Markets: Probably my last post of the day unless I make another trade or two into the close. Generally speaking, I can't find many material downside catalysts to the markets other than:
1) Revaluation - The "too far, too fast" (AI/Tech) trades unwinding
2) Soft Landing/Recession ratio
3) Election - Who knows ...
4) Foreign Conflict - Who knows ...
I'm just not willing to overly factor #3 and #4 and believe that #1 is the top catalyst, spurred by #2, and they are real. I have no problem with the revaluation of some of the top names but into this decline, the overall catalysts are what guide me.
That said, we're on the precipice of a noteworthy and material Fed easing cycle, some now calling for 100 bps over the next two meetings, and an increasing certainty of 50 bps in Sept. I'm still expecting 150 bps of easing by summer of 2025 and if you pressed me on whether that is aggressive or light, I'd fall to the latter.
The markets don't fall into easing cycles.
I do feel the Fed waited too long for the cut and should have cut on Wed. but 25 bps. I already mentioned that in an earlier post.
So, when looking at all the catalysts, AI trade, VIX two day rally of somewhere around 60%, declines of the top names, rates down cycle, economic parity, etc., I can see few reasons not to have a very specific shopping list of top names that you're willing to hold through 2025. The soil seems nearly perfect to produce and cultivate gains. But you MUST be specific and be willing to snipe, not a wide net in my opinion. I've already given you the names I'm targeting but I'm remaining patient.
The positive catalysts I see need not play out in a single day or week. To me, the path of least resistance into this weekend remains down and I think there's a 60 or 65% chance that we'll head down into the close as Wall St. flattens positions, removes beta (risk) and waits to see what next week brings. I'm trying to do the same but I'm not getting cute with trying to find the very bottom.
I'm hopeful that we will rally into the close but have little conviction of that. Dare I say I'm hoping for further declines. The VIX action and volume tells me that we may have seen an orderly capitulation but we're still in an overall market uptrend generally. This could lead to further revaluation downside.
One of my very favorite trade patterns is what I call the "phoenix." This is where the leaders get burned to the ground as volume increases and prices decline materially with traders heading to the sidelines. Even better if this happens over a period of weeks. But those leaders nearly always rebound, or rise from the ashes, to lead again. This is where dollar averaging into positions is your friend.
Find those leaders and wait for opportunity, today being one. Just off the top of my head, those names I'm most interested are:
AMZN, GOOGL, MSFT, NVDA, AMD, ARM, MU, AVGO, MRVL and QCOM. I'm less convicted by MRVL and QCOM. But watch out for quality value babies thrown out with the bathwater as well. You can pick up more yield at a nice discount. CVS, LYB, UPS though UPS is precarious.
Other beaten up plays I'm looking at are LULU, VRT, TNA (Small cap 3x leveraged), HUBS and CDNS.
The main thing here is not to be in a hurry. We have no way of knowing what the weekend will bring or early next week as earnings continue to play out. I think we have another 3-4 weeks of chop to navigate, especially with NVDA reporting at the end of the month. Try to get away from the screen, go exercise, spend time doing something you love and keep your hands of the "confirm" button unless you have strong conviction on the name you are entering.
From my vantage point, this is a compelling buying opportunity. Whether it lasts another 1-3 market-open days or a month, there's no way to tell. That's why we keep dry powder to take advantage of downside action.
Have a great weekend all!
J |
