The President Takes a Bullet.
Weekly Plan 7.14.24
Traders-
Analysis paralysis is a real thing. In such an analysis paralysis, we as traders often get shocked by price action and are not able to react fast enough. For example, when the price makes a fresh breakout, like for example TSLA above 170 or AAPL above 190, we are unable to take that long as the recent memory of downward price action is fresh and we are scared.
Then as the price keeps making new highs, we are reluctantly drawn to buy TSLA at 265 or unable to buy a PUT at 265, again paralyzed by price action- in such cases some of us are looking to blame someone for our own inaction, may be blame the furu or blame the market or something else to justify our inaction. This may bring a temporary relief, but the long term solution is to accept the randomness and go with a fresh breakout and fade the extremes where the LVN may be. For more details on HVN and LVN, read my work on market profiling- free for subscribers.
This is not something that can be easily fixed by more analysis or changing furus more frequently- this is inner work we all must do to simply accept that the market action is totally random and not predictable. Only react-able. It can take several years to develop such an attitude. In fact analysis should be very simple. You could use 2 moving averages and build your whole strategy around it. Good analysis has only 2-3 components or variables on it. Good execution however can be a million times more complex.
Folks, little bit of delayed publication this weekend as I had to make some updates in light of the events over the weekend.
I want to forewarn you that this is not a political analysis even though Politics and markets are 2 sides of the same coin. Just like the markets, politics are a game of emotion, rather than rationality.
This is an attempt to figure out what, if any moves this event will have in coming weeks and months.
The events over the weekend should by now be common knowledge amongst most, if not all of you. This 100% is a watershed moment in the 2024 election campaign, as if things could not get more crazy.
This to some extent was expected. Americans in 2024 are being bombarded with a slew of emotional triggers- whether that is ever constant anxiety about the economic future, inflation, highly charged rhetoric from the politicians and to top it off violent and senseless content on the social media apps. A lot of folks are right now a hair trigger away from calamitous thinking and action. This was the culmination of this all.
And as I am afraid, this may not be the first or last such extreme moment in this election cycle.
Anyways, whether you agree or not, this at a basic level helps Trump re-election odds.
This is indeed different, and in a way you can say this was not “priced in” only 2 days ago. And while it may not have any impact on the voters who have already made up their mind, this will definitely help sway a lot of undecided voters who now see Trump not only as a fighter but also a survivor. In politics, optics matter a lot of this is a monster optical scene that will emotionalize folks. Highly charged emotions lead to higher turnouts. And higher turnouts lead to wins on the ballot. If I am correct, we should see this reflected in polls in days and weeks ahead.
The markets will also be cognizant of this and will print orderflow this coming week to demonstrate their hand. The situation is still very fluid but at a basic level you can draw some conclusions out of this-
If Trump gets reelected, I think the days of this FED keeping interest rates so high are numbered. I think this should be reflected in higher bond prices. I have been bullish on TLT as a general bond proxy for a while now when it was at 87 and is now trading at 93. I think this could help TLT remain afloat and moves towards the 100 dollar mark. Now this is assuming the US growth will pick up under this scenario. You do not want a scenario where the growth stalls, or worst it shrinks and at the same time the debt grows- in this instance, the US treasury will have to offer more attractive terms for the debt it sells. While this may be possible, in the short term it does not appear so.
If the interest rates are coming down, I think the US dollar is coming down as well. The US dollar is coming down regardless of who is the President and what policies they employ - which in both cases will be populist policies, thereby eroding away at the US dollar. This scenario helps the precious metals such as Gold and Silver. I have been a long time bull on both the Gold at 1600 and Silver at 15. These are now 2400 and 28 respectively. Though know that the SPOT gold prices in international spot markets as I write this piece are little softer.
Last week the US CPI came in pretty soft. The month over month CPI actually dropped, instead of rising. The stubborn shelter costs softened and rose only 0.2% rather than the 0.4% in prior months. This is a strong evidence, or rather a strong input that the FED will now soon begin cutting. I have predicted a September rate cut of 25 BPS and a 50 BPS of rate cuts have now been priced in by end of the year. In the FX markets, the Bank of Japan has been aggressive in interventions to support the Yen and now instead of intervening whenever the Japanese Econ data comes out, the BOJ has been actively intervening even when the US data comes out as was seen this past week.
The US data is relatively light this week but given the above backdrop, the Bank of Japan may not have to do much intervention after all and the markets will take care of them. Note that I have been a long term US Dollar bear for several months now at 106 level. The US dollar bulls have been extremely stubborn to let go of this 104 handle but we are finally seeing some trades below 104.
I maintain my view that we will soon trade 100 on the Dollar and once broken it should open the floodgates for US dollar bears. This in theory should help the Gold bulls as long as growth does not fall off the cliff. If Gold is already making new highs when the Dollar is at 104, then it should be interesting to see where Gold goes once Dollar starts trading the 90 zip codes.
