4/6/25 Ideas For The Week Ahead

We closed up at lows friday for the second straight day as nobody wanted to hold into the weekend with who knows what potential escalation from Trump who promised retaliation if anyone raised tariffs which China did. Any close at lows is not good, two in a row is a clear lack of buyers. My honest opinion is that we are looking at a minimum of 6 months before things can stabilize if tariffs remain in place. Why? Nobody is going to be able to give guidance this quarter on their earnings call, how can anyone know what impact to sales or earnings is coming with all the uncertainty going on. It’s just impossible to project anything at this moment and that uncertainty leaves analysts wondering what to model, we’re currently looking at estimates of a 15-20% earnings decline. We probably have a dead second quarter where nobody knows what happens followed by a third quarter where we can finally start to see what life is like under these tariffs and begin to model it, which is why I’m going with 6 months. That would leave us around October earnings season to start to finally have a grasp on what Q4 and 2026 numbers are going to be like with a full quarter under our belt.

The amount of technical damage done is enormous right now. We closed up below the 100 week on the SPY for the first time in over 18 months as you can see below. The last time we were here in October 2023, we instantly began the massive uptrend we were in for 15+ months. I don’t believe next week will be the start of another uptrend although we could have a deadcat bounce just because we are so overold. The problem with markets today and the algos that do most of the trading is when you get a broken chart, the damage takes so long to fix. Look where the 21 ema is above on the daily, it is still over 560, we’re at 505, for that to come down assuming we’re flat the next 21 days, it will take a month to get to where we are and then it needs time to flatten out and for us to reclaim it. In that case you’re talking minimum 6+ weeks for that 21 ema to flatten out with a potential to reclaim it. Which is part of why I said, do not expect a quick comeback, it could happen, but the likelihood is low. I think if you tell yourself 6 months at best and anything sooner would be a welcome surprise, you will feel better about how things play out. This is a period to sustain yourself, don’t think about getting rich to the long side, think about not blowing up in all the upcoming volatility, because the moving averages will settle, it will take time, and you will have plenty of time at some point to catch huge gains to the long side on another uptrend.

This was a great chart by Luke Stein, going back to 1940, this was the 6th largest 2 day drawdown in the S&P since the Fall of France to the Axis troops. So we’re in some rarified air at this moment in terms of the speed of the decline.

Historically speaking, this actually was a major event and it came out of nowhere with that after-hours surprise on Wednesday. The initial reaction during his speech had the market rising, then the surprise tariffs on China came through. With the other crashes, they were somewhat telegraphed so you had a little time to move out of the way beforehand, the last one we dealt with in Covid, you knew something was wrong with all the videos coming out of China and the draconian measures taking place there. The GFC did not happen overnight, this event was more like 9/11 to markets in terms of how big a shock it actually delivered in 1 day and I can’t remember another event of this magnitude of surprise to the overall market in recent times.

So how far does the pain extend from here? It is really hard to tell because we have no clue if someone important will give in on the tariffs. China certainly dug in yesterday which the market did not like. Historically speaking, the 200 week on the SPY is a very good place to buy for the long term, we do not touch it often but if you bought there the last 2 times we touched it in a crisis, you were quite happy 12 months later. Right now it sits at 466 and considering we closed below the 100 week yesterday, it appears we have a date with destiny there in the near future. Remember now, it is still sloping up so it will be higher than 466 going forward. Since 2012, we have 5 closes below that 200 week on a weekly basis. I’m going to bold this for you so I can reiterate how rare a close there is. Since 2012, we have 5 closes below that 200 week on a weekly basis. That 200 week is less than 8% lower, so likely, we are close to a bottom.

If we step back and look at the covid crash, below, which was the last sharp decline similar to this one, we spent 3 weeks below the 200 week to give you context of how bad it can get at the depths of a crisis. This current crash we are still well above the 200 week. So when do you panic? When you get multiple closes below the 200 week.

So what do you now? For starters you don’t panic, we’ve been through countless crashes and we always resolve higher. When the SPY went from 340 to 220 in 6 weeks during the covid crash the world also felt like it was ending, and it might have then. We didn’t even know what covid was, you had videos of Chinese people collapsing in the streets, you had the one video where they caged up a guy at the airport and we were left scratching our heads in America about what was going on. That was a real crisis, this is a manufactured crisis where the market can’t put its finger on what is coming in terms of earnings and it does not like that. The next few quarters will have rough earnings, you’re going to have to throw out all those estimates you are using for EPS and just go in blindly when trying to guess what is coming. Companies will be hesitant to guide which the market will not like. In 2022 we had a similar situation where inflation was a wrecking ball after the Russian invasion of Ukraine and we had a few rough quarters there but ultimately ended up 70% higher 2 years later.

To avoid further pain here you do not play short term calls at all, yes there will be sharp bounces along the way, but even if you catch those, because the VIX is so elevated, you may not even profit. You have to be a seller of premium in these situations and you have to either use leaps or commons if you want to be long. The reason leaps are fine is because you can sell elevated short term calls vs them and reduce your outlays with equally juiced calls. You also have to understand we’re in a new paradigm and the old names that led us forever, they are fantastic companies still, but because of their reliance on manufacturing in China, they are going to have a very rough time until that battle is sorted. So names like Apple, Amazon,Meta, and Tesla were hardest hit this week for a reason, do not try to be a hero there. You can buy shares and think long term, but in the medium term, it won’t be easy there. Although I do still think Musk is going to have some epic pump up his sleeve soon with cybercab and Optimus. The others really have no upcoming catalysts to excite anyone and if the tariffs stick for long big tech in general is in alot of trouble.

Honestly, the reason this past week caught me so off guard was I always thought Trump would target China as retaliation for his first term and Covid. I figured there would be tariffs geared at them specifically, but nowhere near the 54% he announced. I also did not see him going after the rest of the world at the same time. I thought whatever tariffs he did announce would come in tiers and rolled out over a period of time to where countries had time to meet his demands or negotiate. Instead he just went after every country at once and surprised on the severity of the tariffs. Lastly, I figured the tax cuts he talked about would come first to lighten the blow of whatever was coming because tariffs are taxes I don’t care what Donald says, without the tax cuts you’re just causing everyone more pain. I was wrong on all fronts.

So what will work? I’m going to do something a little different this week and instead of focusing on 1 name, I will go over 10 different names, none of the Mag 7, in depth, with their charts and option flows with a focus on put sales where institutions are looking to buy. I’m going to think longer term because I do think the weakness will be months. These are just trades I think can work in this next 6 month period where equities potentially struggle. In periods like this you want to take names you don’t mind owning and selling puts lower, quality names that are extremely oversold. I always tried in all my recaps to highlight trade ideas and put my spin which always involved selling puts lower because you should always be focusing on lower. It doesn’t matter if you like a name, stuff like this past week happens, and lower is always the goal for an entry because names don’t act rationally.