10/23 Best Idea For The Week Ahead

What a rally we had Friday. A FED speaker merely mentioned the idea we may slow down hikes and everybody just tripped over themselves to buy stocks. Look, while I’d love to be an optimist and tell you that’s the prudent move, she never mentioned anything about cutting rates, just slowing the pace of hikes. If the FED does another 75 bps in November and then what she suggested ie 50 bps and 25 bps we are still pretty much near 5%. You are talking the risk free rate yielding 5%, stocks would have to have an earnings yield much higher like 8-9% to be a worthwhile venture meaning the P/E of the S&P would need to be like 11-12x. Even 12x the $235 number everyone is throwing out(that we won’t hit btw) we would still be at 2800 on the SPX. This doesn’t even factor in the massive $90b/month of QT we are doing simultaneously regardless.So my bullishness with the rally Friday is not shared for the overall market, certain sectors, like energy, yes.

Let’s look at some charts. On the daily of the SPY you can see we reclaimed some big levels, the MACD firmly positive, as a trade, there is something here to be bullish about.

As we zoom out and look at the weekly chart of the SPY you can see we got rejected by the 8 week, so on a longer timeframe we really have not confirmed anything at all. The MACD is still negative, but a bullish divergence is forming. I would say nice progress, but we are still not out of the woods or anything.

Today’s Unusual Options Activity & What Stood Out