If you’re innovative – ask yourself 3 questions:
- Why does the problem you’re solving – need to be solved?
- Why has J.Q. Public rejected your solution in the past?
- What catalyst will cause the world to say: “This time it’s different!”?
“It’s a crowded market.” We often avoid crowded markets because it’s better to sell our goods ‘n services in a place where we’re the only seller. But crowded markets come with: lots-of-customers, word-of-mouth, an understanding of what is required, and competitors to learn from. Entering a crowded market requires an entry worth sharing, a competitive advantage, and the gift of persistence.
“It’s a broken market.” Everyone is looking to buy that big high flier on the cheap, so that they can ride it back up. Unfortunately, in 2000-2001 the high fliers took decades to get back to even. Microsoft took 16 years just to get even. IBM took 10 years, and Oracle 14 years. Yes, ‘the market’ always comes back, but normally with a different set of leaders that power us to the next all-time-high. If you’ve only been in the market for a decade, you only know how to: Buy the Dip. That strategy worked nicely in a FED-induced market, but it stopped working when our FED stopped printing money.
I have not seen market weakness like this for over a decade. We can't put two green days together. Wicked volatility, crazy rotations, and 1,000-point swings are becoming the norm. With higher interest rates, nobody is willing to bet the ranch on some high-flying junk with a P/E of 85 – who needs cheap money to survive and won’t see profitability for a decade. The DOW has been down 9 of the last 11 sessions. The S&P has been down 7 of the last 9. A counter trend bounce will happen at some point – as NOTHING goes straight up or down. My advice: sell into that 1 or 2-day reversal. Heck, maybe even buy a Put and/or Go short.
The Market:
Control vs Responsibility: In times of change, support the LEADERS that like being in control AND shouldering responsibility. Combine those attributes with the company that is selling the picks-n-shovels required to get the various market sectors where they need to go = and that’s where you invest. Above is SG’s control vs responsibility matrix. The upper right quadrant is the person with control, and who also takes responsibility / accountability when things go sideways. It’s in this quadrant where good leaders can become great – by solving problems quickly. The bottom right is a disaster waiting to happen. It’s home for the megalomaniac who spends a majority of their time whining. In the top left corner is someone who truly cares, but has no power to make things happen = because it’s been denied them or because they avoided it. Finally, most people flock to the bottom left. Most people are pre-programmed to accept what is given in exchange for not being held responsible for the results. In most situations, good leaders have the freedom to choose their quadrant. Great leaders get to choose when they act, what they act on, and where they’re headed.
InfoBits:
- 50% of Nasdaq stocks… have fallen by at least 50% since November.
- The Cybertruck is Cyber-stuck... as Tesla has pushed back production until 2023. Rivian is already delivering EV trucks, and Ford plans to drop electric F-150s on driveways this spring.
- U.S. companies that use semiconductors are down to… under 5 days of inventory for key chips.
- Gopuff (a delivery startup) is working toward an IPO… in the 2nd half of 2022.
- Nvidia is quietly preparing to abandon its $40B bid for chipmaker ARM.
- The top 10 redeemed ETFs… have posted net outflows of almost $30B YTD.
- While some investors remain long… the overwhelming consensus is to get and remain liquid.
- Mark Cuban’s Cost Plus Drug Co… aims to simplify healthcare’s complex business model by selling drugs for wholesale prices – plus a fixed 15% markup. This could push the whole industry to become more transparent.
- Tesla has over 60,000 full-self-driving vehicles on the road… implying that the company’s self-driving ambitions are in high-gear.
- UBS has agreed to buy automated wealth management company Wealthfront… in a $1.4B all-cash deal.
- Apple is planning a new service… that will let small businesses accept payments directly on their iPhones without any extra hardware.
- Bank of America is giving out $1B worth of stock to all its employees… in a push to retain talent.
- Tesla announced that it will be developing a robot… named ‘Optimus’ in 2022. “Optimus is intended to be friendly, and navigate through a world of humans. Optimus will eliminate dangerous, repetitive, and boring tasks.”
- Apple shattered previous earnings results… despite supply chain constraints that CEO Tim Cook said are improving.
- Robinhood’s latest earnings call was ‘brutal’. HOOD anticipates Q1 revenues to be down 35% YoY, and earnings in the toilet. Not a good look.
- In 2021, a record 17% of all purchased merchandise… was RETURNED.
- On average, we each spend 36 DAYS / year on social media.
Crypto-Bytes:
- The SEC told MicroStrategy (owner of 125,000 BTC)… that it cannot use non-standard accounting measures to smooth out BTCs fluctuations in its public filings.
