September 7th Daily Market Note: Bearish raid on U.S. and China stocks continue for a 2nd day, but Sector Rotation may have an opening play.
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Daily Market Note: September 7th 2023 by Larry Cheung, CFA
Bearish raid on U.S. and China stocks continue for a 2nd day, but Sector Rotation may have an opening play.
Forward-looking Conclusions of this note:
Macro: China’s restrictions on Apple products for government employees is now making analysts re-model (and therefore reprice) growth opportunities in Greater China in Apple’s current share price and valuation.
Stock-Specific: I am ready to discuss first-tranche re-entries into Sector Rotation ideas (see below)
Bonds: Treasuries have been range bound since the 10Y Yield’s latest rise, and I believe it is currently consolidating for a bigger move. Not currently in the TLT trade but will watch for further opportunity.
China: The Apple-Driven event has caused fear that there may be retaliation on China ADRs and further tit-for-tat between the two countries, raising the risk premium and lowering equity valuations. However, there are opportunities within the selloff which will be discussed below.
Daily Market Note & Context
Folks, as discussed in previous notes, I viewed the September/October period to be seasonally weak and that this phenomenon may not want to be fully ignored (in conjunction with my macro/fundamental research).
With this thinking in mind, our primary strategy has been to enter the month from a very cash heavy allocation after harvesting Put Selling gains from August and enter minor positions which benefits from rising volatility such as Long SPY Puts or Long VIX Calls. So far, this has been a very good start to the month with this line of positioning.
That said, the market does naturally go up over time so overstaying a position in SPY Puts or Long VIX calls will have negative expectancy over time, so this statistic does need to be known. At the end of this week, we will have finished 1 week out of the 8 weeks (Sept-Oct) of weaker seasonality. In other words, we are about 12.5% of the way through to greener pastures to seasonally stronger months November/December.
Obviously still a long way to go. But I am not so sure that the entire market and every constituent inside the S&P 500 is about to make a dramatic collapse lower, and that this recent selloff has once again created Sector Rotation opportunities – which I’ll now discuss.