LookIng At Market Structure For The Week Ahead - Keep These Stocks On Watch
Tim Quast, Founder/CEO, ModernIR and Market Structure Edge
#1 Morning Stock Show To Get You Ready For The Stock Market Open, PreMarket Gainers, Earnings This Week, Economic Data & More!
Benzinga PreMarket Prep 8:00AM ET- 9:00AM ET BenzingaTV on YouTube
#1 Morning Stock Show To Get You Ready For The Stock Market Open, PreMarket Gainers, Earnings This Week, Economic Data & More!
Benzinga PreMarket Prep 8:00AM ET- 9:00AM ET BenzingaTV on YouTube
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NewsTranscript
00:00 Let's look at what you're seeing in the data
00:02 for this next coming week here,
00:04 because we bring you on early Monday morning
00:07 before the Monday morning actual trade starts
00:09 to get a feel for how this week is looking.
00:12 So bring up the data,
00:14 talk to us about what's gonna happen
00:15 and what you see potentially happening this week.
00:19 - Okay.
00:19 - Yeah, I love market structure edge.
00:21 To me, it's like kind of like when you watch in poker
00:23 and then you see the percentages on the side,
00:26 it's like knowing the other people's hands, right?
00:29 Let's take a look.
00:30 What is it showing Tim?
00:31 - That is exactly the way I think about it, Mitch.
00:33 This is what I--
00:35 - No, stop, stop.
00:37 I'm looking at the top left corner.
00:39 - Right.
00:40 - No companies in the momentum.
00:42 I've never seen that since you've been coming on the show.
00:44 I've never seen not even one company.
00:48 Not even one company in the momentum filter.
00:51 - There is not a single stock in the momentum portfolio.
00:56 - Oh my gosh, this is not a...
00:58 If you ever thought we were in a contrarian market
01:01 and not in a momentum market,
01:02 here's the data for your proof.
01:04 This is not a market to chase stocks.
01:06 And when there's no stocks in the momentum filter,
01:09 don't go chasing stocks, man.
01:12 Stop the momentum strategies.
01:14 There's none to be had.
01:16 - None, none, no.
01:18 - Dennis is deleting all his momentum strategies
01:20 from his database.
01:21 - Yeah, momentum is completely on hold
01:23 until Tim Cross comes back on next Monday
01:25 and tells us there's a hundred stocks
01:26 in momentum portfolio.
01:27 - Right.
01:28 - Wow.
01:29 When's the last time there was none in there?
01:31 - In March.
01:35 - March.
01:35 - Back in March, there were none.
01:38 During the bank financial crisis.
01:41 The bank crisis, I guess that's redundant.
01:43 So we had a couple of days where we hit none back then too.
01:48 So, right.
01:50 And again, it's a statistic, but, you know,
01:54 traders, if you have something that says,
01:57 well, don't chase momentum, you might get lucky
02:00 and something does well that you're watching,
02:02 but the probabilities are stacked against you.
02:05 And so, you know, you don't take risks
02:09 that aren't justified by probabilities.
02:11 I would look at this and say, zero here,
02:13 18 in here led by healthcare.
02:16 If I'm gonna trade something,
02:18 I'm probably gonna trade low volatility healthcare,
02:21 like Cigna.
02:22 Cigna is the most volatile stock
02:25 in the low volatility portfolio at 2.2%.
02:28 Well, so there's an opportunity.
02:30 If Cigna is down a little bit today,
02:33 it's a great opportunity to produce a one to 2% return
02:37 in let's say three days, maybe right into the Fed meeting.
02:41 So here's what we're looking at.
02:43 Very stable supply and demand
02:46 and supply has dropped sharply one, two, three,
02:49 four days down.
02:50 Well, there's a probability that you get a gain in that,
02:55 but what this data is telling you
02:58 is that big institutional money that has all the inputs,
03:01 all the global macro inputs is saying,
03:04 we need to cluster in large stable stocks.
03:07 Okay, well, let's follow that.
03:09 And maybe there's some opportunity to pick up small gains.
03:13 This isn't gonna be, you know,
03:14 trading Roblox or GitLab or stuff that will move four,
03:19 five, 6%.
03:21 That trade is over for the moment.
03:23 Now, when it's back, we can pursue that.
03:25 But right now, this is what the data would indicate.
03:28 - Where should we go looking underneath the hood?
03:33 - Well, there's one.
03:35 You know, if I have a Benzema September 18 portfolio,
03:40 look at this, 4.8.
03:43 It's not even 5.0.
