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Flash Crash

Good morning, everyone, and welcome to Friday morning. It’s Stephen Whiteside here from Well, it was a wild night last night. We had a flash crash with Israel attacking Iran. Dow futures were down 450, 500 points. Gold was up dollar 25. Crude oil was up 3%. That has now all dissipated. And yes, stock index futures and commodities are below fair value, but certainly they’re not crashing like they were last night. So we do have the Dow futures currently down about 100 points. So things have settled down. And the market is back to reacting from, say, earnings from Netflix, which are out this morning. And Netflix is down in the pre market now. The VIX is still on a buy signal, so we’re still bearish on the stock market. That would change on Friday if the VIX were to close below 15.66. Now, the market loves big, round numbers, and on the way up they can potentially act as resistance. On the way back down, they could potentially act as support. The biggest one that the market’s watching right now is the $5,000 level on the S&P 500. And here we are closing just above it yesterday.

There’s an open gap here in February. We may fill that gap today, and that could mark the bottom for this particular move. We’ll just have to wait and see. Obviously, if that gap gets filled and the market continues to close lower, that would be certainly a bearish sign if you’re playing the spy. Then we closed just below $500 yesterday at $499.52. Again, we’ve got that open gap from February that could get filled today and again could mark the bottom for this particular move. Some people are watching the 37,500 level on the Dow. The Dow Transport slipped below 15,000 but have not broken away from that level just yet. You can see that we ran up to resistance three times and then failed. And here we are coming down and looking to see if that level will hold. If it doesn’t, of course, we have our targets below. Then we’re looking at the Nasdaq 100, which closed below the 17,500 level yesterday. The Nasdaq Composite closed just below 15,625 in both cases. We haven’t broken away from those levels. So just because we closed below them doesn’t mean we’ve broken away from them back here. We closed below the level and quickly reversed.

And that could certainly happen right now. We’ll just have to wait and see. Now there’s going to be pressure on the Nasdaq this morning because Netflix is trading lower. Yesterday, Netflix closed down $3.13 this morning it’s trading down $25 $30 in the pre market. The Russell 2000 couldn’t hold 2000 so we’re heading towards 1875. Next up, let’s take a look at leveraged ETF’s and these. I can’t emphasize how important these are for your portfolio, especially for your retirement accounts. These leveraged ETF’s allow you to play the market with about the same volatility as a major technology stock and make money not only when the market is going up, but when it’s going down. And recently all the charts we’ve been looking at have been red. So let’s look at some blue charts. Probably the most important selling point for these ETF’s is that you can make money when the market is going down in your retirement account. And you can’t short stocks in a retirement account, but you can certainly buy leveraged ETF’s. Now in the US there’s two X, three X and four X ETF’s. We’ll just focus on the three X ETF’s which seem to be the most popular.

And right now we can be long the bear for the S&P 500, for the Nasdaq 100, for the biotech sector which started selling off. And the bear ETF started going up back in early March. Then we’ve got the energy sector, which had a beautiful run. Energy stocks have pulled back over the past week and so we’re out of the bull and into the Bear ETF. So if energy stocks want to continue to pull back, we can make money while they’re pulling back. Now, there’s lots of other examples of three X ETF’s. You can get them for different sectors, you can get them for the commodities themselves, for gold, for crude oil, for natural gas, for gold miners. You can only get a pair of two X ETF’s. And currently we’re long the bull. And that would change on Friday with a close below $37.03. And then once we get that money in our account, we could go and look and see if there’s a buy signal in the bear. There’s absolutely no guarantee that when you get a signal in one that you don’t get a. That you will get a corresponding signal in the other.

Sometimes you have to wait a day or two and sometimes you get a signal. And then the next day the market is right back where it was the day before. So, you know, just be aware of that. Those things can happen. It’s not an automatic move from the bull to the bear or from the bear to the bull. Sometimes there’s a delay or two, and sometimes it just doesn’t happen. Now, looking at the canadian market, if you want to keep your money in Canada and in canadian dollars, then we just have two X ETF’s. We have a two x bull and bear for the TSX, of course. And currently we’re long the bear. We’re long the bear for the S&P 500, for the Nasdaq 100. And then of course, we have the individual sectors. The energy sector has pulled back. So we’ve moved from the bull ETF to the bear ETF for the energy sector. So far, there hasn’t been a lot of upward momentum for the bear ETF so far. And so you know what? We may get kicked out of this and have to go back into the bull ETF for the energy sector.

And, you know, for all of these ETF’s, we’re in one or the other. We’re never in cash for very long. As I mentioned previously, sometimes the signals don’t, you know, happen on the same day, but you want to either be long the bull or long the bear. Then looking at the gold miners, we’re still long the bull here. That would change on Friday with a close below $15.81. And then looking at the bear ETF, we’d be buyers on a close above $4.27. Okay, folks, that’s all I wanted to cover this morning. Leveraged ETF’s. They’re a really important component of anyone’s portfolio, especially in a retirement account where you just can’t short stocks. And the two x three x ETF’s, the volatility is very similar to a technology stock such as Apple or Netflix or Tesla, for example. They’re not long term investments. They are certainly not something that you buy and hold. They work well when the market is trending, but they are certainly never to be considered as buy and hold investments. They have to be actively managed. And that’s exactly what we’re doing here. We’re actively managing our portfolio. Enjoy the rest of your day.

Enjoy your weekend. Next time you’ll hear my voice is on Monday morning.

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Stephen Whiteside
Friday, April 19, 2024

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