With The Current Trading Plan Coming To Completion, We Focus On July 15

Doubling Down On The Cash Management Discipline Has Been Rewarding

In an extremely volatile market like this, the old tried-and-true ways of just buying the dip, and waiting for your stock to drift back up haven’t been working. It has taken me time to adjust to the new normal. Funny, that I had a ready-made solution staring me in the face. I have all kinds of reasons for using let’s call it CMD, and now it has proven very handy in tackling this crazy market. I wrote about CMD two weeks ago, so I won’t bore you with the repetition. Also, if you didn’t read the last article then perhaps you should, so you see what the setup was.

July 26 And 27 FOMC Means Less Than The CPI Number On July 15

As far as last week, I have to say that the trading plan matched the price action to a “Tee”, it was a success, if I may say so myself. We had the nadir of the indexes Thursday, and the market ended up rallying into the close on Friday. Of course, it will get a grade of A+ if the rally runs for a few days next week. Then of course we’ll start building back cash again (by trimming) for the next date to trade to, and it won’t be the FOMC meeting on July 26-27, but the economic calendar lines up so that on July 15 the CPI number will be revealed. So we have a bit of a narrow window to reap the reward if there is any. The reason why the next FOMC is less important is that a majority of pundits are looking for .75%. Powell may or may not have an early look at the CPI, and we may have some early hints this week. Powell is an incrementalist, and if he publicly leans toward .50% it should mean that the CPI has improved enough to start planning to ease off the hawkish stance. If no hint from Powell, then we assume that the CPI wasn’t low enough to make a difference. The set-up as far as the calendar this week and next reads is a carbon copy of the last example. The wrinkle is as I said Powell could offer some hint of .50% instead of .75%. Why is that a possibility? Let us for a moment discuss the CPE results. Core CPE less food and energy did improve in April from 4.9 to 4.7, and overall CPE stayed the same @ 6.3. There’s a good chance that with gasoline coming down a tiny bit, we could see the overall number for the upcoming CPI move down a tick. Will that be enough for the Fed to relent and give us .50% instead of 75% I don’t know, but it might give the market some time to rally. I say this because even if the FOMC announcement keeps the expected .75%, market participants looking ahead will extrapolate that Powell’s plan is working.

Even with all these variables, I think we have enough leeway to make some decent alpha, hopefully on top of the alpha we pick up this week. Well, that’s the plan, and CMD takes a central role, consciously loading and unloading cash guided by the indicators we follow and weighing the probabilities. Not that I am actually calculating probabilities statistically, I am about qualitative, not quantitative analysis. Not saying qualitative is better than quantitative, we both can get it very wrong, though quantitative can do it more accurately. That was a joke. My point is if you have the conviction that starting Tuesday the market will rally, and we start loading back cash gradually. Meanwhile, you test your thesis all along. Does Tuesday have no rally? Is there any new news? Are the indicators showing more downside requiring changing tactics, or holding steady? This is where the hedging and/or shorting activity come in. Right now, I have been betting against individual stocks instead of hedging using the indexes. My thesis is that we are lifting off from this 3750 level, and if I am going to execute a general hedge here, I think it would be wasted. If you can isolate stocks or sectors that can’t adapt to the current tighter-money economy, better to short them, since their upside should be limited. Two areas I’ve identified are emerging EVs and Bitcoin-related equities. I guess this leads me to…

My Trades

I am still long BITO Puts, but I closed my higher premium Put options when the Put spiked, and then I bought some back when the stock rose a bit, lowering the price of the Put. So trading around positions works for the downside bets as well.

Digital World Acquisition Corp. (DWAC) I have alpha here, but I’m playing the long game this time. With all the board members being subpoenaed and resigning from the board, the handwriting is on the wall. Also, if you still bother to keep track of already-announced SPACs mergers, a bunch have been canceled. Clearly, the climate for the viability of SPAC mergers is becoming more inhospitable. Perhaps there are other SPACs to consider, meanwhile shorting DWAC is working out just fine. If it strengthens in this rally, I will add more puts.

For the EV shorts right now I am sticking with LCID, and RIVN, but there are a wealth of targets, like Fisker (FSR). The problem is most EVs are already penny stocks. We will be shorting names in new sectors and will be revealed in the next installment.

I rolled my long Oil ETF (UCO) Calls out to August, as I expect WTI to head back to 120+.

I have been trading around current positions in Alphabet (GOOGL) Microsoft (MSFT), Amazon (AMZN), building back Intuit (INTU), Adobe (ADBE), and Meta Platforms (META).

I am adding to Salesforce (CRM), Oracle (ORCL), Exxon Mobil (XOM), and Philip 66 (PSX), I decided to close out APA (APA) and use the funds to add to AMZN as it got near 100 again. If the market moves like I think it will, I may go to some of the smaller-cap tech names. I started Disney (DIS) as a 6-month trade now that it fell below 100. If it breaks 90, I will add more. I briefly added SNAP to the inventory when the news came that the FCC is raising concerns that TikTok still continues to share data with the SEC. Then the next day I thought the better of it, since I have been building back the META position. The TikTok news also affected my desire to accumulate more ORCL since they provide their cloud services to run TikTok. I also started a position in ServiceNow (NOW), but I am not sure how big it will be. I started an equally small position in Zoom Video (ZM). I think both have found support, still with the volatility going on, these names could be pressured. If so, I could add to them. If they lift from here, I may close them out and add them to more developed positions. Finally, I have an open order for Nike (NKE) at 98.76 for several shares. I see it similarly to DIS, great growth names that are having their PE ratios compressed. I know that I said that these days call for concentrating on the number of names in your portfolio. I just think that we could rally for the next few weeks and that the risk has lowered a bit for now.