Do you remember back in January 2019 when Tim Cook wrote this letter in which Apple warned that sales had collapsed?
The headlines and analysis you read most places read this way: “A shock revenue warning from Apple has stoked fresh fears about trade tensions and spending in the world’s second largest economy. But analysts say the cut to its sales forecast reflects longstanding problems at the tech giant. iPhone sales have been sliding and Apple faces stiff competition in China. Experts argue the warning highlights the company’s need to create new centres of growth.”
Meanwhile, here’s what I sent out to you dear Trading With Cody subscribers the next day:
“So with Apple’s warning that China sales have imploded yesterday taking the stock market down in a jittery sell-off coming on top of the 20%+ decline the Nasdaq and the 30%+ decline in Apple, believe it or not, I’m continuing to get a bit more bullish here. To be sure, if the next year is full of outright earnings declines (and not just a slowing of earnings growth) then there’s probably more downside to the markets. On the other hand, if everything works out as analysts are currently expecting — that there’s a slowing of earnings growth and not an outright decline in earnings in 2019 — there’s going to be some big upside in a lot of names out there that are being sold off hard right now. Feet-to-fire guess for the stock market for January is that the markets actually rally here, led by tech.”
January 3, 2019 was just the second day after I’d launched my hedge fund and Amaris was in the hospital in the NICU at the time at the beginning of what became a two month-long stay and it was a stressful time. Here are some of the trades I laid out for you all at the time:
“I bought some AAPL common and some Apple call options with strike prices 10-15% above the current quote dated out into July.
I bought some AMZN common.
I bought some NVDA common.
I bought some SNAP common stock and added to the Snap call options I’d bought yesterday, which are 10-15% above the current quote dated out to July.”
The markets were down in a straight line for the last couple months of 2018 as we headed into that Apple warning. Traders and analysts were freaking out and bailing on AAPL and all other tech names and the whole market was crushed that day — and that was pretty much the bottom and that was a great time to be buying like we were.
I bring this up because we are pretty much at the opposite side of that coin at this juncture. The markets are up in a straight line for the last couple months as we headed into a blowout quarterly report for AAPL, AMZN and FB and a decent report from GOOG. And tomorrow, traders and analysts will be freaking out and loading up on AAPL and all the other tech names and the markets will be through the roof — and I don’t know if that will truly be a blowoff top yet.
So I saw some beautiful risk/reward scenario in buying AAPL and AMZN and NVDA and SNAP and other names while the markets were panicking back on January 3, 2019. I don’t see attractive risk/reward scenario in buying those names or most other names in a frenzied bubblicious stock market that’s already been going nearly straight up into these reports.
Tomorrow, I’ll take a small amount of capital and will be buying a few puts dated out a week to a month with strike prices 3-10% below the market tomorrow, in several stocks and ETFs, including SPY, QQQ, SOXX, EWU, FSLY, TTD, AVGO.
We bought these names when the markets panicked in 2019 and again in March 2020. We have trimmed into the big rallies since then. And now I want a little more hedging for downside risks in coming days, weeks and months. Because I do think we’ll have another opportunity to buy some great names when the are big time on sell with a much better risk/reward profile than we will see in front of us tomorrow.
All the people buying options and daytrading stocks and loading up on stocks (even stocks that they know might be a fraudulent overhyped insider penny stock pump-and-dump scheme) are convinced that they they’ll be able to make some money and then get out before the next crash/crisis. I submit to you that we can ride our longs that we own because we analyzed their fundamentals and long-term prospects and we understand why we bought them at the levels at which we were buying them — but that it’s better to sell something to the crowd that’s right now frenziedly packing the casinos than to run with that crowd.
Two other notes before I go.
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