Daily Plan 3/29/23

Not out of the woods yet

Traders-

A few days ago, I shared a crucial level in the S&P500, which I anticipated to cap the upper end of about a 400-point range formation. You can read all about it in the previous few posts I published. 

With the auction today at the time of this post, the level has been respected for over seven previous auctions, and thus it leads to no change in my view a few weeks out. 

The last two weeks in the banking sector have introduced additional uncertainties and exacerbated existing ones. In particular: 

1. The Credit Suisse episode and how it was handled has poured cold water on any new AT1 debt issuance by European banks. This will most certainly lead to wider short-term credit spreads and possibly shuttering the entire market in the long term. 

2. In the US, while we have not seen any new bank failures other than the three previously that failed, it has caused a lot of deposits to relocate from smaller regional banks to larger banks and caused a swell in short-term money market funds. 

3. The smaller US banks with less than $250 Billion in assets contribute to over 40% of all commercial lending. This will most likely be impacted negatively. This will lead to wider spreads as well as a contraction in borrowing for the companies globally. 

I think while the markets recovered from the acute initial shock of the regional bank crises in the last two weeks, the lingering effects of this will be inescapable. This corroborates my earlier post about that 400-500 point range formation with the upper weekly LIS as the cap. 

Let us quickly recap some things that worked and others that did not

1. BABA - I was bullish on BABA at 80 dollars, shared a few days ago in this Subatsck. The stock rose about 12 % today to trade nearly 100 dollars at the time of this post. The reason for the action today was some news that the company would split into 6, and the unprofitable units will be spun off.

   Whatever the reasons, the tape showed this accumulation before the massive move to the upside many days ago. We could see more juice left in this move. I have been bullish on several China stocks from many weeks now and I think this move may not be yet fully over. This may also benefit other peripheral names such as SE. SE has been now trading near 80 and I think if it were to hold 60, it could retest 110-120.

2. Oil - Oil had a tremendous move when all but a few had given up on this. Oil is now up about 1000 pips (10 dollars) from OrderFlow support shared at 63-65 area.

3. MSFT- I had a short-term bearish bias on MSFT from last night’s plan and the stock at one point slid towards $172 from the close of $176 yesterday. I am just not a big fan of these US-based big tech names which I feel are quite bloated longer term.

4. LULU- on the earnings front I was bullish on LULU. This stock crushed expectations and at the time of this post was up more than 12% to trade near 360. Looking ahead, there is a gap fill at 365-370 for LULU dating back to last year which may present some resistance for a move lower.