Daily Plan 3/7/23

A world divided

Folks-

There is a reactive functions to the markets and then there is a preparedness & planning function. Both are key when forming a good trading strategy.

What does this mean?

When I have levels like 4080 and 4060, I am not bullish at the high of the day and I am not bearish at low of the day- unless the market shows significant proof that these levels have been violated and are not relevant any more.

How many folks were bearish at the open and bullish at high of the day today?

How many folks have these levels really? Only a handful I would assume, like us here in the Substack.

This is where these levels play their part. If I am not prepared, which means if I do not have some reference levels to start the day, I am flying blind. How do I know where the market is in terms of structure? Are we trading below 4030? Are we trading way above 4080? Is the tape weak or strong?

Both the low of the session and the high of the session shared in my posts yesterday. Check out the link below and after that Subscribe to get more like this in your inbox.

Weekly Plan 3/5/23

I want to talk about a couple of thoughts on commodities. This is a fragmented world that we live in. And no where in history has it been truer than now.

This is a very vulnerable time for stocks in my view- at-least the high growth ones.

I will cover this in more detail over the weekend but you can read via my post on inflation here.

S&P500 vs Inflation

The idea that worst of inflation is behind us I think is a flawed idea and rather premature celebration. Based on historic data, once inflation goes above 8-9%, based on history, it could take 10-15 years to bring it down. This will not be as easy as many are hoping. Stocks in general do not do very well when inflation is above 4-5%. And certainly not well at all when you have the FED raising rates actively.

What about Rising rates in a recession? Do not even get me started ;) !

What will do well in this?

First of all, based on my own research it does not appear that the growth stocks will do very well in this type of environment. However, I can personally see few other assets do better.

1. Selective RE- I will avoid anything commercial but economic tourism can continue to boom in business friendly , lower cost areas. Look this trend of folks leaving high cost, high tax states like CA , NY is just starting. This will be exacerbated with advent of AI and WFH . This could mean suburbia in states like TEXAS and Florida could continue to thrive and grow. I personally think RE in Dallas while a little bit on the high side, could have more room to run. DFW for instance could be the largest metro area by 2035 in the US, up from it’s current 4th rank.

2. Gold - Gold does bad in recession years, However when you have the FED credibility at stake like it is now, it could do well even in recession. Gold stocks historically are also cheap. Look at NEM which is now up nicely from my levels shared here earlier. I see Gold trade up to 2500 , may be even higher. Silver I am not so sure about. Read on why.

3. With gold, there is a natural support from the Chinese and Indian central bankers stocking up. China is the world’s second largest oil consumer followed by India at about 20 million barrels of oil every day. This demand is unsatiable and it becomes hard to supply this with the sanctions and current geopolitics environment. Internally , these countries are very sensitive to energy prices. Inflation tends to run higher like 6-7% or even more in these countries for last several decades. These counties are very incentivized to move away from the Petro Dollars and could be stockpiling Gold in anticipation of eventual separation from the Petro Dollars. The issue with Silver is that it takes up a lot of storage for the value it provides. It may still rise but could not outshine it’s more expensive cousin. These are part of the reasons why I think Gold could still do well in recession, beating the odds.

4. Energy - with the war in East Europe going nowhere, we could see some support for energy for foreseeable time. Long time readers know about my call on XOM at 40 and I think we could have more upside in this as long as we hold 100. CCJ would be another such name . Uranium for a variety of reasons (mostly bad) could remain in demand . CCJ is now up handsomely off my levels shared here many months ago.

Besides these names, we saw big rallies today in the names I shared last night. Full list of the names I like can be seen in the link I shared above.

My key levels for tomorrow

4080 will be my key level for tomorrow. The day’s auction will be driven by Powell’s remark during his testimony which is schedule to start half an hour after market opens for business.

Scenario 1: 4080 could come in as resistance, if visited, and we could see a sell off towards sub 4050.

Scenario 2: An intraday close above 4080 could target next resistance which comes in at 4110.

At time of this post we last traded 4050. I do want to see 4040 area break down for more sell off below this area.

Before I wrap it up, I want to share my thoughts on a question that some folks had..

The question was about handling of options trades in case of unplanned market halts.

Recently, a former US President Jimmy Carter, 98, opted for hospice care for end of life care. In the event of United States President passing away, the government will declare a day of mourning usually on day of the funeral. This would mean the markets will close down as well to mourn for the loss. This will impact any options expiring on that day. In cases when there are sudden, short term market halts, due to volatility events like news, both the stocks and underlying options are halted and the trading resumes as soon as the market reopens which could in many cases be on the same day.

However, the longer term halts are a little more complicated. The option value is derived from the price of the underlying stock. If there is no last traded price available for the stock for an extended period, that does not mean a) as an option seller , you are not obligated any more to deliver the underlying shares or securities as demanded by the option buyer based on terms of the option b) as an option buyer, you still have the control of your option and retain your right to exercise the option.

In any long term halts, the automatic process of expiring and assigning the options, also known as “exercise by exception process” will be shut down due to unavailability of last traded prices. In these cases, both the long put holders and long call holders (buyers) must contact their brokers to arrange for manual settlement of these options based on best available pricing info. If the buyers do not arrange for this manual settlement, the options they hold will expire worthless.

Hope this answered some of the questions folks had about the process.

~ Tic

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