Weekly Update
April 15, 2024
Risk off was the theme last week as traders are once again worried about sticky inflation, and now there is growing fear of further war in the Middle East. And while those are two big worries, big picture it wasn’t a terrible week for the indexes as the S&P 500 and Nasdaq both fell 1.6%, while the Dow lost 2.36%
Stocks on Watch
When evaluating our portfolio, especially after our recent exits from our NTNX, CELH, and PLTR calls and partial sales in FCX and GDX, and with PR expiring on Friday, we certainly have room to add new positions. In fact, I would say this is the least amount of exposure to the market we have had in years when we consider we are holding partial positions in RSP, HOOD and TSM. Heck, we might have too little exposure.
With that in mind, I have my eye on these stocks that have held up despite the market coming under some pressure recently.
A buy of Coinbase (COIN) would be tricky as the stock is extremely volatile and often moves with crypto/bitcoin. That being said, the stock looks pretty good and on Friday a trader bought this big premium call position:
Buyer of 17,000 Coinbase (COIN) May 260 Calls for $27.25 – Stock at 255 (rolled from April calls).
In terms of stocks that have broken out in recent weeks, and have hardly flinched as the market has weakened, I continue to be impressed with Spotify (SPOT) which looks terrific. Though option activity isn’t overwhelmingly bullish in SPOT, it was been steadily pointing to higher prices.
And while COIN and SPOT are intriguing, I could also see us sitting on our large cash position, waiting for the next earnings stars to emerge in the weeks to come … if the market gets back in gear.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 17.3, after briefly trading as high as 19 on Friday. And while the VIX at 19 is high in comparison to the past several months of lower readings, I do want to caution: IF the situation in the Middle East gets worse, the VIX could be at 30 or above in the blink of an eye.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 5
Wednesday – 6
Thursday - 6
Friday – 5
Events for the Week to Come
I could write about the macroeconomic data points that will be released this week, but let’s be honest: the situation in the Middle East will be the major driver of market moves this week.
And if that wasn’t enough to be “worried” about, earnings season is also ramping up, led by Goldman Sachs (GS), Bank of America (BAC), Netflix (NFLX) and others reporting this week:
What Traders are Saying
Shortly after we sold pieces of our GDX and FCX positions on Friday morning for profits of 31% and 63%, I received a question from a COT/COTP subscriber asking why I would sell when both were “clearly breaking out.”
To be fair to the subscriber, I understand his question. When commodities break out, they tend to go much higher than one would expect, and the charts of both look amazing. However …
I have a clearly defined profit-taking system in place. And when I break those rules, no matter the stock or situation, I am opening myself up to self-criticism and doubt about the system.
Instead, if I’m mechanical, and stick to the playbook, I can live with my trading decisions even if they turn out to be the wrong move (and trust me, I make plenty of mistakes).
Stepping back, I will admit we got awfully lucky selling GDX and FCX near their tops on Friday as they both fell approximately 5% from our sale points, but that isn’t the point.
Of note, despite these sales and the stocks pulling back some, I am still bullish on both of our trades, and with profits in the bank on both we can trade these highly volatile positions with a clear mind this week, and going forward.
Open Positions
Freeport-McMoRan (FCX) November 46 Calls – As noted above we sold the second piece of our FCX calls for a profit of 63% on Friday. And despite taking partial profits I, and several Wall Street firms, am still bullish on FCX and copper, including Bank of America who upgraded the stock to Buy and put a price target of 59 on the shares, and a smaller Wall Street firm who wrote of copper/FCX: “Data centers to power AI servers will likely require an additional 1 million metric tons of copper by 2030.”
Gold Miners ETF (GDX) January 33 Calls – GDX was our most recent buy, and then recent sale, when we closed a portion of our trade for a quick profit of 31%. I like the look of GDX and gold a lot, though I will say “everyone” is talking about gold now, which may mean this run is nearing its end … maybe.
Robinhood (HOOD) January 15 Call – HOOD was down marginally last week, which big picture was totally fine given some of the pain in other stocks and its financial peers. Our position is in great shape.
Novo Nordisk (NVO) September 135 Calls – NVO was mostly unchanged last week ahead of earnings in early May. Not much more to add as the stock has steadied itself as of late.
Palantir (PLTR) May 22 Covered Call – On Wednesday of last week we closed our PLTR April call position as time was running out on our trade. However, we then jumped right back into a position via the May 22 covered call, with a breakeven at 20.27.
The reason I chose to execute an in-the-money covered call is I thought the market and PLTR looked somewhat suspect, and because of that I wanted to give our trade some room should conditions worsen.
Permian Resources (PR) April 15 Covered Call – PR is trading $2.75 above our short strike price ahead of expiration this Friday. Should PR close above 15 (likely) we will walk away with a yield of 3.5%. Unless you hear from me regarding PR, we will simply let this position expire in-the-money and will not need to address our trade this week.
Equal Weight ETF (RSP) June 158 Calls – The RSP was under pressure last week along with the market. The final piece of this position could be on the chopping block if better ideas pop up during earnings season.
Snap (SNAP) August 17 Calls – SNAP still stinks ahead of earnings on April 25. I’m likely going to sell another piece of our trade this week for a loss.
Taiwan Semiconductor (TSM) September 130 Calls – TSM reported monthly numbers that smashed expectations last week, and the stock reacted well to this … until the market got hit later in the week.
TSM will report earnings on Thursday before the market open. I will send an earnings outlook on Wednesday ahead of the quarterly report.
Nasdaq ETF (QQQ) November 430 Puts – Interest rate worries, and now trouble in the Middle East, are just two of the reasons we are still holding our bearish QQQ position. As the old saying goes, “Buy Puts when you can, not when you have to!”
Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.
