Market Update 5-24-16

We had some good numbers in the housing market data that helped to drive the S&P and other indexes higher today.  If you had the guts to be bullish at the end of yesterday's trading you did great today.  I thought about it but held back because of my bias to the downside. 

I sold some calls in the SPY this morning because of my overall bearish position.  We'll see what happens tomorrow but I think we are very overbought at these levels and I'm looking for the S&P to go back to at least 205.

Current Trading Plan 5-21-16

There's a fight going on right now between the bulls and the bears.  No one is going to win in the short term because there is not enough market data or any world events to say the market is going to go down.  On the other side, there is not enough data to say that it will go up. 

The middle and lower class are not making enough money to sustain retail earnings and the banks aren't lending like before allowing them to buy things on credit.  The engine of the economy has stalled and the only thing to restart it is to increase wages for all workers and to open lending opportunities for lower income earners.

As for the short-term market direction, after the big drop we had this week we have recovered already and it will probably make it to 206 on the S&P. However because of the tension in the market and the trigger happy bulls and bears when we reach around 206 the market will be smacked back down to around 203. 

As most people know the market climbs slowly but falls down fast.  Generally, I'm bearish because we are overbought at these levels. If there is a big swing to the upside I'll sell calls and buy puts.  Conversely, after a big swing to the downside I'll sell puts and buy calls. 

ETFs Versus Individual Stocks

After analyzing my past trades alongside the S&P and their corresponding ETFs I have come to conclusion that from here on out I will be trading the ETFs.  Although AAPL has the highest return I could have made a comparable return by trading the highly liquid ETFs that have similar or higher premium.

I can also use other contrarian ETFs to hedge my trade and make my overall portfolio delta neutral.  

 

SPY, YHOO, AAPL 52 week comparison

 

QQQ, SPY, YHOO, AAPL 52 week comparison

 

Is The S&P Throwing Stones At Tesla?

I came across an interesting article about S&P’s mysteriously timed rating of Tesla recently.  The author questions S&P’s credibility given its inability to accurately forecast the mortgage crisis and its admission that “it didn’t know what it was doing.”

Tesla’s bonds (the debt that the S&P is so concerned about) aren’t due to start being paid until 2018 and they are positioning themselves to be in a fantastic position with the new Gigafactory that will be the largest producer of lithium ion batteries.  This will make the company way more valuable than it is today.  Consider the rise in brand appreciation and a larger market share with their sedan models, Tesla should have no problem paying back their debt and then some.

Here’s a link to the article:

Forbes Article by Mark Rogowsky