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00:00 Tim, what do you think of these markets here? Because we have kind of, I've been arguing for
00:04 the last seven days here now, that I feel like sentiment has turned to a certain extent. It's
00:10 turned to profit taking, where we've had such an incredible first half. I've argued the back half
00:15 is not going to be as easy. We've seen now a couple of days where the market has been up,
00:19 and the rug pull has happened. We saw it a week ago from Thursday, and then we saw it on Friday
00:24 as well. We were having a fantastic morning on Friday, then they pulled and they dropped at 60
00:29 points. It feels like the rips are being sold, and the dips that are being bought are not holding
00:34 here now. It feels like something has changed. Yeah, and I'll tell you how we think about this
00:42 from a market structure standpoint. It was probably, has it been three weeks now? I think
00:48 three weeks ago, roughly, we all talked about this NASDAQ 100 rebalance. And for those, just as
00:58 background, so the NASDAQ got concerned that there's too much waiting in the largest seven
01:03 tech stocks. And so they basically shaved 12% off of those in their index waiting and sprinkled it
01:10 down through the remaining 93. And we were talking about that, I want to say, it was the week of the
01:18 end, the Friday would have been the 14th. So whatever the Monday would have been, it was that
01:24 long ago, almost a month ago. And we talked about, well, how could that, I mean, would that be a
01:31 problem for the market? Because the market is so dependent on that largest seven. So yes, there,
01:37 from a market structure standpoint, Dennis, things changed. And I'll show you, and it's
01:43 interesting that on July 11, July 11 was the day that the way we look at the market, the way we
01:48 look at supply and demand, that the market is driven by supply and demand. And when there's
01:52 excess demand and insufficient supply, stocks rise. And when those conditions deteriorate,
01:58 they fall. By the way, here's Wayfair. I might as well do this since I pulled all three of those
02:03 stocks up quick, just a quick aside. If you're, you know, if you want to think about stocks like
02:08 that, and wonder what is happening behind price and volume, which are consequences,
02:13 price and volume are consequences of the underlying supply and demand. And the demand
02:18 comes from purposes with different time horizons. It's not all the same. Everybody isn't buying and
02:23 selling the market for the same reason that you are. And so, I mean, you traders, right?
02:29 So look at Wayfair. It's had excess demand. This is demand here, and I won't lose my train of
02:34 thought. It's 10, and it remains well above five. So if you're using, if you look a longer term,
02:40 keep your portfolio weighted towards stocks that are above five, and where supply is trending down.
02:47 And that has been true for Wayfair, certainly across this 30-day period, but it's been even
02:51 longer. And this is why it popped, Joel. There was a big drop in supply. Short interest, folks,
02:58 if you try to squeeze high short interest stocks, be careful, because you're not recognizing how the
03:06 stock market works. Most of the shorting in the market comes from market makers who are exempt
03:13 from having to locate shares to short. Their job, the SEC has decreed, is to make bids and offers
03:20 of 100 shares. What if no one underneath that who actually owns the stock offers any for sale?
03:27 How would you have stock? Well, market makers just create it like the Federal Reserve does
03:32 in a reserve banking system. Okay, now back to the point. I want to go to the broad market sentiment.
03:39 I said on July 11, here's where we hit the red line. July 11, price of SPY was 442. Statistically,
03:49 and we measure data, this is what we do, data analytics firm. Statistically, the probability
03:56 that the market will be higher a month later is below zero. Now, it doesn't happen every time.
04:03 What happens in between can be very distorting. So right now, we go from July 11, ahead of that
04:09 NASDAQ 100 rebounds, 442. And on Friday, we were at 446. We're almost back to July 11. And notice
04:18 that this is demand. The green part of the graph is an algorithm. It is measuring buying and selling
04:23 by investors and how it affects average prices. And so we can measure buying and selling. And then
04:29 this is SPY, price of SPY. Notice that they track each other pretty well, gives you some predictive
04:34 capability. Now it's falling. Here is why the market is deteriorating. Very simply, demand
04:41 is falling and supply is rising. That you can see. You can see it coming. Now, why is that occurring
04:50 is the big question. And here's part two of my answer. And I realize it's a long-winded answer,
04:55 but I think that this is important. Here is we can, over on the corporate side of the business
05:00 for public companies, we measure patterns of behavior in the market. And so when you see a big
05:07 purple and green pattern in the market like this, that it started after the 24th. The 24th was when
05:14 the NASDAQ rebalance took effect. Following that, this pattern of green and purple, this is exchange
05:22 traded funds like the triple Q. This little bit of blue that you see in there, that's closet indexers.
05:28 This is the supply demand balance in the S&P 500. It deteriorated dramatically. Back here,
05:35 we had more buying green bars than selling red bars. Now we have a lot more heavy downside
05:41 pressure coming from ETFs. There is the rebalance effect and it hasn't finished. Now, I don't know,
05:49 it might be fine, but you could look at that data. And then if you're an edge user, edge mob,
05:54 you look at deteriorating demand, you know we're above six, you know we're unlikely to continue to
06:02 go higher because that's what the math tells us. And now supply is rising. Well, those are all
06:06 reasons to stop putting money into the market. Really, it's simple. Do I do it? No, I still try
06:14 to trade. And so then I get stopped out more. And you wonder, well, why am I getting stopped out?
06:19 There's a very simple mechanical reason for it. When there is excess demand, all the intermediaries
06:25 will lift the offer to sell. They'll sell stock to you at a higher price.
06:30 When the supply demand balance deteriorates and volatility diminishes, why the VIX is a lousy
06:37 leading indicator, it's a lagging indicator. Now what are they going to do? They're going to lower
06:41 the bid. Well, what will happen? You get stopped out. So how would you avoid that? Well, you go,
06:48 well, I guess I'll just take my money out when this thing starts to deteriorate and this thing
06:54 starts to rise. Maybe that'd be a good reason to go park my money in cash at four and a half percent.
07:00 Or the alternative is like the market works two ways. And I buy stocks and I short stocks. And
07:06 some people don't like shorting stocks. Some people think it's completely un-American to
07:10 short stocks. But you know what? It keeps the market efficient. And I mean, shorts are working
07:16 better right now. I'm not going to lie. They did not work well in the first half, but they are
07:20 working a lot better right now. Blindly shorting the rips on some of these pops on these stocks
07:25 is working. It started working a couple of weeks ago and it continues to work very well to Friday's
07:31 point. Anybody was shorting Monday morning or Friday morning was probably making a lot of money
07:36 by Friday afternoon. So where the shorts have been losing, losing, losing, they are starting
07:40 to win again. Yeah, this is where Mike- I shorted the market last week too. Now I do it in a very
07:46 low risk fashion, which you can do too, traders. I use SH. So it's a short S&P 500, very liquid
07:54 vehicle. It's not going to give you a massive returns. But if you short a couple thousand
08:00 and it's very liquid trades, there are oftentimes a million shares at the bid and the offer. You can
08:05 fill any size trade. So it makes it very easy to do that. And when you see this, you can just say,
08:12 "Well, this is starting to tick down." Don't worry about what the price does next. You already have
08:16 a leading indicator that tells you demand is deteriorating and supply is rising. That's when
08:21 I did it. I put a short on right there. I closed mine out last week, but I may put it back on.
08:27 I can always come back this week and see how things look. But yeah, I agree with you, Dennis.
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