03:45 Demand in the market is not enough to sustain prices.
03:49 So at 5.0 on a 10 point scale,
03:51 it means there's roughly balanced buying and selling.
03:54 So then prices will be driven by supply fluctuations.
03:58 At 4.8, I don't know what happens today.
04:01 New options are trading today
04:02 and it can distort the outcome.
04:03 But statistically, you would say,
04:05 well, the market continues to have a downside bias.
04:08 Here's the Benzema September 18 portfolio.
04:13 Only I just put four stocks in here,
04:15 led by fast traders, machines
04:17 with an investment horizon of a day or less.
04:19 Healthcare is the leading category.
04:21 Notice that demand's very level, supply's falling.
04:24 That's what you're looking for right now
04:26 if you're gonna be long.
04:28 - What's in there?
04:29 - I'm still tempted to be short the market
04:32 because of these conditions.
04:33 But there you go, PXD in energy.
04:35 Very nice, big stable stock.
04:37 Opportunity to produce a modest gain.
04:40 Its volatility is only 2%.
04:43 So for instance, if it were,
04:44 if it starts out flat and you have a chance
04:47 to buy that stock and maybe make 1%.
04:50 But if you do make 1%, take the gain.
04:52 Just be happy with that.
04:54 AirCap, they're a supplier to the airline industry.
04:58 2.2% volatility, it's the smallest of the group.
05:01 Here's Cigna, 2.2% volatility.
05:04 So you're only after about half that
05:06 because machines will give you half of it, roughly.
05:09 And so what I prefer to do,
05:12 it doesn't always work out this way,
05:13 is if they're down, one of those is down
05:16 half its volatility today, I probably buy that.
05:19 Because in the next two days,
05:21 the probability that it regains that half of the volatility
05:24 is very high statistically.
05:27 There's a 75% chance of it, still 25% risk.
05:31 But that's what I'm willing to take.
05:33 So AstraZeneca would round us out there.
05:35 So that's, to me, what you look at.
05:38 And otherwise, be very, very careful here.
05:41 There are a lot of tectonically shifting going on here
05:45 as we finish off September options explorations.
05:48 - All right, so let's do a little bit
05:51 of something special for you guys.
05:53 You guys smash the like button here.
05:55 We're gonna do a little bit of some ticker time
05:57 with Tim Quast also joining us.
06:00 So you guys in the chat, drop some tickers.
06:03 We can take a look at a market structure edge.
06:05 Joel can make a technical comment
06:07 and then Dennis and I will try to add on some story.
06:10 How's that outlook there?
06:12 You guys got the best of all worlds here.
06:15 So let's get after it.
06:16 You guys drop some tickers. - I'm gonna get
06:16 the first ticker.
06:18 One, I don't know if you have in your sentiment.
06:20 Do you have arm holdings in there yet or not yet?
06:22 - Probably not.
06:25 - It's only two days or three days of data.
06:28 - It should be in there.
06:29 It'll be in there sometime today.
06:31 I've talked to our chief data engineer over the weekend,
06:34 said there are two to add.
06:36 But we need a minimum of two days
06:39 just for it to manifest.
06:42 And really we like 10 days to look at patterns.
06:46 So I can't quite do it yet.
06:48 - Let's do NVIDIA to start then.
06:50 Let's do NVIDIA.
06:51 - You're reading my mind, Triple D.
06:53 - The chat wants to hear more.
06:54 We talked NVIDIA bit off the hop.
06:56 We're concerned about the breakdown through 450,
06:59 but let's look in the data and see what the data says.
07:02 - Right.
07:02 So the time to buy NVIDIA to me particularly,
07:07 it's right when it hits 10 and supply declines.
07:11 So that's where you can get your gains.
07:14 And the moment supply starts to rise or demand falls,
07:17 you're not gonna capture it perfectly.
07:19 That's the time to leave.
07:20 And right now it's one and supply is 52%.
07:24 I would prefer to see those things reverse.
07:27 And it's a great illustration of how,
07:29 everybody on the planet in some form or fashion,
07:34 I'm overstating it, but owns NVIDIA.
07:37 'Cause it's one of the most liquid,
07:39 largest stocks in the US equity market.
07:44 But you can't beat the market
07:48 by owning stuff somebody else doesn't.
07:50 You just have to own it at different times.
07:52 And so here's your key.
07:54 Don't own it when demand is falling and supply is rising.
07:57 Just park your money where you're earning 4 1/2% in cash
08:01 and then buy it when demand rises and supply falls.
08:04 And if you do that,
08:05 you will consistently outperform your competitors.
