An abrupt turnaround in SPX? - My thoughts for the end of the week - 2023/02/17
A crucial moment for the stock market as yields continue to push upwards.
Hello and welcome to another issue of 🕵 The Seeker 🕵
"There is no such thing as a free lunch." - Milton Friedman
Summarize the week so far
A roller-coaster week for the stock market so far, and things may get even more violent soon. Thursday finished with a sharp and quick sell-off at the end of the session. There are more signs of huge amounts of same-day option plays in the market, which skews the VIX lower, so it looks like that volatility is lower than what it actually is! However this is as well, a clear sign of excessive risk appetite, why would such huge spikes in same-day expiration options volume happen? - People are looking for quick profits with huge leverage, driven by huge FOMO and greed from the recent rally. (option contracts represent 100 shares of the underlying stock, so the build-in leverage is huge) But, the music can stop quickly as it turned out, at the end of the session yesterday.
What about my previous ideas?
OIH 0.00%↑ looks to be holding firm, however, if the market gets hit hard, I expected it won’t miss the oil stocks, but I am keeping an eye out for better entry points and average down 😎. We have to be really agile in the current market environment, In my calculations, the approach that may yield the most results in the next 2 years would be with a holding period of 1 to 3 months.
What is coming ahead
Sell off likely to continue this Friday, with a target of SPX 3950-3980.
We shouldn’t forget that we are currently in an extremely inverted yield curve environment, which brings intrinsic volatility on its own.
After hotter PPI figures and Jobless numbers, inflation is not yet under any significant control. St. Louis Fed's Bullard said that he can't rule out a 50 basis point hike at March meeting. This is reflected and probably reaffirmed in the movement of 2-year yield. This would materialize in renewed increased pressure on tech stocks.
One of my quant tools suggests that the SPY is just exiting the zone of extremum, however, this 🎢 market is drifting between extremums quickly.
We haven’t seen really bad crashes in SPY 0.00%↑ throughout 2022, with the lowest return being the 13th of September with -5.6%.
SPY Breadth has first signs of reversing downwards, currently standing at 58%.
What’s worst and more fearful is an actual recession not a 50 bps hike to slow growth down.
Two ideas driven by chart analysis:
NVDA 0.00%↑ looks like have exhausted itself and finding a resistance level. I think the probabilities are more skewed to a potential pullback here up to the 20-week moving average.
NVDA is likely to be leading in outsized moves if the market suddenly turns south.
TSLA 0.00%↑ looks like have as well hit the ceiling of 20-week moving average. I think the probabilities are more skewed to a potential pullback here up to the previous bottom and aim for forming a double bottom. Tesla experienced a very profound move up of a bit more than ~100% from the bottom in less than 50 days, clearly an unsustainable move. Thus I see huge risks infront of Tesla stock price.
Final Thoughts
We should not forget the fact that previous bull markets start when FED starts to lower interest rates, not continue to increase them. The market was in full steam mode up until now like interest rates are 0%, but they are approaching 5% quickly. Monetary policy needs time to take effect and propagate into the economy, for interest rates that’s around one year, thus first rate hikes from last year will start to be felt this and next month. I think we are in an over-extension and some bitter days may be coming. This may be another sell the greed opportunity.
😎 Cheers! 😎
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