Legacy Research Group

Around 2:30 p.m. last Wednesday, the markets went from the depths of despair to a brand new high…

All in the space of 48 hours.

Since then, the market has continued higher… reaching all-new record highs.

Trading the market is hard… investing can be hard too. It’s that emotional element.

We noted in The Daily Cut last week that if you’d fallen asleep on December 31 last year and woke up on January 18, you’d think nothing much had happened.

On that date, the market was just about dead flat for the first few days of the year. And yet, between those dates, stocks had fallen 2%… then risen 2.5% from the low… and then fell another 2%.

What a trip!

It’s at times like this we’re happy to have the insight of Larry Benedict. It was Larry who brought to our attention the significance of the timing of last week’s turnaround.

The question, as always, is what can you do about it now? We’ll share a thought or two below. But first, today’s key market action…

Market Data

The S&P 500 closed up 0.1% to end the day at 4,868.56… the NASDAQ gained 0.4% to close at 15,481.92.

In commodities, West Texas Intermediate crude oil trades at $75.35, up 85 cents…

Gold is $2,013 per troy ounce, down $16…

And bitcoin is $39,654, up $541 since yesterday.

Now, back to our story…

“I saw this back in the 1990s”

This week, your former Daily Cut editor, Chris Lowe (he says “Hi” by the way), sat down for a chat with trading legend Larry Benedict.

It’s no lie when we tell you that Larry is the most impressive trader we’ve ever met.

When he ran his hedge fund, he went 20 straight years without a single lowing year. That included during the 2008–2009 financial meltdown.

And during 2020, when the market collapsed and investors went crazy during the Covid pandemic, Larry locked in a 58% return for the year.

He didn’t do that speculating on meme stocks or “stay-at-home” stocks, or anything like that. He did it by following the same strategy that has worked for him, year in and year out, for more than 40 years.

Anyway, we bring this up because Larry has a knack for spotting key trends and moments in the market.

This came up in his conversation with Chris Lowe this week. Here’s what he told Chris:

On the technology side, the first week of the year was a bloodbath for tech. It was down almost 2% for the year…

Then the mantra changed. Last week at about 2:30 [on Wednesday], all markets were down, and they had a massive recovery where the S&P went up 3%, and the Nasdaq went up over 4%. That all happened in literally a day and a half. That took us to new highs.

[The] iShares Russell 2000 ETF (IWM), small-cap stuff – anything outside of the big Magnificent Seven – are not even close. They’re completely underperforming, and that’s an interesting take.

I saw on Friday, something – I’m not 100% on this – but I think Apple itself was 18% of the full S&P gain for the day. I think in the Invesco QQQ Trust Series 1 (QQQ), it was more than that, and that’s just a big problem moving forward with the weightings of these names because they’re priced for perfection.

The big so-called “Magnificent Seven” stocks do have an outsized influence on the market. Overall, those seven stocks (Alphabet, Amazon, Apple, Microsoft, Nvidia, Tesla, and Meta) account for around 28% of the entire S&P 500 index.

Add Broadcom, Adobe, and Advanced Micro Devices, and there’s another 2.6 percentage points of tech-related market influence.

This market concentration issue has been a story for a while. So everyone knows it’s a thing. But what few people can figure out or predict is when it will begin to have a long-term negative impact on the market.

In the short term, we’ve already seen what can happen. Just as the “Magnificent Seven” stocks pushed the market up to highs in 2021, then “helped” crush the market into the 2022 low point, and again from July through to October last year.

But what about the longer term?

Like Micron in 2000?

Larry has a take on that. Continuing his conversation with Chris Lowe:

Look at Nvidia. It traded above $600 a share. On January 19 of last year, it closed on the low of the move at $167, so literally in a year the stock has gone from $167 to $600. To me, listen, great company. We’re not debating that, but it’s priced for utter perfection.

What makes that interesting to me is I saw this back in the ’90s with Micron Technology (MU), which was a hot, hot trading stock. It was a chip company, and it was the same thing as this, obviously at a smaller scale, but that thing ended up getting hammered and going down to like $2 a share.

I’m not saying that’s going to happen here, but what scares me about a name like that, it’s a one-trick pony, so the only thing they do is sell chips.

[Compare that to] Apple, if the phone goes slow, they have streaming. They have the cloud. They have watches. They have everything, so there are other places to derive income. Same thing with Microsoft, Facebook, etc.

But this stock is unbelievable because it’s really only one thing, and it’s a huge commodity. Huge.

If you’re not familiar with Micron Technology, you can check out the long-term chart here:

It peaked at around $100 in September 2000. A year later, it was as low as $19. By the low in 2008 it was less than $2.

From that low, it took another 13 years to get back to the old peak. And from peak to peak it was 21 years!

Now we’ll check out the Nvidia stock chart:

As Larry said, we’re not saying things are destined to repeat. It’s easy to compare one chart to another and say, “See, it’s the same.”

But overall, regardless of what happens to the Nvidia stock price, Larry has a valid concern. Because Nvidia is so high for the same reason the other “Magnificent Seven” stocks have done so well.

What’s bad for Nvidia… is likely bad for the other six “Mag Seven” stocks.

