Transcription
Welcome to a deep dive. Saturdays are deep dives. If you're new to this channel, you're going to want to subscribe and click all notifications. The reason for this is because we follow it through the week. You'll also see on Wednesdays, we're going to start focusing specifically on strength reports, meaning what's actually working in that week, whether that is a bullish or bearish scenario. So, let's get to it.
The most important thing that we can do is understand where we were and what's happened in the past, and understand that it's going to happen again. And I'll show you what I mean by this and it's super important to get because some people could look at this market and say we actually had a bare market in 2025. And the reason that they could say this is because if you took this top to this bottom that you corrected and you were down 25%. Now as a lot of people may have done very well in 2025 and and I do think there was a lot of opportunity in 2025. It was not easy. It was not under easy to understand what was going on here. as I as I make jokes about the winning and liberation and also it wasn't easy to understand why this happened and how it's going to happen again and how you can benefit from it but it's important to understand the differentiations and so we can do this from a technical standpoint a fundamental standpoint and a macro standpoint for those that are newer to this I use something very simple called the stool and that is the macro that is the fundamental side of the market let's make this a little bit better also these videos are always unedited and raw. So, you're just going to have to deal with my little mistakes. It is what it is. We're not going to use jump cuts and all that nonsense. You're either going to focus on it or not. Uh, but let's just get to it.
So, this is the stool and this is really the way that you should look at the world. This is how I look at the world. Maybe I should say you should do what you're comfortable with, but this is better. So, you should do this at macro, fundamental, technical. Macro, fundamental, technical. Say it with me. So when you have a macro event, it is going to affect the fundamentals of a corporation. That is what happened, who's affected by it, and when's the time to act. What happened, who's affected by it, and when the time to act is. So I've done that on purpose.
Now, if anyone's ever sat at a bar or a restaurant in their life, sometimes you're leaning on the front leg, sometimes you're leaning on the back leg and leaning back. So there are times to rely on fundamentals, there are times to rely on technicals, and there are times to rely on the macro. But the tail does not wag the dog. Meaning if the technicals are moving, there's usually a fundamental macro reason for that to happen. So it is all connected and it all balances out. But it's important to get this concept because this is really the basis on how I've been trading 20-some years. So let's get to it.
Now that you've seen my childlike caveman drawings, when we talk about a bare market, you're seeing a lot of people that will say, "Oh, 2025 was a bare market because you were here and then you dropped 25% over a period of time." There's actually a way to look at a bare market versus just a correction. And I think that this is super important. When people talk about a bare market, this is kind of how I look at the overview of it. And just a quick snapshot on what it is and how you can identify them. Bare markets are when you fall 20% or more. This is important for what we're about to do. Bare markets occur when that you fall 20% or more over an extended period. The extended period part of this is super important. And the term derives swiping down its paws symbolize declining prices because it happens so vicious. You know, if you were attacked by [laughter] a bear, uh it's pretty brutal. It's not going to be like this slow drip. Uh it's not usually a brief dip, but weeks or months of falling prices, negative sentiment, investors decline, exacting self-reinforcing downward cycle. often triggered by recession, rising unemployment or major economic shocks. Winning and liberation could be that. So, did we have a correction or did we have a bare market? Typical duration lasts 9 to 12 months and it's a 35% decline. So, we didn't have that. But, we did have defensive positioning, quality stocks, and it's really babies thrown out with the bathwater. Um, and momentum strategies are absolutely destroyed during that period of time.
Now, I'm bringing this up for a reason. It's not up to me to make that decision for you as you could see that this would be super subjective because you would say well 52 days it took to get there. So that's weeks and months even though the average is this period of time is that a bare market? I think it's very interesting that people are looking at this market and saying oh well you know last year was good the year before was good so this year can't possibly be good. And I don't really think that that's a way to look at things. I think the way to look at things is to determine what's going on on a macro, fundamental, and technical basis. But there are very simple things that you could do. So for example, if you took a look at this on a weekly basis, and we did something simplistic, and we're just going to put in a 200 week moving average for a second and just look at this. And again, super easy thing for anybody to do when they're looking at the market. We never really broke that 200 week moving average. And you can see in September in '22 how we rode it. You can see back here in March how we hit that weekly level. And this is when we first had uh Trump, you know, tariffs the first time around and that was in December when we got to that level. If you start cracking that only go back so far on the weekly with the Q. I'd have to use the actual NDX to go back further. But I just want to show something. Obviously, we broke it here. We don't need to go back that far. But you can see the break in here right on the ETH. And I think that's super important. in September 8th, you cracked it and you cracked it hard. So, when you crack these levels, the idea, and we should blow this up, the idea that it's over because you crack this level is delusion. And I want to just show you this because I think it's really important to get this. And I know we're not near it right now, but I just want you to get this before I go to the next step. That's a 22% drop from there. And by the time we were done, you can see that you had a 55% drop on the NASDAQ. I don't need to tell you what that would do to your portfolio. What's important about this is from the day that we closed under this under right in here, you had a 40% drop in the NASDAQ. So, while people will look at this and say, "Oh, I don't know. I, you know, I'm just going to hold." Yeah, maybe you got lucky there when you did that. But this is what could happen. So, you have to use other indicators to determine this as well. Stay with me. Don't go to the lights.
