I hope you are well and enjoyed your weekend. While I know this will be a difficult week for looking at your long-term portfolio, I want to provide some commentary that could potentially help in the short term. All eyes are on Wednesday’s inflation numbers. Has inflation peaked? Or, are we still running hot? If you are aiming to find a bottom in equities, make sure to review the fixed income market first. In time of panic (risk off), Treasuries bottom before equities. Focus on $IEF (10-year ETF) and $TLT (20-year Treasuries) for clues.
The Big Picture
Market sentiment remains extremely bearish. Check out the chart below showcasing the sentiment of the Survey of Market Participants. It is even below the crash of March 2020. On the other hand, however, you will see that the majority of portfolio managers are still invested in equities. This concept is called TINA or There Is No Alternative.
The SKEW reading was 127 earlier today, the most bearish I have seen it in a while, which demonstrates that investors are piling on to At the Money (ATM) puts to seek protection.
Option Trades for the Week
It is a difficult market with elevated volatility. We have many interesting earnings. Here is my game plan going into this week and moving forward next week: stay long defensive names and sectors (XLU, XLP, XLV) and short cyclical names or companies with high cash burn (and thus not profitable). Anything with exposure to bitcoin ($COIN, $MSTR) is also a good candidate.
Below is the summary of the trades that I have open as of May 9.
Tweet of the Week
This week’s tweet of the week goes to $SHOP CEO Tobi Lütke and his slam on analysts, including his query about how they should be held accountable. Shopify is now down 75% from its all-time highs and the easiest thing to do of course is to blame the analysts! As a former analyst, I must admit, we are not fortune tellers. We simply look at manager guidance, and use that to forecast prices.
One Last Thing:
I am also now on twitter! Let’s connect there as well for more of a dialogue.
To your success,