Market Pulse: Massive Inflows and Leverage

By Ardi Aaziznia  |  
Market Pulse  |  
Dec 7, 2021
«  Blog
«  Market Pulse: Massive Inflows and Leverage

Hello All,

Welcome to this week’s newsletter. Last week was definitely tough for the market, with defensive sectors being the only ones closing slightly in the green. As I mentioned on Friday, the fact that money is continuing to flow into these defensive sectors is a good sign for the equity market. Pockets of strength, even if only in the defensive, demonstrate to me that investors are still not giving up on equities. We also saw a mini-rally on Friday evening comprised mostly of shorts covering their positions before the weekend.

The Big Picture

While VIX remains elevated, we experienced a calmer market today. We have a lot of leverage in the system and it is going to make the swings in the market much more severe. Just as one example, have a look at the inflows in the leveraged products such as TQQQ and SPXL. We are seeing as much inflow in leveraged products as in all of the S&P 500 combined. 

As you will note in the chart below, TQQQ also saw positive inflows all of last week.

Option Trades for the Week
It was a busy week for me as I kept noticing more and more solid setups in the market. My trades last week with long utility and short DOCU all worked out great. I am still down on my TNA position, however, I have now hedged my downside below $75. If you are curious about hedging, Jarad and I are preparing an amazing session for you that we will present at the end of the year.

Short term:

CVX: $114/$116 December 10 Bull call. This trade was based on oil being oversold and the OPEC supply restriction. It worked out great.

NVDA: $280/$265 Bull put December 10. Technically, the Doji, as well as the elevated IV, made it ideal for a credit spread.

FB: $300/$285 December 10. $300 seems to be a support for now. IV is elevated and that makes it ideal for credit spreads.

SNAP: $47/$45 Bear put December 10. There is weakness in the communications sector and high valuation stocks seem to be under pressure.

Longer term:

MSFT: $335/$380 February 2022.

GS: $385/$415 March 2022.

FB: $350/$380 February 2022.

WMT: $138/143 Bull call December 31. I see support on the weekly chart.

Tweet of the Week

While over the last few months the inflation numbers were viewed as non-events, this Friday’s inflation numbers are actually important and will impact inflation expectations for 2022. It is safe to assume that we have finally retired the word “transitory” when it comes to inflation.

As always, please let me know if you have any questions.


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