The AI mania has finally brought some excitement back into the market. While I’m regretting not buying megacaps in the last 6 months (META, TSLA, and NVDA are up 200%-400% off recent lows as a few examples), we’re now in a territory just as interesting for the short seller in us.
I did not think the market would rise this high anytime soon. AI does have legitimate revolutionary potential, though it’s true significance remains to be seen. Just like any other major innovation, it will make the economy more efficient and boost the value of American companies. I continue to think capital flight to the US will remain a factor supporting our stock markets as well. As bad as Washington DC is, the US remains the most credible legal system for property rights, capital accumulation, and business operation vs. most other areas of the world, and now we have the most realistic interest rates too.
The current system is corrupted and woefully inadequate compared to a proper free market economy - and in the long run I’m convinced it tracks towards the gloomy end a simple Austrian analysis calls for, well represented by the Peter Schiff’s of the world. However, the Fed was never supposed to be able to raise rates even a few percent. We got 5% in 12 months.
Money supply is still decreasing:
Quantitative tightening is still happening, slowly:
The yield curve remains badly inverted, suggesting recession:
And yet here we are, breaking last summer’s highs in a new bull market for the S&P 500.
That requires a step back and rethinking. That’s why I spend more time these days reading the more nuanced, geopolitically tuned in takes of Tom Luongo rather than those trying to play the end game for decades at the expense of seeing other opportunities in between. I’m one of many that made the mistake in the last 15 years of getting too bearish on stocks, too bullish on gold and other hedges. Luongo is one of the few on our side to predict the rate hikes last year. I’m still on the search for more “Austro-libertarian” market commentators.
I say all this as a prelude for what we finally have now - a lovely horde of signals that the NASDAQ and tech/semiconductors specifically, are pushing well into overbought territory. Weekly charts showing 72, 73, and 74 on RSI in both the NASDAQ and many associated leveraged ETF names. It’s time for me to start opening positions, but I’m not going all in now. The market could run even further - especially if Powell skips a rate hike tomorrow as predicted. I’ll look to add more layers of PUTs if we start seeing 75 and 80 RSI. Here’s where we are at now:
Here are my current plays - all of which were opened today except the first three:
05/26 - TECL $46 Put exp. 01/19/24
05/27 - BTU at $19.77
06/08 - UVXY at $2.30 (short term volatility hedge - VIX reached multi-year lows last week)
06/13 - TECL $46 Put exp 01/19/24 (averaging down)
06/13 - TECL $52 Put exp. 10/20/23
06/13 - TQQQ $38 Put exp. 01/17/25
06/13 - TQQQ $40 Put exp. 01/19/24
06/13 - TQQQ $40 Put exp. 09/15/23
The strategy here is buying near at the money strike prices with 3-18 months to expiration, with hopes of capturing a correction fairly soon on the shorter expiration puts and retaining the ability to hold some for longer times to capitalize on the garbage nature of leveraged ETF’s as well as the general bearishness I still maintain on stocks in this credit-contracting environment.
I’m keeping an eye on the 1.5x leveraged TSLL for another put opportunity as well - there is a nice head and shoulders formation on TSLA for the monthly charts:
Here’s hoping for a nice blow-off top to bring us some more bargains. Happy put hunting!
Disclaimer: None of this is to be construed as personalized investment advice. Invest at your own risk.
It's crazy. Prices are levelling off as expected everywhere except the stock market hah