Before You Buy the Dip, Read This...

“When the time comes to buy, you won’t want to.” [Morning Reckoning] August 06, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Before You Buy the Dip, Read This... Baltimore, Maryland August 06, 2024 [Greg Guenthner] GREG GUENTHNER Good Morning Reader, I was enjoying a cocktail on my neighbor's porch early Saturday night when the skies suddenly changed. Thunder rolled in as the horizon turned an ominous shade of purple and the wind began bending the treetops. We retreated inside just a few moments later as the first raindrops fell and watched the storm unfold from the safety of the kitchen. It was gone almost as quickly as it appeared – but the powerful storm left plenty of damage in its wake. Residents reported power outages, more than 400 downed trees, and 170 blocked roadways throughout the city. Aside from a few short power outages, my neighborhood was spared. The only evidence in the yard were a few stray sticks and branches, which we cleaned up on Sunday afternoon before I sat down at my desk to survey the markets and prepare for the new trading week… As you might imagine, I couldn’t help but think the universe was toying with me when I saw the market begin to unravel in Japan and spread through crypto and the futures market. Stocks were in freefall – no doubt about that. But how long would the storm last? Before we attempt to answer this question, let’s take a minute to review how it all went down… Japan found itself in meltdown mode as the Yen carry trade imploded and global recession fears spread. The Nikkei fell more than 12% on Monday, which the WSJ notes is its biggest drop since the 1987 crash [Editor’s note: If you’re interested in learning more about the Yen carry trade, check out Sean’s Monday writeup]. Of course, the selling didn’t stop there. The bloodshed in the Asian markets spread into crypto, which spilled over to US equities by the early morning hours. We were already seeing some small pockets of worry crop up late last week, which began to snowball early Monday morning. You always know the market is making waves when non-financial types are posting about the carnage on social media – and the panic was certainly palpable Monday morning. The market was dumping and the VIX spiked to levels not seen since the Covid crash. The bell rang – and investors started selling. These are the days that put traders and investors to the test. How you react to major selloffs can affect your portfolio for months to come. If you aren’t prepared and you begin to make panicked decisions, you can cause serious damage to your returns. In “meltdown” situations, the survivors will be those who can remain calm and focused when everyone else is running around with their hair on fire. While I can’t yet tell you how the averages will look at the end of the week, we can discuss what to expect in a higher volatility environment like the one we’re entering right now – and how you should adjust your trading strategy as stocks sail into rough waters. [Stocks Crash Whenever This Happens]( Ever since 1955, there is ONE indicator that has been 100% right about stocks. Whenever it appears, stocks crash. Jim Rickards calls it “The Black Pattern.” Because it is quite literally an Angel of Death for the stock market. And this Black Pattern is telling us 2024 could be the worst year for stocks we’ve seen yet. Consider this a WARNING and to alert you of a MASSIVE opportunity that could be extremely lucrative to investors. [The full breakdown is here.]( [LEARN MORE]( 1. When Investors are Scared, Cash is King Even in bullish conditions, the market rarely cares about any of the amazing stories about your favorite investments. You can’t argue fundamentals or growth stories in a crashing market. If panic conditions emerge, investors only want cash. They crave safety above everything else. Crypto is the perfect example of this phenomenon. I know there are plenty of folks who argue that Bitcoin is a safe haven investment. But the market says otherwise! Crypto actually trades like a risk asset. That’s why we watched Bitcoin get smashed into the low $50K range late Sunday as more than a few crypto traders were liquidated. When the margin call comes, the only way to pay is cold, hard cash! If investors are raising cash, they will sell anything and everything, even gold. You might remember that gold even dropped a staggering 25% during the throes of the Aug. - Oct. 2008 meltdown. Keep in mind, this was in the middle of a huge bull cycle for gold, which was unceremoniously interrupted by the Lehman Brothers bankruptcy and the ensuing financial crisis. Investors will also sell their big winners during these times of distress. The VanEck Semiconductor ETF (SMH) has tumbled nearly 30% from its July highs. The Nasdaq 100 is down 15% over the same timeframe. Yes, even the bulletproof Magnificent Seven stocks are collectively more than 20% off their all-time highs. 2. Stocks “Hold Hands” During Down Markets The market becomes highly correlated during drawdowns and panic events. What does this mean? Simply put, on the big, sweeping down days and crashes, most groups and asset classes react with similar moves. Correlations are lower during bull markets. You’ll have big winners, middling names, and laggards. Think about how the market was acting earlier this year. We have semiconductor stocks leading the market by a mile, many tech names also cruising higher (just not as much), while other sectors lagged. That doesn’t happen during sustained drawdowns. When everyone is fighting for the exits, very few areas are safe from the sellers. And I’d venture to guess that most of the visible stocks will be down about the same as the averages during these dumps, with some of the higher-flying names from the past few months taking some bigger hits. When sentiment sours and investors become more cautious and defensive, it’s that much more difficult for individual groups to outperform. 