“Nifty Fifty” & Speculative Styles as Hedge for Defensive Strategy, Semis Surely Cyclical & Crude Swing Trading

 I、“Nifty Fifty” & Speculative ARKK、MEME、SPAC Style as Hedge for Defensive Strategy

1）Contemporary “Nifty Fifty”- TFAANMG+ Samples & health care big caps

I warned during the last weekend that 【Yields chasing with no better place to go, but continue to pour into the main risk assets with high valuations, such as, the mega cap tech-TFAANMG at the end of last year and early this year, and now big caps in the anti-inflation defense sectors，such as consumer staples, health care, and utilities, for example, COST, WMT, KO, PEP, UNH, ABBV, JNJ, LLY etc., all have been bided up to very high valuation unsustainable levels, which are somewhat similar to the Nifty Fifty during the early 1970s that didn't end up well】. The above first screen shot was the market performance on Monday Apr 11^th for what I called the Contemporary “Nifty Fifty”, indeed very likely topped out already & have presented good opportunities to sell short on rallies very recently.

2）Very Speculative Overvalued ARKK、MEME & SPAC style

In my January article 《End of a Currency Carnival Era，Rising Global Stagflation Risk & Investing Strategies》，there was a section titled “II、Firm belief against hyper-speculative ARKK、MEME & SPAC, great hedge to value investing, and swing trading”, with screen shot dated late night of November 9th last year 《Why Matthew Tuttle is Betting against Cathie Wood》 through SARK, and quite some follow ups on ARKK and its cousin ETFs & most underneath components and the very similar style as MEME、SPAC. Indeed, so far, these speculative and very high valued ETFs and stocks have been very good candidates to short the rallies and then followed by swing trading and hedge.

3）A Sample of Defensive + Re-opening Portfolio

The above was the market performance on Apr 12^th for a sample of “prudent defensive + reopening strategy” portfolio, which I conveyed to a long-time friend recently. The core of such defensive strategy is: reopening picks and hedging against inflation and possible recession next year, and for the week, it's been performing well both in up and down markets, though active management shall still be required, such as timely selling covered calls、swing trading and switching picks etc. Meanwhile，as mentioned quite a few times since last Q4, “short the rallies on overhyped speculative stocks, and supplemented by hedge and swing trading strategy, such as most components within ARKK and its cousin ETFs and the very similar type as MEME、SPAC style”, and last weekend I suggested short the rallies and then swing trading on somewhat similar style to “Nifty Fifty”, such as mega cap tech-TFAANMG and big caps in the anti-inflation defense sectors，such as consumer staples, health care, and utilities. The related factories in Shanghai and Shenzhen were shut down due to the epidemic, and Zhengzhou also said that general screening was required. The Russian-Ukrainian war and the epidemic spreading in China have greatly intensified the supply chain risks worldwide. Within mega cap TFAANMG, it is inevitable that Apple、Tesla and Nvidia will very likely be negatively affected this year, superimposed on the overcapacity of the chip semiconductor industry next year, which together with its upstream and downstream industry chain, accounts for almost half of the high-tech industry. The contemporary Nifty Fifty style (what I conveniently call it) hasn't been performing well this week.

Such defensive + re-opening portfolio does have its own built-in hedge strategies, such as DRIP (dividend reinvestment strategy) plus timely covered call selling and swing trading, and meanwhile augmented by short selling with partial hedge and swing trading on mainly speculative and very overvalued ETFs and stocks, which makes such aggregate strategy very robust, and likely even can withstand future recessionary shocks well. Such strategy is partially based on the expect of the expectation which I mentioned a few times before that 【The Fed hopes that its expectation management will win back market credibility and lead to soft landing, through crackdowns on enthusiasms and giving placebos on panic market lows，in order to maintain an orderly fluctuated stock market with somewhat overall downward pressure. However, when high inflation cannot fall faster enough in 2nd half of the year, the Fed will have to sacrifice the growth of the real economy and the still somewhat resilient equity markets, through the often called “demand destruction”】.

II、Semis Surely Still Cyclical w Likely Longer Downward Cycle

Surely, the growth cycle peak has already passed, with slowing growth and then demand destruction to follow, especially the second half and next year, as the Fed has to tighten quickly (rate hikes and QT), which surely will be very challenge to achieve the soft landing, similar to what I warned in my January article 《End of a Currency Carnival Era，Rising Global Stagflation Risk & Investing Strategies》that such evitable Fed monetary policy shift “will for sure led to a sharp rise in market volatility and earnings multiple contraction, especially considering the stretched valuation of quite some sectors and subsectors”; “with growth slow down meaningfully，very high profit margin to be squeezed somewhat and anti-monopoly policies likely looming”. Before the market opens on Apr 4^th, I warned that“Though value tech stock Micron Tech (MU)'s ER beat the street expectations, it has since lagged; AMD、QCOM、AMAZON were downgraded; Apple's supply chain stocks are performing badly, and Apple said to be cutting iPhone SE production by 20%...”, then in my Apr 5^th article 《Double Top, Big Trend of Stagflation w Rising Recession Risk, Crude Swing Trading》, I concluded that “In the post-epidemic period, reopening trades will likely have some upward potential… some previous uptrends will inevitably reverse, thus result in an even longer downward cycle of future electronic consumptions and its upstream chip sector, with potential overall bigger corrections, as semis are still cyclical…”, the big underperformance of transportation (IYT) & Banks “not paint a rosy picture for the consumption going forward”. Surely, there will be oversold technical rebounds along the way, yet the rock solid bottom of broad based indices is still yet to come, as an example, for the leading indicator, the very important semiconductor sector, there were big rebounds this Wednesday and early Thursday, but SOXX and SMH all ended up made a new over 10-month low by the close.

III、Short the Short Squeeze on Crude Oil，and Swing Trading

In my Mar 9^th article 《Short the Short Squeeze on Crude Oil & UCO, shorting on Russia》, Mar 27^th article 《Bumpy Soft Landing–Uncharted Water ahead, Swing Trading & Hedge》, and Apr 5^th article 《Double Top, Big Trend of Stagflation w Rising Recession Risk, Crude Swing Trading》, I emphasized on the strategy of shorting the rally and then swing trading on Crude oil that “WTI dropped below $100 a few times, indeed presented good chances to take the chip off the table for the short positions, and then wait on the sideline in order to continue shorting the rally again, for the short-term comparatively big swing of 5-10% in WTI crude price”, indeed, so far a very good strategy.