- Kazakhstan crypto miners will have their energy supply cut off… until the end of the month.
- Cathie Woods’ ARK Investment Management predicts that bitcoin… could exceed $1m by 2030. “Bitcoin’s market cap. still represents a fraction of global assets, and is likely to scale as nation-states adopt it as legal tender.”
- Bank of America predicts Solana to become… “the VISA of the digital asset world”.
- The SEC is probing Voyager Digital, Gemini Trust, and Celsius Network… as part of an investigation into crypto companies that pay interest on virtual token deposits.
- Warner Music Group is ‘entering the metaverse’… with a concert-focused theme park anchored by: Ed Sheeran, Bruno Mars, Dua Lipa, and Cardi B.
- Crypto investors are accumulating bitcoin and moving it off-exchange… shrugging off the prospect of faster interest rate hikes from our FED.
- WisdomTree says that its crypto portfolio surged fivefold YoY in Q4.
- The America Competes Act slipped in a provision… giving the Treasury Secretary sweeping power to block financial institutions from interacting with crypto exchanges and non-custodial wallets.
- Russia’s government agreed on a “road map” for crypto regulation… with their central bank – which originally proposed an all-out ban on crypto.
- The IMF recommended… that El Salvador discontinue the use of bitcoin as legal tender due to the financial risks and bitcoin-backed loans.
- The Super Bowl promises to be a super Sunday for NFTs. Game attendees will receive commemorative NFTs of their tickets. Budweiser will be creating a major NFT moment pegged to the big game.
- Crypto prices are just one measure of the crypto-economy. OpenSea (an NFT exchange) shattered its monthly sales volume record and is growing over 20% MoM.
Last Week:
Monday: Okay, the market's been puking for two weeks. The futures are red across the board due to: inflation, FED worries, war jitters, crashing crypto, and more sellers than buyers. This week not only brings us Chairperson Powell and his statements about what the FED will do, but also a slew of earnings from some of the heavyweights. If our FED stands firm and earnings come up shy, we could see a pretty major sell down. If the Fed backs off, and earnings don't stink, we could see a major move back up. Which is it = place your bets.
Tuesday: Our FED is front page news right now, and some believe that the recent market action will have J. Powell running for cover and backtracking his statements. That will ONLY happen if his handlers aren't quite ready for a full-blown reset. J. Powell is just an actor in this play. When the director says: "Jerome, it's time to usher in the new monetary system" – then he will crash the current one. So, with Powell on deck for tomorrow, and the market playing "as the stomach churns" – I’m probably not doing much today.
Wednesday: Microsoft released earnings last night, and that lit up the techs. They beat on both the top and bottom lines, and this morning the futures are ‘green across the board’. I don’t think Powell can backtrack too much or he will be accused of helping the Democrats in the November elections. I won't be making any moves until I see the statement, and hear from the Grand Poohbah himself. The statement just hit and it was exactly what the market expected. When asked about the balance sheet, he said they're talking about it, but haven’t made any concrete decisions.
Thursday: Okay, so what do we do in here? Energy has been hot for some time, but could use a rest. That said, MRO over $20.25 would be attractive. QS might work as a bottom feeder. The chips are a bit mixed this morning. The SMH (the ETF for the sector) looks like it's going to be green. My thoughts were that they'd give us a couple up days into the weekend, and then next week do some more selling. Instead, they took a 550-point green morning and turned it into a 100-point red afternoon. The chop out there is epic. I would trust NOTHING right now. The charts are broken, support & resistance is non-existent = everything’s a sloppy mess. Unfortunately, when markets are like this, you can either quickly day-trade or sit on your hands. Anything in between will whip-saw you into financial oblivion.
TW3 (That Was - The Week - That Was):
- Our FED has left interest rates unchanged… but will hike rates during its March 15 -16 meeting.
- Oue FED will cease its asset purchases in March. FYI: When our FED sells (or ceases to buy) bonds, bond prices are pushed lower, and interest rates rise.
- Last week our FED commented that it will also be… “significantly reducing” its balance sheet in order to combat inflation.
- Our FED anticipates that there will be… 3 interest rate hikes in 2022, and 3 more in 2023. This assumes that inflation falls below 3% by December 2022, and below 2% in 2023.
- Chairperson Powell indicated that raising interest rates will be our FED’s primary means of reducing inflation. Balancing asset purchases and interest rates is difficult and has the potential to cause a temporary recession.
