Weekly Models Update - Thoughts on the TACO Thing 🌮

Weekly Market Model Update for May 31st

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 we got a lot of important economic data, some rollercoaster headlines and mostly traded in a sideways fashion through it all.

The big news this week was an attempt at courts to reign in the Tariffs that have caused a Bear Market and the lowest Consumer Confidence readings just about ever. This was a one-night wonder and quickly un-done by an appeals court the next day. 🫤At the end of the week the headlines kept coming as Trump accused China of violating an “agreement” for a Trade Truce. That caused a big woosh down in markets on Friday and was reversed after Trump made more reasonable comments that he thought we’d see things worked out with China. See the annotated chart below.

Rollercoaster Ride from Friday Driven by Trump Comments

We did have a great week of day trading this action. Most of the days we were active and generally, the market worked well buying oversold conditions at support levels. 🚀

One important thing that developed this week was a new little sub-narrative of the Trade War, something we have covered pretty well here and that is the consistent underperformance of the US markets as Trump continues to implement DOGE and the Trade War and how the markets are essentially the only guardrail that is working to keep this admin driving between the lines. The term TACO was bandied about all over CNBC and the internet, and it sums up the tendency for the Trump admin to “touch the stove” and back off a bad idea just as the market gets into oversold conditions. An entire group of traders is aggressively betting on this kind of tendency and now it’s in the zeitgeist of Mom and Pop now. 👴👵

Generally speaking, when something gets this obvious in markets, it stops working. I don’t know why the media focuses on Trump’s tendency to chicken out, because he has another, just as consistent tendency to become aggressive and brave as the market ticks UP. That’s where we are now. Trading Trump markets isn’t easy, but there are adjustments you can make that will help your trading ALOT.

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 a simple concept established a long, long time ago by Van Tharp. It takes into account the long-term trend of the market (trend up = bullish) and the volatility of the market as a whole (lower volatility = bullish). We can see we are struggling at that green line here. I’ve circled two areas from the 2022 Bear Market that were similar to what we got going on now. We are struggling to reach escape velocity here on the long-term trend, but the volatility of the market has reached a more normal pace (bottom indicator under red line). Trade accordingly.

Market Classification Model