Thinking Twice About Scary Charts By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Digging deeper on a “scary” viral chart…
- Some follow-through today would signal a big breakout …
- Did you really think we were done with bitcoin?
- My mentor says, “Short the buck”…
- The last trading day before the second Trump era…
You can’t believe everything you read on the internet… It’s easy to spin a yarn in the financial world. With so many ways to slice and dice data, you can make it sing any song you like. We don’t fool around here at TradeSmith. We give you the facts that matter and the perspectives you won’t see elsewhere… always share our best guidance… and ultimately let you draw your own conclusions. Meanwhile, the mainstream financial media is hell-bent on scaring you into ignoring your trading plan and instead spending hours scrolling or reading articles that do nothing to make you money. One chart going around social media this week is the perfect example. I’ll be kind and not say who created and posted it, but here it is: 
It shows us we’re seeing the highest nominal level of cash flowing into money market funds since the start of 2023, and before that the pandemic crash. Close to $140 billion. Scary, huh? Investors are running from the market in droves! Batten down the hatches! Well, not really… | Recommended Link | | | | In May 2024, Legendary Wall Street money manager Louis Navellier predicted that Trump would win and trigger a massive boom. He was right! Just in the first week after Trump’s win, many stocks jumped by double and even triple digits. But now he’s issuing this NEW warning about Trump’s inauguration. |  |
There are two big problems here… The first is the word “nominal.” Yes, in terms of tallied-up dollars, there’s no disputing that lots of billions are flowing into money market funds lately. The problem is, when you count nominally, you miss the fact that $140 billion means a lot less now than it did five years ago. The flows back in April 2020 represented a 3% change in cash positions. What we saw this week was actually just under 0.4%. The chart below shows the weekly percentage change in blue and the four-week moving average in red. And the change in cash positions this past week was roughly one-eighth the size of the pandemic crash move in terms of actual change: 
Not only that, the largest change in money market flows of the last five years actually occurred at the start of 2023. Not only that, the longer-term trend in flows was down over the last couple years and is kind of flatlining right now. The reason the first chart is correct but not useful is simply because there’s a ton more cash in money market accounts today than there was five years ago. About 80% more, to be exact: 
Not to mention more money in the financial system in general. While down from its peak of close to $9 trillion, there’s still almost $3 trillion more assets on the Federal Reserve’s balance sheet (i.e., money in the financial system) than in 2020: 
In sum: A nominal increase of $140 billion in money market accounts doesn’t matter nearly as much as it used to. In fact, maybe we should start thinking of it as “$0.14 trillion” instead. This leads me to a second, more important point: the interpretation. The original chart was shared with the air of alarm bells and warnings. Never mind the fact that we’re not actually seeing a huge flight into money markets… But when you think about the times this happens, that’s actually a great time to buy. The pandemic crash was a generational buying opportunity I’m sure I don’t need to explain. And the next most recent spike, at the start of 2023, preceded two back-to-back years of 20%-plus gains. The next major move worth talking about? The start of 2024. We also can’t discount the fact that tax season is coming up, and investors are simply getting ready to pay Uncle Sam. Note the start of each year in the second chart above. It’s normal. My broader point in all this is you should think twice about any scary-looking chart you see in the media. Understand the brand it’s coming from. Look at the data from a different perspective. And try not to jump to action before you make these conclusions. On that note, let’s look at SPY… On Wednesday, we put forward the idea that stocks may have hit bottom. The price action of that day was certainly convincing. But let’s check in with the chart: 