So, we're going to click on this one. And now, we're going to get rid of the 200 and show you the weekly. This is the one that actually on the weekly chart will signal that you have a problem. And I think that this is really important whether you're using the NASDAQ, which I am, or whether you want to use the S&P, it doesn't really matter to me. The extreme moves come from this. But if you look at breaking this level on the weekly to here, at one point you had another 15% drop. Very clearly the day that you closed over this, you could see how we moved and we just went higher from there. So closing back over that 55 is absolutely huge on the weekly and where we are right now. We're nowhere near that. But I do think it's important to point a couple things out here because of what we're about to cover that the real major support of the Qs is 540. And that ties you directly into where you're at with that 55 on the weekly as well. So, if the market does correct in 2026, your key level is going to be looking at something like 540 and then going from there. And I'm going to tell you why I'm going over this all in a minute because of what I already saw happen on Friday. I think it's really important for people to be very cognizant of where they're at right now with this market. You can see in 2020, and I think that again, super important. You can see how you broke here in '22, tried to get over it, completely rejumbed, and then you're pointing down, and then it flips in this area. And then if we just zoom in on this area right in here, let's get both of them. This is our first winning and liberation right with the tariffs. And then here is the pandemic. What's crazy about the pandemic was the amount of fear and everything else. And then you look at how quickly you bounced over that uh versus December 18th and tariffs. This resolved itself super fast. Nothing resolved itself that fast. Nothing. when you really go back and look at what we dealt with with '21-'22, you know, this is when NFTs uh and JPEGs were called JPEGs were called NFTs and people bought those things, right? How's that working out? So, you can see these periods in time where this has happened and it's a great way to look at the market. Obviously, you can see the break here, uh, if we go back that far to the dot, you can see when you're flipping this level.
So, why is this important to you? Because when you're under this in any year at all, you need to put the brakes on. I don't care who you are as a trader, what's going on. The market's telling you that there's issues, especially something like this. People would look at the great financial crisis and say to themselves, "Well, how could I possibly have seen this coming?" Well, you broke your 55. I use a 55. If you want to use a 50, that's up to you. You should do what you're comfortable with. You could see it breaking here in '08. You can see the rally up. What happened? Boom. When was it over? when you got above the 55. So using the 55 is a great way to do this. What our real first test would be is right around that 548. And I again I will get into why I'm doing this, but there's other ways to look at this.
Now just for reference, this is the monthly on the Qs and you can see this level of 400. You can see where you're up here and you can see where you 414 would look like on a 55 monthly. And people will say, "Oh, we could never get there. You were there in April. You were there in April." So to think that you could not correct again down to a major support level and build is what we refer to in the industry as delusion. It's the same people that when we were at 412 that said we're never going to see, you know, 300 again and then they're looking at 260 in October, right? So we always want to be cognizant of this because it allows us to be aware of what could happen and where the pain is. This is one of the things that I've learned a long time in trading. You have to look and say, "Okay, if I'm wrong or if the pain's coming, if the pain train's heading our way, you don't want to stay there and say, "Oh, it's okay because I'm a long-term investor." Everyone's a long-term investor until it's time to be a long-term investor. What you want to do is have more of an active management where you're looking at this and going, "Okay, I think that there's this amount of risk. Therefore, I want to keep some dry powder so when it happens, I could take advantage of it." The last thing you want to do is be margin to the hilt on an area like this in December '21. have this come down and then you're more worried about margin calls than putting money to work. There's nothing worse than that. Literally nothing in the world is worse than that.
Now, in front of you is a graph that I call the four horsemen. And I just want to show you this on a monthly chart. This is the MACD. And you can see, let me just pop this down so you can see them all. This is MACD. This is rate of change. This is RSI with the settings that I use. And this is slow stochastics. So, you can screenshot that and go to town. But if we're looking at something like this, what do we have right now on the monthly? And I think it's super important to see, oh, okay, well, on the monthly we crossed in here. So, if I get a MACD cross on a monthly chart like we did in here, if you're not paying attention to it, you're doing yourself a disservice. I think the rate of change breaking zero is an absolutely like you need to know that. You really need to pay attention to that. In regards to slow stochastics, I like it from telling me like, hey, you're completely utterly washed out more than anything else. In regards to the RSI, when we start breaking down into that 30 level, you know, you're getting kind of washed out, I do look for signs of I'll refer to it as like if I close this down, divergences, but it's really hard to see a divergence in this. You'll see them sometimes like it did here in '18. Um, you obviously just fell off a cliff here. For me, it's more about where we are. So, if I break 70, if I'm above 70 and I break 70, I I need to watch. So like in here where we broke 70 like that was a red flag to us and if you were in the community you know in February we started cutting back big time and this was one of the reasons for that. Um and then you can kind of see that you never even really got down here. So you want to use this but you really want to use it on a weekly basis as well.
Now here's where it gets interesting. If we take a look here at November 3rd you can see that we broke here on the 70 and that we're not really able to rally above that are we? So, I'm not telling you what's going to happen. I'm pointing at one thing and I want you to understand that because this is going to segue now into the daily and what's really going on right now. But this is something that if I was to just do the simplest things and say, "Oh, we were at 70 and we crossed and let's just mark that off and then kind of go through that and say, okay, well, we were at 70 and we crossed and we broke down." And again, we're not judging it. We're not saying anything about it. We're just looking at it and saying, "Well, what happens during this period of time, right? We're no no big judgment on it whatsoever. Just looking at it." And we don't have to go all the way back through time to do this. But what you will note is that you go through periods of underperformance when this happens. So when you start to break that 70 and you start rolling down and the more you start rolling down on that, what are you noticing? You're starting to notice periods of underperformance. You might come out, you might hit a new high, but you have periods of underperformance. I mean, if we look at July 8th, '24 all the way over, it took till October to get back there. So, we have a signal here that's clearly telling us that we may have a problem. And I think it's really important to to look at that before we get into the daily charts.
