Folks stocks are plunging. Today was yet another Blood Bathory and another new Year-to-date low and this is not much of a surprise to anyone who has been following the channel or anyone who has been listening to what the FED has to say. Pretty clear where we are heading and it's not in a fun direction. We are watching week after week, the FED fighting to drain and effectively reset the financial system and the more successful they are at doing so, the more stocks will go down and in this video I Want to walk you through some data that shows very very clearly what the market is positioning for moving forward.

Okay, so I Want to start with this rush to hedge. So this is a chart that shows put volume. Why do you buy a put well to protect your downside and lock in certain prices to sell at right? It's an insurance policy if it says hey, if I own this share and it goes below five dollars, well I could still sell it to you at five dollars. And when people see danger, they buy this insurance and they buy more and more insurance as they see more and more day danger.

For example, I live in LA We don't have tornadoes in L.A So I don't have tornado insurance, but we do have earthquakes. So I do buy earthquake insurance in a similar way. You don't see a dramatic increase in put options until markets actually see a dramatic increase in the amount of danger present. And as of the last report, just a few trading days ago, put volume is now at the highest it's ever been in history.

More people than ever before see the need to buy insurance on their positions, see the need to hedge against more downside. And this is in a market that had bottomed out in the summer LOL Substantial Capital has been drained from the market, but markets are positioning for substantial more Capital to be drained out. And yes, there's certainly participants in this market that go and buy these put option insurance policies to basically trade them and get a profit on the different moves as the options become more valuable. But still, that's one and the same.

You buy them thinking they're going to be more valuable because you think there's a lot more downside coming. This chart art screams the direction that participants think the market is heading. So Jim Cramer on CNBC has the same. There's always a bull market somewhere, and that is totally true.

but sometimes you have to flip the chart in order to see it. And so I went and I flipped the S P And if you were looking at this from a very basic ta technical analysis perspective, what would you say is going on here, well, you'd have to say hey, you have a Momentum stock that is consistently showing proof of concept by making higher lows and higher highs. You're following an overall upward Direction over our red directional SMA line and you've routinely rejected substantial breaks below it. And you have now just broken above previous resistance and solidified yet another higher high on the overall upward Trend.

And as we know, previous resistance becomes new support and that provides a new support bouncing board for future momentum to be built on top of. So basically, what I'm saying here is that in opposite land, the S P 500 right now is in one of its most extreme and proven bull markets that we have ever seen. In fact, it almost looks like it's about to start a Fomo rally. The TA says more momentum to come.

There's huge fundamental reasons as well for this to continue going up. In fact, the FED is Raising interest rates, which is excellent for opposite land S P The FED is unloading its balance sheet, which is great for opposite land S P and the economy is being pushed off a cliff also great for opposite land S P In fact, opposite land S P to the Moon point I'm trying to make here is that if you flip the script and you actually look at this as if you were analyzing a momentum setup, what would you say, you'd say this momentum setup is very, very strong. Yet when you do it on a bearish setup, which is really the same thing, but in reverse, all of a sudden you start thinking emotionally and you're like, well, wait a second, this is the S P. The S P always retains value or this is my underlying setup on a stock that always retains value.

This is a valuable stock at these prices, but what that ignores is that the market doesn't care about value right now. and in fact, a lot of value value proposition are kind of up in the air because we're not really sure how much the FED is going to have to tighten, how much the Fed's going to destroy the underlying fundamentals of the economy and thus the underlying stocks and their businesses. Rather, we don't know how long inflation is going to go. We don't know how long this overall period of time is going to go.

So just as a thought experiment, if you were looking at an index and the index was up, say 20 30 on the year for reasons that are going to continue being true and even be more so true, would you expect that index to continue going up into the next year and the year after that? That's a good question that you have to ask yourself now. I Want to walk you through some crucial data on what history shows is going to happen next. But first, I Want to go through a word from our sponsor who has an idea on how you can diversify in this market. Among all this bad news, the biggest banks in the world are already searching for a solution and what's just been released could change everything.

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Now back to the content in the beginning of this year: I Showed this 500 day forward returns data set based around where the Vix is trading at. Vix tracks implied volatility and in a sense that can be thought of as a fear index. As fear and uncertainty go up, people need to hedge and the vix goes up, implying there's much more volatility in the future, right? hence the term implied volatility and accordingly, you tend to see very solid returns during peaceful, more stable markets and extremely larger returns during very unstable. Peak Fear Markets You get more of an alpha for taking the dive when everybody else is fearful, right? But then when you're in this Middle Ground Between 20 to 30 Vix, you're in the situation.

This really dirty situation where quite frankly returns tend to be really blaunted, even over a 500-day trading period. And I Think that recent periods of time where you saw 20 to 30, the 504 day trading returns are actually a lot worse. Why? Because you're in a constant state of debated Market A controlled slow collapse with constant anxiety being present. It's not a market where all of a sudden you have this massive Panic that discounts stocks on a dime and it's not a market where everybody's excited and it increases stocks.

