Tradable Bottom & Expected Placebos, Contemporary Nifty Fifty, Outlook & Reviews

 I、Tradable Bottom & Expected Placebos, Swing Trading & Hedge

This Thursday May 12^th，a little bit over one hour before the market close, the equity market tumbled again, with S&P 500 around 3865, very close to the bear market mark of 3855, I posted the above market call with swing trading and hedge strategies in this group and others as well：【With S&P 500 around 3865, very short distance away from the bear market mark at 3855, for short positions, as a prudent strategy, except the ones being hedged through options or the mini-futures, it's better take the chips off the table, and wait for better opportunities to short the rallies again in the future】， and after the market close, made a short supplement of the outlook：【However, it's very likely still only a short-term tradable bottom with first level upward resistance around S&P 4050, and surely not a rock solid bottom, which could see Nasdaq Composite to test the support strength at its 200-week moving average around 10700 first】.

Indeed a precise market call and very good short-term swing trading strategy, as we know, there were some placebos afterwards from key Fed officials, such as with 75BP hiking off the table, and some kind off placebos from the White House as well, thus by the close of Friday, S&P 500 did rebound over 4%, with the high-beta very speculative ones rebounded even more, such as the mostly warned ARKK since early last November, its cousin ETFs & most underneath components, and the often warned MEME、SPAC styles as well. For example, in the above screenshot posted here before the market open on Dec 6^th last year, I warned “quite some constituent stocks of Cathie Wood's ETFs are related to digital currencies：COIN is the predominant one, so is SQ. Among them, a large proportion of very fancy story telling names are with way high PE ratios, or even incurring heavy losses, or core logic has deteriorated meaningfully”. After being tumbled so much so quickly, it's a very good time to take the chips off the table for such short positions, and wait for better opportunities to short the rallies again in the future. Surely, these have been and will continue to serve as great hedges and very important part of risk management for a conservative strategy with focus on medium and long-term fundamentals, especially the strategically important sub-sectors, such as semiconductors、cloud computing and clean energy etc., as the rock solid bottom is still yet to come, especially from the intermediate-term or longer perspective, and meanwhile, very nimble in trading, such as timely swing trading and hedge has become very important as well, as after all, these speculative yet still overvalued ones have plummeted a lot from the highs already, and short-term rebound can be comparatively sizable.

II、Contemporary “Nifty Fifty”

The above Apr 12^th screen shot warned that【S&P 500 will likely test the support around 4200-4250 again, if not lower around 4000】, and warned that, mega cap tech-TFAANMG and big caps in hot defensive sectors, such as COST、WMT etc. were topped out already and had presented good opportunities to sell short on rallies. They were somewhat similar to the “Nifty Fifty” during the early 1970s. More details can be seen in my April 14^th article as well 《“Nifty Fifty” & Speculative Styles as Hedge for Defensive Strategy, Semis Surely Cyclical & Crude Swing Trading》https://marcohedge.blogspot.com/2022/04/nifty-fifty-speculative-styles-as-hedge.html

Looking forward, “sticky high inflation will be flattening & decrease somewhat, but likely by not much, thus a rock solid equity market bottom is still yet to come, which could be September, or at least until sometime this July”. Overall, the contemporary “Nifty Fifty”- TFAANMG + early year (Q1) hot defensive plays will continue to be under pressure for PE contraction.