Again, if we are to look at the RSI here or I'm sorry, the MACD on the weekly and we blow this up. Well, does that look good? No. I've seen good before. It doesn't look like that. So what we have here is we have a MACD cross that took place November 10th and it's only gotten worse. It's not getting better. We've all seen what better looks like and we all see what getting worse looks like. Does that mean it's the be all end all and the sky is falling? No. It just means that this is not great. We've seen great before. It doesn't look like that. If we take a look back here in July 2023 when we have these kinds of crosses, what's happened? Oh, it's taken time. Well, how much time? Well, that took from July '23 to October for that to, you know, develop. And we can see that there are times when it just flips right back up and goes. Cool. That's great. We can see there's times it breaks, stays down, and the market just lifts. And I think that this is really important to get why you're seeing these divergences and they exist. There was a penalty to pay for that divergence eventually, right? And it's a function of macro, fundamentals, and technicals. If they changed, it's one thing. But let's take a look at this peak right here for a second. Let's use our magnet. Yay. And let's look at that peak. And let's go to this peak. All right. So, that was 7%. Okay. So, there's a 7% move from here to here. It's not really lighting the world on fire, is it? I'm not knocking that percentage move. And again, you can do this with the NASDAQ or the S&P. I'm doing it with the S&P because I do trade a lot of uh technical names or technology names and biotech. Uh but I rather do it with the NASDAQ because you're going to see those moves. they're going to be much cleaner because you have one sector or two sectors that really move the NASDAQ. So, I tend to use the NASDAQ for that purpose. You can 100% do this with the S&P and do this with the SPY and you're going to notice the same thing. Those movements are going to be a little more subtle, but you will see it. But I do find using the NASDAQ is better uh at this because it's all going to move like one big ship, but the NASDAQ's always going to lead because of the volatility associated with it. It's NASDAQ always has cracks in it first. So, I always use the NASDAQ when analyzing this this stuff. I learned that a long time ago back in the day. Anyway, we can see right here, you have a problem, right? A blessing or a problem. A problem. And then again, if we take a look at the RSI, we can see that. And we can see that issue. So, then we're just kind of going through them all. Where is the one I want? There it is. And then as we're going through them all, we can see right here. And this is what this is our slow stochastics. And we've broken that level. And is this something that we need to pay attention to? Well, if we mark off these levels in the past, was this something that held us back? Yeah, it was. It was definitely something that was worth paying attention to. And I think that that's really important for us to get.
Now, the one thing that really always bothers me with all of this is when I look at rate of change. Now, I want to be really clear about this so that you can see it. Here's rate of change. It's set at exactly what they use. They use a nine close. I have not played with it. And the reason I'm pointing that out is because I do have my own proprietary settings. What are you noticing about rate of change going into the new year? Right? You probably don't even need me to say it. It's negative. How does a market go up when the rate of change of the index is negative? You the truth it it doesn't. If the rate of change is negative, you don't go higher. You need to monitor this. If you take one thing away from this video, it's looking at rate of change. And if you're below zero, it's not a blessing. It's a problem. Right? And you can literally go and look at it. I don't care about where it's been. I don't care that rate of change is slowing or going higher. I care about the zero line. And I can't stress this enough. The one thing that you want from rate of change, I don't care if the rate of change is going up or down. Rate of change, as long as it's positive, means that I have, say it with me, positive rate of change. If I have negative rate of change, then I have negative rate of change. And then before I really want to start putting on a lot of swings, I need positive rate of change. If you take one thing from this video, this is the part of the video where you stop it and you listen to that over and over again and you make sure that weekly you are not below the rate of change and going hog wild on putting on tac. You can see the difference on this. It is it is like literally the cleanest thing for you to use. Does that mean that you're not going to have times when you get flim flam? No. The flim flam is real. You can see better, worse, back under, and then flips it again. But here's the great thing about it. I'm only going to go back to '22 on this. Here's the great thing about this. When you look at this, you can see right in here that if you were overlaying this with the macros, the fundamentals, and all the other technicals, it's going to give you real entries and real exits on the NASDAQ on when you should be aggressive and when you should be weak. When you should be aggressive and when you should just pull it back, right? So, I always refer to it as strong or weak.
Now, I'm just going to show you this because I think it's super interesting. You can see when you go back to like dot-com, uh, we broke and then we popped back over. Cool. And then you can see that you didn't move. It doesn't mean that it's all the time that it everything's always going to work. But I do want to point out that as you're trying to make, you're getting these lower highs. I don't care about those lower highs. I I don't you you might and you might be really effective at trading them. I'm not. See right here, if you go back to that zero and a week later in this area, you could have bought this, which we actually did. We were trading all this through all through it and once you broke in here on that zero that was it that was the end of all of this by breaking and it didn't even remotely get better in 2000 until you tried to get above it here and then you can just see it just broke again tries again back here and so it's literally showing you like oh hey we had this window now I just want you to think about this for a second as I'm showing you this and showing you where you would have exited and entered imagine if you use this during dot-com and you stayed out of the way until it was positive and then you were trying to see if you could pick things off or you had a bearish and you were shorting these names all during this. By the way, you were down 78% during this period of time. You would have absolutely slaughtered it on the short side, which a lot of people actually did. So, you attempt it, you fail. Okay, you attempt it, you fail, you finally clear it. And how long did you clear it for? You cleared it till here. So, every week you're just looking at one thing. By the way, here's your 55-week moving average. When did it break? March 2004, right? Very simple. Like, you're not overthinking it. It's one part of one thing. But if I mark from here, from when it finally clicked over and you stayed above that 55 to here, you're looking at a 44% return over a year. You took the meat of that move. Super important to get this concept, guys. And I can do this a myriad of times throughout history. But when you're below that, you need to put the brakes on. So, right now, do we want to put the brakes on or do we want to say that the market looks good, right? And again, I call this the four horsemen. You can look it up and you can build it yourself. I've used this historically. This is giving me signs of some things that I'm going to show you now that make me want to put the brakes on a little bit and let this sucker sort itself out.
