The eye of the storm

I didn’t do any trading this last week as we have been in a tight range this last month with shrinking volatility.

I’ve heard a number of very compelling bearish takes, these last few weeks, but more bullish takes have been coming out lately as well. A strict believer in fundamentals tends to pick a side – either focusing on the stories of tightening credit among regional banks, with First Republic close to failure, or pointing out the persistance of inflation, rebound in consumer spending, and still low unemployment numbers. A strict adherence to technicals requires shedding directional bias from these fundementals-based narratives and looking for signs of momentum change.

I admit that I am strongly biased to another big drop coming in markets because of the credit tightening story. Positive surprises in the data only means that the Fed is more likely to continue hiking rates because they don’t tend to stop until something breaks. Still, I could easily see the S&P 500 climbing higher from here as more money floods into the perceived safety of mega-cap stocks and/or index funds which heavily overweight the mega-cap stocks.

Here’s the S&P 500 equal-weighted vs the standard price-weighted S&P 500 in orange so you can see how big the flight to mega-caps has become:

The above has me worried that we are merely in the eye of a storm which hit markets in 2022. The S&P is recovering and volatility is shrinking. I fully expect the other side of the storm to hit at some point, but any bets on the bearish side just shrink in value as time marches on. Outside of the mega-caps, much of the market has been hit really hard and it is likely that some parts have already bottomed. So I’m sitting in a position where I’m fully allocated, margin is way too expensive to consider, and I just need to wait things out to see where they go.

Part of the reason I calculate out my holdings every week is so that I can see any significant moves.

In Hedges, my TLT calls gained significantly while my LEN & AAPL puts fell and the TSM puts stayed the same. The market for US treasuries rallies when credit tightens, yet we haven’t seen a plunge in employment or economic data that would cause significant selling.

My mining stocks involving gold, silver & copper have been falling this last week even as these metals remain relatively strong. Precious metals are near their long-term highs while copper has pulled back a bit but is still much higher than pre-pandemic levels.

Meanwhile, my Uranium miners have seen a decent bounce-back on Friday making solid gains for the week, though they are still down a lot year-on-year. Here’s the performance of Uranium miners vs the metal:

Last but not least, there was significant news in the US Cannabis sector, along with a significant jump in the stocks. Here’s the news clip:

The gist of it is that there is another push in both the congress and senate to pass SAFE Banking, which would enable US Cannabis companies to access the US Banking system and make it much easier for them to access capital markets. US States have been legalizing Cannabis for over a decade, but the federal laws regarding it never changed. Under Bush in the early 2000’s there were some high profile federal raids against Cannabis companies operating legally under California law. The Obama administration promised not to raid Cannabis companies operating legally in their states, but federal laws never changed. As more and more States legalized Cannabis sales in the following decade, multi-state operators emerged and listed on the Canadian stock exchange where US retail investors can invest through the OTC markets. However, these companies can’t directly list on a US exchange or use general US banking services (banks can be fined for working with them) and many investors are prohibited from owning them. There have been attempts to change this through legislation for years now, and we are seeing another one.

To me, this sector will serve as a long reminder of why professional traders like Tony Greer use tools like stop-losses to avoid riding a losing trade. As a stubborn retail investor I can keep riding this out, but there is no question that a guy like Greer who waits for the chart to show a decent bottoming and breakout – likely after the legislative change – will end up buying in at a much more favorable price than me if things work out and will simply avoid it if it never does. In a bull market you often see sharp gains after a pullback, which would have been great for a retail guy like me, but Greer actually bought in as well at these points so he would’ve gained there too – he just got stopped out when the trades didn’t work instead of riding it down for 2 years. Live and learn. Or not I suppose, because I’m still stubbornly holding this these stocks, I’m just not adding any more. Disciplined trading is not easy, and I’m not there yet.

I’ll leave off there. Here are my latest allocations:

  • HEDGES (6.2%)
    • TLT Calls (4.4%)
    • LEN Puts (0.6%)
    • AAPL Puts (0.7%)
    • TSM Puts (0.5%)
    • AG w/ cc (6.2%)
    • EQX w/ cc (4.9%)
    • MTA w/ cc (4.3%)
    • SILV w/ cc (4.4%)
    • LGDTF (2.9%)
    • SLVRF (3.8%)
    • SAND w/ cc (2.6%)
    • MMNGF (2.7%)
    • SSVFF (2.2%)
    • BKRRF (1.5%)
    • RSNVF (1.5%)
    • DSVSF (1.2%)
    • HAMRF (1.3%)
  • URANIUM (22.9%)
    • CCJ w/ cc (4.1%)
    • DNN (3.4%)
    • DNN calls (1.6%)
    • UUUU w/ cc (3.8%)
    • UEC w/ cc (2.9%)
    • UROY (3.2%)
    • LTBR w/ cc (1.7%)
    • EU (1.7%)
    • BQSSF (0.7%)
  • BATTERY METALS (15.2%)
    • NOVRF (5.8%)
    • SBSW w/ cc (4.7%)
    • EMX (3.0%)
    • PGEZF (1.8%)
  • US CANNABIS (9.3%)
    • GTBIF (1.6%)
    • VRNOF (1.6%)
    • TCNNF (1.3%)
    • TRSSF (1.3%)
    • CRLBF (1.2%)
    • CURLF (1.2%)
    • CCHWF (0.6%)
    • AYRWF (0.6%)
  • OTHER (5.7%)
    • DOCN w/ cc (2.0%)
    • XRP (3.7%)
  • CASH (1.4%)

About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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