Now, this is a market where there's a lot of anxiety over one or two main line items and everybody is debating how bad it is. Some people think it's terrible and they win. Sometimes some people think it's not that big of a deal and they try to buy the dip to prop up the market again. But over this time period, it's a slow and steady collapse as more and more people lose faith in the market, right? This is the slow collapse and anxiety Vix range.

In other words, this level of Vix keeps prices naively elevated and drags out the anxiety for long stretches of time. So now you pull up the Vix. Over the last five years or so, you won't be surprised to know that since November of 2021, when the NASDAQ hit highs, we've been averaging out in in that Purgatory range of the Vix being at 20 to 30.. you won't be surprised that the 2020 market crash provided the Vix as high as 60, 70, and 80, which provided insane forward returns.

But here is my point: For the last year we've been in the stock market: Purgatory As the Fed and inflation have been hotly debated over, it's been fearful enough that people have consistently discounted stocks and there's been widespread pain. And it's caused the Vix to stagnate higher than during peace times. but it hasn't been high enough where on average, you've gotten out of the Purgatory range. So you've just gotten the slow and steady collapse that has dragged out all year, and history shows that when the Vix isn't showing enough fear to acknowledge widespread acceptance of the situation, that means that you are not yet anywhere near a bottom and bottoms will continue to fall out.

Certainly, there's been other crashes in history where you've been in Purgatory for a while, but Purgatory ends with a massive acceptance of fear, which comes with a massive drop in the S P and relevant indices and a massive uptick in the Vix 40, 50, 60, 70. However, seldomly do you reach a bottom from a simple elevated Purgatory. However, the reason this is worth mentioning is because this could be changing. If you look at today's chart, the Vix is starting to hit above 30 again and looks to continue to want to pick up, which then suggests that acceptance is coming sooner rather than later before acceptance will come.

History suggests again. You must see a very final large dump in indices and corresponding huge uptick in Vix. But the more that we get out of Purgatory, and if we actually average above Purgatory, well, that means guess what? All of a sudden, markets are starting to accept more fear, more Panic more discounts And that means they can price that in ahead of time instead of us having to wait until the Fed bludgeons the economy completely. The faster we can get to widespread acceptance, the faster we can get to a market bottom and actually build from it instead of sit longer and watch the slow and steady collapse.

So then the final question becomes, well, what is stopping the stock market from except in the future trajectory and actually declaring a bottom that we can build off of? Well I Think it's a miscalculation on earnings and distrust that the FED will actually follow through on its policy. For example, as Wall Street Journal Just reported today, the earnings revisions that companies are making don't point to a hard Landing yet quote. About a third of the S P 500's industry groups have had positive earnings revisions, meaning more analysts have raised estimates than have cut them. That's not great, but it's better than what has played out in other recessions when typically zero industry groups have had positive earnings revisions.

So here they are saying you still literally have a third of these industry groups looking at this economy that's being tightened more than at any point in the last 40 years. and they're saying wow. Great! We expect companies to make even more money people can't afford to feed their families. Oof, I bet they're going to be spending even more money at their local.

Creighton Barrel They just need that Futon bullish. The fact of the matter is that while a lot of Wall Street is souring on the market, they haven't Sat powered on earnings estimates yet. A lot of people expect that. No, we actually aren't heading into a massive tightening even though that's what the FED is forcing.

Now, we're actually heading into an area where earnings almost across the board are going to do better. It's going to be fantastic. No one's going to have any money, but magically, all these companies are going to make more money. And these ridiculous, slow to adjust earnings estimates have created the situation where a lot of floors have been artificially and naively placed in the market and slowed the overall downtrend.

But as you can see, the truth comes out and it has been coming out month after month, quarter after quarter, and we'll continue to do so until we're in an actual earnings recession that nobody can deny anymore. And then that is when you get the final drop. The other reason the market doesn't really want to find a bottom is because Market participants. There's enough market participants that still believe the FED is going to back down from their policy trajectory less so after the FED meeting that we had was it last week, and less so also because they showcased this new Dot Plot policy trajectory which shows many years of restrictive policy.

But still, there's still some Market participants who haven't been flushed out yet because they believe they should buy every single dip specifically because they think the FED is going to Pivot very, very quickly. The problem again though, is if you take the FED at its word and you look at the inflation trajectory, it's going to be a lot of time before inflation actually gets to their two percent Target And right now it's 4X that. so it's like, okay, yeah, sure, the FED could potentially pivot before then, and maybe they will, but that still is a massive problem because inflation is going to be way higher and that's going to destroy consumers anyways. So it's like you flip a coin and both sides have grizzly bears on them.

Anyways, folks that caps off the video, thank you again Masterworks for sponsoring us today! I Will put the link to them down below. Make sure to hit that ravishing subscribe button and I will see you in the next video.