QQQ/SKYY are Rolling Over--Time to Hedge with SQQQ Calls and SKYY Puts
Subscriber,
An old saying on Wall Street is "Nobody rings the bell for a market top."
Last week, Barron's columnist Barry Levisohn wrote, "Like it or not, (based on 30%-50%+ weightings of tech in the major stocks indexes ex-Dow Jones) we are all tech investors now."
What I am saying is this: if the S&P 100 index of the one hundred largest market cap stocks were a canoe, it would be listing hard to right with the weight of big cap and mega-cap digital platformity stocks. Which, by the way, is the way it should be in the 21st-century given the extraordinary secular revenue and reliable cash flow growth of the consumer and enterprise digital platformity economy vs. the atoms based 20th-century industries (with a few Covid-19 related exceptions starting with new suburban multi-office homes for married Millennials with kids and mobile work options--which is literally every Millennial I personally know!)
Well, we are ringing the bell on the 55%+ move of the Covid-19 crash bottom on March 23-23. As well stated earlier this week, the "Platformity Stocks at Any Price!" rally was long in the tooth and a Microsoft EPS report and guidance would tell us if the PSAAP rally was out of steam and financial gravity would take ahold of the heavily digital platformity weighted QQQ and rollover.
Well, today at the QQQ the rollover is complete on less than expected numbers from Microsoft. The bulls tried to rally the Nasdaq from the 2% dive at the open, and that rally failed.
The reason? On the Microsoft revenue/EPS/forecast call Wednesday aftermarket, they did not beat on revenues, beat of EPS nor did the guide up for their Q1 forecasts. Mr. Softy provided fiscal Q1 guidance with the Productivity and Business Processes segment below consensus, following an FQ4 segment miss as well.
Revenue forecast breakdown: Productivity and Business Processes, $11.65-11.9B (consensus $12.09B); Intelligent Cloud, $12.35-12.8B (consensus: $12.6B); More Personal Computing, $10.95-11.35B (consensus: $11.14B).
Now obviously those are amazing numbers if you multiply them by four. BUT as we said in Part III of the July newsletter--when Digital Platformity stocks became the "Safe Secular Growth" Covid-19 pandemic trade, they sucked in the momentum CTA algo trade bots that buy and sell stocks based on momentum technicals and the sell on any negative "beat, beat, raise" miss print.
Here's the chart on the QQQ bubble breaking down past the 10-day 20-day support on this epic rally off the bottom on March 23--and the best Digital Platformity EFT SKYY both near the 2pm hour of power. As my politically incorrect inner trader would say "Stevie Wonder could read these chart breakdowns."
Here is a QQQ support line graph from my option guru Kevin Blaine aka @PrivateMalibu on Twitter. The lower support channel broke 30 minutes ago...a very negative short term technical breakdown.
Like Shakira says, "The charts don't lie!" Here is the Platformity Index chart rolling over with 10-day EMA passing down through 20-day support. As you can tell on both charts, the 10-20 day support channel has held since April 5.
What all this technical analysis mumbo jumbo means is most "CTA" algorithmic momentum traders will read these break downs as "SELL" indicators and sell into the break downs. Alternatively, when these charts reverse of a bottom--Lord knows where--they will hit the "BUY" buttons and keep buying for as long as these charts are going up and above the 10-20 day moving averages.
Why? Because that is what an algorithmic trading bot does--they identity the latest "what's working now" technicals in the market and are programmed to seek out stocks/indexes that meet these criteria. AND--"what's working now" since 2012 is buying stocks with strong earnings growth momentum above their 20-day moving averages.
But perhaps the greatest signal of a short term overbought top in the market is when the poster children of digital platformity--TESLA and Microsoft--roll over on their earnings reports. And better, TSLA rolled over and failed to make a new high on GOOD news! That is the classic "OK--let's let the air out of this balloon and see where the natural buyers (aka fundamental human buyers who buy high growth at a "normal high growth valuations") step-in and put a bid on the secular digital platformity category leaders.
