This market reminds me of ocean tides, and let’s be honest, anyone not watching their risk for the next wave is hitting the reef. The ocean is beautiful, but we all know nature has a brutal side to her. You must know that right now the only way to survive is through discipline! This is a market that can really help build risk tolerance and that’s exactly what it seems to be doing for the past three weeks. In my latest review of how I see the markets, I am focusing on small caps with very technical signals that brought things higher. We were busy buying any pullback to the 8 simple moving average. We were selling put credit spreads with the utmost bullish intentions with shorter-dated expiration. Personally, I’m not loving these Wednesday and Thursday pullbacks. My outlook ranges from three to five months out, and yes I am extremely bullish on the market and more important commodities like nickel, copper, and soy. Before we do that, there is another story that is more important in the short term. Let’s cover the crypto story first because hey, who doesn’t love a little meme doggy biscuit coin? Can I get much wow?
In the present moment, we have cultural movement within the crypto sphere. This type of money flow into crypto is creating a rotation from what would be a traditional investment into a new digital currency. As adoption starts to take place in a more pronounced way across our digital nation, we will start to see more divergence across any and all markets. “Things don’t go up forever”. One of the big worries is that Venture Capital firms have been relying on “growth” which doesn’t necessarily mean monetary growth (which could explain the extreme inflow of stock buy-backs we’ve seen over the past few years). But instead, it has meant user growth, or subscription additions, which can ultimately pump up the good “vibes” within the tech space artificially, and let’s be honest nobody appreciates a fake Andy Warhol. Facebook owns Instagram, Twitter is where everyone gets the latest headlines, and Reddit is more alive than both of those combined. Enter Reddit. A vast community of connectors, a community ready to back each other to the moon, and more! To you, this might seem like euphoria, but it probably is. But who’s to say that euphoria can’t last a long time? Remember back in 1999 to 2000, the market added roughly another 100%. This was the dot-com bubble everyone remembers. We are in similar times.
If you are a new trader, my God what a wonderful time to be diving into understanding how a market acts, and options in general. You are so lucky, and even more so if you are making great progress in your trading. If you are watching your position size and trading setups that you like and that match your comfort zone, then by all means have a party and learn a lot. On the other side of the token, if you are over-positioned, you might already be a goner and ready to open another, maybe smaller account as you have been humbled. I say that tongue and cheek but I do feel a calling to speak about the extremes of each side or at least announce the obvious, which is – continue to see giant swings in this market and a possible major dip across all things tech for a temporary pause of fear. When this happens, I’m buying. Remember, if you don’t have a plan, you run a high risk of becoming a part of someone else’s.
My theory is that not only are we entering a new stage of euphoria that could last a year or two, but additionally a number of bubbles have formed (i.e. crypto defi or “decentralized finance,” increase of commodity prices, increase of home building and consumer spending after the quarantine). Folks, this is the future. A quick disclaimer: I am not in the crowd of people that believe we are about to go straight up, I believe that it could get really nasty over the summer and ultimately continue higher. As options traders, we should be ready to pounce on bearish momentum. Bringing you back full circle… If you are an options trader I would focus on anything that transports goods, anything related to the advancement of global transaction and e-commerce platforms, and anything that can pass off higher costs without taking a huge hit. I rarely get to say this, but I love the setups for the long term in anything related to building homes or home goods in general. All the darlings that we traded in 2020 are now very weak. Take ZM and NFLX for example. Presently, those are the most shortable stocks out there that I want to trade repeatedly to the downside on any “false bump”. My attention is on the things that maybe last year we thought would boom higher with everything else but ultimately didn’t. So things like ATVI and 3D printing companies like DM are super important to pay attention to if you need some extremely bullish deltas. That’s where I sit. Focus on the indexes and pay attention to them, in the meantime have fun with your small caps or pick what you want to be long in from the Russell. If I could sum up this blog in one sentence: There are a lot of things that can go way up, while the indexes slowly melt into the summer for a short period this year.
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