From Keith Harwood, OptionHotline.com
This market is crazy, right? It’s completely irrational, and it’s incomprehensible that the NASDAQ 100 has lost over 1/3rd of its value this year.
Okay, maybe not. We all knew that stocks were getting overinflated due to FOMC policy, and the years of near 0% interest rates. But then inflation became more than just transient, and the FOMC had to act, and they had to act fast.
So, stocks started to go down, lead by the prior market leader that benefitted greatly from low interest rates for years: tech.
But, last week, oil companies got crushed. The RSI in OIH fell below 30. How does that seem logical with oil prices making highs on an almost daily basis (well, until the pullback last week, at least)?
As you can see, OIH took a major hit, while USO only took a relatively minor hit. So, maybe we’re starting to see signs that people are selling everything, not just the stuff that needed to be repriced lower. That’s traditionally a good sign that we are approaching a bottom, as we see investors throwing the proverbial baby out with the bathwater.
In this case, I’m focused on what the market and the FOMC are reacting to: inflation. And, if there’s a market parameter that can be an input to a fundamental model, there’s an ETF for that. And there are a couple of ETFs that are supposed to perform well when inflation is high. So, let’s look at how one of them is doing, with the ETF INFL:
Now, from the Horizon Kinetics site for this ETF (Horizon Kinetics are the managers of this ETF), we know the following as the purpose of this ETF:
The Horizon Kinetics Inflation Beneficiaries ETF is an actively managed ETF that seeks long-term growth of capital in real (inflation-adjusted) terms. It seeks to achieve its investment objective by investing primarily in domestic and foreign equity securities of companies that are expected to benefit, either directly or indirectly, from rising prices of real assets (i.e., assets whose value is mainly derived from physical properties such as commodities) such as those whose revenues are expected to increase with inflation without corresponding increases in expenses.
It certainly doesn’t seem like that’s the case right now, does it? The ETF is at lows and is down about 5% on the year – which is certainly better than tech, but not doing as well as I would have expected. And even more concerning, the ETF is down about 15% in the last 2 months. Is this the baby getting thrown out with the bathwater?
Perhaps this is that sign that we are selling everything irrationally, and maybe that means I can start to look for my signs of a bottom to confirm and let me enter a trade for a reversal of the trend. But, since markets can stay irrational longer than most of us can stay solvent, I’ll be waiting for those signs to increase my confidence.
If you’d like to learn more, please go to https://optionhotline.com to review how I traditionally apply technical signals and probability analysis to my options trades. As always, if you have any questions, never hesitate to reach out.
See Related Articles on TradeWinsDaily.com
Auto-trading, or any broker or advisor-directed type of trading, is not supported or endorsed by TradeWins. For additional information on auto-trading, you may visit the SEC’s website: All About Auto-Trading, https://www.sec.gov/
TradeWins does not recommend or refer subscribers to broker-dealers. You should perform your own due diligence with respect to satisfactory broker-dealers and whether to open a brokerage account. You should always consult with your own professional advisers regarding equities and options on equities trading.
1. The information provided by the newsletters, trading, training and educational products related to various markets (collectively referred to as the “Services”) is not customized or personalized to any particular risk profile or tolerance. Nor is the information published by TradeWins Publishing (“TradeWins”) a customized or personalized recommendation to buy, sell, hold, or invest in particular financial products. The Services are intended to supplement your own research and analysis.
2. TradeWins’ Services are not a solicitation or offer to buy or sell any financial products, and the Services are not intended to provide money management advice or services.
3. Past performance is not necessarily indicative of future results. Trading and investing involve substantial risk. Trading on margin carries a high level of risk, and may not be suitable for all investors. Other than the refund policy detailed elsewhere, TradeWins does not make any guarantee or other promise as to any results that may be obtained from using the Services. No person subscribing for the Services (“Subscriber”) should make any investment decision without first consulting his or her own personal financial adviser, broker or consultant. TradeWins disclaims any and all liability in the event anything contained in the Services proves to be inaccurate, incomplete or unreliable, or results in any investment or other loss by a Subscriber.
4. You should trade or invest only “risk capital” money you can afford to lose. Trading stocks and stock options involves high risk and you can lose the entire principal amount invested or more.
5. All investments carry risk and all trading decisions made by a person remain the responsibility of that person. There is no guarantee that systems, indicators, or trading signals will result in profits or that they will not produce losses. Subscribers should fully understand all risks associated with any kind of trading or investing before engaging in such activities.
6. Some profit examples are based on hypothetical or simulated trading. This means the trades are not actual trades and instead are hypothetical trades based on real market prices at the time the recommendation is disseminated. No actual money is invested, nor are any trades executed. Hypothetical or simulated performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. Also, the hypothetical results do not include the costs of subscriptions, commissions, or other fees. Because the trades underlying these examples have not actually been executed, the results may understate or overstate the impact of certain market factors, such as lack of liquidity. Simulated trading services in general are also designed with the benefit of hindsight, which may not be relevant to actual trading. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. TradeWins makes no representations or warranties that any account will or is likely to achieve profits similar to those shown.
7. No representation is being made that you will achieve profits or the same results as any person providing testimonial. No representation is being made that any person providing a testimonial is likely to continue to experience profitable trading after the date on which the testimonial was provided, and in fact the person providing the testimonial may have experienced losses.
8. The author experiences are not typical. The author is an experienced investor and your results will vary depending on risk tolerance, amount of risk capital utilized, size of trading position and other factors. Certain Subscribers may modify the author methods, or modify or ignore the rules or risk parameters, and any such actions are taken entirely at the Subscriber’s own election and for the Subscriber’s own risk.