Now, there is something that you can use and just type this directly into the Google, right? You don't need AI or anything. Type in Wall Street Journal WSJ diary. And you can get this for free daily. I'm going to take the weekly snapshot of the NASDAQ and of the New York Stock Exchange. And I just want to show you this before I go any further. So, what it's going to show you is the weekly declines and advances. So, here's the advances and declines of of everything that's going on out there. And there should be a couple things that really stand out to you here. And I'm not going to grab the pointer for time's sake. So, when you look advances, declines on the weekly, declines were greater on the week than advances, right? New highs were greater than new lows on the New York Stock Exchange. What does the New York Stock Exchange have that the NASDAQ does not have? Defensive positioning, utilities, you have your healthcare in there, which actually is starting to shape up pretty good. We may get into some of that today. But what is this really showing you? And it shows your advanced versus decline volume. This is really important for you guys to get because it it it can really show you what's going on besides the advances versus declines. So, I get the advance and declines, right? The advances are here. The declines are here. But when you look at the advance versus decline volume, it's very clear that you had more selling than buying, right? And they z it out here to give you an average, which is fine, but and we don't really have to get into that, but so you have more names last week that are declining versus advancing. And if we get into the NASDAQ, but you have more new highs. How could you have more new highs? Because they're rotating. They're rotating into defensive names. That there's the only way that you could do it. Because when you go and take a look at the NASDAQ and you look at new highs versus new lows, you're two to one. Meaning 521 new lows, 225 new highs. 521 new lows, 225 new highs. That's not an extreme number. An extreme number, just so we're clear on this, when you're looking at that ratio, and I'm showing you a 2:1 ratio. And if you want to remember and jot one thing down, 7, 8, 9 is the ratio. Somewhere in there. 7:1, 8:1, 9:1. That's an extreme. two to one. H it's a Tuesday. Like it's not a big deal, right? That's not extreme. That's like when you start looking here at the advances declines right in here where you can see 1897 declines, 3100. All right? I'm trying to give you guys tools that I actually use to make decisions. Right? As you can tell when we do these Saturday deep dives, this is not really fluff. This is stuff that you need to implement whether you're doing day trading or long-term trading or swing trading so that you can understand what's going on under the hood. That's super important for people that take this seriously. And if if you're looking to like fluff and you want to hear about like the hot name out there right now, I'm sure there's better videos out there with people doing them in their base meeting in hot pockets. But this is stuff that people actually do that actually trade for a living. They look at this data. And so me showing you this, I want to show you how you can find it yourself. It's just Wall Street Journal, WSJ diary. You can pull it up every single day. When you see this, it is very difficult for you to look at this and say, "How is this going to play out? It's not going to play out well."
Now, this actually to me is even worse. See how the advancing volume is up and the declining volume is down, right? And people think, "Oh, well, that's good." No, it's not good. Why? Because everyone's piling into the same names. What did you notice about Friday when we had January 2nd the trading? I'll show you what you should have looked at and what everybody looked at instead. In front of you is the NDX on a daily basis. And what you can see from that is that below it is also the advanced decline line. And what are you seeing here? You're seeing a high, then you're seeing a lower and a lower. And people are like, "Oh, well, it fits with the market." Yeah, but that doesn't mean that the advanced decline's getting any better. It means the advanced decline's actually getting worse. See, why do people care about the advanced decline? Think of the advanced decline as a foundation. And meaning that if you're building a foundation and then you're stepping on that foundation and this is declining, you're actually on quicksand. And so like this is why all of a sudden you'll see these bids on stocks just disappear and you're like, "Well, what just happened? I'm down $8." And like on your name like it happens so fast people don't even understand why it's happening. It happens because the foundation's not solid. So when we look at something like that, we want to pay attention to it.
Now, if I go and take a look, and this is the NDX ADL, but if I go and look at the NASDAQ open, you'll or I'm um sorry, the New York Stock Exchange, you'll notice something here, and I think it's super important. Here you are, and we've hit these highs. And you can see that here. I could make this line bigger. And I really should make that line bigger. Sorry about that little beep. Um, but I should make that line bigger. Uh, I'll do that later. But I think that this is super important. Oh, we're at highs. Okay, so that this is at highs. No, no, it's not. Now, is that a problem? It's a problem if it persists. if it catches up, it's it's not a problem, but it's definitely on my radar. So, when we look at the New York Stock Exchange, and we can see this happening on the ADL, it's definitely something that we have to pay attention to. You can't ignore that. And I'm going to just pull this up just a little bit here. You can't ignore it. And so, that always takes me into this chart to just kind of see what's going on. This is the McClellan summation index or oscillator. I think they call it an oscillator. And I think that's a better term for it. You do not want to play with this. So, I just want to be really clear about this. This is when you have the McClellan and everyone uses the oscillator. The summation measures the oscillator, right? The the summation to me is much better because it gives a more clear understanding of what's going on overall with measuring the breath. Think about this as turning a large boat. When you finally flip it, that's exactly what you're looking for. And you can see if you flipped it in here, it is a long-term indicator. It is not a short-term indicator. So, you're not really trading off of it as much as you're just watching the world go by. You might say, "Oh, I could have traded off of this." Sure, you could have, but there's other signals of that. See how you just been staying down here this whole time? 500 usually is some kind of bottoming area. Just FYI. Uh when you get to that 500 area, it's pretty darn extreme. Um you'll see it when you're down there that that usually will be some kind of bottom. It doesn't mean it can't break it, but you're getting to that point where they've puked it out long enough and then they have to kind of reset it. So, anytime you're down past 500 on this, you'll see like, yeah, you can go lower, but you have to understand that you're more towards the extreme end of the move. And it could still reset and take out lows later, but you're really getting to that point where it just gets extreme past 500. See how even here you're kind of leveling off. Where you want to focus is that zero line. See how you couldn't get over that zero line? See how you cracked here? That's not what you want to say. So from a technical standpoint right now broadly on the market you can see that we have breath issues in the market like it's very very clear it's not really irrefutable right so then when we look at this kind of stuff we have to say okay well what do we do about this and I I think there's a couple key things the first thing is that we have to look at what's really driving the market right now and I think it's a lot of excess and I think it's a lot of fervor so I've got all these guys on Twitter that are now silver experts most of them have flipped They were experts on obviously COVID and then they became experts on uh Ukrainian Russian and what's going on there, right? They became experts there and then obviously they became experts with what's going on in the Middle East with that crisis. Now they're all silver experts and they're talking about how the market is moving in such a way uh that we have to pay attention to it because silver is going to go to a billion, right? Uh which makes so much sense. Um I I'll just say this in regards to silver. The market will always protect itself. Always. The system will always protect itself. Before we get into this topic, and then there's a bunch of names we have to go over, but the system in and of itself will always protect itself. You are not the system. So, if you were trading GME, you know what I mean by this? The system comes in and we'll shut it down and we'll say you can't buy anymore. Well, that's not fair. Well, life's not fair. Suck it up. Right? That was it. What happened when they shut down GME? Nothing. They all made money and everybody else lost money. You think that's not happening in silver right now? You think that the the Thanksgiving glitch that happened in silver when the when one of the large banks couldn't deliver the physicality, you think that was just just happened, a coincidence? You think the other night when it happened when they ran into a problem, a quote glitch again, it's just an issue? No. The system's protecting itself. Do you think it's a a coincidence that they're increasing the margin as they've done twice? No. It's the system protecting itself. You're not the system. You're going to get crushed by the system if you think the system's going to just allow it to play on a level playing field. You're not playing in a level playing field. As soon as you get that, you can profit from it, right? But you have to understand the rules of the game.
