Pre-FOMC Strategy: Assessing Risk/Reward in Mega Cap Tech After its large 2023 Rally - Will they continue to hold up the SPX and QQQ?
Objective Technical Analysis & Key Levels Strategy on U.S FAAMG Stocks (Thoughtful Preview Provided)
Note to readers: Members know that my formal committment to the Community is 2 thoughtful Bi-Weekly strategy notes every month. However, as you have seen, I often do (far) more than the promised scope given the intense volatility that we are seeing in the markets.
In an effort to provide more frequent updates, I must make supplementary notes more concise.
Members,
I wanted to write to you this weekend because we have a critical macro event next week: the March FOMC taking place on the 21st-22nd.
By now, I’m sure you may have read about expectations surrounding this Fed meeting - that the plan is most likely to raise by 25BPs. I mostly agree with that outcome.
What’s important, in my opinion, is not how much the Fed raises rates this meeting, but their intention for the duration of this high-interest rate policy going forward. Will it be a pause from here? Or will we keep going?
What I wish to do in this supplementary Strategy letter is provide an updated set of key levels on the critical names that have heavily carried the S&P 500 and QQQ for much of 2023.
How these specific companies perform from here will make or break the current recovery narrative.
Readers will notice that I don’t really bother too much with the granular details that is often discussed in many other newsletters.
I’m here to find opportunities (and make money) in U.S. and China markets in a plain and simple manner. To separate signals from noise. While my work is absolutely not individual financial advice, I am here to convey my intended action, and share with you the data that I’m looking at.
I believe folks are inundated with an incredible amount of noise every single day, and I wish to keep all my members focused on the main goal here: what is the ongoing risk/reward in markets, key companies, and themes - as well as what is the duration of transactions that we should be aiming for in these environments.
I want to recap what has been going in my favor, and some areas going against my favor.
As we started this past week, I wrote a weekend note to share my thinking of how the SVB crisis would play out for the banking sector. And by mid-week, I gave an update on key levels with the Credit Suisse development newly in play.
Going in my favor (as of this post):
I had believed that SPY was at least a tactical buy in the region of 376-383 based on my technical assessment and that 390+ would be achieved before further weakness. Low of week was 381 (reached intraday). High of week was 396.
I discussed American Express being a tactical bounce opportunity at my 158 level (tactical means that the discretionary transaction timeframe is shortened and profits should be managed thoughtfully once it goes in your favor). We saw a bounce into 164 before retracing.
I had believed Charles Schwab at 49 was a very compelling 2nd tranche purchase for me personally (I had entered a first small tranche at 59 to test the waters). This 2nd tranche purchase worked, with Schwab rebounding as high as 61 intraday this week.
Me discussing my strong preference to not touch Regionals or European Banks in this environment. My tactical bounce zones, intended for a very short holding period, on U.S. banks worked. Timeframe was extremely brief, but a bounce did ensue at support levels provided before retracement. While regionals can bounce hard, I personally favor the larger U.S. banks as I am looking for Singles - not home runs.
Google reaching my 103 target, discussed a few weeks back at 93 or so.
TLT staging incredible resilience during this period of broad market uncertainty. I had strongly defended TLT in the 100 region and said that “we should not fear a drawdown in TLT ” especially as we neared 100.
My strong dislike of the Real Estate sector via the VNQ ETF. Despite markets getting supported this week, VNQ did nothing, and I count this massive underperformance by VNQ as a win if it was used as a hedge/short.
ZIM, discussed in the 18-29 region, has fared quite well now trading around 24 or so amid optimism that their dividend yield will attract new investors along with shipping rates bottoming out.
That Baidu may be supported at my 125 support target and my belief that it would at the very least reclaim 140. Discussed at 132, while China as a whole was exceptionally weak. Despite media discussing Ernie bot disappointment, my plan for BIDU worked.
Going against my favor (as of this post)
The China Internet Sector has been broadly weak, except for Baidu, but I firmly believe this sector will make a rebound later in 2023. Only question is when and not if, in my view. I think upon lower valuations in this sector, sudden/violent recovery rallies may occur and the narrative will again change.
My personal interest/positioning in CF Industries (CF) and Mosaic (MOS), which benefit from stubborn inflation, is taking heat. After getting macro data that supports softening inflation, CF and MOS have been sold off by investors. However, I do think that support for these names is coming soon, and I am not giving up on these two names just yet.
Existing positions in Dollar Tree and Dollar General experiencing such softness in the face of a “trade-down” in consumer behavior and psychology. My key levels discussed with members have not yet been breached, but I’m personally taking heat on these names given I have existing positions.
Disney showing more weakness than I had personally expected. Discussed at 102. Was expecting a retest of 108-109. However, now 93. Not yet giving up on DIS.
In my Investment Community, I will provide directional strategy, bias, and key levels to watch (like I discuss above). I will also discuss intended timeframe so there’s a clear sense of holding period expectations.
As you can see, I’m quite objective with my opinions shared (whether they are in-favor or out-of-favor for me). My review of my personal journaling shows me that I personally usually win 60-65% of the opinions for the timeframe in which they were intended over a longer period of time.
In this market, most ideas I provide will be intermediate-term/long-term, while others will be near-term. The chop that we are experiencing means that buy & hold & forget it investors will have to extend their timeframe.
I do not fully discuss execution and position sizing/construction because that is personal to my own style, although I will hint at it. Communities that explicitly walk through execution details are priced significantly higher, and I’ve done my best to keep our community at tremendous globally accessible levels so that investors who are Beginners, Intermediate-Level, or Advanced can join us.
For folks who know what they’re doing, the Strategy I provide is (more than) enough to navigate these markets smoothly.
Now, let’s discuss the key levels of the names that carried the S&P 500 and QQQ all year.
You may be surprised to find out that these names still have upside remaining. But the clock is ticking, and it won’t be long until many of these key Leaders hit critical resistance (where Sellers come back to test the nerves of bulls).
You’ll want to know what those levels are, and closely observe how they behave once they reach them. That will be the ultimate clue of whether the market goes higher or lower as we start planning for Q2 of 2023 (yes Q1 is nearly over) - so let’s get to work and assess the key levels.