Imperfect and proud of it… was the inscription on a tag that appeared on an article of clothing that I purchased last week. To me, as soon as I recognize that things are mechanized, measured, and perfected – they become less interesting to me. It seems according to SG: implicit in the desire to have something handmade, is that it might be better (or worse) than what you’re used to. As we get better at making everything look the same, the variability and surprise of imperfection becomes even more intriguing to me. Look around for the tag: Imperfect and proud of it.
The Market:
- VCs need to stop writing advice threads to startups… and start writing explanations to their investors as to why they deployed soooo much capital at indefensible valuations. Per PS: “Who knows how long it takes to work all of the excess capital / valuations through the system. It will be messy and not covered by a financial media focused on politics, inflation, rising rates, and the stock market. How investors and VCs behave – will have a lot to do with how bad it gets in the private markets.”
- Prolonged downtrends can often become self-fulfilling prophecies: Companies without positive cash flow will have to raise more money to survive – which means diluting current shareholders. Tech companies will be forced to give their employees more stock options in order to keep them from leaving – which means diluting the current shareholders even further. Per HL: downward pressure on valuations brings in more dilution / stock availability from both the company side and from the shareholders who want out. This is why most rips (higher) don’t last long during downtrends. Market bottoms are formed in 3 stages:
o Stage 1: you’ll notice the main indexes making new 52-week lows while many stocks and ETFs won’t follow suite. This is NOT a reason to buy, but just a sign that the selling may be getting weaker.
o Stage 2: you’ll notice some wide-spread buying with the majority of stocks and main indexes going up 5 to10% on 3 to 5X their avg. daily volume.
o Stage 3: finally, you’ll notice long setups starting to show up and some will even follow through. If this does NOT happen, then Stage 2 is most likely a bear market bounce and new lows are right around the corner.
InfoBits:
- The Congressional Budget Office… estimates that our GDP will grow by 3.1% in 2022 and that inflation has topped. Unfortunately:
o The U.S. GDP Growth Rate suggests a 1.5% contraction in Q1 and a continuation in Q2.
o Over 50% of Wall Street’s pros and 80% of all small business owners believe our FED’s fight against inflation will lead to a recession.
- Netflix bets the house on Stranger Things… by spending $30m on each of the 9 episodes. FYI: All of Squid Game (Netflix’s most-watched show) cost less than 8% of one episode of “Stranger Things.”
- SpaceX is looking to raise new funding at a $127B valuation… which is a 25% increase in valuation and twice Boeing’s market cap.
- The median price for a previously owned home increased… 15% YoY to $391k and30-year mortgage rates jumped from 3.7% to 5.5%.
- The number of new homes purchased fell 29% YoY… and were the weakest since April, 2020. There’s a 9-month inventory of new properties, and cancellations are increasing.
- European Central Bank Pres. Christine Lagarde… outlined her ‘Trust Me’ plan to start interest rate hikes and QT… “All in due time”. Why am I worried?
- At the World Economic Forum… Citi CEO Jane Fraser is now convinced Europe will fall into a recession.
- Broadcom acquired VMware… giving them access to data centers for cloud users.
- Starbucks is exiting Russia after 15 years.
- The BNPL (Buy Now, Pay Later) space starts to sour… Klarna lays off 10%.
- Amazon adjusts its warehouse strategy… as it looks to sublet more than 10m sq. ft. of space.
- Last Friday, 3,700 articles were published on our BEAR-market… it was the 2ndhighest amount… EVER.
- Bill Ackman says… “There is no prospect for controlling inflation unless the FED aggressively raises rates, or the stock market collapses. If the FED doesn’t do its job, the market will do the FED’s job, and that’s what’s happening now.”
- Retailers have gone from having too little inventory to too much… which is bad for profits but great for consumers.
- Lyft and Uber plan… to halt hiring and cut budgets to prop up prices.
- Pepsi will stop sponsoring the Super Bowl’s halftime show… and plans to shift its focus to digital ads – reaching more soda-sippers.
- Justin Timberlake sold his music catalog for $100m… to a Blackstone-backed management firm.
Crypto-Bytes:
- Change happens SLOWLY… then ALL at once!
- Can’t Stop, Won’t Stop, GameStop… as they launched their beta version of their non-custodial crypto wallet (able for download) – directly ahead of its NFT marketplace.
- MicroStrategy currently owns over 129,000 BTC… and their CEO said they will buy more if the price drops below $21k.
- Our FED is saying… over 12% of all adults held crypto in 2021.
- Bitcoin delivered its 8th straight week of losses… for the first time in its history amid weak macroeconomic sentiment, inflation concerns and systemic risk from within the crypto industry.
- FTX founder Sam Bankman-Fried says that he will spend… “from $100m to $1B” on Democrats running in the 2024 election. The size of this “hard money” donation would be record-breaking and put Sam in the mega-donor category.
- Andreessen Horowitz has closed on its latest $4.5B crypto fund: One third of the capital is being earmarked for seed deals.
- Luna 2.0 is launching… just weeks after their first project met a Terra-ble fate. The old chain, which has lost almost all of its value, will be renamed Tera Classic (LUNC).
- Portugal's Congress rejected 2 bills… that sought to tax crypto. The country has a 0% crypto capital gains rate – making it popular for crypto tax avoidance.
- Federal Reserve Vice Chair Lael Brainard said… a well-designed central bank digital currency (CBDC) could complement stablecoins and cash.
TW3 (That Was - The Week - That Was):
Monday: This morning the futures are bright green across the board. Traders believe that Friday was a short-term bottom, and we should be able to finally put in a multi-day rally. Unfortunately, every good opportunity for the last 3 weeks ended up being a two-day wonder and then back down we went. If this one catches on, watch: CHPT > 10.97, SLB > 41.81, DBA > 22.97, OSTK > 28.48, and OXY > 63.31.
