00:00 What do you think is coming this week? I mean we have a lot of things at the end of the week to
00:03 your point, options expiration, but to a bigger point, a potential government shutdown looming
00:09 over this market as well. I mean we know fundamentals do play a part here in markets,
00:14 we can look at technicals, but there's a lot of other pieces to look at as well.
00:18 What do you think is happening this week and what's your data showing?
00:21 Well, I'll just show you because this is what I do every time I look at the market. It's going
00:29 to be what is broad sentiment? I think about broad sentiment, the context and divergences.
00:37 Those are the things that shape how I approach it. It doesn't mean it's right, but on the other hand,
00:42 I'm outperforming the market. These data do consistently work and I wouldn't talk about
00:47 them if I didn't think that there was merit to it. So here's what I see, Dennis. I look at broad
00:54 sentiment and if you look, I'll zoom this in a little bit. So I always think when we reach the
01:01 red line, you should be cautious. See back here, September, right into September, options expiration
01:07 is the green part of the graph. It got to the red line, that's when I shifted short. Actually,
01:13 right here I shifted short, right into options expiration.
01:15 Tim, can we just stop you for a second and share because I'm not seeing it on the screen here yet.
01:19 So here's what I was pointing out, just the green part of the graph. So this is the S&P 500, SPY,
01:25 it's a proxy for it. And so I'm always watching this. When the green part of the graph is rising,
01:32 I tend to be long. I pay a lot of attention to the supply side. I realize you can't fully see it
01:38 here, but the market always declines from these levels. Happened here too. It was actually ahead
01:43 of it because derivatives played such a role here in October. And now where are we? We are at 6.6,
01:50 well above the red line. So now let me, if the Sheraton keeps up, I'll scroll down and show you
01:56 the supply side. So this was the principal reason why the market rose dramatically.
02:02 We had index futures expire, the banks had to make indexes whole. The market was down 10%,
02:08 Goldman Sachs has to provide a bunch of stocks to black, let's call it BlackRock Vanguard Fidelity
02:16 State Street. And so then they're offsetting that by being short the market, they cover all of that,
02:22 the market soars and where are we now? Supply is rising, demand is peaked. I look at that and say,
02:29 that's not good into options expirations. Most of the time, that means trouble into expirations.
02:35 Now it may not happen, but that to me is what lies immediately ahead for us as traders. And we
02:42 don't want to give back all these great gains that we've had a chance to build in the last week. So I
02:48 would begin to think about going short, not yet, but close to it. What do you think now? I mean,
02:54 and we have the separation too, with the Q's are outperforming again, the same story,
02:58 values underperforming here. Is it more of the same for the next week here or two weeks ahead?
03:03 What are your thoughts? Well, I think you and I, Dennis, we're on very similar pages. I saw a
03:10 couple of tweets that you put out last week about trading the ranges, 50% retracement trade the
03:17 range. And I think about trading volatility only where the supply and demand are strong. So last
03:23 week I said, I'm trading big tech. So the big tech stocks, this is the portfolio. So you go back a
03:30 week, we had rising demand, insufficient supply. Now demand is peaked and supply is rising. Am I
03:37 going to continue to pursue that trade? Well, there's still a little day or two of opportunity,
03:42 but no. And I said, I would go leverage long the market and that trade worked too. And the reason
03:49 was because you back up to last Monday, whatever that day was, was it the sixth, I think. So you
03:56 could say, well, demand's rising, supply is falling. I'm going to trade that. Now that has
04:00 fully run its course. If you looked at momentum, there were like two stocks in the momentum
04:06 portfolio. It got up to 18. Now it's falling. 13. What's in there? What's in there? So,
04:12 yeah, there are several good stocks in here to me, like Square, PayPal, Applovin. What's this?
04:20 Unity made it in there now. Unity made it in there. And you say, well, how can that be? Well,
04:24 it's all about supply and demand. It doesn't matter what the news is. It doesn't matter how
04:29 many reasons something might be bad that you can come up with. Look at the supply and demand. If
04:34 the supply and demand are diverging, there is a short term. I emphasize those words, opportunity.
04:40 I trade one to five days. Most of the time, it's one to two to three, because statistically,
04:46 in these situations, there's more than a 70% chance of producing 2% or more when these conditions
04:52 exist. And what I mean by these conditions are a 10 with insufficient supply. You say, well,
04:59 the trend's up. That's a 30-day trend. I'm going to look at the shorter term, one to five days,
05:04 what's the trend? I'll show you an example. I mean, Square is a great example of the kind
05:09 of supply-demand divergence that Edge is designed to show us. It's look at this. See how these
05:16 things are diverging? Strong demand, falling supply. That will almost always produce in one
05:22 to three days at least 2%. And you say, well, that's not very interesting. Repeat that over
05:27 and over, and you're wealthy. It is vastly superior to almost anything else you can do.
05:33 And so that's why I use that. I look at that's a great example of what you're after with Edge,
05:39 but realize it's short term. That could change at any moment. The moment this begins to decline,
05:45 and that reverses course, you're out, and you move on to something else. And I think the whole
05:49 broad market could shift short within the next five days. I'm not saying it's going to happen.
05:54 I'm just saying the data have that setup, and the data are almost always right.
