5/4 Best Idea For The Week Ahead

Let’s start with last week’s best idea before we look at some charts of the market and this week’s idea. Aside from that COHR best idea last June which jumped 50% the following week on a deal with NVDA this was probably the quickest that one of these was subject to takeover talks. Sycamore Partners was the rumored buyer this time. We will have to wait to see what comes next but as we’ve seen countless times, the call buyers have this uncanny ability to step in with the repeat buys right before this sort of thing happens. I wouldn’t get too excited yet, these retail deals are subject to failed financing and a myriad of other things look at CPRI right now for example, but this is an encouraging start to the trade.

As for the market, for the first time since we broke that uptrend, we closed over the 8 ema weekly. We had a long wick down which shows buyers took control this week and we closed above it. This is encouraging, but………

There’s always a but, right? Look where we closed on the daily yesterday, a few cents below the 50 day. Yesterday was a monster day, the /NQ was up almost 400 points, Apple just decided it was going to buyback the entire float starting Thursday until there was 1 share left. Everyone cheered and stocks rallied hard but evenso, the rallied stalled right where it would if they wanted to trap all the buyers. So until we get some closes over this 50 day combined with the 8 ema crossing up over the 21 ema and sustaining it, I’m not going back into the bullish camp. I’m in the camp that this is encouraging, but you won’t fool me until you prove it to me.

Going back to our last trend break in 2023, what you will see below is a similar pattern, we broke trend, bounced back over the 8/21 ema for a few days and ultimately went lower right to the 200 day which we have not tested yet, then made another bounce where the 8/21 ema did not crossover, failed, and broke the 200 day for a few sessions and then and only then did the 8/21 ema cross bullish again which began that 6 month long uptrend we just ended. So my point is, even the first confirmation of a bullish crossover, it can be a trap, so for now, longer term positions are fine, but I still do not think it is time to play with short term calls ie anything under say 3 months.

Right now all the megacaps have reported except NVDA in a couple weeks, usually the market goes into a lull here with no catalysts anymore after the big reports. When the market is an uncertain phase like it is currently in terms of news and technicals, the best way to avoid uncertainty is to focus your efforts on takeover names. Those of you who were in here back in 2022 or dig back through the archives know that I completely avoided the market selloff in 2022 and outperformed dramatically because I stuck to Twitter during those takeover rumors with Elon Musk. The stock completely ignored what the market was doing. Right now, names like JWN above or even something like US Steel or Capri that I mentioned yesterday, takeover names would hold up better should the market continue to move lower.

Also for the first time in forever China looks better than we do, China is too hard for me to play in because there always seems to be some headline from their government that sends things lower and their financials are very sketch at best. I can’t deploy enough capital to where I could generate a substantial return and still sleep at night, but names like Alibaba have been awful for years, still 75% off highs, but BABA did cross the 200 day for the first time in months this week and as you can see below, it may be time for China stocks. As always sell puts much lower and let things come to you, but this is an encouraging development if you’re looking for alternatives to our market.

So this week I have another potential rumored takeover name that has seen alot of bullish option flow recently similar to what we saw with JWN and if this week was any indicator the sector is very hot right now. I have a put sale to suggest this week to potentially net 20% in a short period of time