My last post here was over 4 months (!) ago. I’ve been occupied with work a lot more lately, and probably missed some opportunities in the markets but it really hasn’t been that interesting this year. The Dow, S&P, and NASDAQ have all broken free of the major down trend that lasted all of 2022 and have meandered for the last few months in a fairly straight line, except for a dip after the regional bank scares. Central banks and governments are taking less aggressive moves on interest rates and spending. This can be dismissed as a normal mean reversion - which at one point felt like it would never come.
This week we are starting to see some action to the upside. Although my inclinations remain bearish in an environment of slowed money supply and rising rates, I have not been convinced to enter new positions yet. That could start to change soon, even as the NASDAQ charges past last summer’s high today.
Leveraged ETF Update:
I have a couple of minor successes to report, with KOLD, the 2x leverage bearish natural gas ETF. Back in late January it became the first to trip my weekly RSI alerts with a reading over 72. I played it conservatively and within 5 weeks booked a 21.7% return on one January ‘24 $62 PUT in my IRA.
The next one was picked up on May 4th when the RSI was only 65. I chose the $85 put for Jan ‘24 expiration - slightly out of the money - and booked an 18.9% return today after natural gas inventories came in lower than expected. It might have been wise to hold longer, but the RSI has revisited 50, and last time that happened it was the perfect time to sell.
There also seem to be better opportunities on the horizon. Pictured below is my alert list on Think or Swim for RSI on both combination and single leveraged ETFs. Only KOLD touched the 70 level this year but we have several getting close after the last couple of days, including NAIL (67.4), TECL (64.8), and my old favorite TQQQ (63.5). It’s time to start watching this closely again.
As you can see, most of these singles and combos are not set to trigger an alert until the RSI reaches 70. Some of them I’m interested in checking out at 60 or 65 based on historical performance. For more on this strategy see here and then here.
Other Trades: Just Playing Around
Boredom can lead to forcing a trade. Luckily, I kept risk to a minimum by experimenting with small put spreads - which limit both profit and losses. I also closed out the UDOW loser from November that never once recovered to flat.
AAPL Bought 5 $155 4/21/23 Puts and sold corresponding $150 puts. Capital at risk: $140. Closed for $120 profit (+83%).
NVDA Bought 1 $260 5/19/23 Put and sold corresponding $255 put. Risk: $185. Profit: -$208 due to closing the short put early.
AAPL Bought 5 $157.5 4/28/23 puts and sold corresponding $155 puts. Risk: $115. Profit: -$140 again due to early close of the short put.
Note to self: It’s really hard to shake the bearishness - careful with your assumptions.
I haven’t done much else besides increase cash exposure to these higher interest rates and sell weekly puts in unsuccessful attempts to enter a position on BTU. My longtime FCX holding also got called away for a profit after several sold calls. I might wheel into another position soon.
Inflation Vs. Interest Rates
I have to hand it to Powell for doing what I never expected: running the Federal Funds Rate above the officially reported CPI. One place on this list is not like the others, and that’s where global capital is going to gravitate towards. I don’t see markets ripping to all time highs, but here’s another reason to check our general bearishness in US markets.