Navigating the "Trust No One" Stock Market

Lately, I've been getting a kick out of watching the new Netflix movie where investors grow angry and suspicious after learning of the sudden death of a young cryptocurrency exchange pioneer.

You'll have to watch it yourself or read someone else's description of the plot to decide whether the film is worth your time.

But the Netflix folks had me from the start, with the 3-word title...

Trust No One

It's not because I'm a huge believer in conspiracies (I'm not). But adopting the attitude of "trusting no one" is a good idea - powerful mental preparation - for any investor or trader.

The act of always questioning, always remaining skeptical - helps us deal with the normal fog of confusion and chaos that always hangs over the markets.

For many of us, that's the most infuriating, frustrating part of deciding to invest or trade our money. Our brains are hard-wired to seek out certainty and security. But the markets are anything but.

To me, this is an especially appropriate time to "trust no one."

We have well-known traders out there saying this:

And the market itself - though down about 1% in holiday-overnight futures trading - is up more than 14% off last year's lows, giving hope to many that the worst is over:

Soft Landing...or Not?

In my opinion, there's a lot of FOMO (fear of missing out) that's driving the stock market these past few weeks.

For example, I thought this chart from a macro economic research firm puts an interesting perspective on "soft landing" mentions in the media - notice the spikes in the chart below?

As the chart demonstrates, headlines about an economic "soft landing" were a big deal in 2001 (in the middle of the 2000-2003 bear market) and in 2007 (as the 2007-2009 bear market was just beginning).

Are we about to experience a third time where the "soft landing" headlines didn't match up to stock market reality?

Like I said...."trust no one."

For example:

• The latest report on producer prices, with the Producer Price Index (PPI) saw its largest monthly rise since June of last year. Wholesale prices jumped 0.7%, while economists predicted an 0.4% increase.
• The Federal Reserve's Cleveland-district bank president Loretta Mester said she thought there was a "compelling" case for a half-point interest rate hike at the upcoming January 31-Feb 1 meeting.
• Last Tuesday's CPI report also came in hotter than many expected.

The other thing I've been looking at lately is oil prices. They're still 5% lower than in mid-January, and 14% lower than in November:

Would weak-and-weaker oil prices really be the case if an economic "soft landing" were really in the cards?

Beware Fake Breakouts

The last point I'll leave you with...is this chart of ARK Invest (ARKK) these days versus the Nasdaq QQQs in the 2000-2003 bear market. The 2 are mirror images of each other, a point I've made many times before.

But I want to zoom in even more...you'll see 2 spots in late 2002 and early 2003 where the QQQs staged "fake breakouts" much like the ARKK etf is doing now - rallying just past the dotted red line (which represents in both charts a 50% rise off the prior lows):

My point is...it wouldn't surprise me to see our own stock market - as reflected by ARKK in coming days - do exactly the same thing.

I think we could see a similar fake breakout or two in the next couple of weeks - as everyone comes back from the holiday, perhaps even more excited that the market has indeed bottomed.

Trust no one, indeed.

Jeff Yastine