Weekly Models Update - Shake Out 🪇🪇🪇

Weekly Market Model Update for May 24th

Welcome to the weekly report! This report is targeted at investors that don’t have time to monitor the ebbs and flows of the market day to day and still want to beat the market and avoid bear markets🚀. Just 10 minutes a weekend is all it takes.

I focus on the MAJOR themes and the MAJOR trends of the markets in this report. All the models I present are back tested with results so you can see that they work🤔.

This post is long - so make sure you read it on the Substack App or Website so you get to see the bottom of it - Email can often cut the message short. Let’s get into the weekly models!

What Happened This Week

This week was all about processing two events that have potential to affect the bond markets. The Credit Rating of the US was downgraded last Friday, and we got the House to pass a large spending package that is full of goodies for rich people and the military and austerity for old folks and poor people. The combined effect was a rise in bond yields. The 10-Year Interest rate went from 4.44% up to as high as 4.62% before retreating and finishing the week around 4.51%. 🥵

Bigger moves were apparent in the US Dollar - with all the uncontrolled spending and the Credit Downgrade it looks like the Dollar is faring poorly (especially against the Euro). Dollar futures went down 100.94 > 99 (-1.9%) on the week, a pretty decent move down for only a week for the dollar. 📉 The weakness in the Dollar is reflecting the poor future financial prospects of the US and capital leaving the country.

Stocks went straight down most of the week, mostly gapping down and getting bid up in the afternoon 4 out of the 5 days. What does that mean? It means Europe and Asia are selling to US investors buying. Last week I said I was expected a correction and thinking -3 to -8% was in the cards. Well, we did -3.5% this week (we got the call spot-on) and we’ve satisfied the minimum requirements if this were a “normal” market. 🎯🎯

But it’s not a normal market because we got a third, more important threat that emerged at the end of the week. Tariff Man is back and he’s slinging 50+% tariffs at Europe because he’s not happy he’s losing the Trade War with Europe. Polymarket has the odds at a mere 25% that those tariffs go into effect. 🤔

This brings me to a very important point that you need to understand. If you are one of those types that believes betting markets “know all” then you should listen to this. They do not - they are no better than betting randomly on the average outcome across all the markets. There is very little to almost no real edge in these markets until we get essentially to 95-99% of the way to the end (e.g. for this one, there is almost no edge from them until probably May 31st, which is the day before the June 1st deadline, and then the edge is not much, but it is there).

As a trader these markets are incredibly useful because they reflect SENTIMENT. The market does not believe Trump - he has no credibility. Europe doesn’t believe him; they are ignoring him, and I doubt they will meaningfully engage until Trump does something outrageous. Only 25% of people think he’ll follow through. What does that mean?

It means if the Tariff Man does slap Tariffs of 50% on Europe, we will see a severe market reaction - probably another day that exceeds -5%. 🌋⚡⚡It is important to know that June 1st is a Sunday and there will be no liquidity once the announcement is made when the Futures open on Sunday night.

Weekly Show and Tell

Each week I review a chart or model that I would normally keep behind the paywall, I hope you can make a couple bucks off of it! 🤑

This week we will review one of the models I’ve been using to navigate the markets and call the top over the last week or so. This is a model I use that incorporates short term breadth and price action to flag intermediate term tops in the market. It got heated last week, and as a result we are cooling off. The market needed a burp and now it got it - will it need to correct further? Yeah, probably because Trump is now acting up again. Nothing that caused this Bear Market has been solved - not even a little bit.

Breadth + Price Action Model Says It’s Toppy Here