Let's take a look at silver and what the people that are actually in silver are doing. In the spirit of these Saturday deep dives, what we're going to do is focus on what an institution would actually look at with silver. So they would look at silver hedging positions and this is going to be much better than looking at Twitter and seeing what some kind of tweet is saying out there. What this is going to show you is 10 years where are the silvers hedgers actually at where are those people actually trading at right now. Now this is important. So what we're going to do is we're just going to show how this is constructed and this is exactly how it's constructed. Now this is Sentiment Trader. This has nothing to do with me. I have no affiliation with them whatsoever. I've talked to them before. They are fine with me showing this. So the green dotted line we're going to go over is one standard deviation over the three-year average and the red is one standard deviation below. Just think about a standard deviation as a 67% chance. So if you're above that, you're 67% right in that direction. If you're over that, you know, the the chances of you being there are that 33% roughly. All right, just think of it that way. It's easier. It gives you a baseline on where you should really be on where the meat of the move is. And what they're showing you is longs minus shorts, large commercial hedgers. Each week, CFTC releases information, long and short positions, three groups of traders, different markets, commitments of traders, coot determine the number of contracts they are holding. Commercial hedgers commonly believed to be the smart money. These trades are involved in the day-to-day operation of each commodity, have excellent handle on the underlying market, and pay for their potato positions when they reach an extreme. All right, so I think this is really important. The large pool funds almost always take the other side of the commercial traders. Their trend followers accumulate positions as a trend progress when the positions reach an extreme usually have a reversal. So what are we looking at? We're looking at the chart is showing the net number of contracts held by large commercial. So we're not looking for it to tell us that it's right or wrong or reverse. We're just looking to see what it is. In other words, we're looking at exactly what we're supposed to be looking at. We're not looking at it from a contrarian standpoint. And the way that they look at it is they're the smart money. When hedgers become net long to an extreme degree, the green dotted line, then we should be looking for price to rise. The opposite is true. When they become so hedged that their positions fall below the red line, look for it to decline.
Now, for us, why is this so important? It's so important because when we're really looking at it right now over these 10 years, what are the commercial hedgers doing? Do they think that silver's going a lot higher from here? They would know. They don't really feel that way. They're using the three-year average. This is where you're at. Do they think that you should be panicking? And are they dumping it? No. They're seem to be building a net position more than anything else. But at the end of the day, these commercial hedgers, they're in the middle of this as this is breaking out. 10-year highs, all-time highs back in the 80s, we're going to get squeezed forever. All this nonsense, they're just sitting right in the middle and just watching it all go by. They're not really doing much. And I think that's a very important distinction. And I think it's really important for us to pay attention to that. Now, when we zoom in here on the silver hedgers positions on one year, just so we're clear, you're you're about as middle of the road as you can possibly get. I just think it's a very important distinction for all the noise that we're hearing out there. This was December 23rd. It looks like that was the last time that we were there on the data side. And of course, you've had some movement since then. So maybe when we get the new data, which we will be getting at the end of this week, you maybe this does move a little bit, but it's obviously not going to be extreme when we see how this moves. So where are we here? And what do these people think? They think it's middle of the road. They don't really feel like they have to do a whole heck of a lot as far as hedging out their positions. And I think that's very important.
Now, we always are hearing about the physicality of gold and how hard this gold's going to be to get. And we always have the hyperbole versus what the truth is. And in front of us is the SLV. And so this is silver ounces actually held. Here's SLV. And these are the silver ounces actually held by the SLV. I just thought this was absolutely fascinating. So I went back all through history and it was actually during '21 where they had the biggest position because they can own synthetics. So the question is if they're not as concerned here as they are here, why is everybody else? Meaning if the people that actually track this are not as concerned as everybody was here, they were more concerned here about silver than they are here. The question really begs, is it because they can't get the silver? That's why they're doing the synthetic side of the trade right now. I have a hard time believing that. I really do. I have a hard time believing that. I think that what you're seeing here is the actual professional side of the market, the hedgers, the people that run the ETFs that are would have to be worried about the physicality of actually owning gold. They don't seem anywhere near as concerned on this super short squeeze trade as traders do, meaning either the retail side or the institutional side. But the people that are on the commercial side are actually running a physical gold or or rather physical silver ETF. They don't really seem overly concerned about it, nor do they seem overly concerned about the price. It seems to be us. And I'll explain what I mean by that.
