Trade Alert: Be Cool

First off, we will do this week’s chat at our usual time — today (Wednesday, September 6) at 3pm ET in the TradingWithCody.com Chat Room or you can just email us at support@tradingwithcody.com.

Ugly day in the market, in large part because the ISM came in stronger at above 54 vs a 52 expectation. This is not the kind of report that most investors pay attention to when decided whether to buy or sell a stock, but it did drive up rates and the markets don’t like. For the record, from Investopedia: “A PMI above 50 indicates an expansion of the manufacturing segment of the economy compared to the previous month. A reading of 50 means no change. A reading below 50 suggests a contraction.”

I don’t think it should be a surprise that with The Onshoring Revolution (driven by companies like our Rockwell ROK) that factories and other manufacturing is ramping up in the US but apparently being a bit stronger than expected makes people who were buying stocks because the expect the Fed to cut rates sooner rather than later are now worried that the Fed won’t be cutting rates for a while. If you’ve been reading me for the last year, you know that I think we should expect rates to stay higher for awhile and that the economy and stocks should be able to handle that, which is actually a much healthier and natural base for the economy to operate on — as opposed to the near 0% interest rate environment/constant rate cutting that investors had grown accustomed to in the last 25 years.

I’ve also talked before about how I don’t believe the old saw about “Don’t Fight The Fed” because so often the markets will fall when the Fed starts cutting rates and will rise while the Fed is raising rates. If the Fed were to actually cut rates in the next few months, I’d expect a 1-2 day pop in the stock markets of 2-5% and I’d likely be buying puts and selling longs on that pop. It’s probably more bullish for stocks if the Fed will just keep cool. You know I like to remind us to be cool when it comes to trading. Snoopy and Fonzi would agree with me. Be cool, Fed.

As for trading, we’ve sold more than half of the calls we bought a couple weeks ago in Shopify SHOP, Spotify SPOT and Unity U including selling a little bit of each of the calls today while each of those have been up for most of today even during this sell-off. Each of those call option positions have gone up at least 300% with the SHOP calls up 500%+ as of this morning.

We’ve also covered some of our Ford F and GM GM shorts/puts and we have nibbled a little of our old favorites, Apple AAPL and Nvidia NVDA in the hedge fund. I even nibbled a few Disney DIS calls dated out to September 22 with strikes around $82 to $85.

But mostly I’m just being cool. Be cool.

See you at the chat.