You are a free subscriber to Me and the Money Printer. To upgrade to paid and receive the daily Capital Wave Report - which features our Red-Green market signals, subscribe here. A Friday Update—Intraday Weakness... What Comes Next?This is one of the most complicated things in the world... let's try to simplify it.
Good morning: I’ve got about a 30-minute window this morning before I head off to do some investigative work. But I wanted to take a minute to walk you through a few critical things around momentum in this market. Our intraday signal has turned negative… But that isn’t a sign of a robust selloff. Note that the intraday signal is DIFFERENT from the broader signal we use on daily charts. This is just an early warning before the confirmation. It is a cooling of the strong momentum that we’ve seen over the last month. This chart is the S&P 500 SPDR ETF (SPY). I am looking at the one-hour chart… You can see a move below the adjusted 20-day and 50-day moving averages.
Today, we are seeing a lot of capital move to the sidelines. The poor man’s reading of momentum—stocks in certain breakout conditions versus breakdown conditions - without focusing on individual sector coefficients—reveals stagnation in the market. Just seven stocks are in the breakout mode… It is largely focused on rotation to energy, and my favorite energy momentum name to trade in APA Corporation (APA) has already pulled back from today’s spike to $21.00.
This premarket pop is giving way to profit-taking. Meanwhile, on the other hand, we have 12 stocks in the breakdown mode… And many of them are in stocks that were previously strong breakout candidates, like Delta (DAL).
Airline stocks had previously benefited from the narrative of “cheap oil prices…” But that momentum has broken for now… In fact, consumer cyclical stocks are now in a negative environment… The Triple Leveraged ETF on Consumer Discretionary Stocks (WANT) is now under its 20-day EMA and 50-day EMA. Naturally, Carnival Cruise Lines is down 5%—and that’s a pure cyclical momentum name.
See those breaks under the blue and orange lines… that’s where selling can accelerate across that sector in an algo-driven environment. Consumer discretionary stocks have a very high momentum feature to them. They throttle around fast. There’s just an issue… in trying to short just yet… Broader market momentum. Well, that’s where we have to look at the leverage for confirmation when our intraday signal goes negative….
We’re still holding above the 20-day and 50-day moving averages. Keep a very close eye on those levels. This market could break down fast under those levels. But I don’t make that bet yet… Next, we have to watch the FNGD… Remember, nothing good happens in the stock market when this breaks above its 20-day and 50-day moving averages.
The spike to the far left was the Nikkei crash in 2024. The most recent spike was our liquidity drain in February followed by the trade collapse in April. And finally… This is why I’m struggling to short anything… We are starting to see some broader fear and profit taking from a momentum perspective. But from the concept of creating capital and creating liquidity… there is still a lot of FISCAL support in these markets. This morning, Michael Howell at Capital Wars warned about weakness in banking reserves later this year. And noted that the Treasury Department is working overtime to prioritize capital support. This is interesting because it suggests that they are prioritizing the safety of the system itself, regardless of inflation. This creates the natural fear of stagflation… and keeps our focus again on gold, silver, and the Hedge of Tomorrow assets (capital-efficient companies and capital-efficient assets) that act as a hedge against inflation and a source of wealth preservation. There are times when momentum and liquidity get out of whack, and now appears to be one of those times. Even if we have a move into negative momentum soon, I think that it won’t be very long-lasting because of the commitment to support the system, and ensure there is ample capital in the system. (Of course, there is a scenario of fear around events in Iran, but we’ll cross that bridge if that scenario unfolds). So - this won’t be a “move to cash” environment if we get a negative signal. Instead, it would be one where investors should do a few things. First… selling calls on long-term positions to generate income and hedge against any short-term decline. Second, hedging against existing positions. Instead of selling, consider looking toward buying puts against various positions if they exhibit a shift in their sector to negative momentum. Cyclicals are a good example right now. I stress that this is a very difficult time for markets. There will be challenges in the next few months, especially as we try to stabilize reserves and ensure that the system's plumbing doesn’t clog. I don’t want you to panic if this signal goes red this time. But I will stress that there will be a buy-the-dip moment soon because of the disconnect between stalling momentum (and even negative momentum) and the broader backstop of Treasury activity to sell short-term T-bills, ramp up credit, and exploit leverage. That last point is critical. There may soon be a lot of selling. I assume this round will see a reduction in leverage and risk, and less panic selling like we saw in April. I’ll circle back over the weekend. And I’ll really break down everything you just read… because this is like drinking from a fire hose. But for now… Stay positive, Garrett Baldwin About Me and the Money Printer Me and the Money Printer is a daily publication covering the financial markets through three critical equations. We track liquidity (money in the financial system), momentum (where money is moving in the system), and insider buying (where Smart Money at companies is moving their money). Combining these elements with a deep understanding of central banking and how the global system works has allowed us to navigate financial cycles and boost our probability of success as investors and traders. This insight is based on roughly 17 years of intensive academic work at four universities, extensive collaboration with market experts, and the joy of trial and error in research. You can take a free look at our worldview and thesis right here. Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.
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