Note: This note includes some educational elements on how I viewed today’s market structure.
Hi Everyone - brief update as it is already clear that the market has a favorable reaction to the inflation report ahead of today’s FOMC.
We were leaning conservative heading into this week with the following views:
Temporary resistance on NQ of 19150-19200 and to utilize covered calls in this event-risk heavy week.
A potential large rally on the Russell 2000
An understanding after completing DCF Conclusion Studies that QQQ ETF has longer-term upside potential towards $500/share.
The increasingly uncorrelated nature of intraday movements between NQ and the Dow.
Bullet Point 1 has been proven to be far too conservative by the incredibly strong market leading up to now. However, I believe it is better to be safe than sorry in such an elevated market.
The rest of the bullet points has played out closer to aligning in my market thinking as of now. The Russell 2000 soared 3% today, and there was meaningful opportunity in the pre-market to scalp for bullish upside in RTY even after the gap-up.
Although the primary large green candle post CPI reaction was the most lucrative sequence, there was a window of opportunity upon a modest retracement of the move for another leg higher into the 2085-2090 area.
As for how I personally managed NQ today, I had to play it conservatively.
Members know my least-preferred market setup is the Gap-Up as that results in significant risks for intraday players who are forced to buy at a premium. Gap-Ups are perfect for buy & hold accounts, but one of the more challenging setups for active players.
Although chasing higher with direct entries on NQ worked out for today (as of this post), I instead opted for conservatism and chose to Sell Puts OTM the moment data release came through.
The most “bearish” thing I am willing to do is sell covered calls, and even that is a neutral/modestly bullish strategy.
In other good news, one of our longer-term ideas Oracle paid off today.
I had guided on a bullish ORCL sequence in March which was relatively easy from 115-130.
The second bullish sequence took longer (April-June) from 115 (again) to 135 (today).
Time decay had taken its toll on Oracle’s 120 Strike calls before this quarter’s earnings given that ORCL was rangebound for about 45-50 days. This was a more difficult trade, but I will continue to look for similar strong opportunities for members that can still work in today’s context.
U.S. tech stocks has been the world’s market leader over the past 30-60 days as other areas have lagged, such as Hang Seng (HSI) and Europe.
I do expect HSI to be an opportunity again when appropriate.
I will continue to find value in other pockets of the market. Stay tuned.
-Larry
Important Links (Organized DCF Conclusion Studies By Indices)
DOW Top Stocks DCF Conclusion Studies:
https://larrycheung.substack.com/t/dow-etf-top-10-dcfs
QQQ ETF Top Stocks DCF Conclusion Studies: https://larrycheung.substack.com/t/qqq-etf-top-10-dcfs
SPY ETF Top Stocks DCF Conclusion Studies: https://larrycheung.substack.com/t/spy-etf-top-10-dcfs
Link to DCF Full Archive: https://larrycheung.substack.com/t/dcf-modeling-fundamental-analysis
Link to Educational Guides: https://larrycheung.substack.com/t/educational-guides
Q&A: Why I focus on NQ as a primary market.
My focus: I now focus about 95% of my attention on price action when it comes to the indices. I would strongly encourage spending lots of “screen time” for folks who want to navigate the market.
Note: I publish Monday-Thursday. These are my opinions based on my own research and my model may or may not aligned to the market’s thinking. I have to repeat this in all my notes as there is an element of the unknown in today’s strange macro environment.
Disclaimer: My investment community is not investment, financial, or trading advice, but for educational informational purposes only. I am happy to share my personal opinions which I provide as my personal journal. Trading of any kind of securities involves a lot of risk. No guarantee of any profit whatsoever is made. Investors may lose everything they have. Practice extreme caution. No profit is guaranteed whatsoever, You assume the entire cost and risk of any trading or investing activities you choose to undertake. You are solely responsible for making your own investment decisions. Owners/authors of this publication are NOT registered as securities broker-dealers or investment advisors either with the U.S. SEC, CFTC or with any other securities/regulatory authority. Make sure to consult with a registered investment advisor, broker-dealer, and/or financial advisor.