So this is silver opx. And so the way to think about this is an optimistic index. How do people feel about it? They go through all these studies and surveys and they give you an understanding of where people are. This is 20 years on the silver market. and how do people feel about it right now? And I just thought this was really fascinating because if we look at where we're at with people and how people feel about it anytime you're above this level and we just kind of circle something like that or my little rectangle right here and sounds like a movie, my little rectangle. So then when we see how this is going, what are we seeing here? More than anything, if we just kind of block out every time that we see these areas, we're seeing the same thing over and over again. You're seeing a peak. Now whether that is the peak or whether it's 2 years later and there's another peak. Nevertheless, when you're up here, you're seeing that we're seeing that that is pretty much the high of the market. Now, just to dial this in just even more, when we go and look at this, here's the 10-year. And then if we go and just take a look at the 10-year, every single time that you were over this, and again, we're touching it here, but let's just zoom in on this 10-year so we can see it for ourselves. That was a little got a little aggressive there with the size of that one, didn't I? But again, what we'll do is we'll just take this whole area. It doesn't mean that you're definitely going to come down. But where I'm going with this is we're looking at this at what China is doing. We're looking at what the commercial hedgers are now doing. We're looking at this from the standpoint of the physical and what we're seeing happen on the exchanges. You know, where they're halting the exchanges. They're having physical issues. Maybe the commercial hedgers know how this game's going to be played out. Maybe the people that are running the silver ETF know how this game's going to be played out. And that's why they're not in a big hurry where retail and everybody else is pouring into this trade. And if I look at trading this over the past 3 days, there's been more money made shorting this and shorting silver and the other vehicles than there has on the long side. And it seems to be saying that commercial hedgers kind of feel that way that they don't have to participate on the long side. And the silver ETF certainly feels that way. Thought this would be a great time to look at smart money, dumb money. It's been a while since we've done this. Starting off in the beginning of the year, I think it just makes sense to do, as always, we do not
Refer to this as smart, and we do not refer to this as dumb. We like to refer to them very simply as institution and retail. And there's a reason for that. And the reason, frankly, is pretty simple.
Smart refers to the fact that institutions are always right, and that's just not going to be the case. But it does help us identify how these two different types of traders move. So, first and foremost, instead of smart, we just say institutional. Instead of dumb, we're just going to say retail. That's the way that we've been looking at this for years on this channel, and it makes a lot more sense.
Smart is calculated through institutional order flow. Dumb is calculated through retail order flow. Looking at it this way, once again, makes way more sense. Also, understand that institutional money moves slower. Dumb money, or retail, moves a lot faster. Think the tortoise and the hare. It makes way more sense this way.
Whenever you see massive investment by the smart money, or institutions, at those peaks, that does tend to lead to some kind of bottom, but it does depend on where you're at in regards to the retail. So, for example, if retail is fully invested, and then we're looking at institutions and they are not fully invested, you may find yourself near a peak. That is possible.
The issue comes into it if there's an event or some kind of news event that's going to trigger that. Because what can happen is something like this, where you peak over here on retail, and then institutions all of a sudden, what do they do? They roll over, right? So what happens once they roll over? Well, retail never sold. So if retail doesn't sell, institutions don't have anywhere to go. They are what? The tortoise. And retail is the hair. So retail tends to move very fast. Like good news. I've got some cardboard, and we're going to talk about winning and liberation, and everyone just went boo, and they sold down, and retail couldn't sell fast enough, and institutions could not buy as fast as retail wants to get out.
The other thing is too, they don't mind. They just rather watch retail panic. It's just better for them. They'll do better that way, just allowing it to panic. I think that's really important for people to get as well. They're not in a hurry.
And there are times again where smart is not always right, where here they are fully invested, and here is retail, and what is retail doing? Retail's like, "We don't want anything to do with that." Once again, fully invested retail's saying, "We don't want anything to do with that." Fully invested. Finally, we get to a point where, yeah, they want to get involved. And so at the same time as they're getting involved and fully invested, this time it finally worked. Then what happens? We start coming into that, and we start seeing buyers. That's a very different kind of scenario. And I just think it's really important for us to understand that. It's a very different kind of scenario because it's not one of these things where you're looking at this whole sector and saying, "Oh, they nailed this." No, they had to nail it three times before they caught it. Meanwhile, we have retail that was just staying out of the way.
So, it's best for us to not just assume that when smart money is buying and dumb money is selling that we have to get out of the way. We want to understand the magnitude of those. And there's a spread between these two draws that makes a lot of sense.
Here's a great example of this. The market in and of itself, if we take a look over here, and we're going to zoom in on this on a one-year in a second here, but if we look at this area, when retail was not selling, what was happening? We were going higher. Institutions were buying here and there, but when retail was not selling, we were fine. When retail panicked, that's when the issue came in.
So if we look at this, what we would really be wanting to see is when do we have some kind of institutional buying spree based upon a retail panic? That's really what you're looking for because that's going to be a much easier determining factor of whether or not the market's selling.
Now, the jaws here, I'll show what I mean by that. When they open up, in other words, when they flip in these areas, these flips are important because you have retail selling faster than institutions are buying. And that gives us an inflection point. So if we took that inflection point from here this year that happened during our liberation and winning of first quarter, and then we can see here when they paused the liberation and winning, and we can see what happened. But from those points, you're getting very different movements in the charts, aren't you? And I think that's an important distinction, and I definitely think it's worth us noting that distinction.
Why, why is it worth noting? Because if we note it, then we can do something with it. We can say, "Hey, this is important. When we see it again, we want to pay attention to it." So when we broke here in this area in November, we can see that right here. Retail is selling faster than institutions are buying. Retail is selling faster than institutions are buying. Another reason why we don't use smart money, dumb money, because it makes a lot more sense when you say it that way.
And then if you go here and go, "Retail is now buying faster than institutions are." Same thing here. What's important about this is, and I think it's important, same thing that happened here. Retail's buying faster, right? Retail's buying faster than institutions are selling, and then it changes. The jaws are what you're looking for. In other words, when they open up like this, this is exactly what you're looking for.
So, if we looked at it from when retail was buying and institutions were selling, if we looked at it from that standpoint, and the same way that we would look at it here, right? During that entire time, was there ever a time where you had to really worry about the market? Not really. So, we just opened up another one right here after flipping because that would have been the sell signal. This would have been the buy signal, right? They're buying more than they're selling. Retail is now selling more than they're buying. And they're pretty much the signal, right? Where this would be, institutions would be your baseline, and then retail would be the signal, if you think about it that way.
So, what do we have here? We just got a signal, right? So, what's happened to the market since we've gotten that signal? Well, we haven't dropped.
