PROOF: Stock Market Capitulation is Here.

before we talk retail capitulation and

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March oh man we gotta talk about retail

capitulation because boy oh boy if you

want to make yourself feel bad every

single day and feel like you're a

complete idiot all you need to go is

long the stock market and buy the dip

walking into a recession because after

all nothing tells you that's a good idea

in fact Bloomberg has an index of 15

stock market health indicators they kind

of call it a checklist they look at

things like EPS growth earnings breadth

margin forecast manufacturing signs Ed

they basically say quote

everything is as bad as it gets

there are no green shoots yeah it's

tough especially since we just got

manufacturing and service data and oh

boy it's quite recessionary consider

this durable orders down

2.1 percent you've got Factory orders

expected to come down one percent coming

down 1.8 percent you've got ISM Services

numbers which we actually do want to see

that number come down to prevent

Services inflation right we're expecting

a read of 55 on the survey anytime you

get these surveys fifth any a number

over 50 is growing on average a number

under 50 is shrinking in recessionary on

average we're expecting 55 last month we

had 56.5 what did we get

49.6 just minutes ago

here comes the recession hopefully a Fed

U-turn comes before that because if

you're buying and huddling you can't

wait but we need to talk about retail

capitulation because well retail

purchases are starting to I hate to say

it slow down take a look at this right

here these are the average net daily

inflows for retail purchases lined up

with the S P 500 the blue line here is

the S P 500 and for all those of you who

are expert a technical anal analysts let

me show you my beautiful technical

analysis boom that's basically all you

need to know about the stock market

right now

uh okay now the purple line represents

average inflows into the stock market

all you need to know about the purple

line is well we go back to that

technical analysis experience oh good

lord it's also straight down and this is

a sign that retail is running out of

money now there is some hope because hey

you know what if you want more hopium

just hit the Subscribe button I'll keep

bringing it to you with a smile even

though I'm melting inside over here is a

chart of the seasonality of retail flows

into U.S equities and what this chart

shows you is that at the end of the year

October November December you tend to

see an increasing outflow from retail

investors so the average monthly net

outflows are negative uh when you're

looking at the end of the year however

when you flip that to the beginning of

the year you tend to actually see

average inflows especially in January

and February now that would be nice but

it potentially is just hope that retail

will turn around and start buying again

who knows because right now what we do

know is that retail inflows are starting

to show signs of I call it uh soft

capitulation soft capitulation is when

sentiment is really low and you're

seeing inflows slow down inflows on the

daily right now are 20 percent lower

than what they were in 2022 and we might

not actually see those inflows in

January like we usually do on average

because sentiment is really terrible

right now here is a chart of sentiment

the green line shows you the TD

Ameritrade sentiment average retail

investor sentiment Trends and what you

can see here is that sentiment hit a

really gnarly low over here on the covet

pandemic and hit an awesome High over

here in 2021 peeking out somewhere

around November of 2021 which is also

roughly around where markets uh peaked

out

now if you look at where sentiment is

now

and you align that with previous lows we

just broke the December of 2018

sentiment low and we are trending

dangerously close to the sentiment low

that was experienced during the covet

pandemic so things are feeling pretty

bad for retail out there now retail

still though is not an average net

seller there's still an average net

buyer however those average net buys

which is any number above zero on this

chart is starting to Trend down for most

stocks the purple line over here

represents sort of the retail Tech

basket so this is retail Tech think

Facebook apple right Amazon you can see

these purchases are declining

if you uh take out

Tech or sorry you take out retail and

you only look at Tech buying you can

also see that Redline is declining so

basically purple tells you retail buying

in Tech and then red shows you Tech

buying without retail as you can see

retail tends to buy more than the

overall Market but when you take out

retail you can see that pretty much

everybody is just selling off Tech

that's not a surprise however inflows by

retail

into Tesla the green line are actually

still trending up now what's crazy about

that is even though the inflows into

Tesla are trending up compared to the

other stocks seeing downtrends the

amount of money that people are throwing

into Tesla is starting to hit an

inflection point and it's not good these

are just retail purchases of Tesla the

purple line shows you all of the retail

purchases and you can see as Tesla stock

has been plummeting I'll hide myself

here as Tesla stock has been plummeting

retail purchases have been skyrocketing

however at the beginning of the year so

far we have had the lowest inflows into

Tesla here of just 38 million dollars

put this into perspective next to Elon

musk's sales okay you ready for this

this is going to be a little nutso so

Elon sold let's just keep math simply or

simple about 20 billion dollars of Tesla

stock if retail only bought 38 million

