The Story of Davey Day Trader

Monday, 29 June 2020
Melbourne, Australia
By Greg Canavan

Every bubble/boom has a defining characteristic…or character.

This bubble, or mini-bubble, is no different.

Since bottoming in March, the S&P 500 has surged nearly 45%. A 45% rise in just a few months represents one of the strongest moves in history.

And the character most representative of this surge, an absurd and hilarious character, is Davey Day Trader Global.

I’ll get to his story in a moment.

But first, a quick look at the markets…

US stocks ended sharply lower on Friday. The major indices were all down around 2.5%. As new COVID cases continue to surge in the US and around the world, the market is reassessing its ‘V-shaped recovery’ thesis.

Friday’s price action in the US was just what Murray Dawes was looking for. As he wrote to his Pivot Trader readers on Friday afternoon (Australian time):

I’d prefer to see the 200-day moving average broken while we have the daily momentum indicators pointing down. The perfect outcome would be if prices turned straight back down tonight and busted below yesterday’s low. Then I reckon it would be on for another leg lower.

While the daily trend is up and the 200-day moving average holds, there is always the risk of higher prices in the near term.

Prices did turn back down and close below the previous low. And the index did close just below the simple 200-day moving average. So we could be in for a rough week…

Aussie stocks are off to a rough start too. The ASX 200 was down around 2% at 3pm this afternoon.

I often comment that the NASDAQ is the leader of this bull market. Given it’s the only major index to break out to new all-time highs post-COVID, that’s certainly the case.

Which is why a headline in Tom Mayer’s Algo Trend Trader, published today, caught my eye. It read:

Is the NASDAQ 100 about to falter?

To be clear, according to Algo Trend Trader, the NASDAQ is still in a bullish condition. But an important development occurred last week, as Algo Trend Trader points out today:

In our May 18th report, we showed you that the six largest stocks that make up the Nasdaq 100 (NDX) account for more than 45% of the index (it’s six stocks, but just five companies as Alphabet has the last two entries in the index with its two classes of shares).

On Thursday evening, after the US stock market closed, Unilever announced that it was going to stop advertising on Facebook (FB).  Friday, that was followed up by announcements from Coca Cola, Honda USA, and Hershey that they too were pausing advertising on much of social media.  FB was down over 8% on Friday and could drop further if more advertisers flee.  The drop in FB’s price contributed to the 2.36% loss of the NDX on Friday.

FB is the smallest contributor of the above list to the NDX if both GOOGL and GOOG are combined.  It’s possible that FB is an outlier and the rest of the leaders of the index continue to move higher.  But it’s also possible that if any of the other leaders falter, the NDX could reverse course.  Be sure to read the writeup on NDX underneath the Composite Table. Also, FB is the fourth largest contributor to the S&P 500.  It makes up 2.2% of SPX.  If FB does continue to move lower, that can also negatively affect the return of SPX.

For more information on Algo Trend Trader, click here.

Which brings us back to Davey Day Trader Global.

It would be fitting if his profile peaked just as the NASDAQ did.

Who is Davey Day Trader?

It’s Dave Portnoy, founder and President of Barstool Sports; a sports blog partly owned by private equity group the Chernin Group and Penn National Gaming. The sale of the business to these two groups turned Portnoy into a multi-millionaire.

When the global shutdowns ended sports and sports betting, Portnoy turned to the stockmarket.

He bought airlines and cruise liners near the lows. And he’s made an absolute killing.

He says he has a couple of hard and fast rules.

  1. Stocks only go up.
  2. When stocks falter, refer to rule one.

Portnoy is clearly mocking Warren Buffett with these rules.

And as absurd as they are, Portnoy isn’t a fool. He’s leveraging the stupidity of the stockmarket (thanks to the Fed) to promote himself and his company. It’s a stroke of genius.

Thanks to his high risk taking, high return profile, Dave is copping it from Wall Street. And he’s fighting back. In a recent op-ed for Fox Business, Portnoy wrote:

They [Wall Street] want the public’s money, but they want to be the only ones allowed to spend it. They want to get paid whether they win or lose.

The pure arrogance of guys like Gartman, Insana and Marks is surreal. They somehow think trading is their birthright and that they alone should have a monopoly on making money.

They don’t think Joe Public can be smart enough or trusted enough to invest our own, hard-earned money. Only they have that knowledge and insight on what is best for us.

Yet here I am. Beating them like a drum for the past three months at their own game. While they have been slow to react to the changing markets, I’ve adapted on the fly.

All I hear is old-timers say that the retail bros are going to get crushed. That they’ve lived through this before. That the pride comes before the fall.

Yet I ask them, how many global pandemics have they actually lived through? The answer is zero.

I have as much experience in this trading climate as they do. And maybe the very fact that I’m not burdened with their history has allowed me to see this market for what it is, while they have failed miserably.

Portnoy is spot on.

His background in sports gambling has enabled him to see that market for exactly what it is: a punter’s market.

Portnoy is here for a good time, not a long time. His ignorance of how the market ‘works’ means he can punt unburdened. His absurd rules are deliberately so. They’re there to provoke and gain notoriety.

But they are a perfect representation of this crazy market. And it would certainly be fitting for Portnoy’s star to peak along with this market.

If you’re not completely convinced with Portnoy’s ‘rules’, and understand that stocks go down as well as up, I’ve got something for you. It’s a tool with much smarter rules that Portnoy’s. Overlaying it on my Crisis & Opportunity portfolio in a back-test, it could have more than doubled the returns since inception in late 2014.

Same stocks, much bigger returns. Just from the use of this smart tool.

It could work wonders for your portfolio too.

To find out more. Click here.

Continue below for this week’s ‘Week Ahead’ update from Murray.

Cheers,
Greg


Here Come the Sellers
By Murray Dawes

 

[Murray has been predicting a sell-off in the S&P 500 and picked last week’s high in the E-mini S&P 500 futures within five points. Click on the picture above to find out where the S&P 500, gold, and the S&P/ASX 200 Small Ordinaries Index are heading next.]

We should learn a lot about the state of equity markets this week. I have been predicting a sell-off from the sell zone of the wave down in the crash for quite a while now.

The weak price action we saw last week has increased my conviction that we are getting closer to a short, sharp sell-off towards 2,700 in the E-mini S&P 500 futures. The futures are currently trading at 3,005 as I write this.

But prices are now bumping up against key support levels and may not yet be ready to break them.

That’s why this week is going to be so interesting to watch.

If the 200-day moving average in the E-mini S&P 500 futures can’t hold, we can expect to see a cascade of selling.

If the 200-day moving average, which currently sits at 3,017, does manage to hold in the near term and prices scramble to close back above the 10-day moving average at 3,060, we will probably see a short-term rally.

We are in the early stages of a momentum shift back to the downside. The weekly trend is still up, and I need to see a weekly close below 2,982 to confirm the weekly sell pivot. That may never happen, and the weekly trend may continue to the upside.

This week will answer a lot of questions and there is a chance prices could be a lot lower than here come Friday.

Gold prices on the other hand are continuing to march higher. There is very little resistance until the all-time high at US$1,920, and I would need to see a monthly sell pivot at least before I would entertain taking profits. I have a quick look at gold in the Week Ahead update for you above and I also analyse the S&P/ASX 200 Small Ordinaries Index [ASX:XSO].

The XSO is looking particularly dangerous after a sharp rally post-crash driven by retail punters.

Regards,

Murray Dawes,
Editor, Pivot Trader