11/14 Daily Market Note: The transition from Inflation to Deflation has begun - Sparking a face-ripping rally
11/14 Premium Strategy Note Made Public
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This note is made public to all our friends here. Enjoy, and have a great day.
Folks -
Today’s softer than expected CPI report has sparked an all-asset rally across the board – small caps, mid caps, large caps, Bonds, China, and etc. Now my goal in the past several weeks has been to find relative value in a market that has turned expensive again. The market tends to be unforgiving for investors who pay too high of a price for stocks, so please understand that I’ve had to be more conservative when issuing guidance. In the long-term, conservatism and steady wins beats out trying to time cyclical rallies. While things may feel awesome in today’s rally, another more important questions is: can we keep finding gains in 2024? I plan to do so systematically and consistently.
I believe this latest inflation report marks the beginning of the end of cyclical inflation and the start of the deflationary narrative. I will be doing quite a lot of research on this topic as I do not have a definitive conclusion on what this means immediately at the present. My initial thinking is that risks to markets in 2024 is very large - larger than what the Q4 Rally may have most folks believe.
Yesterday in our Daily Note, I discussed that I opened up call positions on the China internet sector to execute on my personal belief that a window of opportunity may be coming for China stocks. Helped with the softer U.S. CPI inflation report, which I believed may be softer in coming months, long term rates via the 10Y Yield are now falling which is going to help emerging markets around the world.
With the 10Y Yield declining, the U.S. Dollar index is now making a downside reversal, which in turn is helping emerging market currencies catch a bid – such as the Chinese Yuan, Japanese Yen, and Euro. A modestly falling U.S. Dollar simultaneously helps U.S. Tech and Emerging Market Stocks that have been previously chained down by the interest rate differentials.
Within relative value, I discussed my action to sell puts on value-oriented names Kroger, Exxon Mobil, and Johnson & Johnson. While yes of course, these names are not as "hot" as FAAMG + Tesla, out of the Community’s best interests, I could not have guided on adding further exposure to Growth after such an enormous rally Ahead of a binary event such as CPI. My philosophy is that I go for consistency and I go for steady winners. I have to err on the side of caution.
Today’s rally has consumed a lot of the opportunities currently available in the market place. I believe more opportunities will resurface, but for now, I will begin hedging my China positions by selling short-dated out-of-the-money calls to protect against my long-term calls. In addition, I will be closing Applied Materials (AMAT) as my Sell Put position on that has nearly evaporated the entire options premium (good for us, as the Sellers). AMAT was a bullish continuation idea provided to the good folks last week when it still traded 141/share - now seeing 155/share today - a nice 10% run within a week.
I will actively find more opportunities. For now, I must go into “research” mode to try to uncover what still has value out there.
I am dedicated towards advancing my own skills every day for the benefit of my Community. Folks know that my specialty has been primarily Leveraged Put Selling and Tactical Direct Shares.
In 2024, I will personally learn and harness the power of Calls (at the right context, at the right time).
And maybe Long Puts in special circumstances.
Join us for more. Best is yet to come.
-Larry
Forward-looking Conclusions of this note:
Macro: Big investors once again reprice the market higher as a softer inflation report sparks a widening in breadth, led by small caps.
Stock-Specific: All Sell Put positions discussed from yesterday is now working extremely quickly.
Bonds: Bonds see a massive rally after the softer expected CPI as investors now look towards deflation as a possible scenario in 2024. Bonds outperform in deflation, stocks tend to have a hard time.
China: China Singles Day was subdued by it wasn’t adverse enough to sustain downside momentum. The sector ETF KWEB is best way to gain diversified exposure for investors who like this sector’s prospects.
I will do my best to keep you as updated on my research, ideas, and setups.
I cannot take any 1:1 questions related to individual positioning or guide on individual transactions.
My work here is solely an expression of my personal journaling, but must not be treated as formal financial advice.
Thank you again for a wonderful Community, and please encourage friends & family to join our group here.
Please make sure to read my 4-6 previous letters to understand my fundamental/technical/macro views. Every update builds on top of the others. I write quite frequently now so make sure to read many of my previous editions, which often also include valuable educational content to help you grow as an investor/trader. While I do enjoy sharing my personal journaling of the markets, this is not individual customized financial advice.
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