Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance.
The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved.
These are simply thoughts (some completely random) as I attempt to connect the dots:
- Much to the delight of plebeians across Wall Street, AAPL released their earnings with what pretty much a thud. Of course, the market being the market, with negative mental associations already built into the stock...it promptly rallied afterhours some 6%. The market will use AAPL as an excuse to relieve some downside pressure before what I suspect will be further downside in both the stock and the market into the middle of February, at least.
- With the FOMC set to announce their decision tomorrow and knowing that the Fed hates to be seen as predictable, I would expect them to zig while the market is expecting a zag. In other words, don't expect them to hand investors a bouquet of flowers and a box of candy tomorrow in the form of an accommodative stance disavowing knowledge of QT or further rate hikes.
- Shorted KL today for a trade. This has been the hottest gold stock in the market over the past 12 months. While I am very long-term bullish on gold, in the short term I suspect that investors have underestimated the Fed's resolute stance towards QT. If there is any inkling of doubt regarding the Fed's propensity for dovish behavior, the US Dollar will strengthen and gold will fall. Gold, like nearly every commodity, is highly influenced by technicals. In what is a classic breakout pattern here recently, I expect that there is a lot of weight gathered on the upside that if tipped, could result in some high velocity damage over the short-term. It's a high probability trade I expect, especially when given the potential payout due to the aforementioned.
- Have been short NVDA since last week. The earnings warning on Monday gave us a nice cushion to push the position. I have added to the short since. These types of momentum names, once their earnings trends shift and price deterioration begins to take place, become possessed spider demons on the downside. They completely obliterate expectations for what is possible in terms of sheer destruction of capital. Once the market begins to deteriorate further, the point I am making here will be demonstrated in real time via perpetual downticks with no relevant support points. Downside here is easily in the 70 range. Long-term downside is below 50. This doesn't mean, however, that we will remain short the stock for the entire ride down as this will anger the trading gods who frown on greed driven displays of trading prowess. We will hang on for awhile longer though.
- The most bothersome aspect of the market if you are bullish currently should be how long-term yields are behaving. If you'll remember, I went short a large amount of TLT in early January, walking away with a decent profit a couple weeks later. Since then, the market has weakened and yields look like they want downside on the ten and thirty year. Once the delays in releasing economic data are resolved, we should see exactly how weak the economy has become, which will push yields down a bit. At least that's what I suspect based on how bonds are behaving at this juncture. In either case, it's bad news for equities, in general.
- Banks look ready to roll over. Investors have piled into them following earnings last week and they have become top heavy as a result. C is one of our larger shorts and will likely remain that way for weeks to come. After earnings season finishes, I expect topics that were bothersome to the banks in Q4 to come back into focus.
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