOC here and then I show you the ESOCS here it's really hard to see right but if you look at it this way so in front of you and I'll do more of this on Saturday but if you take a look at the ASOS which is the AI semiconductor index so you're taking the two you're taking a sum Do I ASOC's weighted AI names ESOX is the equity weight of the entire semiconductor market and what you're seeing is that the AI names outperform since this was created going all the way back and what I do is I just turn it into a ratio and you could see how you get toy on that ratio and then starts coming down and now you're at an area where if we come back to that ratio we draw that area out look how you came to the low tested so are we done here is that enough and you never know the answer to this but wait there's more this is where it got really interesting because you've been hitting these lows higher and what's starting to happen. We're not hitting lows anymore now. It's still too early to tell with this, but are we heading back to the AI names? And so Bernstein came out with a statement today. It's a really interesting statement where they said you're going through your past chatbots and now you're going into agents. And with agents, you're going to need the certain names. You're going to need AMD. You're going to need ARM and Intel. And they upgraded those names. And we're going to take a look at them in a second here. But what are you really seeing here? Well, on a 5-minute chart from June 1st over, you have a trend line. And anybody can see that trend line, right? I'm sure you guys already saw it. And you're not really I'm not going to do candlesticks. Let's just use the line cuz we want to use it relative. So, are we going to get through? Do we reject again? I don't have an answer to that. What I can do is I can turn this into a one minute chart and I can show you something. So, here we are with the big move at 2:00. We come back down at 3:00. When he's done speaking, what happens? Once he's done speaking, what does the market do? The market starts buying. What? This is why it's so important to understand the last hour of the market and what they're doing. So in the last hour of the market, what are they doing? They're buying the AI names. They're buying the AI names over the ESOC names. So that's telling you something very closely. And I watch relative performance during the day very closely, more than I watch absolute because it tells me that when the market bounces, what are they going to go into? So when you look at something like that, you'll say, well, how do I put that into practice? And I was going to call myself big T. Tell me how you put that into practice. And I just started laughing. So, I'll keep that to myself.
Anyway, if you take a look if you take a look at ARM and you're like, "Well, that didn't hold up." Well, it held up relatively a heck of a lot better than AAT did, right? So, if I go here, we're going to clean all this off for a second and look at the chart. AAT would love to look like that right now, wouldn't it? So, we held the open. We look at our close. Look at it. And you're still above. You have an all-time high close on ARM. You can say anything you want about the sell-off, but no one said, "Hey, buy it at the high while you have the new Fed chair speaking." But if you take a look at it, boy, I sound angry. But if you take a look at it, you have an all-time high close on arm. That's not the worst spot in the world to be right now. And if you take a look at AMD, which you know, I always torment. Yeah, you didn't hold up like super well. But what did you do? Well, you really have an inside bar and you've held a level not seen since last Friday. You didn't really fall out of bed. If you take a look at Intel as well, Intel gave you an inside bar. So, when we start looking at that quote 2.0, and all three of these names were upgraded by Bernstein today. So, it's telling you where you're going and it's telling you where the money is going. And I think that's really important to watch. If we saw these names getting absolutely smoked, then maybe we'd be a little concerned. Like SanDisk came down, but when Sandisk came down, what really happened there? Well, it came down, it gap filled, came a little into that gap fill, but let's go take a look at this. We're not even near the 12-day moving average. And you start looking at where we're at. And so, maybe we come down, maybe we gap fill, maybe we don't. But at the end of the day, this is what we have. And this is the hand that we're dealt. So, if we play the hand that we're dealt, I think that's the right way to go about it.
For me, I think it's very important. Take a look at Micron. Micron, while you're bidding up, let's clean all this off so it shows you exactly where it is. But you have an inside day, so you didn't really fall apart. What did they do with the DRAM names? Well, you're still in the same exact area. You hit a new high. So, yes, we came in off of this. Yes, there's some things to be concerned about, but then the driving force here held up the best. And I think that's what you should focus on. There's some other things here that I just want to point out why it's on my mind. The worst thing that you can do is try to play financials when you have a Fed chair speaking. And it's just very clear. It doesn't mean that you're going to fall apart or not, but you just want to watch that. I also think that if you're looking at the homebuilders, which we're going to cover, it's very clear that the homebuilders are in have a problem if he does start raising rates. And I do think he's leaning that