Earlier, I brought you The Normie Playbook: An SPY Guide to the Days Ahead, a play that I decided to throw $4000 at. As an aside, hindsight shows regardless of if you think the play is the right one or not, I made many mistakes executing it. First, I’ll review. Then I’ll look to next week.
How I Put My Money In
Buy High, Sell Low
In reviewing the play I wanted to make, I decided early last week to create the plan and run with it. General belief being we would rise, then begin a descent. Not knowing when the descent would be, I wanted to average into the rise, putting progressively more of the money allocated to the play in as we rose.
On 4/21 I FOMO’d in. This was a mistake (#1), and something done against my better judgement. I deployed 29% of the play’s capital into this mistake, another mistake (#2). To exacerbate issues, I bought 5/30 puts, another mistake (#3), and wish these were 6/30 or 9/18 buys. In hindsight, I should have trusted my own DD, and waited for the rebound, also should have allocated no more than 15% in my initial buy, and the initial buys early on the way up should have been longer dated, finishing with the early dates.
On 4/22 I had recognized the FOMO, gotten frustrated with own ineffectiveness, and wanted to be more mindful. I deployed another 22% across two buying windows. Neither perfect, but both fit the general play.
On 4/23 I deployed all remaining cash, 49% of total play. These buys were mostly 9/18 puts, again in hindsight I made a mistake (#4) in the way I played the dates, one that exacerbates initial losses and will make decisions around modifying harder and more costly. There are a few other mistakes mixed in as well.
All told I deployed 29.34% on 4/21, another 21.56% on 4/22, and 49.1% on 4/23. I’m allocated 14.62% to 5/29, 45.14% to 6/30, and 40.25% to 9/18 puts.
Terrifying, You Silly Normie! Now what?
Now I look ahead. I talked last time about each day being a coin flip, normalizing to the macro reality over time. I talked about a head and shoulder’s pattern, and news being straw on a camel’s back. I think the market is moving to a CRITICAL week. My belief is this week is either going to break us out of channel, sending us to test the 290-300 range and seeing me exit this play at a significant loss … or … we’ll break channel lower, which I see as more likely, but not guaranteed. Let’s look at some key aspects:
Housing Market Forebearances – The housing market saw 500k loans go into forbearance in a week, a 9% jump, taking a total to 4.1 million people unable to pay their mortgage on about 1 trillion dollars in principal. Needless to say, not great.
The Fed – They meet this week, negative interest rates are on the table, they’re the bull saviors, and it’s going to be an extremely interesting meeting. I expect an in-channel Monday. Tuesday we ride.
DIX, GEX, VIX – Things are shaping up bearish. Terrific write up on these indicators. This is not a guarantee, but it’s something.
Kim Jong Un – No one want’s further global destabilization, it’s been nice for the past 6 months with North Korea mostly quiet. Adding fuel back to this region isn’t a positive, things are also still inconclusive, but there’s a ton of smoke.
Tech Earnings – Is this a buy the expectation sell the earnings setup? A HUGE percentage of the SPY’s market cap reports earnings this week, and it’s going to set support, or kick out a critical prop.
Oil – Is anyone really surprised?
General News – Disney closed until 2021? Georgia opening, Trump drives a bus over them? Sniffing clorox as treatment? Boeing backing out of merger? Upcoming GDP numbers, pending home sales numbers? The list goes on.
Bottom line, there’s a lot of straw.
Coiled like a spring in our channel
The market doesn’t know which way it’s going. I’ve made my bet, let’s look:
Look at the channel we entered on 4/9. We had a test up, a test down, and otherwise played between 276 and 284. The market is waiting, coiling, and you’re going to see significant movement this week, so whatever direction you believe in, place your bets now. I think Monday stays in channel, the fun begins mid-week.
GOOG reports earnings on 4/28, they got out ahead and slashed their advertising budget by 50%. Hmm. A company driven by advertising, slashed their advertising in half. I don’t expect a lot of positive vibes here. Expect Facebook to be in the same boat. Discover detailed a nasty drop in consumer spending, I don’t see that playing well for Apple or Tesla. Even Amazon, I’ll be watching their business with curiosity. I think things shake out well for them long term, but I don’t expect things to be all roses in the short term, I think they’re going to have a hard time meeting the expectations the market’s set for them.
