TDLR: I have a 51k PUT bet on SOXX for October 16th expiration because Trump made a deal 39x and the overall economy keeps getting worse.
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The market was clearly starting a correction phase the last couple of weeks, until Trump made a peace deal for the 39th time this Past Thursday, right before SpaceX IPO. Yet today he is already saying he is not 100% certain Iran will sign it. At some point, we have to acknowledge the little boy who cried wolf.
Anyways, I think this is just one last attempt before in the coming weeks we resume the correction phase. Here are my main points and why I believe this.
- The Straight of Hormuz has been shut down for months now. Iran has stated multiple times, even if it re-opens, minimum would be a 30 day process to re-open. Kuwait and other countries in that region have indicated that it would take 90 days to reach normal production levels for oil again. Oil stockpiles have been depleting rapidly and I still believe at some point, oil will spike back up. The oil futures are disconnected from physical prices and reality.
- Put / Call ratio was heavily tilted towards calls. The rally that we have seen, many say was a gamma play. Well, if the ratio is unwinding and starting to move towards PUTS again, it indicates that institutions are hedging. They are not fully trusting this rally. Chart included in photos.
- Market Breadth and Advance/Decline and McCellan Oscillator - Market breadth is complete garbage. There is no conviction buying here. Selling days have stronger volume. Rallies have lower volume and its extremely narrow and concentrated. That can only hold the market up for so long, before it breaks down.
- Consumer sentiment is worse and continues to deteriorate. As consumers have less and less to spend because more is being spent on gas, not to mention input prices for goods is also increasing due to oil, this affects the AI trade and hyperscalers, such as META and AMAZON.
Both of these businesses have a large consumer revenue component. META is via ads, but if consumers spend less, they will get less ad revenue from 3rd parties. For Amazon, people will shop online less and less as inflation increases.
If hyperscalers are already maxing their operating margins and spending it on AI build out, what happens when revenue begins to contract? Forecasts and capex needs to be revised lower. Or, they will try to raise more capital via equity or bond. Red flag. Meta is already issuing bonds, Google is now doing a 85B equity play. They are stretching themselves very far.
5) Case for rate hikes is growing. I predict Fed will hold steady. But if the labor market has jobs, and inflation is accelerating, the need for raise increases to keep inflation in check. The only way we get rate cuts is if prices go so high, we get demand destruction. Which at that point, hello recession.
6) Nasdaq is no where near its all time highs. At best, it may get to its previous 2nd high to form a head and shoulders pattern. SOXX is a little stronger, chart wise, but the volume on rallies is terrible. Selling volume is much stronger and the fact that the rally is only getting more narrow, I believe this one will pop the hardest.
7) This is a midterm year, seasonally, August - September have major declines. This is not a guarantee, but there is a strong probability we will see big declines in the near future. Especially after this market has been going vertical for the past two months. June, its starting to sputter and run out of gas.