Tuesday: Of the 98 trading days this year, yesterday was just the 13th time that the S&P 500 traded in positive territory for the entire session. This morning things are red across the board due to SNAP, FB and GOOGL. If we give back less than half of yesterday’s gains – then there’s still hope for more upside. More than half and we'll roll over pretty hard. Right now, I’m going to sit tight and try to gauge the money flow.
Wednesday: I have my eye on a possible reversal stock – Bed Bath and Beyond = BBBY. It was $30 in March, and is $8 now. It could be ready to move up.
Thursday: The DOW futures are up over 200 points, and that’s on top of yesterday's 200-point gain. Could we finally be seeing a decent bear market bounce? Remember: gasoline is still over $4.50/gal. Companies are raising prices because shipping costs are soaring. The war in Ukraine has no end in sight, and food production is crippled. I could see moving into some BBBY if it can clear $8.65. I like LAC over $26 and CDEV over $7.45. This is a classic, short-covering, low volume monster day – that could run for a few more.
Friday: The market thinks that it sees signs that the FED has done enough. It thinks that because housing is cooling – our FED can stop hiking and maybe not even start quantitative tightening. I don’t think so. I have no desire to buy anything up here. I’ll wait for Tuesday and see what happens over the weekend.
AMA (Ask Me Anything…)
What’s the big deal about ETH2? Ethereum’s smart-contract compatible blockchain powers everything from DeFi to the Bored Ape Yacht Club. Unfortunately, the tsunami of resulting traffic has bogged the network down, caused fees to soar, and has inspired a host of new competitors. That is why ETH2 is one of the most anticipated technological events in the history of crypto. Ethereum’s developers are gearing up for a series of changes not limited to vastly increased transaction speeds and much lower incremental ‘gas’ fees.
Why did BTC and ETH lose their support levels last week? The entire crypto market lost over $520m last week. ETH futures lost over $236m – nearly double the amount of BTC futures = $125m. A fundamental reason for the drop could be a lack of demand for Ethereum’s network fees.
Next Week: A Perfect Bear Market Rally.
Markets == Conflict and Chaos: Above 4211 = Bullish / Below 3931 = Bearish
- Short covering and the reading of the FED minutes – sparked a rally. This rally showed retail traders how the pros put their own spin on how many interest rate hikes our FED will give us – in order to get out of their own positions.
- Did the markets get their groove back? Not yet, but above 4211 could give us another answer. Let’s not get too carried away about a short-covering rally heading into an end-of-week / holiday weekend. FYI, on Friday we traded 5X the normal amount of S&P option contracts.
- Last week the SPX moved TWICE its Expected Move: We started the week around 3900 on the SPX, and ended it 260 points higher. The expected move was $126. During the entire 7-week slide, markets were extremely efficient, but were equally as inefficient last week to the upside.
- The LEVELS on the /ES are 3,931 and 4,211: Above the 4211 level in the SPX, we could easily trade into 4500. We are an event-driven marketplace. Tip #1: If you wish to be bullish, buy out-of-the-money call spreads. DO NOT buy long stock positions until the SPX 4211 level has been resolved.
- NVDA and COST were down after their earnings announcements, but ended up leading the market higher on Friday due to order flow. Watch them on Tuesday for further forward-looking direction.
Where is the Hedging?
- The SKEW is low, and the VIX is 26. The VVIX is 93, and that is the lowest volatility reading since the onset of COVID. Hedging activity is missing.
Positioning:
- Energy is up 55% YTD. Oil is $115/barrel while our GDP is showing continued contraction. Why isn’t the slowdown being felt in the energy sector? Tip #2: SHORT the XLE by buying In/Out July PUT Spreads.
- Trade the yield curve: Tip #3: Watch the 2-Year Note move higher than the 10-Year over the next 3-month period – as the yield curve inverts…again.
- Fade the rally using the XLF: Tip #4: SHORT the XLF by buying In/Out July PUT Spreads … AFTER the SPX resolves it’s move to 4211.
SPX Expected Move (EM):
- Last Week’s EM was $126 and we moved $260.
- Next Week’s EM = $100 over just 4 trading sessions. The S&Ps moved over $100 on Friday alone. Be careful, 4211 will act like a magnet this week, and I’m not sure it’s justified given the real economic climate out there.
Tips:
HODL’s: (Hold On for Dear Life)
- CASH == Nexo & Celsius == @ 8 to 12% yield on USDC
- PHYSICAL COMMODITIES == Gold @ $1,857 / oz. & Silver @ $22.14 / oz.
- **BitFarm (BITF = $1.84 / in at $4.12)
o Sold Dec ‘22: $5 CCs for income,
- **Bitcoin (BTC = $29,100 / in at $4,310)
- CPG (CPG = $8.82 / in at $6.44)
o Sold Jul $7.50 CCs for income,
- Energy Fuels (UUUU = $6.64 / in at $11.29),
o Sold June $8 CCs for income,
- **Ethereum (ETH = $1,790 / in at $310)
- GME – Holding
- **Grayscale Ethereum (ETHE = $11.94 / in @ $13.44)
- **Grayscale Bitcoin Trust (GBTC = $18.96 / in @ $9.41)
- Hudbay Minerals (HBM = $5.81 / in @ $5.04)
o +Bought the October 22, $7.50 CALLs,
- Uranium Royalty (UROY = $3.00 / in at $4.41)
o Sold July $5 CCs for income
** Denotes a crypto-relationship
Trade of the Week:
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