III、Big Trend Ahead & Review of Previous Articles

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 market panics, thus to orchestrate an orderly fluctuated equity market with overall downward pressure. However, the historical big corrections in the bond markets will bound to hurt the balance sheets of many governments and corporations worldwide（such as, incurring big losses related with private equity investments and more to come）, put downward pressure on the credit markets, especially the high yield part associated with excessive leverages, as the recent sharp correction of the carry trade currency - Japanese Yen can be surely served as a harbinger. The sticky high inflation normally won't fall fast enough within the next a few months, thus the Fed will have to sacrifice the growth of the real economy and the still somewhat resilient equity market to a certain degree, by “demand destruction” through the wealth effects and the loosening labor market. Currently, consumer demand is somewhat moving from commodity related sectors toward more service oriented sectors (most industrial metal prices very likely have passed the peak), which shall benefit the re-opening trades, and put some pressures on most industrial commodity related sectors. With current high stocking and overall lower yet still resilient consumer demand, the inevitable destocking will put downward pressures on PMI、some commodity sectors and the still near all-time high profit margins, plus quite some investors very likely underestimate the future liquidity shock caused by Fed's quicker QT to tighten financial conditions, then Davis double kill will likely or continue to happen on quite some speculative or very high valuation stocks, similar to what I asserted in January that “Shorting long duration shall very likely be the key for most of the time in the near future” and then supplemented by swing trading and hedge. Under the big trend of global partial de-coupling, supply chain security is much more important than the costs, adding 11% PPI and Q1 Employment Cost Index +1.4% Q/Q +4.5Y/Y (worrisome leading indicator of potential wage-inflation spiral), uncertainties from lasting Russia's war in Ukraine, surely high risk of China's pandemic zero-tolerance policy and its delayed effects on global supply chain disruptions, and all of these will add quite some pressures to high inflation and profit margins. Quite some big cap companies will encounter more challenges in Q2, such as Apple, Amazon etc. The sticky high inflation will be flattening & decrease somewhat, but likely by not much, thus the Fed's path to suppress that while maintaining resilient economy and employment will surely be full of bumps. Likely until around this September, or sometime in July, the equity market will be choppy with overall downward pressure, with Nasdaq Composite likely to test the support strength at its 200-week moving average around 10700. However, with the worldwide second largest economy–China's very speculative gigantic housing bubble already started to burst, and its Minsky Moment seems unavoidable, then around middle next year, the Fed may very likely rescue the US equity market again by lowering rate 2-3 times and even start another round QE, and meanwhile pay much less attention to suppress the still comparatively high CPI, such as around 4% or higher.

Review of previous articles:

1.《“Nifty Fifty” & Speculative Styles as Hedge for Defensive Strategy, Semis Surely Cyclical & Crude Swing Trading》   https://marcohedge.blogspot.com/2022/04/nifty-fifty-speculative-styles-as-hedge.html Published on Apr 14th, with a few earlier screen shots to elaborate“Nifty Fifty & Speculative ARKK、MEME、SPAC Style as Hedge for Defensive Strategy”, which expressed my bearish view toward contemporary“Nifty Fifty” (TFAANMG + some big caps in consumer staples、health care & utilities, such as COST、WMT、KO、PEP、UNH、ABBV、JNJ、LLY etc.) & very speculative still overvalued ARKK、MEME & SPAC style, and shorting these as a hedge to the defensive strategy which contains some re-opening trades etc. I also elaborated why “Semis Surely Still Cyclical w Likely Longer Downward Cycle”, and emphasized on “Short the Short Squeeze on Crude Oil，and Swing Trading” again 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”. It's very consistent with my Mar 27th article《Bumpy Soft Landing–Uncharted Water ahead, Swing Trading & Hedge》, and Apr 5th article《Double Top, Big Trend of Stagflation w Rising Recession Risk, Crude Swing Trading》. It's exact between Mar 27th & Apr 5th, the equity market finished the short-term double top formation, and by far, the very speculative leveraged SOXL、TQQQ dropped around 30% or more, and similar as VC style still overvalued ARKK dropped over 20%, indeed very good hedges to the defensive strategy, and meanwhile, shorting the rallies on e-mini Nasdaq 100、S&P 500 & Dow futures have generated handsome profits. Looking forward, there is still some downward pressure very short-term, however, around May 4th FOMC meeting, a short-term technical rebound is likely, with SAAS sector and even ARKK style lead the way.

