Hey There Income Hunter,
It was a crazy month last week … Well, that really is what it felt like …
Midterms, CPI, FTX, Twitter/Musk issues … There are a lot of unanswered questions, and don’t expect volumes to slow down as we head into monthly expiry (OpEx) this week …
OpEx weeks tend to see an increase in volumes of 10-20% and I don’t think this one will be any different … The bulls certainly do have a lot to cheer about and take a look at the sector performances …
Technology and Communications Services are the top performers … We would have to go back more than a year to find the last time that happened.
I think we could see another 3% this week heading to Friday but OPEX may put a damper on the rally …
Today we’ll take a look at what you should consider selling if we get anywhere close to SPX 4100 this week …
If SPX can rally above 4100 this week the OpEx November would look very much like August’s OpEx …
However, as you can see in the chart below, August’s 19% bear market rally fell pretty quickly after AUG OpEx …
So, why did AUG OpEx turn the market back down? Here is the simple answer …
When we get these sharp moves up into expiration it is driven by customers buying calls to juice their returns into the rally … Well on the counterparts to the customer’s trades are the options dealers who sell calls and buy stock to delta-hedge the position ….
So, through expiry, the call positions expire and most customers let them run-off and book their returns … Meanwhile post-OpEx, the dealers must sell their stock, and if the rally continues this week that could put significant pressure on the market.
So for this week if the bulls maintain control of the market then be ready to sell anywhere near 4100 …
Because regardless of the market euphoria from a CPI print of 7.7% there are plenty of headwinds for stocks going forward including …
An unhappy Fed after a 15-19% rally eases financial conditions, expect Fed governors to continue the hawkish talk and for economic numbers to continue coming in soft.
The consumer spending and housing sector are the two areas I am most concerned about … Check out the trends in place …
Plus, rent delinquencies rates reveal the second leg of pain that could tip the economy into
Recession.
Other Factors Impacting Markets This Week
The Russian sovereign wealth fund announced late last week that they are dumping all US assets.
Now that the election is over the administration may lose its motivation to boost stocks.
Lastly, the US Treasury has been offsetting Fed QT selling of bonds by tapping into its Treasury account held at the Fed … The account is down $150 billion since the middle of September so that will end as the Fed continues selling $95bn of securities into the market.
Don’t get me wrong. I do think the Fed’s pullback from tightening is positive but it will take a long time for stocks to bottom and 15-20% rallies in a bear market must be sold …
Fade these stocks this week …
- My favorite fade for next week has to be Meta Platforms Inc. (Ticker: META) … We go from “Zuckerberg may go bankrupt” to the stock rising 30%? Sell…
- Next is Home Depot Inc. (Ticker: HD) … +20% from the low and a fair value price of $ 267 as the economy heads towards recession next year? Sell …
- Lastly, iShares Home Construction ETF (Ticker: ITB) now that the Fed’s QT will no longer be offset, mortgages will hit the market as housing is already trending sharply lower. Sell …
Bring It Home
The cycle of a bear market continues … When the market feels really bad, cover your shorts and consider a tactical long, because the violent corrections in a bear market are larger than most rallies in a bull market.
Remember we are heading into tax season … There have been incredible drawdowns in most sectors … Longer-term investors will be chomping at the bit to take losses this year so that on its own is a pretty good headwind …
That tax selling flow may present some great opportunities in the weeks ahead …
My new product WIN the WEEK, where I have created a simple and very easy to use 4-step process will be launched this Thursday at 7 pm ET in a very special, no-cost event.
I am pumped about this strategy because it is producing winner after winner … You will not want to miss this opportunity … I will see you there … Until then …
Live and Trade With Passion My Friend,
Griff