Tuesday Already – Let the Short Week Begin!

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DJIA Chart HourlyNot much going on. 

Huge holiday in the US so most Wall Street traders aren’t back from the Hamptons yet so this ends up being one of the slowest trading weeks of the year. Neel Kashkari started the week off with a bang, however, saying that the Federal Reserve should wait for “significant progress on inflation before cutting interest rates.” 

Asked what conditions were needed for the Fed to cut rates once or twice this year, Kashkari said: “Many more months of positive inflation data, I think, to give me confidence that it’s appropriate to dial back.” He said the central bank could potentially even hike rates if inflation fails to come down further. “I don’t think we should rule anything out at this point,” Kashkari added that he was confident the Fed would ultimately reach its 2% inflation target, but added: “I’m not seeing the need to hurry and do rate cuts, I think we should take our time and get it right.”

Ready To Rumble GIFs - Find & Share on GIPHYDon’t be alarmed – this is how the Fed always starts auction weeks and we have A LOT of auction weeks as the Government and the Fed need to roll over $500Bn worth of bonds and notes EVERY SINGLE MONTH – so we have to say SOMETHING to drive investors into Notes ahead of the auctions and this week we have 4-week, 8-week, 3-month, 4-month, 6-month, 2-year, 5-year and 7-year notes falling under the hammer so LET’S GET READY TO BORRRRRRRROWWWW!!!

Kashkari is even speaking again at 9:55, ahead of the 5 auctions this morning as one of 7 Fed speeches scheduled this week we have the Fed’s Beige Book tomorrow in a heavy 4 days of data including Case-Shiller, Home Prices, the Dallas Fed and Consumer Confidence this morning followed by the Richmond Fed and Business Uncertainty tomorrow. Thursday is GDP and SOMEONE is going to be surprised as leading Economorons say 2.1 while the Atlanta Fed is at 3.4% – rumble indeed…

Thursday we will see Retail & Wholesale Inventories and Pending Home Sales and Friday we finish with Personal Income & Outlays, the Chicago PMI and Farm Prices so lots of that going on while earnings continue to trickle in.

The most anticipated earnings releases for the week of May 27, 2024 are Costco #COST, Salesforce #CRM, Dell Technologies #DELL, C3.ai #AI, UiPath #PATH, CAVA Group #CAVA, Zscaler #ZS, Abercrombie & Fitch #ANF, Marvell Technology #MRVL, and MongoDB #MDB.

Dell is a peripheral player in the AI space and it has been on a tear since September and, since then, they have gained $100 (166%) and are not trading at 36 times last year’s earnings but only 18 times projected earnings so we’ll see if they live up to the hype in Thursday’s earnings report. COST is a puzzler to me as they are trading around 50x earnings and COST really makes their money from Memberships though possibly the fact that they buy in bulk means they sell at higher prices and slightly improved margins.

Finviz Chart

Finviz Chart

BBY, on the other hand, is trading at just 12x earnings so that’s a nice opportunity to pick up a fairly cheap large-cap. We already have them in our Long-Term Portfolio (LTP) AND our Short-Term Portfolio (STP) but, as a new trade, I’d go with:

    • Sell 10 BBY 2026 $65 puts for $8 ($8,000)
    • Buy 30 BBY 2026 $62.50 calls for $15 ($45,00)
    • Sell 25 BBY 2026 $80 calls for $8 ($20,000) 

That’s net $17,000 on the $52,500 spread so there’s $35,500 (208%) upside potential and 598 days available to sell 5 short-term calls like the Sept $65s, which are now $3.50 so selling 7 of them would take in $2,450 and we’ll be well on the way to taking back the $17,000 we’ve laid out but, as noted, I would not sell ahead of earnings as I expect a pop.  And, by the way, the spread is starting our $9 ($27,000) in the money – don’t you just love options?!

Finviz Chart

Let’s have a fun week!  

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