2.《Double Top, Big Trend of Stagflation w Rising Recession Risk, Crude Swing Trading》https://marcohedge.blogspot.com/2022/04/double-top-big-trend-of-stagflation-w.html Published on Apr 5th, in which I listed multiple concerns in the screen shot dated Mar 30th regarding why the current technical oversold rebound shall likely come to an end very soon, especially “very speculative high valuation stocks, which after two weeks big run up（surely a ‘dead cat bounce’）, are ripe again to go shorting”, and warned that, “The divergences of RSI and trading volume continued, with apparent overbought”; “Short-term, a double top has very likely formed”, and interpreted the early morning Mar 31st headline news《U.S. Inflation-Adjusted Spending Falls as Prices Temper Demand》as showing higher stagflation risk, since after excluding higher price effect, the volume of retail consumption is declining quickly (worrisome trend of Inventory/Sale ratio), then the future destocking risk will likely lead to declining PMI and profit margin squeeze. Section “II、Recent Leading Sector Underperformance: Semiconductor & IYT, and Banks, Earnings Growth Downtrend、Margin Squeeze & Consumer Weakening Demand” reviewed my earlier warning on March 1st during the bargain hunting discussions to exclude the banking sector, especially Citi（C）; Wall Street downgrades of chip and e-commerce market leaders AMD & Amazon; Apple's supply chain stocks are performing badly; lockdowns in Shanghai etc., and summarized “In the post-epidemic period, reopening trades will likely have some upward potential, but still need to wait for better entry point, and meanwhile, some previous uptrends will inevitably reverse…an even longer downward cycle of future electronic consumptions and its upstream chip sector, with potential overall bigger corrections than the average of previous cycles, as semiconductors are still cyclical”.

3.《Bumpy Soft Landing–Uncharted Water ahead, Swing Trading & Hedge》https://marcohedge.blogspot.com/2022/03/bumpy-soft-landinguncharted-water-ahead.html Published on Mar 27th, in which I predicted that “Fed's narrative of soft landing road ahead will likely encounter big bumps with more equity market high fluctuations”, “the strong resistance around S&P 500 4550 will be difficult to effectively breakthrough in the short term, while rebound extreme level would be around 4590”, “With apparent RSI and volume divergences…it's better to trim some long positions or at least partially hedge…even for long-term value stocks in very strategically important semis sector, such as Intel (bargain hunted in late February under $44), and start to avoid crowded spaces, meanwhile use the very speculative yet still richly overvalued ones as good shorting candidates for hedging”, and for WTI crude oil, emphasized again the strategy of sticking to “shorting the rally and then swing trading”.

4.《Short the Short Squeeze on Crude Oil & UCO, and shorting on Russia related assets》https://marcohedge.blogspot.com/2022/03/short-short-squeeze-on-crude-oil-uco.html Published on Mar 9th, mainly contains my post on late night Mar 7^th that “Today, Brent reached as high as $139.13 and is currently at $125.62; WTI reached as high as $130.5 and is currently at $121.14, which is a pretty good opportunity to go short on rallies”, and predicted that “We likely have seen the top of the crude oil price, though there will be some back and forth until crude oil settles around $90 level, thus likely there will be some opportunities to short the rallies between now and then”, and “Putin will very likely lose at the end”.

5.《Enhanced DRIP Strategy & Covered Call, Swing & Hedge in a High Volatility Market》https://marcohedge.blogspot.com/2022/02/enhanced-drip-strategy-covered-call.html  Published on Feb 28th, with screen shots on Feb 22nd of bargain hunting on Intel under $44 when there were bloods on the street, by applying “DRIP Strategy & Sell Covered Call with Lower Expectation” and supplemented by Swing Trading, meanwhile “use the panic selling in the major index futures as a good opportunity to at least lock in partial or all profits of short positions, and long selected long-term value stocks”.

6.《With so much complacency around, time to hedge and swing！》https://marcohedge.blogspot.com/2021/10/so-much-complacency-around-time-to.html Published on Oct 26th, 2021, I warned the following issues: lasting global supply chain fragile, energy crisis, very high inflation expectations, yield curve bear flattening, high risk of Semiconductor 3X ETF-SOXL(very good candidate to short the rallies and swing trading). As a left side trading, it's a little earlier and not short SOXL at the exact top, yet by now, the profit is very handsome. When supplemented by swing trading and option hedge, the profit is likely better with lower drawdown.

7. On Sep 18^th last year, I published 《Downtrend in September is a rehearsal of greater risk next year》（please click to see the later on translated version and the original）, in which there was this paragraph posted on Sep 6^th 2021 that “Regarding the US equity markets, structural overvaluation is very obvious. Within the next two months, there will be a correction for the main indices, though US markets will still make record highs by the year end. However, quite higher volatility is very likely next year, accompanied by big swings. When the Fed, the Treasury department and the White House act improperly, US stock markets would have the risk of entering a bear market within two years, with the occurrence of some kind of stagflation”, and reviewed earlier warnings on some US listed Chinese stocks in 2020 and early 2021, also warnings on China Evergrande and Evergrande Automotive at the end of May 2021.