Weekly Raid #33 - Rate, Rattle, and Roll
Happy Hump Day Traders
We have a busy news day on tap and some developments around the geopolitical sphere that may impact markets in the near future.
Let’s jump in
News of the day
First up we had mortgage rates this morning. With these staying elevated and prices staying elevated, many people feel we are on the brink of another housing crisis. While I can definitely see where that thought comes from, we are structurally still very different from 2008. We are still short on supply and those who want to work and already have a 3% rate have no reason to change that. Now if layoffs start to explode en-masse, and inventory starts to rise on the housing market then we could be in for another ride. I just haven’t seen those cracks yet.
We have a ton of news out at 8:15 and 8:30 this morning. ADP employment is out first and is a precursor to Nonfarm this Friday. Whatever the topline number comes out I think will move the market, but what will be more important is if they adjust last month’s report. There have been a lot of “prior month revisions” as of late.
In addition, we have Wholesale and Retail inventories at 8:30. In my opinion this is more important than the PCE and Retail Sales numbers since those are on the dollar values of goods and services rendered. As we have talked about, that’s a BS metric because prices are way up….so of course retail sales are up. The same dozen eggs are $7 bucks this year as opposed to $3 last year. The inventories will show actual inventory depletion or builds.
Finally, we have pending home sales are 10 a.m. As with rates and in every home sale number for the past year, we are looking for a miss. We want to see inventory build so that these ridiculous prices start to deflate a little.
The big news from Yesterday was the Tucker Carlson interview with the PM of Hungary. Saying that we are “knocking on the door” of WW3 is truly something to pay attention to. If the various world powers don’t pull their heads out of their respective butts we could be standing on the precipice of some real pain.
So how does that equate to the market? Well, unfortunately, war is historically bullish for stocks, however, nuclear annihilation is bearish (in my estimation), so watching how the next several months unfold will probably be very telling for the next several years. As we discussed yesterday, China looks to be on the brink of collapse economically, and the BRICs nations are expanding their reach. While I don’t think the dollar is in any immediate danger, I think these are net negatives for the US economy.
On a longer time horizon, keeping an eye on Gold and 30-year bonds should give you a pretty solid idea of what’s to come. I am a huge fan of precious metals, to begin with, but the price often foreshadows pain in the economy. The 30-year could be our real canary in the coal mine though, if we start to see yields either run away or completely collapse, buckle up.
Now that we got all the depressing shit out of the way, let’s take a look at some charts and try and earn a few sheckles today.
TSLA is first on today’s shortlist, it’s still trading right around the VAH of the year, We shot through it with some impressive volume yesterday and we look to be gapping lower premarket (at least at the time I am writing this). A drop back below and I will probably look to initiate a short call spread to collect some premium. But SELL TIME! This probably won’t be an instantaneous trade.
CVS is on the lower side of the year’s value area and with some of the COVID hysteria starting to re-surface going into the fall. I think that’s a potential macro catalyst for at least a short-term bump. It’s a relatively low IV stock in terms of options so long calls/short puts would be the trade vector here. But however you usually trade is solid. I would look for VAH to hold and then return to POC over the coming weeks/months. The flip side is that we drop below and break away from the mini-balance zone.
Last up on the day is DIS. I am watching this for a backtest of the VAH of the year and then a continuation to the downside. We have a lot of room below us. The efficient market theory says that price will always try and distribute in a bell curve…. which would give us about 20 points to the downside to play with. I am not sure when or if we get that low, but I will be looking short on DIS.
As always trade well and Good Luck