Weekly Raid #51 - There's a Bear in those woods
Good Tuesday Morning
Looks like we got a bit of a bounce yesterday in the SPY and some of the names we discussed, but they are indicating a lower open.
With some news today, we could have the catalyst for a great move.
News of the day
Today we have a few news releases to keep an eye on.
We have the S&P Home Price Index this morning at 9 a.m. and then Consumer Confidence and New Home Sales this morning at 10. With all of the rate talk and housing talk that has been in the news lately, these releases could potentially have an outsized effect on the market.
I don’t foresee them causing a lot of sustained volatility but an immediate spike in it is possible. Also seeing how these items are trending will be interesting. It will tell a lot about if we in fact are starting to bring this housing market back under control.
While the Fed might not be paying attention, everyone else is. We are in a recession if you look at what actual people are saying about spending, prices, and energy.
And this is just the top of the hill. Should prices continue to climb we will see it come to a real head this winter as all of last year's savings have been exhausted, at least that’s what the charts tell us.
This little tidbit of information seems to be missing from a lot of market forecasts. If the people can’t throw money in then who is going to continue to buy?
Oh, that’s right the Fed through some of the larger banks.
But even this is starting to become unsustainable(many can also argue it already has). We are swapping 2% debt for 5% debt and eventually, it will become either impossible to meet your debt service or the currency will have to devalue itself in a meaningful way.
The only real wildcard here is Powell. If he had the guts to push these rates up when they needed it, 5 or 6 years ago, we would already have the tools needed to help offset some of these issues.
Match that with the sheer incompetence of the policy around energy today and we have a recipe for disaster.
For these reasons above, I think that there is a bear hidden in all of the data. Markets will continue to fracture and fragment as long as the Fed tries to keep this show going. But at the end of the day, with safer options to get a 5+% yield, the market is unattractive at these levels. And the higher rates get, the less attractive it looks.
Now I won’t pretend to know where this thing will land for an actual bottom, but if nothing changes I wouldn’t be surprised if we halve the S&P’s current price. No so coincidentally, that puts around a very long-term POC at 2,085.
Well with all that fun hammered out, let’s take a look at some charts today.
NVDA is first on the hit list. The longer-term POC here is at $40. For reference that is a 90% drop from current prices. That would be insane to see, but I think we could see the 200s fairly easily. Selling has been sustained recently and unless we find some new buyers up here we have a limited supply of holders. The Play for me would be some longer-term puts, think 2+ years out.
Monthly Chart for Reference
KO on the other hand is under its longer-term POC and below its VAL and into a low-volume node. I would look for 55s to hold and then 50s below that. Either way, if we continue to fall I am a buyer of equity in that stock. It’s well diversified and while the price may get hit, the actual business is too well entrenched to go away.
Finally is XOM. The price and value here are seldom lined up due to the lag in financial releases. I am waiting for oil prices to pull back slightly and see how it affects the stock. If the price stays strong it could mean that investors are anticipating another surge this winter and it could be a nice way to offset your oil bill.
As always trade well and Good Luck
As always this is all for educational purposes only. You are solely responsible for your trades as I am for mine. Nothing in here should be construed as financial advice, but only educational content about the markets and my particular trading style.