My belief is the coiled market makes a run to the top of the channel (284-287), and collapses on itself like a dying star, exploding out to the downside, back to test the low 260’s. I’m not much a fan of Forbes, but I will steal some graphics from a recent article:
My macro view fits the latter graph, as is likely obvious. But I recognize the possibility of a test downward, the bulls eating enough straw to keep the camel standing, and a firm rebound to the upside. I find it hard to see a third possibility where we immediately use the coil to push out of this channel to test 300, but while no visual for it, I accept it as a possible outcome.
I knew I wanted to run this play, and set out to do just that. I have regrets, could have deployed better, but have no qualms about detailing and making the play. It’s going to be a crazy week.
4/27 @ 8:30 : QE dropping to 10 Billion a day. Everyone looking for a catalyst, look at the dollar. Also advertising spend guidance in earnings, retail indicators from earnings. We tested the top of the channel in futures, bounced hard. u/cowpunk52 talked about the 61.8 FIB level at 293, his terrific chart below, if we rise out of channel, will be very interesting to see what happens at 293.
cowpunk52’s chart, he’s had good DD
4/28 @ 10:30 PM : Today not a great vibe. Strong support hit EOD at 285.5. Google earnings notes:
Hiring reduction ongoing, also a cap-ex reduction mostly due to no additional office build outs (real estate is going to take a beating all over). No formal forward guidance, but mid teens decline on average, Youtube end of march deterioration is less yet still high single digits. Early signs users are returning, but not clear how durable or monetizable, hasn’t got worse start of Q2, but brand advertising continues to decline.
Q2 likely a lot worse, though no one will care if they can announce positive trends pointing to revenue returning. To early to say, but I don’t think they’re in for a good year. Might not matter for my play, there was enough wait and see optimism that I expect tech advertising to sustain for a while. FED and more tomorrow, gonna ride it out, but I think we test upside again and try to break 291.5
4/29 @ 6:30 : Today is going to be interesting. I don’t believe the FED cuts rates, I’ve come to the mind they’ll say nothing, and say it with positivism. I’m curious what guidance will be on QE taper, will they hold at 7.5b daily? Anything below that could spook the market. I don’t believe earnings will be the catalyst I hoped, but we’ll see. With a lack of guidance, it’s hard to see the true impacts, and that may not gain clarity until Q2 earnings, and even then, positive sentiment about Q3 would be enough. Earnings just aren’t going to be a leading indicator, especially sans guidance.
2850 is a big support for the S&P, set from 4/16’s highs. If we could crack 2850, we’ve got downside momentum to retest the 4/15 and 4/23 supports at 2755. Unfortunately, in the near term, I think it’s more likely we test the upward momentum, which will retest the strong resistance encountered at 2900, breaking through that gives us upside towards 3000. cowpunk’s chart above is the best bear case you can form from such a test, but there is danger here. Continuing to set further highs and lower lows is generating additional support lanes making the near term bear case almost impossible towards any true retest of lows, barring a covid resurgence (which could happen via Georgia / Florida). You could instead see theta own the day, 3000 prove a strong resistance and top, then a lot of sideways channel trading until the bleak macro economy takes hold and we start a slow, painful, drip by drip burn down to re-test lows. I’ll be waiting a bit more, but conscious this play is likely coming to an end.
4/30 @ 8:30 : The reality for me right now is I feel this play has failed. I’ve turned my focus to how do I exit it. To that end, I am stuck in limbo. I will likely have something that goes up on Sunday talking about how I exit a failed play. Currently, I’m not expecting to just fully sell, rather, I’ll be looking at when to sell and what avoids extending losses, but also aims to minimize given upcoming market expectations.
4/30 @ 1:45 : I bought a very small ~$100 call position as a hedge given I’m holding this play through the weekend, 5/1 strike, will sell tomorrow at open regardless. Hedging against after hours.
5/1 @ 9:30 : Call hedge did it’s job, wanted protection against Amazon. Speaking of which, more thoughts later, but glad they had a bearish earnings, even though it candidly wasn’t all that terrible, the sentiment was unachievable. Think we might test 288 early today, will see if anyone wants some badly OTM calls. Would love to see us break 283 today.