dollars a day on the net this is not

trading volume this is huddle volume

right if retail only hoddled a net 38

million dollars per day it would take

retail buying

529 days just to offset Elon musk's

sales Elon sold more on net in 2022 than

all of retail combined bought on net

so basically if you're an individual

investor and you bought any Tesla stock

in 2022

you bought Twitter for Elon Musk

simple

so this seems pretty painful but let's

go ahead and look at a summary of Where

retail is investing and then we'll go

ahead and jump on and look at some

themes that are going on

so on the five day average you do still

have large inflows into Tesla as the

number one inflow stock followed by

Apple so we've got Tesla and apple

personally these are two great companies

in my opinion with substantial pricing

power even in a deflationary environment

or disinflationary environment I think

soon to be deflationary I think these

companies are companies that can

maintain substantial margins personally

including a company like Nvidia I

actually have less faith for a company

like Netflix Amazon and Facebook those

are companies I personally have less

faith for and I have more faith into

Walt Disney though rather than betting

on walls uh Walt Disney's bet into

advertising I'm gonna make a little bit

more of a bet into trade desk

so let's take a look at some more flows

here okay yeah so these are these are

the order of flows here you actually

have retail buying Southwest as well

that's pretty incredible Southwest

Boeing Neo over here Taiwan

semiconductor surprisingly low on this

list Lucid over here as well so this is

uh your average retail net purchases on

a five-day moving average and when we

zoom out a little bit and look at some

themes released by Vanda track here are

some of the themes that we're seeing

Financial conditions to tighten in a

stagflationary environment that means

stocks down bond yields up now I will

say we have seen a fall in the

expectations for the terminal rate for

the Federal Reserve trending towards

five percent today which is a loosening

of financial conditions but I'll tell

you oh wait no there we go finally bond

yields plummeting uh that's actually a

loosening of financial conditions this

morning we saw bond yields bear barely

move

but now the 10-year treasury down 10

basis points on that weaker wage gains

for average hourly earnings that's a

that's a big shift there another theme

to look at is a lot of Wall Street right

now is not making bets on a goldilock

recovery that's when inflation plummets

and earnings stay up that would be your

goldilock recovery Goldilocks the global

recession is on its way but Havens are

still under owned might be like your

gold 60 40 positioning hovering around

cycle lows being short Global equities

seems to be sort of the theme right now

underweight US versus the rest of the

world China as an Emerging Market

actually doing decently right now with

some stock performance uh coming off of

lows avoiding U.S tech pretty big theme

right now although many look at that and

say hey if everybody else wants to avoid

U.S tech I'll buy that's personally what

I think I I mean I'm personally a big

fan of find an actively managed ETF one

that focuses on companies in my opinion

with high free cash flow uh High

purchase or pricing power defined really

by net margins not necessarily nominal

prices those will always change you want

to pay attention to margins and

investing companies that are making

money right and when you do that in my

opinion in this sort of environment

you're really buying a lot of quantity

of something that in the future could

have substantial capital gains when

these things actually rally and

sentiment changes that could leave you

with a lot of exposure to large capital

gains which you don't really want to pay

taxes on and one of the ways you can

avoid paying taxes on large capital

gains is by investing in an actively

managed ETF the beautiful thing about

investing in an actively managed ETF is

an actively managed ETF can rebalance

and potentially pass along no tax

consequences to you because they can

exchange stocks without having taxable

consequences that's crazy it's kind of

like if if Tesla stock quadrupled you

could actually lower your allocation to

that rebalance without tax implications

by having an actively an active ETF

manager do that for you so something to

consider

so uh then we've got some other notes

here like fading us uh dollar strength

I'm a big fan of that I I've been short

the dollar since about June I've taken

some profits on that and I've reduced a

lot of my dollar short positions as I've

gone uh more heavily into buying the dip

on uh on on other um longer term trades

and uh Investments and here's some other

themes that you can pause and read about

as well like uh underweight risky G10

currencies like the Australian dollar

and the New Zealand dollar interesting

so there you have some thoughts on

retail themes trades capitulation

according to Vanda track no actual

capitulation yet but boy people are

running out of money and it's no

surprise because retail keeps dumping

money into Tesla and Tesla keeps saying

Fu well at least the stock does you know

I think uh the company versus stock

performance is something to be debated

uh but hey you know what if you only

wanted to lose one percent of your money

you could have just invested in Dave and

Buster's stock for the last year you'd

only be down one percent how remarkable

is that I don't know if that makes you

feel better or worse but anyway thank

you so much for watching subscribe and

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and we'll see in the next one cheers