larrycheung

8/14 Daily Market Note: Stocks continue the tug of war against the 10-Year Treasury Yield with No Clear Winner Yet

Added 2023-08-14 16:39:53 +0000 UTC

Hi Folks, hope you had a great weekend. Below you will find the Daily Market Note as well as PDF attached.

Daily Market Note: August 14th 2023

Stocks continue the tug of war against the 10-Year Treasury Yield: No Clear Winner Yet

Folks, the guided upon Sell Puts transactions are mostly working well as of this note. However, volatility is starting to creep back into sessions so practice incredible caution and closely guard capital.

Forward-looking Conclusions of this note:

Macro: Last week’s re-accelerating CPI and high Oil prices are baking into further strength in the 10Y Yield, which has reached 4.2% as of this note. The 10Y needs to come down before equity market strength can be trusted.
U.S. Stock-Specific: In this choppy environment, I continue to believe Selling Puts is one of the best defensive ways to retain modest upside. Below, I will discuss a follow-on transaction that can help to hedge exposure.
Bonds: I continue to believe Selling TLT Strike 85 Puts January 2024 expiration is the best way to gain exposure to the Bond Market. That is how I am playing Bonds.
China: China continues to be choppy, and BABA’s reversal post-earnings doesn’t change my view that there is further upside. As discussed previously, I had targets of BABA 100 and PDD 90 which were met. Targets are provided precisely to convey potential reduction levels. Over intermediate-term I stay convinced China will see higher levels from today. Best China ideas include TCOM and PDD.

Daily Market Note & Context

After 2 struggling weeks for tech, the Nasdaq is attempting a bounce in the .7-1% neighborhood with Semiconductors leading the charge on Monday Aug 14th.

Last week heavily traded retail Semi names AMD and NVDA sold off due to fears that Biden’s Chip Ban to China would further reduce their earnings and market expansion potential. Given that NVDA trades at a rich premium, the company needs future cash flow potential opportunities to be as robust as possible. Any uncertainty around the outlook will be enough to shave the valuation premium given its elevated levels. I’ve looked into the Chip Ban, and much of the restriction measures are quite targeted to include subsectors regarding AI and Quantum Computing. Longer-term, it is possible that AMD and NVDA will find a way to develop chips/technology that complies with Biden’s new restrictions while still being able to sell technology to China. AMD tested the 107-108 price structure several times last week, and we saw a bounce this morning back into 110. As discussed last week, it was my belief that the higher probability trade was to Sell Puts at 97 Strike with 45 Days Till Expiration. I’m more comfortable in buying Direct Shares when market structure is in already in a clear uptrend. Any glance at AMD’s price structure will suggest that the last 45 days since mid-June have been characterized by range bound activity. Given the 10Y Yield’s elevated level, I believe that Semiconductors will continue to be range-bound. In plain English, any vicious selloff will eventually be bought but any large market rally will be faded.

Positioning Guidance from last week is mostly unchanged, but just err on side of caution. Most Sell Put ideas from last week – AMD, MSFT, ORCL, TXN, PDD – are now profitable. However, as long as yields stay this high, this market is likely to remain very choppy, so practice great caution.

There are several ways to manage a Sell/Short Put position once you’re profitable. You can either close it for a gain. You can wait for further theta decay. Or you can “Strangle” the position by Selling Calls on the name if you anticipate a retracement to balance out the position Delta. Please remember I am not allowed to advise on individual transactions/positions and cannot respond to any messages that ask me about this. What I can do is provide education and research to help Traders/Investors grow their skills & experience.

Now that I have included Options Strats in my Community, the number of opportunities that are available to us are greatly increased. There will always be another play. There will never be a shortage of opportunities. My mantra is to grow my account slowly but surely, and never let one big market swoon undo all our work.

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