TSLA Chart
Action to Take: Buy the SQQQ 07/31/2020 6.50 C Calls at 50 cents or lower with a $1.25 target. This is the most liquid 3x inverse QQQ ETF.
Action to Take: Buy to SKYY 08/21/2020 75.00 Put Option <$3 with a $6 target
Update #1: Sometimes it is better to be lucky than good. We put a SELL TO CLOSE market ordered out to you on Tuesday evening for MRNA. On Wednesday morning it opened at $83.90 which is where we sold. For those of you in MRNA at the $53.95 entry price when we put the buy order in, that was a nice $30 per share profit.
Then on Thursday--Moderna lost an IP infringement lawsuit and dropped $10--like I said lucky sometimes is better than good. We did NOT have any advance intel from our Transformity Research Experts Alliance on the date of the long time lawsuit ruling--our TREXA team is good but NOBODY is that good. If you did NOT SELL your MRNA, I'd still take the profit and we will be a long term call option of MRNA to bet they will be the first Covid-19 vaccine out of the gate.
Update #2: Our snazzy new Ultra Income portfolio & Buy Under tracker is done and we are loading up our stocks and dividends paid--and the numbers as you would expect are astonishing. When we update the Buy Under prices for the portfolio, we will post on a Google Sheets link with automatic price updating.
PS--even at today's prices the portfolio WITH the 84% USOI dividend is about 22% yield with 30-50% upside by 2022 (assuming vaccines and antibody rates) are at 70%+ in the developed world.
Next up the Ultra Growth portfolio gets loaded in and again they automatically update (God bless Excel macros!).
PSS--the breakout of Gold and Silver prices after the EU approved their 1.3 trillion euro bailout plan is very interesting. With zero and negative real 5-10 year sovereign bond rates, and the Europe stimulus plan voted in, wealthy institutional investors have turned to gold and silver bullion as the best hedge for their equity exposure and not negative rate bonds.
With the US, EU, Japan, and China all printing history-making amounts of cash and sending checks to keep their middle and lower socioeconomic class households solvent and economies running, we have an obviously unprecedented monetary and fiscal stimulus all over the world. As I shared this week, none of this emergency bailout money is inflationary given the 20%+ unemployment rates. But the break out is telling us that the epic global money printing has to devalue fiat currencies starting with the already weak US dollar.
So sports fans, with the historic Silver/Gold price ratio is 55X -- at $1900 Gold that makes for $36 silver--we see a great hedge on "risk asset" portfolios. And silver demand is exploding which to my mind is the pricing in the history-making printing of fiat currencies only backed by the faith and credit of currency printing nations.
That is a "transforming monetary event" and worthy of our attention. Here is the SLV Silver ETF that holds about 60% of the world's silver reserves in its vaults. We are NOT going to chase this huge breakout but will wait for a pullback to 20-day support.
BUT--gotta say--holding 5% of your long term portfolio in gold or better silver miners (much better appreciation in the miners with large production and reserves not sold at lower prices) is a MUCH better hedge against another global wave of Covid-19 than buying negative 10-year bonds.
In other words, things that make you go "hmmm."
Cares Act 3.0: Our insiders on the Hill in DC say 70% of the $600 weekly Federal unemployment stipend to be added retroactively to the 20 million-ish Americans. Congress has no choice--20 million Americans now face eviction/foreclosure and that sure would burst the "we have this pandemic under control" narrative from the White House in the Fall election run. Money for States, hospitals, kids, and Covid-19 testing too.
When the CARES Act 3.0 is finalized and signed, that should stabilize the stock and bond markets. But if fiat money printing on a never seen global scale is good for precious metals demand, we will ride that wave of Gold/Silver buying for all it's worth--along with our favorite secular growth platformity plays at lower prices.
Have a great night--BASEBALL IS BACK!!!