Its sidelines time
Market participants have become lazy. If you looked anywhere Friday afternoon you would’ve never guessed that the market finished down on the day given how excited everyone was about some uncorrelated garbage pile ripping higher. As I write this on Sunday midday and BTC is sitting under $100,000, people are now talking about how this weakness is an amazing buying opportunity and the market will be green against this implied downside pressure that BTC is showing (about 1.5% in the nasdaq about 1.1% in the S&P 500) *AND* the losses on Friday by close of business on Monday.
Listen I’ve said for a few weeks now that the Iran stuff isn’t important until the supply of oil is disrupted. As China needs the low cost oil to keep their economy dragging along. While its never really good to be flip about a serious topic like this, much of the bombing on both sides has been not much more than a e-peen contest. That doesn’t mean we can’t make money on it, but now with Iran at least being slightly more serious about shutting down the Strait of Hormuz, or at least making it much more risky to travel through there, the cost of oil is likely going to rip.
One of the issues I have with traders is when there is a Tectonic Shift to any aspect of the global economy technicals don’t hold. While it might be fun to think lines and levels matter, as has been shown time and time again when a shift happens however things were trading has no barring on how they will trade. This isn’t always negative, as look at the data center building out because of improved AI search causing Nvidia to break all levels of resistance and just never even pause.
If (and this is a big if) the geopolitics situation right now doesn’t settle, we’re in for another levels don’t really matter as everyone rushes to the exits.
Let me give you two examples, first is bitcoin which is currently down just under 5% since Friday’s market hour close. Saylor’s break even has been creeping up and up and up as he and Ryan Cohen have been the two major incremental buyers in crypto the last six months. If a risk off environment breaks btc (various levels) below his break even levels, then he could be forced to liquidate by his bond buyers, or (depending on the bond issuance) they could take his coins. This could cascade quickly to the downside. Levels be dammed. (Also it would provide a solid buying opportunity for those who are very bullish on the space after he’s out the market, as I’ve said for awhile).
Even in fiscal trading stock land, the large ‘long tech short energy’ type trade that almost everyone has on in some fashion could cause another massive tech unwind like it did in 2022. Even if oil doesn’t go into the 100 levels and stays in the 80s.
Add in the fact that we’re in a thinly traded market (not much volume) which gives an oversized affect to the buying and selling of CTAs and corporate buybacks, it is good to remember that CTAs are neutral in this market (and lean slightly towards selling in all tapes) and the buyback blackout window (the period of time before companies have their quarterly report that they’re not allowed to buy back shares in) both of which are just removing some of the massive BTD impulse of the market for the next few weeks.
Given all of this as a set up I continue to believe you want to stay on the sidelines near term on this market.
I know there are people out there who are able to find bullish charts even in bear markets but this market just seems complacent and if there is a move to the downside it is likely to be violent. Led lower by semis.
All of this points to a just selling some close to ATH covered calls out to July or August on positions you like and then buying them back if the market stabilizes. Plus cutting less important stuff to build up the cash position to buy any medium size dip that comes our way the next few weeks. That’s what I’ve been doing and what I will continue to do until the market stabilizes and we don’t see random stocks flying up 40% in two days because its mentioned a lot of wall street bets.
A couple of weeks ago I did a quick rant on S&P 500 inclusion and how the committee is clearly trying to stop funds and retail traders from front running names and then dumping them on the index.
In the last two weeks, Carvana and Applovin are both down 15%+ and Robinhood is flat from its high on Friday the 6th. This is exactly what the committee didn’t want. If these companies were all good and have strong shareholders bases CVNA and APP wouldn’t be down as much (and looking like they’re heading lower), they would be like Robinhood.
I personally think Robinhood is heading to the mid 60s within the next month if the market displays any weakness, but even so it holding up is better than the others. This is what the committee wants. I still think they’re going to target less ‘hot’ names in the next few quarters, but Robinhood likely got bumped up their list if it doesn’t dump very hard in the next few weeks.
As for what I’m interested in buying on the dip. I think alchol stocks are finally getting cheap enough to be worth a punt. Here’s a long term chart of TAP (Molson Coors). These are long term uptrend lines and with a 4% dividend (but heavy ish debt load that’s termed out past 2032 at about a 5% carry), 5% short float, 6x forward EV/Ebitda and P/e of 7 on the same forward numbers, this isn’t gonna win any awards for best investment of the year, but its cheap enough that it should be bought soon and if there’s even the slightest hint that alcohol sales have started to stabilize and move to the upside, this should head to 64 - 68 quickly. I bought a small amount this past week and as long as it doesn’t break below that light blue line ($47 a share) I think its worth paying attention to.
The other sector that looks broadly interesting is retail. Only if you think that either the tariffs are officially dead dead dead or the consumer isn’t rolling over. If that was the case then GAP and AEO are both extremely cheap and maybe Nike is interesting here…..probably not but maybe on Nike.
Others are continuing to target Hasbro/Honeywell/Reddit.
Watch for my Marvell and Broadcom targets.
And continuing to add to dips in energy as I continue to believe it will be the leader in the next few quarters.
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