S&P 4,000 Friday – All is Well Again?

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S&P 500 Daily Chart with 5% Rule - Nov 11 2022Well, that was a heck of a recovery!  

It took just one day in November to accomplish what the last two weeks of October could not – we are back within striking distance of our 4,000 mid-point on the S&P 500.   We’ll almost certainly be rejected on our first attempt and there are two ways to look at the expected pullback:

    1. The entire run is from 3,680 so that’s 320 points and the weak retrace is 20% of the run – so 64 points is 3,936 and a strong retrace is 128 points at 3,872.
    2. As it’s such a sharp move, we just measure from where we started at 3,750 and that’s 250-points so a 50-point retrace is 3,950 (weak) and 3,900 would be strong.  

So those are going to be our technical zones of concern this morning and, data-wise, we only have Consumer Sentiment at 10 and that should be getting better if the cooling inflation that led to yesterday’s rally is real but Consumers have also had to deal with the impact of the Fed’s rate hikes, which have made home loans, auto loans, credit card payements, etc more and more expensive each month.

That’s because the Fed has been playing from behind the curve all year, thanks to Powell’s moronic “transitory” BS when inflation first became an issue that was too obvious for the Fed to completely ignore.  The Fed’s John Williams spoke last night and said inflation expectations have come down – that was also taken positively by the markets.  

What If Scenario Analysis - Pecaut Wealth ManagementSo the question is what will hold up into the weekend?  If 3,936 holds, it’s a very strong sign we’ll follow-through higher next week and even 3,872 will indicated that there’s no reason to be bearish into the weekend (he said right before Black Monday) but anything below that and we’re going to add more hedges.  

Earnings are winding down and we’ll have PPI, Retail Sales, Industrial Production and Housing Data next week so momentum will mean a lot going into the weekend.  Oil snuck back to $90 this morning but, on the whole, the quarter beginning in October has had quite a relief compared to Q2 and Q3 and, last year, Oil prices collapsed into December – but that was pre-war.

Oil Nov 11 2022

Speaking of energy, congrats to all our Members who played along with our call to go long on Natural Gas (/NG) Futures, when I said yesterday morning (10:34):  “If the Dollar is done dropping then /NG over $6 (tight stops) is a fun play.”

Natural Gas (/NG) Futures - Nov 11 2022

As you can see, those have been good for gains of over $2,500 per contract so far.  Futures trading is a good tool to have in your trading toolbelt as a way to take quick advantage of changing market conditions.  Of course it’s very possible that it was our own buying that caused the surge in the first place (it came at exactly that time and then mostly reversed) but – as long as $6 held – all went according to plan for a great day’s gain!  

The Dollar resumed it’s pullback later in the day and is now at 106.70, the lowest it’s been since early August, when the S&P 500 topped out at 4,320.  That’s why, if we can’t get back over 4,000 with the Dollar back at it’s lows (on the likely false assumption that the Fed is nearly done hiking), then we’ll be taking this opportunity to raise a lot of CASH!!! next week – while the CASH!!! is cheap.  

With the Dollar down 7.5% from the November high, S&P 4,000 is up 7.5% from the November low – do you sense correlation?  Yes, it’s that simple, the Dollar drops so you need more Dollars to buy the same amount of stock – not much else has changed.  

That means these gains can disappear as fast as they came but, for the moment, there is SPECULATION that the Fed will slow their hikes while other Central Banks have indicated nothing of the sort (since they were behind even our slow Fed) and that can keep some downward pressure on the Dollar – keeping stocks afloat.  But, as an owner of those stocks – that’s a pretty crappy reason not to sell them, isn’t it?  

Have a great weekend, 

– Phil

Oh, PS – Finally someone else has realized the Dems might be keeping control of the House:  The path to 218: Why Democrats aren’t out of the race for the House yet

 

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Good Morning.

Got out of LOGI for a small (~10%) profit after 8 months of >80% losses.

SPWR is also in the Future is Now portfolio, any adjustment to that?

Although, I’m a relative newbie (less than one year), would it be possible to ask to consolidate positions for the same stock ticker in one portfolio? Also, I think it could be a lot easier for me to follow and learn, if there was only one strike price per long call, short call, long put, short put per ticker, respectively, if such a thing might be possible.

Last edited 22 days ago by brucethenet

Thanks Phil,
I appreciate that you’re good at your job and guess I got too caught up in the portfolios as a newer member because they were there, you do monthly reviews and they have performance amounts attached, etc. Next time I ask about a position, I’ll try to ask what you think about my idea (if I have one  😉 ), to learn a bit how you see things.

Can anyone tell me what just happened to /NG?

Phil/NG: very interesting-thank you! A sudden dramatic move, there had to be a catalyst….

Phil / SQQQ/ TZA,
I haven’t been paying attention to my SQQQ/TZA positions and haven’t made any adjustments in the past few months. Could you please help me with re-balancing the positions and turn it a bit bearish as you did for the STP.

SQQQ

50 2024 long $35 C bought for $37.35 (Current price : $19.15)
50 2024 short $80 C sold for $ 26.35 (Current price : $ 11.35)
100 2025 long $60 C bought for $ 31.75 (Current price : $19.25)
100 2025 short $90 C sold for $27.5 (Current price : $16)

TZA

100 2024 long $25C bought at $ 14.25 (current price : $11.75)
50 2024 short $45C sold for $11 (current price : $ 7.85)
70 2024 short $55C sold for $11.55 (current price : $ 6.85)

Thanks Phil as always for your advice.

Phil/DOW
I have 15-2024 long $50 calls uncovered with a chance to sell for a small loss. With all the talk of cashing out I am debating whether to roll to a 2025 45/ 65 BCS or just cash out. Would appreciate your opinion. thx

The ACB is $9.36

Phil / PARA

Do you see any news for them today? I’ve only been able to find chat rumors / guessing. Thanks!

What is the best way to limit margins with the short puts?

Thanks!