Note: I’m going to share to the public the audio clip of my 3/6 Thursday Pre-Market Voice Note here where I discuss the “range has changed” on the NASDAQ. Share with more investors and traders.
Hey Folks -
Some of my readers may chuckle when I say the NASDAQ now trades like the Hang Seng when it’s in bearish structure. The 10/10 difficult mode of China stocks…is now fully applied onto U.S. tech stocks.
Bearish Chaos has taken over the market day in, day out since Options Expiration on February 21st. Lots of people will have an opinion on what’s causing all this, but this meme below is probably more accurate than anything at the moment.
And therein lies the problem.
This makes it incredibly difficult for my favored approach of DCF Modeling to work as my fair value of stocks start becoming a “moving target” on Tariffs On/Tariffs Off.
Members know what my approach entails (it’s super powerful when the market hasn’t lost its mind):
I do intense DCF Modeling of the top weighted stocks within QQQ and SOXX ETF (and also the Dow). I stress-test the shit out of my models where it will become very clear to members that there is usually at least a reactive (even if temporary) 3-4% bounce from my Bear Case levels.
Using the DCF conclusions along with careful technical structure observations, I then forecast what NQ (Nasdaq-100) should be trading at based on my understanding of the collective DCFs of FAAMG and Semiconductors. This leads me to conclusions like “I think NQ should trade XXX or YYY by this period of time”.
I’ve mapped out extensively where NQ has traded relative to major events. This is in my personal journal.
Here’s a snippet of what I deemed as Bear Case on the most critical stocks in the market for QQQ ETF.
Notice that Google bounced almost exactly at 165. All the way to 176 in fact yesterday.
That MSFT found a $15/share bounce from 390 earlier this week to 405 before the rally reversed (again).
Also AVGO found support today at 175-ish. And then makes a giga bounce from there.
None of this is a coincidence! My Bear Case DCF stress tests assumptions on very extreme conditions.
Here’s more detail with Broadcom that we discussed on 3/4:
The market got so dislocated in the past days it created an opportunity for AVGO 0.00%↑ .
Btw, just saying this now ahead of time, if AVGO 0.00%↑ gets to 210-215 tomorrow, that will be already very close to my 225-230 year end target. In such an overall bearish environment, employ profit protection immediately (translation: trim it, leave a runner, before they fade the whole thing)!
Again, I know that this environment has favored Puts, Short Selling, and Long VIX…
But folks, my approach is Buying the Dip (with great careful considerations as to what/where/when) and to sell at a higher price. In other words, I buy low and sell high on stocks that have relative value to me.
Just some general thoughts on market conditions at the moment. Everything is my opinion, but I’m sharing with the intention of helping folks navigate this turmoil.
In this environment, I think Direct Shares/Futures will fare better than Call Options (more on this below). If you have a good stock (or index entry) at a good price, the last thing you need right now is time working against you. My DCF Values NEED time to play out. The market NEEDS time to recover. Call Options will be more powerful as tools once we STOP mean-reverting structure (e.g. one day UP big, one day DOWN big). Mean-reverting structure destroys Call Option premiums.
In this environment, I think one should limit Selling Puts because the risk/reward simply is not worth it at this moment. Wait until the VIX is <20 before going back to selling puts. Members know I haven’t talked about selling puts since January. There’s bigger opportunity with loading up in Direct Shares or Futures at the right price. I’m not necessarily interested in selling puts here if I’m looking to ride a big rebound.
If your style is Call Options, I would say that it would be best to buy 2-3% OTM with 30-60 days out and do it ONLY at Swing Lows/Massive Support. And once the market bounces, these positions need to be sold immediately. And I mean, immediately. Don’t wish for more, don’t hope for more, because very likely based on this mean-reverting structure, there won’t be more. Just think of Wednesday 3/5 Rally and Thursday 3/6 Mega Meltdown as journaled examples.
I’ll comment on Long Puts, but it is not my preferred tool just FYI. Now, If one really wants to short the market/buy Puts, I think that IV Implied Volatility right now is super high. Blindly Buying Puts when VIX is >23 is asking for premium evaporation unless timing is superb. I don’t comment on Puts very often, but I suppose buying 30-Day Till Expiry at the money Puts for SPY ETF and QQQ ETF may be helpful hedges WHEN these two indices rip higher on an intraday basis (1.25%-1.5%+) on no news. Any profits from Puts should be closed immediately. Making profits from Long Puts on a consistently basis is a losing proposition over a large sample size.
Again, everything is just my opinion.
I’ve got more ideas for folks soon once this market heals a bit. There are a few things that I need to see before I can guide on more long ideas. When a rebound comes, it will come at unexpected moments. It could be fast & furious.
Now if you’re looking for some super near-term guidance because the market has created an uncertain atmosphere, I’ll share some thinking on NFP nonfarm payrolls tmr:
First off, markets don’t bottom on a Friday. Tomorrow is a Friday. Last Friday (which was a market rally) inspired hope but ultimately failed to be the bottom. Many things can happen over the weekend. If we get a big market bounce tomorrow, this is one of the few times where I think putting on some hedges for the weekend (with the intention of taking them off next week) may be reasonable.
On NFP, I do think an in-line figure would be best. Too hot and inflation fears come back. Too cold and the job market is in trouble.
On watch for tomorrow is whether Broadcom’s earnings rally can stick. If AVGO can’t hold the 190 level tomorrow (Now 200+ after hours), I expect any NQ rally to be highly suspect. Any upside continuation in NQ for tomorrow specifically depends on AVGO’s lift to the SOXX ETF ecosystem. If AVGO falters, SOXX falters, and so will NQ. If AVGO can revive sentiment, my opinion is that NQ seeing 20400-20500 again within 1-2 weeks is in the cards. The index has been beaten up all the way down to 20150-20200.
ULTIMATELY though- I have about 70% confidence we will see 20900-21000 on NQ (March Contract, will update rollover contract prices later) again within 45-60 days.
What about all time highs for my ultra bullish friends (anyone still there)? To me, it’s not really a discussion point at this moment.
Let’s recover my first checkmark of 20400-20500 first. Then we can go towards 20900-21000 which I believe will be a Decision Point. We must have reasonable expectations.
We’ll talk more in our WhatsApp group for members in my Monday-Thursday pre-market strategy notes.
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