August 23rd Daily Market Note: A Downside Revised Jobs Report Plummets the 10Y Yield, jolting re-acceleration of tech recovery
Unlocked Premium Daily Note: August 23rd, 2023
Note: Another good day for my methodology on Selling Options/Sector Rotation at targeted strike prices and expirations for companies in which I’ve done DCF analysis.
My approach is designed to generate Options premium income slowly and consistently with Theta Decay. My approach does not allow me to have massive one day returns you see on social media. I take the same setups as discussed in my Daily Market Notes and Private Group Chat. Gains are smaller than buying options, but more consistent. This is my preference.
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Daily Market Note: August 23rd 2023 by Larry Cheung, CFA
A Downside Revised Jobs Report Plummets the 10Y Yield, jolting re-acceleration of tech recovery
Forward-looking Conclusions of this note:
Macro: A significant downward U.S. Payroll revision triggered a massive Bond Market rally and puts into question the strength of the U.S. labor market
Stock-Specific: Discussed inside our Private Group Chat last night and this morning pre-market, I entered several HK-Listed names in the Hang Seng as well as MSFT/META here in the U.S.
Bonds: The Bond Market staged a massive intraday rally, taking our TLT Options position back to the breakeven point amid the selloff that has wreaked havoc on traditional Direct Share positions. All eyes are on whether Jackson Hole pushes TLT back to the 95 and above level.
China: With CNH/USD now stabilizing back to under 7.3 (now 7.289), I believe the Hang Seng Index is about to stage a 2-3% recovery rally at some point in the coming 2 weeks.
Daily Market Note & Context
After reaching the Oversold Daily RSI Level earlier this week, long duration Treasuries ETF TLT put in 2 large recovery sessions to bounce back from the 92 to near 95 as of this post. This move was most likely ignited by the headline development to confirm that the U.S. Labor market is not nearly as strong as the data “officially” suggests, with nearly 300,000 jobs to be revised lower. Most notably, while collar pockets of the economy such as business & professional services were strongly revised lower by more than 100,000 jobs.
This report puts into question the reliability of macroeconomic data, and reignites the narrative that the jobs market is not nearly as strong as the published data would suggest. Coupled with an oversold reading and heavy short positioning against Treasuries, this development sparked a massive bond market rally, dragging the 10Y almost 10 basis points lower, and re-igniting the choppy technology recovery rally.
In yesterday’s pre-market note, I covered initial thinking on NVDA earnings so I will not repeat that here, but I would like to touch upon Analog Devices (ADI) to read the tea leaves heading into NVDA’s after-market report and subsequent potential reaction. Very quickly, Analog’s business is related to design of integrated circuits that use analog and signal processing technologies. In plain English, they attempt to bridge physical and digital worlds in the end-market with their designed circuits and can be considered one of the suppliers in today’s AI movement. The company missed latest quarter earnings, gave a soft forecast for next quarter, and experienced flattish/modestly negative top-line revenue growth year over year. Yet, in today’s session, the post-earnings ADI selloff was short-lived, and along with peer Texas Instruments (TXN), now trades higher together with its Semis peer group.
What this suggests to me is that Fund Managers, who can move the market, are looking for attributes of a company to show that it may be a secular beneficiary in the AI movement. ADI’s valuation leading up to earnings was not inexpensive, and yet the softer earnings quarter was bought up by these large market participants. What this conveys to me is that if NVDA reports a quarter that doesn’t live up to Street expectations, we have Analog Devices as a path playbook: an initial selloff, followed by the crater being bought. NVDA is much more valuation-rich than ADI, so any selloff may take a bit longer to digest but I do expect NVDA to head higher on long-term time horizons if yields can stay where they are today (ideally lower).
Previous ideas continue to work – such as Dicks Sporting Goods 80 Strike Sell Put idea. You may see that $DKS is down 3% again today, yet the Put option has barely moved against us. In fact, the Put Option is actually down, benefitting me and our Members as Option Sellers even though the stock is down. As part of my research, I have deliberately chosen certain Strikes and Expirations that maximizes our defense against adverse price moves.
Yesterday in our Private Group Chat, I discussed entering HK-Listed names with light positions in the image below. If tonight’s NVDA earnings is stable, today’s China ADR action implies that Hang Seng action tonight will be favorable.
In the pre-market note today (shown below), my belief that META/MSFT would continue their recovery vibes with the characterization of today’s session (thus far). In conjunction with my Weekly Dashboard from this past weekend, my Sell 250 Strike META 45 DTE Puts are working in our favor. MSFT 285 Strike Puts have so far evaporated 50% of the premium, netting us a 50% return on this guided position.
More ideas and setups will be discussed later as they emerge. PDF attached for you below if you wish to read PDF.
-Larry
*P.S.: All Members will be given access to join my Options Bootcamp ($399 for public) with complimentary access in early October to thank them for their flexibility as I am out of office to travel to China between Sept 14th-30th. Know that I always take care of Members, meaning that if you are here, I will take care of you!
Specific Ideas from Private Group Chat discussed below