08:08 - So demand is at one right now.
08:10 Do you start buying when it starts to go to two, three,
08:13 or do you wait until it still gets up to five?
08:15 - NVIDIA you can buy as soon as demand rises.
08:18 I mean, if you want the absolute best probabilities
08:21 of producing a return,
08:23 when a stock like NVIDIA, which is a momentum stock,
08:26 hits 10 and supply ticks down like it did right here,
08:30 the probability of producing a return within three days
08:33 is nearly 100%.
08:36 Now, that means you still could go wrong.
08:39 If there are other things going on,
08:41 options expiring, if they report earnings,
08:44 if there's some kind of major Fed decision,
08:46 those things can affect those outcomes.
08:47 But that is statistically optimal.
08:51 You're very high probability,
08:53 but you could buy it on the uptick in demand,
08:55 particularly if supply doesn't move.
08:57 Demand rises, supply does not, price is gonna move.
09:00 It's just a basic economic principle.
09:02 - What do you see on the technical side, Joel?
09:05 - I don't think, regardless of supply and demand,
09:09 I don't think there's anything that could get me,
09:12 there's nothing technically telling me to buy this stock.
09:15 And the reason I'm saying that, nothing in here.
09:20 Number two, I mean, look at all these green monthly candles.
09:25 I mean, come on.
09:25 - That's a nice thing to focus on.
09:27 - Yup, and then now you're gonna get a red monthly candle.
09:31 I mean, unless something really changes.
09:33 Here, you had a red candle, you had another red candle,
09:36 then another red candle, and then you had three out of four.
09:39 So if I had to pick, to me, if I was long,
09:44 I'd be hoping, oh, 450 is gonna be major resistance,
09:48 but that's 20 bucks away.
09:51 But that, yeah, 400,
09:52 it looks like this thing has a date with 400.
09:55 - Richard Williams wants to take a look at Pfizer.
09:58 What about Pfizer?
10:00 That's an interesting one to maybe take a look at.
10:02 I'll go to you first, Tim.
10:03 What's MarketStructure Edge maybe say on Pfizer?
10:06 - All right, so 30-day supply-demand view here.
10:09 That's what this is.
10:10 So if you've never seen this before,
10:12 price is here, top gray graph.
10:15 This is the algorithm called demand.
10:17 And Pfizer is a large cap value stock.
10:20 So it spends a lot of time at five,
10:22 and then supply a short volume.
10:23 Again, I wouldn't own Pfizer.
10:25 It's a one.
10:27 This is a good sign.
10:28 If demand rises, that's a good time to buy.
10:31 But this would tell you to leave, right?
10:33 So if it's a five and it drops to four,
10:36 and supply has jumped above the trend, you're out.
10:39 Just take your gains,
10:40 and wait for those conditions to reverse.
10:42 And we only need one thing.
10:43 We need demand to return to five.
10:46 Then I would buy Pfizer.
10:47 Right now, I would not.
10:48 - Eli Lilley wants to stay in the same sector here
10:53 because this has been moving and moving and moving
10:56 and moving and moving and nonstop bid
10:59 from when me and Mitch liked to back at 320.
11:01 It's got to $600.
11:03 Momentum was just so high on this thing.
11:06 It had a bad day on Friday.
11:09 Does that change anything?
11:11 - Well, here's why it has done so well.
11:14 It's never been below five in this 30-day period.
11:17 We could back that up too.
11:18 Here's the momentum stretch
11:19 where you had insufficient supply, very strong demand.
11:23 That's what drove the price.
11:24 And it still stayed strong,
11:25 but here's what happened right into options expirations.
11:28 So as we were heading into options expirations,
11:31 this short, what is it?
11:34 It's a short bet?
11:36 It's not.
11:37 52% was as high as it got, but you could say that.
11:40 There was a short bet into options expirations.
11:42 It's unwinding.
11:43 It's not bad.
11:44 If you own it, I'd stay in it
11:46 because demand and supply are diverging.
11:48 In fact, this is kind of an ideal time to buy.
11:52 When something hits 10 and supply falls,
11:55 this is like Nvidia.
11:57 When those conditions exist,
11:59 you have over 90% chance of producing a return in three days
12:04 if you're long that stock.
12:06 So yeah, that's really good.
12:08 You say, well, why wouldn't that show up
12:11 in the momentum portfolio?
12:13 Because the momentum portfolio looks for moves
12:16 of greater than 3%.
12:18 Eli Lilly doesn't have that much volatility, and that's why.
12:21 But that's a good, that's really good.