There's another way to look at this, and this is the smart money, dumb money, confidence spread. And I just did a year here just so we can get a sense of it. But the way that you should view this is every time that smart money and dumb money, and dumb money is moving faster than smart money can buy. So if dumb money is selling faster than smart money can buy, this is what's going to happen. You're going to get these spikes, and you can see them. And what these spikes do, and when they roll, they mark bottoms, and it's they're pretty effective at it. And that's really what you want to look for more than anything. It's these bottoms when they can't get in as much as retail wants to puke. So you look for the turns. You're going to get false positives all the time. You got a false positive here, but you weren't really above the green line, but you got a false positive here. And if you drew a line straight up, you can see that. And then, you know, and then we came up with some more cardboard, more winning, more liberation. Uh, and then here, now you're here, right? So when we look at it that way, we're seeing that.
So, do we have anything like this where we have massive selling right now versus what we recently just had? No, not even close. And so then what we would do is go, "All right, well, what happens when we're down in these areas?" And this again is super important because all we're doing is we're not telling it what it's going to do because that's just stupid. What we're doing is just looking at those areas and saying, "Well, geez, what happens in between these levels when this happens?"
So, if we went to here and go, "All right, well, what happened?" Well, we went higher until it what? Cracked over until it broke the dam, or the jaws closed. And you can see it over and over again. So, that one's drawn poorly, but you guys get it. You're still going up. All right. So, then you're in this area. You're cracking over. And then we'll go from here to here, and let's just take a look. Okay, so you did nothing but run until it starts getting out of hand.
Watching these and waiting to see what actually happens and trading what's in front of you, it makes so much sense versus us telling the market what it's going to do. And right now, the market's telling us that institutions are picking at the market and retail's not panicking. And I just think that this is the kind of stuff that you want to listen to. The same way we just looked at silver. Everyone's running around like a chicken with their head cut off. Silver's going up. It's going crazy. It's going to go to a million. You better get silver bars. And then what? The people that actually need the silver, the commercial hedgers, the ETFs, you're better off just trading what's in front of you. And smart money, dumb money, looking at the spread, looking at the silver and the commercial hedgers. That tells you what's actually going on versus all the hyperbole. And right now, you have net buyers in the market on the institutional side, and we don't have retail panic. Now, could something happen to change that? Yes. But for now, we have to play the hand that we're dealt.
Now, as we're looking at what smart money, dumb money is doing, as we're looking at what they're really doing in the silver market, we can then look at all that data that we just went over with the rate of change and everything and look at what's going on in the market and go from there. So, what we've done here is we've done a top-down analysis of the market. We've looked at the indexes and we looked at their positioning. We've looked at sectors that are actually driving the market. And now you dive into stocks. Everything I do is top-down, and everything is index, sector, stock, and then everything is macro, fundamental, and technical, and then I overlay all that, and then that's where I make my decisions from. I have found that this works best for me. You should do what you're comfortable with.
So on Friday, you can see that PLTR absolutely imploded. There were signs that they were not hedging this and they were going to use the tax harvesting on Friday. So what we did was we actually bought some spec puts at 75 for 050. And I just want to show you this because this is the kind of thing that you're able to do in a market like that. The image is too large on that one. I'll have to blow it up to show it. So what I'm doing off the open because we knew this coming into Wednesday that there was a high degree, not that we knew, but we had a high degree of probability of this. So then what we're doing, and we shorted silver too, because that was pretty obvious. I think it should have been obvious to everybody. Um, but what we're doing is we're trimming the puts into the drop. So I bought the 175 puts as a spec trade. Um, and that's all it really was. And then when it's dropping, I'm trimming into it. But we were able to, let me click it this way. Maybe I'll just open up here. Here it is. So, by the end of the day, around 2:00, you know, we're up 1500% in those puts. It was ridiculous. And you're getting those opportunities now because you're seeing a change in trend. You can determine those change of trends by using those four horsemen and looking at that rate of change.
So, in the community, what we're doing is we're actually looking for what is actually happening, not what we want to have happen. Meaning, everyone's looking at it as, "Oh, this is great. These names are exploding." And I'm not saying not to day trade them. That's far, far from it. Go to town. But understand that a lot of these moves were because people were unwinding hedges on large winning positions. And when you start to see that, that is a completely different game than institutions throwing money to work.
There are some names here to me that make a lot of sense. I'll cover some of them when we do the strength report on Wednesday. As I stated, you're going to see more formal reports out of this channel this year. So, you want to make sure you subscribe and click all notifications. Um, but I'll do that on Wednesday. But some of the stuff that's going on, you need to be aware of ahead of this. So, when we see something like have these moves, yeah, it can 100% continue to go up, but you need to understand the mechanisms behind them.
So when you see things like Rocket Labs at the same time explode to the upside, right, like after being down, the question is, well, why? Why did they feel that? Because they're unwinding the positions. This is super important to get because you saw outsized moves, meaning you saw outsized moves in Micron on these days, and these were great trading vehicles. But when you're looking at these names, you never know how this is going to go. But as they sell the puts, the option market makers have to go into the market. They have to hedge those puts that are being sold to them. And that's why these names are moving the way that they are. It doesn't mean that they can't continue. You'll see this with Taiwan Semi as well, where this is breaking out. And I think a lot of that also has to do with something else that we'll talk about here in a second. But when you're starting to see these kinds of breakouts and everyone's getting all excited about it, and I'm not saying to not get excited about them. I'm saying understand why they did what they did on Friday. This was not institutions going, "I have to own. I have to own." This is a lot of unwinding of 2025 positions, and that unwinding is causing these extreme moves. This happens every single year. So you'll see it in like SanDisk as well. And again, I want to be really clear about this. It's not that they can't continue. It's up to us to determine what's really going on out there, right? We have to make that decision. But you don't want to base one thing on the stool, the technicals, off of what happened because of what happened in the option market as people unwound their hedges. Meaning instead of people selling the stock this day, what they're doing, because they killed it this year, what they're doing is they're unwinding the puts, holding the stock, and by selling those puts, it's driving the option market makers to hedge that amount of delta that was set to them. I could do a whole video on it, but the important thing is to understand that.
