Republic Risk: Clearing 4,800… With “Crisis” and a Plan in Focus

The melt-up continues. Santa Claus must be exhausted. Now is the time to start having a plan - as the next "crisis" is around the corner. We just don't know what it is... and if it's real.

Equity Index Strength Is GREEN on the S&P 500 and GREEN on the Russell 2000.

Each morning, we assess the full flows of the market by measuring statistical metrics on a specific number of stocks to determine broader sentiment and the momentum trend. When these readings turn red, we focus on cash, build trades around positive sectors, or take inverse positions against indices. When it is positive, we focus on short-squeeze stocks, companies with improving fundamentals, and trading/investing around the actions of corporate insiders.

The markets are on track for their eighth straight winning week. It’s been two months since we saw a strong reversal out of October oversold levels (Relative Strength Index and Money Flow Index in oversold territory).

Ride away, monster man.

The Santa Claus rally has delivered, and we are on track for a low-volume week starting on Tuesday. If anyone tells you that it’s time to short today… don’t. You want to wait until we see one of these signals turn red. Our SPY signal and Russell signal have been positive since November 6.

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Morning Notes:

• November’s PCE inflation dropped to 2.6%, below the projected 2.8%, while Core PCE decreased to 3.2%, under the expected 3.3%, marking the lowest rate in May 2021. Remember that when they all start spiking the football and saying that they’ve defeated inflation, show them a chart of the last few years and remind them of the permanent damage they caused and when they told everyone that the inflation would be “transitory.”

• US durable goods orders in November saw a 5.4% increase, primarily by a 15.3% surge in transportation equipment orders after striking autoworkers returned. Excluding the transportation sector, the rise was a more modest 0.5%.

• The Federal Reserve's Bank Term Funding Program (BTFP) saw a $7 billion increase in borrowing, reaching a new high of $131 billion for the week ending December 20. There remains a regional banking crisis, but it disappeared from the headlines.

• China's new rules to limit in-game spending have led to a sharp decline in the stocks of Tencent (TCEHY) and NetEase (NTES) as investors weigh concerns over the impact on gaming revenue and strategies. These regulatory changes are part of Beijing's broader effort to control gaming addiction.

• China's top banks have cut deposit rates again, signaling a potential for more policy easing by the central bank, including possible lending rate cuts in the coming year.

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Dear Fellow Expat:

Good morning. Welcome to our new members who are joining this community. We have a lot to discuss. We are currently working on a guide to the Republic Risk Letter for 2024, and we continue to focus on our signals and ride this market higher.