12/7 Daily Market Note: Bonds reach overbought fever ahead of Non-Farm Payrolls. Is this sustainable?
12/7 Premium Strategy Note - Bonds Go to Moon?
Hi Guys-
A lot of saber-tooth rattling between Bulls & Bears within the S&P 500 this week only to be rather flat week-to-date ahead of tomorrow’s pivotal non-farms payroll macroeconomic data point. Tomorrow’s jobs report will determine whether the U.S. economy’s trajectory merits the recent run-up in long-dated Bonds, which have seen a stunning recovery since October.
Long-time readers in my Community may recall that we absolutely liked the long-duration treasury bond ETF TLT in the 85 region. Now at 95-96 for this ETF, the market most likely will need to see unemployment rise towards 4.2%-4.5% to keep the TLT progressing towards 100. The unemployment rate was last seen at 3.9% in the previous report. Stocks were bid up today as AMD revitalized the A.I narrative with its new set of chips to compete with NVDA.
During this week’s first-half tech pullback due to sector rotation, we talked about Selling Puts on Big Tech given the market’s elevated juncture. It was too difficult to know during the FAAMG correction whether adding more shares directly would be constructive at this point. But what my statistics/price action analysis did suggest was that a large and extended pullback in Big Tech was not the base case this week, so I discussed Selling puts.
Our strategy of selling puts on FAAMG during early week’s softness has been additive. On average, the Puts we discussed selling are down 20-40%, which means we as the Sellers are up 20-40%.
Obviously, if one had bought Calls or Direct Shares, the profits would be larger. But given that our Community has folks with different risk tolerances, as a rule, I have to guide on the conservative side.
I’m interested in steady consistent outcomes. Slow and steady wins the race.
I personally bought (and closed) several calls on names in my coverage universe that Members know I tend to favor – like SBUX and like MSFT on this recent pullback. I am quite comfortable in issuing guidance for Sell Puts and Direct Shares. Being successful in Calls requires specialized training, and not just directional commentary. So while I will occasionally talk about Calls under special circumstances (beneath the paywall below), this is an area that experienced folks should participate in rather than beginners.
In the future, I will create an entirely separate program on Options for beginners as there are many nuances involved that simple buying direct shares doesn’t capture.
This is because emotional tolerance is involved, and learning Calls is (at the very minimum) a multi-month process, which I have personally committed to advance the value proposition of our research. I put my own capital at-risk so that I can upgrade my own skills for the sake of the Community.
On China and the Hang Seng, I shared last night my thinking on this sector. No change in view there.
Below, we’ll talk very briefly about any setups I’m seeing in the weeks ahead. Join us - one good transaction pays for itself.