3. Respect the Swings When markets suddenly get squirrely, you probably experience a strong urge to do something, anything, to right the ship. But part of investing or trading is simply surviving. After all, you have to preserve your capital if you want to stay in the game! And since we just experienced a severe volatility spike, it’s important to remember that we’re probably going to see strong moves both higher and lower in this new environment. Volatility can be your best friend or your worst enemy. If you’re a longer-term investor, you have a great opportunity to start nibbling at some of your favorite companies (If you liked it at $70, you’ll love it at $50, right?) If you’re a trader, you’ll want to look to compress your timeframes. Yes, you can take advantage of the bigger swings. But you’ll want to take profits when you can, because the market’s more likely to experience back-and-forth action. Take what you can get, then move on! As for finding the absolute bottom following a market downturn, don’t forget what legendary technician Walter Deemer says: “When the time comes to buy, you won’t want to.” Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [Offer Pending: Please confirm your address…]( Your name is on a list of people eligible to claim the [“most dangerous book in America.”]( Here’s how to claim your copy: - [Click this link]( watch Jim's short message.]( - Review your account information. - Confirm you’d like to accept Jim’s offer. [Simply click here and learn how to claim your copy.]( [LEARN MORE]( In Case You Missed It… Abra Cadaver! Sean Ring, Editor [Sean Ring] SEAN RING Hi Reader, “A snake that cannot shed its skin dies,” Friedrich Nietzsche once wrote. And yet Joke Biden, who has one foot in the Oval Office and the other in the grave, continues to pilfer oxygen from the rest of us humans. After his debate disaster with The Donald, it’s nearly certain President Emeritus and Klaus Schwab wannabe Barack Obama called Biden to tell him Kamala Harris, Biden’s “loyal” Veep, approved using the 25th Amendment to remove him from office. And that was after Obama’s buddy George Clooney wrote an op-ed in The New York Times asking Biden to step down, mere weeks after stealing $30 million from Hollywood donors on Biden’s behalf. Sulking, Biden disappeared for a few days—you know, just to gather his thoughts. It takes him a while to do that, like hunting for easter eggs in a field the size of the Great Plains. Then Biden held a hastily planned news conference. Looking like his granddaughter combed his hair with buttered toast, he told the nation, “This isn’t about me. It’s about you.” But it really was about the coup d’etat the Deep State just pulled off. Defeated but still proud, Biden endorsed the dumbest politician on earth, Kamala Harris, to succeed him on the Democrat ticket, bequeathing her his vast campaign chest and potentially setting the stage for a disastrous presidency. This is the same Kamala Harris who, as California Attorney General, incarcerated over 1,700 black men for minor marijuana offenses, only to later joke about her own marijuana use. This is the same Kamala Harris who couldn't even secure a single delegate in the 2020 Democrat primary. “There is no Michelle Obama on this year’s ticket, Barry. Take that!” Biden must have mumbled to himself. Biden – or whoever’s at the controls – refuses to go gentle into the good night. His next target is SCOTUS. Mike Johnson: DOA You’d think after Biden’s opponent took a headshot at a rally, he’d mind his rhetoric. “Nah, it’ll be fine,” Biden probably feels… because he no longer thinks. The latest target – besides Johnson – is the Supreme Court. Joke Biden, a man who spent 36 years in the Senate, 8 years as Vice President, and 4 years as President, wants to introduce term limits of 18 years for Supreme Court justices. On any other timeline, he’d be laughed out of the building and ridiculed as a hypocrite. But because White Liberal Women™ are so upset at Trump’s nominees for throwing Roe v Wade back to the States, this asinine idea is getting a hearing. The last time I looked, this was quite important. The U.S. Constitution states in Article III, Section I: The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office. In short, once the Senate confirms the justice, they can sit on the bench until they come out feet first. The Founding Fathers purposely did this so judges were never subject to the whims of an electorate. If a justice isn’t impeached and convicted, he stays until retirement or death. Ok, I get that some people don’t like justices accepting gifts from parties who may have cases on the court. Fine, then impeach them. We already have that mechanism to remove improper justices. This brings us to Mike Johnson, the Republican Speaker of the House. Rightly, Johnson dismissed Biden’s bird-brained (he should be so lucky) plan to reform the Court. Johnson said, “Biden’s plan was dead on arrival (DOA).” When a reporter asked him about this, Biden asked, “Who said that?” The reporter replied, “Speaker Johnson.” Biden said, “Tell him he is.” The reporter asked for confirmation. Biden reiterated, “Tell him he’s dead on arrival.” Little Gray Cells If Biden isn’t fit to run again, he’s not fit to lead now, and this genuinely proves it. He was an intellectual amoeba when he had his marbles. Before he was elected President, Joe Biden was known as “the man who plagiarized Neil Kinnock’s speech in 1987.” Seriously, that’s how the BBC used to introduce him every time. [Johnny Carson made a joke about this 37 years ago.]( Yes, Carson was still on television when Biden was already proving himself a dunce. I just wish he’d go and stop causing a commotion, but then we’d be stuck with Cacklin’ Kamala for the remainder of Biden’s term. That the media is “bigging” her up is proof the media is in bed with the DNC, as if you needed proof. And make no mistake, Harris can win this election. How, besides cheating, you ask? If the Right makes this about race (Indian or Black, your guess is as good as mine) or gender, they’ll lose the female center and, hence, the election. My advice is this: let her run her mouth. Whenever she talks, an angel loses its wings… and most people smack their heads so hard they get slightly concussed. I look forward to when she once again says, “What can be, unburdened by what has been…” It should be the new tagline for Preparation H. Wrap Up Dan Quayle may have been an idiot, but at least he was kept in a box, away from the levers of power. Kamala Harris wouldn’t spell potato with an “e,” but she can’t answer a straight question without a teleprompter. But first, we need to ensure Bumbling Biden doesn’t confuse his nursing button with the red one. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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