It is still very early in the session, but so far it appear we are bouncing right at the trend. Again, I had drawn this line months back, we finally just came back to test it. Sometimes markets deviate far from the trend but eventually they always find their way back home. If you look closely that is 15 weeks within that trend we have touched that uptrend line. It is the point of interest to focus on. We could still very well close below it, but I will have to update you on that tomorrow as I have to get this out intraday for all the traders wanting their options data.
I get everyone has been in a little panic because of this 6% dip but step back and look at where we were when this trend began, the SPY was below 350, it is up almost 30% since then, pullbacks are completely normal, you can see how many we’ve had within this trend, there is really no need to get so flustered, stocks can sometimes go down too. Zoom out to whatever timeframe you want 20 years, 50 years, etc stocks typically are up and to the right with some dips along the way.
The questions I get asking me why there weren’t more puts on the way down like there were calls on the way up and the answer is because what percentage of market participants are short? It’s a fraction of all the trades daily. Think about how many calls are bought daily vs puts bought? Most market participants are long and small pullbacks aren’t on their mind. Sure you have some who hedge, you have others who are bearish, but buying puts is a losing proposition more times than it is not. Today is OPEX as well, let us wait and see how markets react on Monday once we’re past this.
Overall, weakness is expected, for starters the RSI was at max overbought for quite a while and then we had pretty mediocre earnings from most of the megacaps that carry the market. Considering where interest rates are, this isn’t the past decade where you have to own tech stocks, there are other alternatives. When things like Apple are showing negative growth while Microsoft and Google are showing mediocre single digit growth. 5 years ago you had to own these things, today you do not, and outside of maybe Amazon or Nvidia, none of these megacaps are showing much in terms of future growth, and no, buybacks are not a catalyst for me. Seemingly every megacap whether it be Apple, Google, or Meta the thesis is “but buybacks!” sorry but buybacks are a sign management has no idea how to invest in future growth. Boeing once did tons of buybacks over $400 and it is all gone now, buybacks may appeal to some investors, but investing in real growth is what should be the focus especially if you’re supposed to be one of the most innovative companies in the world.
With all that said, the markets look ok, but over the last 2 years we are still negative at this juncture with the SPY sitting at 450 at the end of August 2021. So we are normalizing off the big selloff last year but believe it or not equities as a whole have done nothing in the last 2 years.
So take a deep breath, look at how your portfolio is performing over the last 2 years, and if you’re beating the market, pat yourself on the back. Remember most funds don’t even outperform the market. If you’ve been here long enough and followed along, we have done great and we’re going to continue to because I have a longer term focus on where the strength over longer timeframes is appearing in options. Last year was about as rough an environment as you will ever see with inflation, war, oil rising, etc and we survived and thrived here. Have I been hit this quarter? Sure, I gave some back but I’d say all things considered, having not made a trade since May, being up 7% this quarter while the Nasdaq is down 3.5% is a great quarter for me I have nothing to complain about, that’s a good year for many.
Like I said above, longer term, I would have to give up alot to underperform the market. This substack began June 8th last year and you’ve seen all my positioning since and even with this recent dip I’m still up 121.5% in 14 months. Even last year, the markets were quite red and I still kept finding pockets of strength.
The SPY is barely up 7% in the 14-15 months I’ve been doing this, so no, I’m not mad that I didn’t cash in Amazon after that recent earnings move up. I still think it goes materially higher but it is caught up in the overall market sell off. That is why I tell you your trading account needs to be money you aren’t going to stress over day to day if you’re going to try and be aggressive because the emails I got this week, many of you are letting your emotions get to you. This dip really isn’t even substantial and you need to get your emotions in check. Unless your thesis for the trade has changed or a chart has broken, there is no reason to get panicked.
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