Beware the Ides of March? | With Dale Pinkert
Audio Brief
Show transcript
This episode of The Market House features trading coach Dale Pinkert analyzing a volatile week in equities driven by a trifecta of concerns regarding private credit, geopolitical escalation, and the sustainability of the AI rally.
There are three key takeaways from this conversation. First, the bond market is signaling a flight to safety that contrasts sharply with equity market behavior. Second, major tech leaders like NVIDIA are exhibiting exhaustion signals that could forecast a broader downturn. Third, investors should adopt a specific relative strength strategy during high volatility days to identify the next cycle's winners.
The conversation begins by highlighting a critical divergence between the bond and stock markets. While equities are selling off, Treasury bonds are showing strength, suggesting a flight to quality. Investors are favoring Treasuries over corporate or junk debt, causing credit spreads to widen. This indicates that current market fragility is driven by underlying economic concerns and credit anxiety rather than simple inflation fears.
Regarding the tech sector, Pinkert points to a disconnect between positive news and price action. Despite strong earnings reports from companies like NVIDIA and Block, rallies have failed to sustain momentum. This sell the news behavior is particularly concerning in NVIDIA. If the stock breaks below the critical one hundred seventy dollar level, it would signal a failed rally and a potential island top pattern. As a bellwether for the entire market, a breakdown in NVIDIA suggests it is time to reduce risk across semiconductor exposure.
Finally, the discussion offers a tactical approach for navigating this volatility. Pinkert advises monitoring relative strength during aggressive sell offs. When the broader market experiences a significant red day, investors should identify assets that remain green. These outliers, such as the recent resilience in Treasury bonds, often emerge as the strongest buy candidates for the next cycle. Conversely, on strong rally days, assets that remain red become prime candidates for short selling.
Investors are advised to remain cautious with traditional safe havens like gold until there is broader confirmation from silver and mining stocks.
Episode Overview
- This episode of The Market House features host Maggie Lake and trading coach Dale Pinkert analyzing a volatile week in the markets, characterized by a sharp sell-off in equities and a rise in the VIX.
- The conversation centers on a "trifecta of concerns" currently unnerving investors: growing anxiety around private credit, fears of geopolitical escalation involving US troops, and skepticism regarding the sustainability of the AI-driven tech rally.
- Pinkert provides technical analysis across multiple asset classes, including bonds, the US Dollar, precious metals, and the semiconductor sector, offering specific price levels and strategies for navigating what he predicts will be a significant market shift.
Key Concepts
- The Bond Market Signal: Contrary to the fear in equities, the bond market is showing strength. Pinkert highlights a potential weekly breakout in Treasury bonds (TLT), suggesting that investors are fleeing to safety (Treasuries) over corporate or junk debt. This flight to quality indicates growing credit spreads and underlying economic concern rather than just inflation fears.
- The Divergence between Tech Leaders and Price Action: A critical concept discussed is the divergence between news and market reaction. Despite NVIDIA's strong earnings and Block's (SQ) positive revenue, the market failed to sustain rallies or sold off. This "sell the news" behavior, particularly NVIDIA failing to squeeze shorts further, often signals exhaustion in a trend.
- Geopolitical Risks as Market Drivers: Beyond economic data, the market is pricing in existential threats. Pinkert argues that the current market fragility isn't just about interest rates but includes the looming threat of military escalation in the Middle East involving US troops, which could disrupt supply chains (specifically impacting oil and semiconductors).
- The Dollar Index (DXY) as a Long-Term Indicator: Pinkert points to a massive, decade-long trendline on the DXY chart. He explains that price action around this specific level (near 103-104) is crucial. A confirmed break above this trendline would suggest a move back toward 102 was a false breakdown, potentially signaling a major reversal in currency markets that could pressure other assets.
- Market Sentiment vs. Market Reality: While many retail investors are looking for "safe havens" like gold, Pinkert notes that gold has struggled to confirm highs while mining stocks (GDX) and silver are lagging. This lack of confirmation across the precious metals complex suggests that the "safe haven" trade might be more complex or delayed than a simple buy signal.
Quotes
- At 1:58 - "Credit spreads are widening, people want treasuries, they don't want junk and corporates as much anymore." - explaining why treasury yields are dropping even as credit concerns rise.
- At 8:31 - "You can't eat gold and silver... everyone is bearish grains and they're all acting like they've either bottomed or starting to accelerate to the upside." - illustrating Pinkert's contrarian thesis on commodities for the year.
- At 10:43 - "Use your imagination in these charts and draw lines... There's the obvious lines that everyone sees, but use your imagination." - teaching his approach to technical analysis beyond standard textbook patterns.
- At 14:18 - "I wouldn't get bullish the market until NVIDIA cleaned out... got to its objective. And I think we're on our way now." - identifying a specific stock as the bellwether for the entire market's directional turn.
- At 26:37 - "On a big red day like we had today, look at what's green. Those are your buy candidates. On a big green day, look at what's red and those are your short selling candidates." - providing a simple heuristic for identifying relative strength and weakness.
Takeaways
- Monitor the "Safe Haven" divergence: Do not blindly buy gold as a hedge right now; instead, watch for gold to hold the $2,050 level while looking for confirmation from silver and mining stocks before committing to a long-term position.
- Apply the "Red Day/Green Day" filter: Use high-volatility days to identify relative strength; specifically, if the broader market is selling off aggressively, identify which assets are staying green (like Treasury bonds in this session) as potential buy candidates for the next cycle.
- Watch the 170 level on NVIDIA: Use NVIDIA's price action as a proxy for the broader tech sector; a breakdown below the $170 level (referencing the post-earnings low) would signal a failed rally and potential "island top," indicating it is time to reduce risk in semiconductor exposure.