Levels for this week
To assess the impact of recent events on the risk-on markets like SPX and QQQ, you have to understand how much of Trump win probability was already baked in before this event by the mainstream betting markets and what impact this will have on the US dollar.
On the technical side, for past 10 days or so, I have shared a key support level in the Emini S&P500 markets which at time of this post has held despite 4-5 attempts to take it out in last as many days.
This is a potent level which needs to be taken out by the bears to trade lower into next orderflow support level.
Now don’t get me wrong, last week I shared why the whole Biden-Trump debate is a form of uncertainty. Is Biden gonna be replaced on the ticket? Now one thing is for sure- the media focus on Biden’s debate performance has disappeared. It is all front and center about the Trump now. In a way this is even more uncertainty. The only parallel that we have in relatively modern history is the assassination attempt on Reagan in 1980s. On March 30, 1981 Reagan was shot in an assassination attempt.
The S&P500 market will shed one third of its value over the next year or so before bottoming. You can draw conclusions if these 2 are related but that is the only historic reference I could find.
Folks- on a side note, I do ask that when I have expressed views on both Twitter and Substack, the views expressed here in the Substack are considered more nuanced. Do not forget that the Substack is the ultimate platform for serious professional traders. Twitter at end of the day is a social media company. It is the same as Tik Tok, Snapchat and Instagram. Higher weight should be given to Substack views as I do not always post proprietary research based content on X but that is exclusive for our Substack subscribers. Twitter posts are more light hearted and entertaining in nature. I do not go to Twitter to read professional research papers and professional analysis. Neither should you.
Outside of this, I can share that major changes are coming to this blog very soon. This shall not impact anyone who is already subscribed, and that is not my intention ever, but for anyone coming fresh I simply cannot justify sharing so many options calls and puts at merely $49 a month. There has to be a meaningful barrier to entry- this attracts more mature and experienced traders and they tend to understand your view more naturally than someone super green. Stay tuned!
Anyways, so while the weekly range has really compressed in last 6 weeks or so, the range compression has come above this range.
On the other hand side, while some mega caps appear to stall here, like META and NVDA, the small caps are breathing a new life on their own.
For instance, PLTR. Only a few weeks ago I declared a bottom on PLTR sell off when it was 20 bucks. It has since risen about 40%, within a matter of weeks and is now trading 28. Let us talk about the small cap index for a second and use Russell as a proxy.
Russell IWM 0.00%↑ attempted a breakout on Friday above its long term range and sort of failed.
It is 213 now but has carved out a gap at 210. I think this gap is tremendously important. If next 5-6 sessions the IWM holds this 207-210 area, I think the small caps are going higher and this index should trade above 225. On the flip side, a loss of this gap and a series of Russell closes below 207 could negate this view.
This brings me to the emini levels.
The tech earnings season kicks off in earnest with NFLX and TSM reporting soon.
NFLX had been strongly trending of late but took a bit of hit this week. It is now about 650. I like NFLX potential support at 610-620 if this were to sell off on earnings. On the upside my key level will be around 666. As we get deep in earnings seasons, I will be sharing more options ideas on almost all mega caps. Stay tuned.
CVNA
In this time of anxiety, I want to talk about stuff that is not too much correlated to the general markets. NVDA, TSLA, AAPL of the world are extremely correlated to the general SPX index so I am taking a backseat for the dust to settle, to observe the orderflow develop over this week or two. However, I have few thoughts on low beta names such as CVNA.
With respect to CVNA I shared a bearish short term bias on the CVNA at 136 with a target of 110-120.
We did trade down to 120s but were not able to take it out and snapped back to 135 at time of this post.
I now think this stock is preparing to push higher into 150-160 and then some, as long as we hold 125 on CVNA.
The general retail traders have sort of lost interest in CVNA and even the bearish open interest has waned, indicating low engagement from the crowds on this stock.
At the same time, CVNA is democratizing the car buying process, eliminating the dealers. It is also eating Carmax’s lunch. Carmax used to be a fun experience back in the day but now some of their policies hurt. For instance, you could walk up to any car in a Carmax lot and open the door to it and take a look inside. They have reversed this policy now and you have to check in and wait for an agent at the site to look at the car you like. In short, CVNA is taking much business away from KMX.
Due to these factors amongst others, I am a CVNA bull. I have been a CVNA bull back when this stock was 3 dollars, here in this Substack and now this stock is consolidating here above 100. Not good for bears.
If you look at the earnings week 145 calls on CVNA, they are about $10 a pop. If this stock were to pull back into 120-125s again but does not close below these levels, I think these calls could go down to 3-5 dollars apiece making them attractive in my opinion.
SOUN
SOUN is an older orderflow stock that I shared when it was 3 dollars.
It has since risen to 6 bucks now.
Any thing priced under 10 bucks, I am not a a big fan of but this may change for SOUN soon. How soon?