As for the rest of the year, it’s no surprise Larry worries the market has put too much emphasis on the Federal Reserve making an early cut to interest rates. As he told Chris:

[The market is] banking on the Fed in a massive way here, which I don’t think they’re going to come through. They can’t because the market is just too frothy, and the economy is too good.

So we’ll see come March when they don’t cut rates and in April what the market does, because a lot of times since I’ve been trading, the market always forces the Fed’s hand…

Like you saw last year at the end of the year with interest rates, the Fed did nothing, but basically, markets readjusted to what they think the Fed was going to do.

But stocks and interest rates aren’t the only subjects Larry and Chris discussed. Naturally, the subject moved on to Bitcoin, and Larry’s take on where it could go next:

Now today, what’s interesting is it’s down to $38,000 and some change. So, really if you take $10,000, you’re talking about down 25–30%. We haven’t seen a move like that in a while.

What’s I think good for us is [tonight] I have my Bitcoin skimming webinar. I think it’s perfect timing because now volatility is up. Uncertainty is there, and that’s where we can really do well.

So I’m expecting in the next few days after that to have a trade that will really capture the next move in Bitcoin… I think people are shocked. They didn’t think it would get down here.

It hasn’t been here in a while. It’s been over $40,000 for months and months and months, so now we’re in uncertain territory. I don’t know if it trades down to $35k or $34k, but there might be a good opportunity in here to take a look at the long side.

Larry acknowledges he’s not a Bitcoin expert. He’s never owned, bought, or sold it. But he has found a way to trade the Bitcoin price and the crypto industry, without owning Bitcoin.

Larry explains everything in the special presentation he’s hosting tonight at 8 p.m. ET. You can go here to join him.

In short, while the market is now at or around a new record high, it’s easy to get carried away by the excitement.

But it’s exactly at times like this when you should exercise caution, make sure you have a risk management plan in place, and look for opportunities to play the market for the short term, so you don’t have all your capital exposed to the market action.

Before you make that next investment, just stop and think whether it makes the most sense for you.

“How Dare You!”*

We don’t think our newest trading expert will make it to Greta Thunberg’s Christmas card list… not with this in his driveway…

It’s “Goliath” – a modified Ford F-650. (We’ve seen footage of it out on the road. The horn sounds more like a locomotive horn than a car or truck horn!)

The trader who owns it heard that Shaquille O’Neal had one, so he wanted one too. He found one at an auction in Georgia. It has seating for 10 and runs 1,200 miles on a 100-gallon tank of gas.

So who is the new trading guy with the monster-truck-like car? He’s a guy who has traded the market for nearly 40 years.

In the past year alone, he’s helped investors make:

• 400% in one trade in just 30 days from trading the S&P 500 index

• 247% in 17 days trading options on Caterpillar

• 300% last September trading options on Norfolk Southern

• 136% in 18 days trading call options on the price of silver

And he’s coming to Legacy Research soon… in the next couple of weeks. Full details coming up, here in The Daily Cut.

(* We’re sure you’re familiar with the “How Dare You!” reference in the previous subhead. It was famously uttered by Greta Thunberg at her address to the United Nations Climate Action Summit in 2019. Memes have abounded since.)

The Winners Circle

The Winners Circle trades is an occasional feature in The Daily Cut, where we showcase closed winning trades from our stable of experts.

We’ll typically publish these one or two days after they’re published in the individual publications. That gives paying subscribers enough time to exit their positions.

You won’t see this feature every day in The Daily Cut, as it’s not necessarily every day that our publications close out gains.

But when they do, we’ll highlight them here.

Just note, from time to time, we’ll withhold the name of a sell recommendation if it was only a part-sell. That may be an occasion where the expert has recommended subscribers to sell enough to cover their initial stake.

This is what we call a “free ride.” That’s where after an investment doubles, you sell half, effectively meaning you’re playing with “house money” on the remainder of the investment (of course, that doesn’t factor in any tax liability you may have from selling).

Anyway, we hope this gives you a little more insight into what’s happening around Legacy Research.

If you subscribe to these services and you’ve profited from these gains, we’d love to hear your story. Write to us at feedback@legacyresearch.com and type “Winners Circle gains” in the subject line.

More Markets

Today’s top gaining ETFs…

• Global X MSCI China Energy ETF (CHIE) +4.6%

• Siren Nasdaq NexGen Economy ETF (BLCN) +2.8%

• iShares MSCI China A ETF (CNYA) +2.7%

• iShares MSCI Turkey ETF (TUR) +2.5%

• Global X MSCI China Consumer Discretionary ETF (CHIQ) +2.5%

Today’s biggest losing ETFs…

• SPDR Kensho Clean Power ETF (CNRG) -2.6%

• VanEck Gold Miners ETF (GDX) -1.9%

• Invesco Water Resources ETF (PHO) -1.8%

• U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) -1.7%

• First Trust Water ETF (FIW) -1.7%

Mailbag

If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.

Write to us at feedback@legacyresearch.com and just type “Daily Cut mailbag” in the subject line.

Cheers,

Kris Sayce
Editor, The Daily Cut