Next Week: A Volatility Survival Guide:
Volatility Update:
- The S&Ps are down about 7.5% YTD, but finished last week mildly higher. Tech and the small caps finished the week flat, with both the financials and energy moving higher. Tip #1: I would expect that the marketplace would have a ‘coming together’moment over the next several sessions with the S&Ps and small caps coming up while energy and financials move lower. But, what are the necessary tactics to manage and survive in the midst of this level of volatility?
- We remain in backwardation. That is to say, short-duration volatility is exceeding back-month volatility – which changes the nature of how the market-makers hedge their risk.
- Trading VIX options 101: The VVIX is trading at 132 = which denotes ‘duck-n-cover’ territory. All of 2022 has ‘basically’ been above 110, so we need to get our arms around this type of wild market behavior.
- The Dollar is becoming a ‘flight-to-quality’ instrument. If you think that the rally on Friday is waving the ‘all-clear’ signal: backwardation, VIX options, and the dollar being bid-higher – all are signs that fear is on the horizon.
Critical Levels to watch:
- S&P 500: /ES needs to remain between 4211 and 4500.
- We are in an incredibly ‘tight volatility channel’ that must be tested. Tip #2: I believe that we’re going to see a small rally early next week, then a rip-your-face-off-crash down thru 4211 in order to really bring out the ‘fear’. So, get ready to dump your longs (STFR), sell some calls / buy some Put-Spreads when we get closer to the 4500-level.
- One of the hallmarks of volatility are the wild rides to the upside that occur during these downtrends.
TACTICS for ‘Not Fighting the FED’:
- STOP’s (in the middle of a volatile environment) can be your worst enemy. Tip #3:During periods of high volatility, be sure to set your stops at twice the amplitude, and cut your trading size in half.
- No Bottom Fishing Allowed: Tip #4: This is NOT the time to bottom-fish – just ask any 5-year chart. We could have a ‘world of hurt’ in front of us – especially if/when we break thru 4211 on the /ES’s. Amazon could easily drop from $3,000 to $1,500. Netflix could painlessly move from $400 to $200. And Costco could fall from $500 to $150 virtually overnight. Any 5-year chart will bring some reality back into your trading.
- Use SPREADS to mitigate volatility exposure. Tip #5: If you want to take any directional trade = USE SPREADS. During periods of intense volatility, your job is not to maximize income – but rather to stay alive. SPREADS allow you to take a directional bet and limit your losses.
- Tip #6: Use DEEP in-the-money SPY Puts to hedge long stock buys. Use the SPY as a hedge by buying Delta 80 to 85, deep in-the-money Put Options. Now, every SPY Put option is equivalent to about $44,000 worth of hedging so purchase your risk accordingly.
SPX Expected Move (EM):
- Early next week we’ll be in the month end / new month period, and that's often a time when the market moves up. But I don't think it has staying power. I know that sounds insane, given the market has done nothing but make 80 new highs in 2021. But all things come to an end, and I think that the politicians / media are overestimating the strength of this economy, and how tapering or interest rate hikes will affect things. In other words, they really believe that the market can go higher if rates rise and the punchbowl is taken away. I do not.
- Next Week’s Expected Move = $137.59. With last week ending flat, and having the experts still peg next week’s EM at $138 – that tells me things are still ‘Getting Ready to Rumble’. Volatility will NOT go quietly into this good night!
Tips:
HODL’s: (Hold On for Dear Life)
- *BitFarm (BITF = $3.35 / in at $4.12)
o Sold Feb, May, Dec ‘22: $5, $7.50 CCs for income,
- **Bitcoin (BTC = $38,200 / in at $4,310)
- Energy Fuels (UUUU = $5.80 / in at $11.29),
o Sold June $11 CCs for income,
- **Ethereum (ETH = $2,600 / in at $310)
- GME – Holding
- **Grayscale Ethereum (ETHE = $19.74 / in @ $13.44)
- **Grayscale Bitcoin Trust (GBTC = $25.75 / in @ $9.41)
- Hyliion (HYLN = $4.05 / in @ $6.01)
o Sold April $6 and $7 CCs for income,
- **Loopring (LRC = $0.99 / in at $1.94)
- **Solana (SOL = $96 / in @ $141)
- Uranium Royalty (UROY = $3.09 / in at $4.41)
o Sold April $5 CCs for income,
- Vertex Energy (VTNR = $3.72 / in @ 4.74)
o Sold April $5 CCs for income.
- **Yearn Finance (YFI = $25,450 / in @ 32,850)
** Denotes a crypto-relationship
Thoughts:
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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