Good morning and welcome, last weeks to start the week was one hell of a rip to the upside. The SPX hit new ATH’s and the nasdaq followed suit but still showing some lag as high beta high growth names have been a slight drag as of late. Let’s dive in to this weeks post….
I bring up the divergence in the new highs between /nq and /es as I always say /nq is king if /nq is strong the markets are strong if it’s weak be wary as it’s always first to go before a correction. Am I calling for a correction? No, but I am calling for caution here before I go full position on names I like right now…more on that below
This a very clear YTD difference that I do not like if I am bullish here, in April I was guns blazing bullish “what’s a put option” mentality for 2 months till we hit June 2nd top (called in my post back then) where I said do not press your bets up here.
So what now?
Well, we are seeing a clear rotation especially this Friday that I think is the new trend for the rest of the year. ROTATION. Look at the action in SNDK 0.00%↑ MTUM 0.00%↑ MU 0.00%↑ WDC 0.00%↑ SKHY 0.00%↑ and then look at FIVN 0.00%↑ NOW 0.00%↑ SNOW 0.00%↑ HUBS 0.00%↑. Clear rotation out of the momentum names from late last year till July 1 of this year that ran huge into the laggards that I actually had august opex as my approximate date I wanted to really consider adding these names based off positioning in the options market from earlier this year. Now here we are close enough for me that if you are really brave you short MTUM 0.00%↑ long IGV 0.00%↑ but I’ll leave that up to the more strategic players. So now back to the question what does this do to index’s….churn
Pretty sizable range but here we are getting closer to the top of this range, looking to sell 31,000 buy 28,000 area but while we do this sideways nonsense for months it will be a stock pickers market. I think we see a top closer to year end where /nq pushes over this range for a false breakout 32/33k which will be the final top before next year where as of now I think will be ugly, if the fed does not cut rates the talk will be deflation and massive growth slow down as we comp against higher inflation from the start of the Iran conflict as well as this years impressive earnings growth. Not a pretty picture for stocks, if the fed doesn’t cut and treasury keeps piling up added issuance on top of added issuance from MAG7 issuance for ai capex spend it can get ugly if gdp really goes in the gutters next year as I am seeing now in the data. But in markets that’s light years away, and more on that as we get closer to year end.
AAOI 0.00%↑
Let’s touch briefly on the next “bottle neck” trade which is related to the optical stocks for chips. COHR 0.00%↑ reports this week and they along with LITE 0.00%↑ AAOI 0.00%↑ are at the center of this trade. If this bottle neck is the next memory like move it will be pretty impressive. I’m a bit skeptical of anything related to chips and semiconductors as I feel that trade had its run, but I’m open minded so this is a trade I am watching for a move back to new highs if the theme takes off. I like aaoi the most being that in the April-June run it barely doubled while everything else 2-4x’d over that period.
Has Software Bottomed?
Back in March I had a 6 month view that we would have finally seen the software bottom and you can hold these stocks for 3-6 months looking for solid returns. That 6 month view is August opex, nothing is a science when it comes to bottoms so we are close enough for me. See below some charts of companies I like…
Just to name a few, I was pretty supplied with HUBS 0.00%↑ as it’s sitting on that long term TL from 2020-2021 area which brings up what I noticed going forward. I think we are about to bring out the 2020 playbook all over again, where chips take a back seat to the software trade. SHOP 0.00%↑ SNOW 0.00%↑ NOW 0.00%↑ HUBS 0.00%↑ TWLO 0.00%↑ TEAM 0.00%↑ and anything that moved for those 2 years and then basically went no where for 4 years may make a move from the dead. Look at TWLO 0.00%↑ has not moved for ever has quietly been been coming back to life
EVEN ROKU 0.00%↑ HAS MADE A MOVE FROM THE DEAD, this is how I know it’s time to dust off 2020-2021 playbook for now.
SPCX 0.00%↑
Last weeks post, SPCX 0.00%↑ made a fake out lower before ripping faces Friday. Did you hold and believe?
Lot of earnings this week, one that I will take a shot on is HIMS 0.00%↑ which I have been watching and trading around my core position for a few months. The options are cheap, it was loved in 2021 and if my playbook is correct it can with a good report be added to the list with those software names. Options are cheap I am looking to play this weeks 35’s or even a few points higher as I don’t want to spend a lot, just make a lot if I am correct as I am saying. These are the plays I look for as we currently in a earnings period where everyone’s watching the shiny objects INTC 0.00%↑ AMD 0.00%↑ and the under the radars are blowing past expected moves on earnings such as TEAM 0.00%↑ did last week.
In summary TLDR we are in a clear rotation as index’s churn, software up mtum down. Look for index’s as they push towards the top of the range to possibly sell down to the lower part, while in the middle do not play index options. We could still see a larger sell after august opex but that play is still up for debate, other wise churn till year end. Enjoy your weekend!