The welcome miss in the inflation data got investors celebrating. They sent the S&P 500 about 100 points higher on the day, thinking surely this will change the Fed’s stance (again) about interest rate cuts in 2025. As I write at 11 a.m. Eastern on Thursday, the SPDR S&P 500 ETF (SPY) is trading above a downtrend channel that stocks have been stuck in since mid-December. Closing above the top black line would be a key breakout, and some more follow-through today, on the final trading day before the new Trump administration, would be an even better sign. You know where I stand: I think stocks go higher from here. In fact, I think it’s entirely possible to see new highs well before the end of January. As I write, that’s only a 2.5% move from here. On the other hand, we should be wary of some “sell the news” type weakness after Monday’s inauguration, especially if any fearful headlines pop up. Another major asset is showing some weakness… I haven’t talked much about bitcoin in 2025 because, thus far, there isn’t much to talk about. The King of Crypto is working off the post-election euphoria just like stocks are. To be clear, I think we’ll see much higher bitcoin prices this year, toward the $200,000 mark. But in the short term, it looks potentially weak: 
There are two technical knocks against the chart of BTC here. One is the downtrending resistance line, formed from the price peak in mid-December. The latest daily close rejected from that level, though buyers did step in at around $96,000. The next knock is a head-and-shoulders (H&S) pattern using the peaks of Dec. 24, Jan. 7, and Jan. 15. These types of patterns tend to resolve to the downside, with a price target calculated by taking the difference between the top of the head and the bottom of the shoulder. Here, I’d call the price target near the major area of support around $92,000. That’s if bitcoin doesn’t break out. If we start to see daily closes above $100,000 from here through the weekend, you want to be a buyer. Especially if bitcoin dominance (BTC.D, red line below the above chart) – or bitcoin’s share of total market cap – improves along with it. Otherwise, look to the low $90,000s as a good spot to buy. To end, an agreeable insight from my friend and master trader, Jeff Clark… Regular readers will recall earlier this week we noted a pile-on in bullish dollar bets. We saw that as a sign that the stock bears were near the point of peak exhaustion… and the dollar was near a peak. It seems I wasn’t alone in that thinking. My good friend, master options trader, and mentor, Jeff Clark, had this to say about the chart of the greenback to his Market Minute readers on Wednesday: Look at this updated chart of U.S. dollar futures (USD)… 
As the dollar index has been making higher highs over the past two months, the momentum indicators at the bottom of the chart have been making lower highs. This sort of “negative divergence” is often an early warning sign of a reversal to the downside. The dollar is overbought – just as it was in October. The moving averages are extended far away from each other – also just like October. This time, though, we now have negative divergence in place as well. It sure looks to me like the dollar index is forming at least a short-term top. So, while I didn’t recommend shorting the buck in October, the current setup looks like that could be a good trade for aggressive traders. If we have indeed reached a short-term dollar peak, that’s both an opportunity to get short the dollar and long risk assets like stocks and bitcoin. As for a catalyst… Well, there’s the small matter of the 47th president being inaugurated on Monday. And while President-elect Donald Trump has been vocal about his desire for a strong dollar, the likelihood of trade tariff compromises has also risen substantially in the last few weeks… especially as rumors abound that Trump is brokering a deal to help sell Chinese social media company TikTok to Tesla CEO Elon Musk… or do away with a ban altogether. Either outcome would indicate better relations between China and the U.S., which could send the dollar plummeting lower. To be clear, these headline-level thoughts are all mine. Jeff keeps his eyes tuned to the charts for his edge. And that will serve him and his subscribers well during Trump’s first 100 days in office. “The first 100 days” may sound like an arbitrary number that someone thought sounded nice in a political headline. But it dates back to 1933, when Franklin D. Roosevelt took office – and signed 77 bills into law to reshape the economy during the Great Depression. I mention this trivia because Trump’s policy promises have been exceptionally aggressive, too… That’s a compelling opportunity for a trader like Jeff, who brings over 40 years of experience, navigating 11 presidential transitions along the way, to seize the moment with his unique divergence pattern system. When Trump takes office next week, a lot of other investors are going to trade emotionally and overreact to news. Jeff’s approach mitigates emotional trading – something we love here at TradeSmith. And he’s holding a webinar next Wednesday, Jan. 22, to help viewers avoid getting burned… and capitalize on a potentially money-doubling opportunity over the next 100 days. Click right here to save your seat and join Jeff’s VIP list to access three free trade ideas (both to the upside and downside) that you can start using today. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily | 