And so when we take a step back and we look at this, yeah, you had absolute monster moves in a very short breath market that were a lot of fun to trade, and people did exceptionally well with that. Does that mean that these things are just going to continue to explode to the upside? No, it does not. Does that mean that they can't explode to the upside? No, it does not. They 100% could follow through. It's up to us to make those decisions. But there are clear signs in the market that there are issues.
So when we look at something like an Nvidia that, in my opinion, really shouldn't have been up on any news out of China, and when I look at something like this, we're seeing that we're still holding above that 55 for now, and the 12 and the 22 are lifting. But what we saw on Friday was BYD come out and say, "We're spinning off, we're going to spin off an AI semiconductor company, and they're going to go public with it." Now, as people start realizing this over the weekend that the only way they're ever going to get access to this thing is by owning BYD, that's going to go higher. But people are missing the part of this that what you're starting to see come out of China is China saying, "Oh, sure, you can buy the H200, but we want to be using our own technology."
So, the question that really, and this is what where I'm going with this, so the question really that you have to answer is, are the memory names, are the storage names going up? Because you can see that with Western Digital too. Are these names actually going up because of increased demand? Because now BYD is just going to explode, meaning BYD is going to go out there and say, "We have these chips, and everyone in China can buy these chips, and this is our public AI semiconductor company." Whether or not it's as good as Nvidia or not, I'm not going down that rabbit hole right now. But I'm saying that that could be driving demand on the memory and storage side. That could be driving capacity utilization with Taiwan Semi, right? You connect the dots. But what people are missing are a couple key things that happen. And so when we're looking at that, we have to understand that Nvidia has real competition now by a local competitor. And China's going to want the local competitor, and they're going to drive money into that local competitor. And I think that also might go in the Taiwan Semiconductor and some other things. But let's connect the dots.
The other thing we have to realize is what happened on Friday. This was probably the easiest short out there. And when Tesla came out, it wasn't the fact of how bad their deliveries were. It's the fact that they are no longer the number one EV car maker in the world. It's now that company, BYD. They surpassed them. I know people will say, "Well, you don't understand space robots." No, I got it. Space robots. Cool. How many cars are in Austin right now that are driving 24/7, 365? I think he tries to say there's five of them. I don't see one that's actually doing it, but let's say he's got five. Waymo has 2750 running through different cities, but he might have five that go through like, like four circles or four blocks in Austin. Maybe. Maybe. Right. Okay. So, you're not winning that game, right? You have a China company that is crushing you now, and they are number one, and you are number two. If you think that doesn't matter, ask Intel when AMD became the number one chip PC maker. This time it's different. I know all the Tesla heads are going to come out and tell me why it's different. It's not different, right? You need to start looking at this and understanding that you're starting to see a shift in technology where people are using different companies. And there's not really a lot you can do here with it, guys, because this is that name of that company, right? So, there's not a whole heck of a lot you're going to be able to do here. I don't know that I want to trade this thing. But you need to understand that this is a really big deal for Tesla to lose the number one spot in an industry it pretty much created. No different than when Intel created the chip, the, you know, the 386 and the 486 that was going into a PC. It's no different. So, you're being surpassed. If you think that that's not going to matter to the NASDAQ, if you think that's not going to matter to the S&P, you're delusional because it's a very large percentage.
So, you start looking at this and realizing, okay, we're really starting to crack here. They're really starting to drop a lot of volume on this thing. This isn't good. And it's not good. I get it. People are probably going to buy the stock because of everything else he's doing, the space robots, and, you know, their affinity for these four blocks in Austin where this car goes around in circles. I get it. And I'm not knocking that, you know, the fanboys are just going to just love it. I'm not saying any of that. But you have a fundamental shift here, right? The same people that thought looked at Intel and were like, "Well, AMD is never going to surpass them." Like, it's never going to happen, right? Like those people when you look at this chart, how's that going? Not very well, right? When you then look at something like an AMD, okay, it's it happens. Technology companies get surpassed. And you need to pay attention to that. No different than AltaVista or when Google took over Yahoo, right? It's it literally to me is no different. I'm going to hear a bunch of crap on this. I know it, but it just isn't. And, you know, maybe they'll make it up in other spaces. You have those kinds of cracks going on, and we have to pay attention to that. You have Nvidia that has competition right now that, and I'm really surprised the stock was up on this. I truly am.
So then you're seeing where companies like BYD, this is going to get a lot of attention, I think, over the weekend and over the weeks to come as they start to spin this off and people start understanding what the company does, and that could be feeding the memory side. But let's just look at what we really had on Friday. So all I'm going to do is something really simple. We're going to just look at a 55-day moving average, and we're going to look at the fact that Meta broke the 55-day, and then we're going to take a look at Microsoft. All right. And Microsoft's got a declining 55, and we broke down on that day. I think that if you're not looking at this from a larger standpoint, there's Apple trying to hold its, say it with me, 55-day. If you're not looking at this, and just that basic, just that basic, and looking at the big names out there that are huge percentages of the S&P, let's close this all off. If you're not looking at this and how they're just barely hanging on, this broke its put wall, it's a real problem out there. And I would strongly suggest that you watch the next couple days and how this plays out versus running into it. I think there's a bunch of names out there that are story names that make a lot of sense, and I would focus on those, and I'll cover some this week. But this kind of thing, I think you need to be really careful until you see which way this is actually going to turn because right now, when we look at the market and we look at these leading names, they're showing tons and tons of cracks. And we're not seeing this massive rotation, right? People are all excited because we didn't fall out of bed for one day in IWM. But I'm wondering if we're going to start seeing more rotation into other areas. Meaning, do you start seeing rotation into XLV? Do you start seeing rotation into Poland, right, which just happened to break out on Friday? So there's a lot of different pockets out there where capital can.