Critical Line to Watch (FNGD 50-DAY)
One last point...
When our signal goes negative, the one thing that I immediately watch for clues is…
The Bank of Montreal MicroSectors FANG Index 3X Inverse Leveraged ETN Exp 8 Jan 2038 (FNGD)
DON’T BUY IT… DON’T TRADE IT… JUST WATCH IT.
The FNGD is a (largely institutional) bet against big tech companies.
I’m talking Meta (META), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Alphabet )(GOOGL). This is not an ETF (more on that in a minute).
When these tech stocks go down, FNGD goes up - but 300% the return.
So, if the tech stocks drop 10%, FNGD will increase by 30%.
Yet if the tech stocks go up 10%, FNGD drops 30%.
Institutions trade FNGD because it's a way to profit when they think tech stocks will drop.
That’s what’s happening right now.
The reason why you should NOT buy it right now. It’s risky because that 3X multiplier works both ways - you can quickly make or lose money. And because of the volatility decay baked in, you can lose a lot of money by doing nothing.
The ETN part is important, too. It’s just an IOU. When you buy FNGD, you get a promise from the Bank of Montreal to pay you that 3x multiple. You’re basically trading the bank's debts, and it really comes down to whether they can pay you and keep that promise when the markets are open. For everyone in the back…
Regular stock: You own a tiny piece of a company.
ETF: You own a tiny piece of a basket of real investments.
ETN: You have the bank's promise to pay you based on a formula.
Why I’m Watching This
Our signal has been chopping around between Green and Red all week…
This signal is sometimes just simple profit-taking when it goes red.
But other times, it’s something BIGGER.
The ETN is something we watch because we want to know if people are betting on a bigger selloff.
We’ve had four negative signals in the last year: mid-April last year, August 1 last year, a brief negative signal in early September, and the December 10 selloff.
But look closely at this chart. You’ll notice something.
When the FNGD goes above its 50-day moving average (purple line), pain follows.
It’s an important sign that something’s wrong (usually a liquidity issue).
In April last year, money flowed out of the money markets (before the Treasury Department pivoted to accommodate).
In August, it was the Nikkei crash (and the ensuing pivot by the Bank of Japan)
In September, there was panic over China (before likely coordination happened between multiple central banks).
We are just shy of the 50-day moving average today.
If we cross the 50-day, buckle up.
If it’s just options expiring today… then be happy we avoided something bigger. There are real risks out there with China, Japan, and the financial plumbing.
We won’t know for a few days…
But the Red Flag is up heading into Monday.
We may hear about some central bank activity over the weekend.
Stay positive,
Garrett Baldwin