Tactical Opportunities Resurface: China Returns To Levels Of Initial Interest. FAAMG Levels To Tactically Buy Upon Dips Or Sell Upon Rips This Earnings Season
Thematic Strategy on China and FAAMG: Key Levels, Where To Take Action, Where To Reduce
Note: In this note, I provide Actionable Levels with which I am ready to take a tactical position (targeting upside OR downside) if I get China & FAAMG stocks that reach key thresholds.
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Members,
Welcome back to another supplemental strategy note ahead of FAAMG Earnings this week.
In this note, I’m going to provide a Playbook on how I currently view Semiconductors facing uphill battles, China risk/reward slowly returning to Bulls (for tactical Trading), and FAAMG Setups where I plan to tactically add/reduce.
Before we get started, let’s do quick recap of events that have happened so far inside our Community:
On China: Back in early April, I moved my Strong Buy rating from China to a Hold (for Investors)/Reduce (for Traders) after Alibaba’s 20% rally from its business unit separation announcement. I consider this to be a strong risk management opinion that I shared (remember that I cannot say Buy or Sell, only my opinion on market direction).
On Macro Ideas: In early April, I started a position in the Japanese Yen for an ultra long-term position in anticipation of a change in the BOJ’s monetary policy. I view indefinite QE in Japan as unsustainable, and I do not quite believe that they have the wherewithal (ability) to maintain their easy money policy forever. I see a change in policy within 12-18 months, and with that, will result in a sudden shift in landscape to their currency attractiveness. And I want to have exposure to this. Further weakness in the Yen or further commentary that Ueda doesn’t “want to change” does not change the long-term eventual outcome that Japan will have to alter Yield Curve Control. Central Bankers often say one thing, and then do another. (As we can see from the FED based on history). I believe central banker private intentions are not often in full display in public statements.
On Bonds: I also discussed the increasingly volatile nature of TLT ETF, which has been a hedge that many of my members have been using to hedge market declines. I still believe in this theme, but it will be beneficial for folks to know the driving forces behind this ETF, which I have discussed back in April. Many people were looking for a TLT breakout past 110 - however, that was not my belief. At least not at that moment in time.
In this note, I will talk about the following:
What Lam Research’s (LRCX) technical picture post their Earnings says about Semiconductors SOXX ETF in general
Why China sold off and Key Levels to watch for a bounce (using Alibaba BABA as a proxy). Also, using Hang Seng as a proxy to understand when a more durable bounce may occur for China Internet Stocks
Technical Setup, Key Levels, and Regions where I intend to Add/Reduce on FAAMG post-earnings
Personally speaking, the markets have been quite flat since the beginning of Q2, and I have been simply keeping up with the current environment.
I haven’t made any serious adjustments other than China risk-reduction and adding hedges to protect against violent market downside.
Hedges can be expensive when markets rise and volatility is decimated. However, I believe hedging is of utmost importance when recessionary data such as higher unemployment makes its grand entrance in the coming months.
Even if hedges cost me performance, I must personally hold them.
I believe once the market starts pricing in a recession, there will be sudden pain reinstated back into the landscape.
All items discussed inside my Letters here are the same ways I position myself.
For new readers please understand that inside our Community, I specifically discuss Strategy and Directional opinions/guidance on key names & themes.
Execution/sizing/weights is a topic for another Tier in the future for more advanced members. I haven’t decided if/when I will create such a Tier given my work capacity, but for now, Strategy is working very well.
That said - With the right Strategy and the right Execution, the Party for prepared Traders/Investors shall begin - when the Market is ready for its next trending move.
Which I expect to be sooner, rather than later.
With VIX now at an 18-month low, planning ahead to know what key levels to take action has never been more important. A historic, tremendous incentive by me to prepare with us to Buy the next Crater and Sell the next Rip is offered below.