blog

31st January 2024

As the market continued its insanity, a little realisation set in via the large cap earnings. At highs yesterday, QQQ’s was trading at a 19% premium to its median with a 56% move in 12 months; whilst earnings only grew 4.3% & no margin expansion took place.

That, along with the hyper extension in its technicals led to very easy shorts in QQQ and SMH (SMH for similar reasons) the past 4-5 trading days. Whilst there’s nothing stopping us getting even more extended, the odds were massively in the favour of the short by a leading mile. I’ll be covering a load at open again and trailing the rest on the 65 minute.

Note: As soon as the hyper extension retreats my edge drops significantly, therefore I have no intention of overstaying my welcome regardless of my thoughts on how low it can go.

Moving on…

I would expect a rotation out of large cap tech once rates are lowered; the moment their cash yields are effected an instant devaluation should take place.

Small Caps, biotech and lenders such as $LC $LMND etc are great beneficiaries of lowered rates. A “cheap to borrow” environment can lift some names whom are very close to the mark on servicing their own debt. What will likely happen is an initial overall pop ($TNA) and then selective moves in the stronger fundamental & story stocks (Stocking Selection Becomes Key).

Therefore a big money play would be to focus on some of these more speculative names (small – Medium cap), picking out the names with the best stories and/or fundamental propositions. For now, if this thesis is correct, TNA should pop.

Lastly, Whilst I’ve made just as much on the short side as the long side this month, I would much prefer an up trending market across a range of sectors.

With FOMC today I intend to be careful but am also happy to have a little NEW exposure.

$TNA – 3x Leveraged small caps with a lovely daily flag, breakout and 50% pull back. In my opinion the R/R here is easily 5/1+ and the chance of it working is far above 50%. Therefore call options prior to the FOMC meeting are a net positive trade. If she stuffs, she stuffs.

$KWEB – After those heavy trims on KWEB I’ll be looking to add if we reach hyper extension to the downside, which we are.

Lastly…

Has anybody noticed the GLD looking suspicious, killer weekly and daily setup. It’s also gapping green today and so is NUGT (leveraged miners). Will be keeping a very close eye on this beaten down subsector with the daily pivot approaching.