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. Good morning: I had to get the link out for the show… But here is the rest of our morning analysis… Good morning: We come in under a caution flag this morning. Not quite red yet, but getting close. Oil is up again on fresh strikes in the Gulf. Futures are red, and energy is the only thing popping in premarket.
The cap weight is holding on by a thread at plus 9 on the S&P. The equal weight is underwater, with 13 stocks breaking out against 50 breaking down. The breakouts are a mix of consumer defensives, tech and energy. CF and Mosaic represent the materials space.
The oil situation continues to weigh on everything. Brent is through $100 for the first time since July after the US destroyed five Iranian tankers. Iran was also targeting US bases in Jordan with a heavy barrage of ballistic missiles. Things have not improved with the Hormuz situation. That keeps the pressure on yields. We’ve marked 4.75 on the 10-year as our trouble line. We’re at about 4.81 this morning and look to be headed higher.
Today is the day Scott Bessent’s buybacks on the long end get announced. He’s already expected to be upping the total. Some are saying it could be north of $10 billion an operation. This comes after announcing they doubled it from 2 to 4 billion. A lot of moving targets. The goalposts are getting moved daily. This is coming as the Japanese are expected to hike to 1.25% next week. That causes capital flight as the BOJ and traders sell US debt to bring their yen back home now that yields are rising there. This is what Bessent wanted. He’s been urging the Japanese to get it over with and stop kicking the can. Now he’s tasked with keeping everything orderly. You make the long end liquid, and then folks can come buy the short end and markets can keep going. We’re in a tough spot because you have a market that sees the writing on the wall and a Treasury Secretary daring it to bet against him. Literally saying, “I am the house now. Bet against me if you want.” The Treasury has also started running cash-management buybacks at the short end. The attempts to plug holes in the boat have begun. That money will wind up somewhere, ultimately costing us all more in the long run for just about everything. The dollar is down overnight, sitting at a four-month low. Probably a good day to touch up on our six rules of negative momentum. We could tip into the red at any point and be there for an extended period. It’s always important to remember rule number one is to build a cash pile. When things are under pressure, you make a list and start raising cash. If you’re up on anything, take profits. Sell calls against names you’re up on and generate some extra income. The big thing right now is being careful selling puts. We’re not fully red yet. We’re still dancing by the door waiting to see if the party’s over. We get to these spots where we’re right on the doorstep of red, and then it all turns around, and we keep going higher. If this is a red switch, we don’t want to be selling puts because we have no idea where the floor is. We’d be entering a new period of price discovery. You don’t want to be the guy or gal betting things won’t go lower and then having to take the stock. So wait until things get oversold, trading under an RSI of 30 and an MFI of 20, before we consider selling put spreads. And we only do so on names we’d love to own if given the chance. That’s the best way to trade this market. Be patient and wait for your price, then pounce. That said, looking across the board this morning, the FAZ continues higher. That’s the rate situation pressuring financials. We’re still about 3.3% below the 50-day. We chopped around those levels back in May. The last time we really popped over it with authority was at the start of the year. The financial sector went under pressure February into March, and the KRE fell about 15%. The KRE is breaking under its moving averages now. It looks like it could be headed back toward the 200-day. If you’re looking for a trade, IVR is 10 on the KRE, so you can just buy a put and take aim at that 200-day with the FAZ breaking out. If the FAZ rolls back under its 20-day, you’re out. At that point the KRE would be breaking back above its own 20-day.
Very simple, clean idea built around our warning indicators. If you want additional firepower, the DPST is the leveraged fund. It’s sitting in the same spot, just under its 8-day, holding on for dear life.
Energy obviously is continuing. We’re starting to see a little lift in commodities this morning as I’m preparing this, probably due to the weaker dollar. With oil continuing its run, look at JETS. We’re right at that 200-day. Nothing good happens under that line. We’re pretty stretched on this oil trade. I wouldn’t be surprised if something comes soon that takes the pressure off, news of a negotiation or something along those lines. But OILU isn’t overbought on the daily or the hourly, so there’s still room to move higher. If that continues, names like CCL and the cruise lines stay under pressure. Of all those trades, I like the setup on JETS the most, given where it’s sitting in the move. You have a very clean, defined trade. Breaking below that 200-day you put on the trade, which is where we are this morning. If we get back above the 8-day, you stop out.
One stock to put on the watchlist today. We’ve talked a little about AI optics lately. Lumentum (LITE) is attempting to get back to 1,000. It’s one of the tech hardware names getting a lift lately. IVR is elevated. The stock has had an unbelievable run, up more than 500% in a year. It reminds me of Bloom Energy, which moved from around $25 last summer to over $270 today. Lumentum is getting a lot of interest. Nvidia put 2 billion dollars into the company with multi-year purchase commitments. That is where a lot of the capex spend is going. It’s why most mornings you come in and see this group getting a bid. Not today, it’s down 1%.
We don’t want to chase this. We’d like to see it pull back to test that 50-day, and then look to sell put spreads. Wait for it to pull back under that 50, then try to get under 800, as low as you can go. Not a lot else is set up on the board this morning. A lot of names have been coming off. We’ve thinned out considerably. Towards the top of our Conviction Engine, ONEOK (OKE) keeps grinding higher. It’s a natural gas midstream name. It raised its outlook twice this year with analysts lifting targets behind it. We’re starting to look at gas stockpiles in Europe heading into winter. This is an interesting name for that trade.
We like to use the OILU to time entries and exits in this space. At this point we’re waiting for it to get overbought and go the other way, setting up a short-term trade to the downside that ultimately sets back up a long. I’d be careful chasing anything upstream. The refiners are a different story. Crack spreads and diesel prices are moving higher. That’s driving names like DINO, VLO and PBF. PBF Energy (PBF) is the one I’d look to trade. The rules of negative momentum apply to the broader market, but energy momentum is very strong right now. So you can consider selling a spread. I’d want to be under $60. Wait for a little pullback and start playing with the numbers. The option chain isn’t very liquid, so you’ll have to be patient. Selling the 60 on yesterday’s numbers would have been an 85% probability of profit with a 14% return. Get the price to come back some and those numbers get better.
Under 60, I think you have support even if we see peace negotiations with Iran. -G- 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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