August 29th Daily Market Note: Bulls take the opportunity to claw back Bearish Advances in final week of August. One of our China positions soars.
Unlocked Premium Daily Note: August 29th, 2023
Note: You’re all awesome. Today’s premium Daily Market Note is made available to the public. Thank you to Interactive Brokers for partnering with my content. I absolutely love them. High Rates on Idle Cash, HK-Listed Stocks, robust Customer Service, and very good execution fill prices when it comes to Stocks & Options. What’s not to like?
Daily Market Note: August 29th 2023 by Larry Cheung, CFA
Bulls take the opportunity to claw back Bearish Advances in final week of August
Forward-looking Conclusions of this note:
Macro: Recent macro data on fewer job openings and softer consumer confidence combined with China stimulus resurfaces the goldilocks scenario on a Fed Pause – sending stocks notably higher.
Stock-Specific: We saw an opening for new setups on Selling Put Options on select companies yesterday morning and this was discussed in the previous Daily Market Note.
Bonds: Traders take the post-Jackson Hole window of opportunity to reprice the 10Y Yield down to the 4.1%-4.15% region. I expect the 4.03%-4.07% region to be a contested level to focus on next. Clearing that would be positive (in the short-term) for technology stocks.
China: One of our top China ADR portfolio ideas, Pinduoduo, shows its feathers today with a $1 Billion beat on quarterly revenue expectations – 14% above consensus. PDD is one of my larger positions within my strategy.
Make sure to be on list here below to never miss an update.
Daily Market Note & Context
As the fear & greed index swung to Fearful just 12 days ago with QQQ having corrected almost 9% in the month of August, my research work came to the following conclusions in my note on 8/17, which I made available to the public:
U.S. Technology was setting up for a bounce before any further weakness
China was preparing for sporadic large 2-4% gap ups as short-selling positioning started to become crowded
That near-term positioning for the U.S. 10 Year Yield to fall using Micro Treasury Futures was more likely to work than positioning for further upside in rates
Much of this has come to materialize as Bulls reclaim key levels on the S&P 500 and Nasdaq that they had ceded in August’s difficult landscape. My observation was that if a nasty NVDA post-earnings fade and a supposedly hawkish Jackson Hole meeting could not stop dip-buyers, then this market is positioned for further advances to claw back losses in August. The month is not yet over, but the last 5 trading sessions has once again prompted the sell-side to resurface in major media outlets to vocalize buying the dip. The difference, however, is that a safer entry into QQQ and related-stocks was back during 358-360 on the Nasdaq 100 ETF, whereas now it trades nearly 375.
I continue to believe the single-name opportunities mentioned from my previous Letters still have upside, but in just 5 trading sessions, risk-reward has once again shifted away for new entries. It's now also important to remember that seasonality becomes toughest in September and October, which is just days away.
In China news, one of my top ideas Pinduoduo delivered a large-sized beat on its earnings expectations, surpassing estimates by more than $1 billion dollars. This is a very positive print in the context of a slowing Chinese consumer. My longer-term thesis, which I shared with folks, was that PDD’s TEMU marketplace was gaining serious momentum in markets outside of China like the U.S. I also believed their growth rates and margin expansion opportunity allowed them to be one of the better companies to fight a deflationary China narrative.
I understand that most folks are much more interested in BABA, but as discussed in my Trading Community Introduction Document, I honestly do not care so much about the hottest stocks and really would prefer to find companies that nobody cares about yet has meaningful upside. Such situations are called stealth ralllies.
My Sell Put positions on PDD have nearly completely evaporated, an idea shared with members. For my core position with Direct Shares, I will monitor to see next steps. There will be give-back after large upside days like today, but if PDD continues to execute, I see 110 or better on this name in 2024. Always remember that patience is a pre-requisite for navigating the China landscape.
More to come.
-Larry
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.
Tell friends and family about the work we do - I appreciate you. Spread my methodology where I simultaneously employ Fundamentals, Macro, and Technical analysis into my views to help the good folks find alpha.
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.