10/19 Daily Market Note: Point of inflection coming for markets after Powell's Speech. Which way?
10/19 Premium Strategy Note: SBUX now working for the Community.
Note: I’m sharing our Monday’s premium note unpaywalled to our Public Readers. Inside you’ll see our setups SBUX, MCD, NFLX, and TXN demonstrating alpha in the context of a very challenging macro environment. Investors who have patience are in the best position to benefit from my work. Make sure to join the nearly 18,000 investors who read my Daily Plans, which I send out Monday-Thursday.
Hey Folks -
Stakes are high for today’s Powell Speech and in today’s note, I will provide an anticipation of what I think he may say and provide thinking on market outcomes.
This note will be rather brief, and for our public readers, I’m going to release a few notes from earlier this week to share with the Community – to celebrate the fact that amidst a very heinous market, our call that SBUX, MCD, TXN, BYD would be relatively out-performers that would soon be demonstrated. Please recognize that it is extraordinarily difficult to identify setups let alone position in ideas that are positive in a broadly negative market, but I will continue to do my best.
Even though we are a tactical trading and intermediate-term investing Community, the depth of our patience must be on par with those of long-term investors. There is a special type and dimension of patience that is required in trading, and members who truly understand my work have the potential to benefit tremendously – I believe.
China is an idea that will work, and just like many good things that happen, it will simply require time. In addition, the way you position (Direct Shares or Options) is equally as important as your view. Hang Seng is among one of the worst performing markets in the world in 2023, yet we have been able to nibble away at opportunities at very selective times and we’ve been a net positive market participant in China stocks this year. The only way to survive in China ADRs and Hang Seng stocks is trading level to level, picking your spots, and extracting outcomes after any green shoots. Investing long-term in China ADRs or Hang Seng, as I’ve said previously, will not work. This sector is a gigantic trading battlefield.
As for today’s Powell Speech, here is my current thinking on what he will say, and what I believe the markets may do.
What Powell May Say:
He’s going to stay vigilant on saying that the “Job must be Finished” in a reference to Inflation
He may talk about how the U.S. economy is still incredibly strong and the labor market is
He may mention that the recent rise in yields have done some tightening for the Fed
He may mention that all meetings going forward are data-dependent.
The most important point is bullet point #3 where he says the yields have done some tightening for the Fed. If I hear that statement, that tells me that Treasury yields are being closely watched by the Fed and that they recognize the risks to the U.S. federal deficit should yields stay this high.
This statement is bullish for assets- stocks & bonds.
What the Markets may do:
I expect any strength to show up in FAANG first. These companies hold an enormous amount of cash that is currently raking in billions of dollars in net interest income alone, so higher rates do not impact them as much.
If we hear the line that a “recent rise in yields have done tightening for the Fed”, I expect TLT to revisit the 84.5-85 region. How long it stays there, I can’t possibly say. This statement line should be net positive for the Nasdaq as it is controlled by FAAMG. The impact will also be positive for S&P 500, but the degree of impact may be a tad smaller.
If we hear that they don’t intend to cut rates until late 2024, current intraday weakness will persist.
Any whiff of dovishness from Powell may be the beginning of Lower-Highs structures being formed on smaller timeframes (1-Hour Chart and below) for the 10Y, 20Y, and 30Y. This may cause a multi-hour brief recovery across assets in the realm of .4-.8%.
Here is Monday’s note where we referenced MCD, SBUX, and TXN – all relative outperformers this week. This week is just one of many instances where ideas have been shared and have helped find alpha in a very challenging environment. Our philosophy is that trading level-to-level ideas results in a volume of small wins that add up to material results over a long period of time.
More to come. Make sure to subscribe and join for more. Nothing is ever guaranteed in life, but chances are good that you find yourself account-growth ideas inside my Community to keep growing your net worth during the macroeconomic climate we’re in.
Options Bootcamp for Beginners this evening event link…