Start preparing for fall fall, long now, short for later

That I’ve learned over the year, you can’t fit everything into the title

One important ingredient we left out is cash. As you may have noticed in my previous articles, cash is a major aspect of how I manage transactions. Besides that, I also noticed that I have cash for the investment side as well. I’ve mentioned several times, certainly several times, that if you’re still setting aside money for investments, you may want to set some aside for the fall. It’s mid-August and fall is just around the corner. I have a lot of open orders right now with prices way below where some stocks are trading right now. I have Nvidia (NVDA) bids at several prices in the mid-80s and Amazon (AMZN) at 158 ​​ca good So today, if you’ve held cash to invest, start making bids, look at the 3-month charts and see how low your favorite stocks were trading then, and place opening bids. Use small amounts of shares because we haven’t had a real correction in a year. If we’re going to have one, it should be next month or mid-October. Let history guide you, does the market sell off at that time every year? No, from time to time it doesn’t happen, that’s why it can still happen. If it were a sure thing, everyone would be doing what I’m telling you they’re already doing.

Powell cuts rates, why would the market sell off?

There isn’t really a compelling, logical reason why fall is the worst part of the year. Maybe because most investors have already allocated all the money in their investment accounts by now. Maybe this year there will be a lot of corporate buybacks that will support the market and the fall will be good. However, we still have the debate as to whether the Fed’s easing will be enough, or perhaps the Fed doesn’t need to ease at all just yet. Last week, we had some strong macroeconomic data showing that the US economy is doing well. Despite weak numbers from all sorts of retailers, July retail sales rose 1%, much better than the 0.3% estimate. Also reported last Thursday, weekly jobless claims totaled 227,000, down 7,000 from the previous week and below the estimate of 235,000. A stronger labor market means a stronger consumer in the future. Earlier last week we were treated to data (PPI and CPI) showing that inflation eased slightly in July. The last piece of information here is key, that inflation is falling and has been for months. Of course, the Fed, if they feel confident that the inflation freak is dead, can cut rates. However, they don’t have to, unless the economy is in danger of contracting and causing job losses. We had that sudden selloff in early August because we had a piece of employment data that looked weak and we were treated to paroxysms of selling. We then experienced a blistering rally that recovered all losses in just a few days. Below is the 3-month chart of the S&P 500 ETF (SPY).

Rarely, according to my admittedly poor memory, do I recall such a sudden sell-off and recovery without more of these periods of volatility coming? I suspect there will be more situations where market participants will question whether the Fed is indeed right. That the economy isn’t about to falter and send jobs over the cliff. Or that the economy is working perfectly as it is and there is no need to cut after all. Or maybe, the inflation numbers are rising again. Unfortunately, we’re still at the mercy of the Fed and macroeconomic numbers, which don’t always cooperate like last week.

Let me put a finer point on it, we could have a sell off after the next FOMC

We could see an increase until September 18, the last day of the FOMC meeting, economic data was benign and inflation is still slowly retreating. Exactly one month from now, when I think Powell will likely announce a 0.25% cut. Powell then reiterates the notion of data dependency, which most market commentators already condemn. They then go on to state that they are likely to take a very slow approach to cuts and the market is selling off. Then if there are less than perfect economic numbers, sales will accelerate and there you have the correction that we have been able to avoid so far this year. If that happens, I’ll definitely get my NVDA in the 80s or maybe lower, as well as all the other 7 magnificent actions I can’t get enough of. I guess I’m playing armchair psychologist, but I don’t see Powell making deep cuts and giving guidance for a loosening of monetary conditions unless something terrible is already happening. If that’s the case, the stock market is already correcting and I’ll still get my $80 NVDA.

Note that in the weeks leading up to the FOMC meeting we could have some euphoric buying that will lift us above the previous high of 5669.67. Last Friday we already reached 5554.25, we are less than 116 points away from hitting a new all-time high. Does it not cause a little caution in your hearts? It happens to me.

Consider This week as a dress rehearsal for 30 days from now

I already feel like I’ve gone too far, too fast. Look at the SPY chart above, doesn’t it look like a pretty perfect recovery? I see this week as a September 18 period because we have the Jackson Hole conference. Powell is expected to give his blessing to a 0.25% cut in September in his address at 10 a.m. on Friday. Everything he says will be scrutinized, and even his tone and expression will be interpreted if the cut were to it could be 0.50% or how fast a cut cycle will be. Still worried about inflation? Every now and then, for me, the odds of a sale this Friday are pretty good.

So I will set up my trades to take advantage of the likelihood of a good week for the stock, at least for the first 3 days. I will close long trades, create short ideas and save cash for Friday. Then, depending on how much they sell on Friday, it can start to close the short ideas and hedges somewhat. If the sell is really heavy on Friday, it might run into Monday, so maybe I’ll be disciplined and not go all out on Friday. I fully expect the VIX to drop below 14 this week and I will certainly be long into the VIX as a very good hedge. In this previous selloff, the VIX jumped above 65, which is a very extreme level, and I don’t expect to see that anytime soon. Still, the 13 handle VIX is a great level to start a hedge. I already have a Long Put on Starbucks (SBUX), I think Mr. Niccol is a brilliant operator, and if anyone can turn SBUX around it’s him. It hasn’t even started yet, and the road is long, yet the stock has jumped more than 20%. I think SBUX will pull out this week and certainly by Friday if I’m right. Starting next month, I’ll make it a practice to look for more short ideas and start organizing. Certainly, if we break above 5600, I will look to protect the Nasdaq-100 and S&P 500.

my jobs

Right now, apart from SBUX, all trades are on the long side. I have long call options on Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL) at 38 strike. This is an indirect way to participate in AI chips such as NVDA, but also Broadcom (AVGO) and Micron (MU). I added a bunch of AVGO and MU shares to my long term investment account in this last selloff and have buy orders at much lower prices in preparation for Fall’s Falls. Why do they set these prices so far in advance? Because it’s better for my mental state to set these purchases up well ahead of time and wait for the prices to come to me. Another long call option we took this week is Vertiv Holdings (VRT). It’s an AI-adjacent name that hasn’t recovered as much as NVDA, and I think it could get better this week as NVDA turns 120. I had a lot of fun with Palantir (PLTR), as if it had just been discovered. Look at this chart, I first drew it a week ago last Thursday and it keeps coming up. I keep marking the breakout extensions (the black line is the latest)

How much higher can it go? I don’t know, but I’ve cut back on my calls and only have a few left. I’m at strike 29 now, I’ve already built it up from 27. It’s still making 52 week highs, but at some point, probably soon, it has to consolidate. They probably close it before Friday and hold the money until Monday. I’m also Long Call Options on 2 cybersecurity names SentinelOne (S) because as great as CrowdStrike (CRWD) is, they’ll lose some clients to S. Might not make much of a difference for CRWD , but will do S. I’m not throwing CRWD shade, I’ve added to my long term ownership of CRWD this sale. The other name is Rubrik (RBRK). I am in the sweet spot of Ransom hacks. They are a new IPO and have been selling hard recently, I expect them to recover, certainly at the next buyback/hack event. Remember to set aside cash, cut your longs but stick with them and start developing your individual hedges and shorts (using options).

Ok, that’s it, good luck everyone!