Interestingly, even as the Nasdaq is opening this morning down 10% from its recent all-time highs and was down more than than 4% in one day yesterday, there’s absolutely no panic amongst Trading With Cody community. And that’s probably because of how we’ve all been preparing for this downturn by raising cash, getting cautious and even adding some hedges that are now beautifully kicking in to help hedge our long positions in this down turn.
On the other hand, there was a lot of handwringing from the seemingly blindsided bulls, aggressive longs, pundits and media into last night and especially this morning.
Heck, I’ll admit that I was stressed out a bit about how harsh yesterday’s sell-off was. Is the Bubble-Blowing Bull Market over? That’s always the first question on everybody’s minds, including mine, whenever the markets have had one of these (quite rare really) 5-10% pullbacks.
The fact is, as I keep pointing out, that the very stretched and bubblicious valuations that are rampant from a bottom up perspective (bottom up meaning that we’re looking at individual company valuations on a case-by-case basis) are now much more of a concern than they’ve been when we’ve had these past market sell-offs during this now-10-year-old Bubble-Blowing Bull Market.
Likewise, top-down analysis (meaning that we’re looking at a the market/sector/economy from a macro level) there’s a lot more risk of market/financial/economic damage from the ongoing The Great Trade War of the 21st Century, tight labor markets, inflation, higher/spiking interest rates, The Great Endless Currency Wars of the 21st Century, years of QE and below-natural interest rates, developing markets crashing (ever farther than they already have), those aforementioned bubblicious valuations and so on.
On the other hand, corporate earnings growth remain strong (for now?), there’s still trillions of dollars of corporate stock buybacks to hit, and all these employed and in-demand people who are both labor and consumers feel pretty good no matter the recent stock market volatility.
So let’s not call an end to the Bubble-Blowing Bull Market just yet, even as we recognize that it could reflexively impact the economy which would further impact the markets which could further reflexively impact the economy ad nauseam into a crash.
In the meantime, it looks like stocks will open quite ugly this morning down at least another 1% or so at the open. And I’m going to trim another 1/3 of my remaining puts, leaving me about half of my QQQ and SPY puts that I had just two days ago and that we had finished scaling into on the exact day that the markets hit their recent all-time highs.
I’m far from outright bullish here, and this recent pullback is exactly what we’ve been set-up for and almost predicting on cue.
Long-time Trading With Cody subscribers will remember that when this Bubble-Blowing Bull Market was in years 1-5 (from 2010-2014) I often would aggressively buy our stocks and even nibble some index call options when the markets would tank like they are right now. I was less aggressive during most pullbacks in 2015 and 2016. But those were different markets, in a different phase of this economic and market cycle and valuations/expectations were much lower. That’s just not the case right now, though I do think it’s probably not a bad time to start nibbling here and that it’s probably a good time to lock in some profits on these puts at this ugly market open.
Let’s take some profits on these puts, let’s continue to be cautiously opportunistic as we were by starting a new position in SNAP yesterday, but let’s be patient in seeing how this market plays out.
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