Rocket Equities & Options Report

By Tommy O’Brien

Feb 21, 2023

In last Monday's letter, I talked about the market looking toppy at about the 4,140 price area. It made it all the way up to a spike of 4,186 a week ago, and then the collapse really began to take hold Thursday afternoon at about the 4,140 price area. I would have shorted markets again this morning if we hadn’t open down about 1.25%. We will get moves in both ways in this market, as we move to lower price over the next 3 months. 

The SPY just traded from 415 early Thursday morning to 401.50 as I write this at about 10am EST. That’s about a 3.2% pull-back in a matter of a few days, and things don’t seem to be slowing down yet this morning as we come into a short trading week.

This morning on my show I talked about Morgan Stanley analysts looking for a potential 26% pull-back this year as profits face pressure and margins shrink, and the Fed deals with stickier inflation than some may have projected and hoped for. Hope is not a plan. Be prepared for sticky inflation, and if that is the case then this market may have some room to run to the downside. I still see 3,200 in the S&P in play. I have included a link to this article at the bottom of the newsletter, as well as some of the other articles I have been reading this morning. They include pay walled articles from Bloomberg and WSJ so if you do not have a subscription you may not be able to read them all.

We get Fed minutes from their last meeting on Wednesday, and we get PCE (The Fed’s preferred inflation gauge) on Friday morning.

WMT and HD out with their numbers this morning. Both were lower pre-market, but WMT has surged higher on the open to get into the green, while HD is down 5%, both with weak guidance for the next year.

Lots of companies still reporting this week, on our radar:

Wednesday: Bumble (BMBL), Cheesecake Factory (CAKE), Overstock.com (OSTK), Teledoc (TDOC), TJX (TJX), Wingstop(WING)

Thursday: Alibaba (BABA), Autodesk (ADSK), Beyond Meat (BYND), Block (SQ), Booking Holdings (BKNG), Cars.com (CARS), Carvana (CVNA), Dillard’s (DDS), Dish Netowrks (DISH), Domino’s Pizza (DPZ), Live Nation (LYV), Moderna (MRNA), Nikola (NKLA), Papa John’s (PZZA), Planet Fitness (PLNT), Steven Madden (SHOO), Warner Bros. Discovery (WBD), Wayfair (W), YETI Holdings (YETI)

Friday: Carter’s (CRI)

Positions:

We are holding a debit put spread in the SPY from $370-$330 for a net debit (cost) of about $4.60. This is currently trading at around $1.20. We are going to hold this for now, even though it most likely will expire worthless. This was always a longshot trade that was well out of the money. The next Fed decision and press conference is March 22nd. These options expire March 17th. We will see how the February data looks as we get into March, but with the ES still above 4,000 I still see lots more risk to the downside in this market right now at this price level. I could see the scenario where the market accelerates lower into the March meeting if the February data doesn’t line up with the idea that we are on the path to 2% inflation as fast as some may think.

The market is pushing through the .382 right now from the start of the year rally. Next stop is 3,960. Stay tuned for updates!

What I’m reading this morning:

Walmart Posts Strong Sales, Earnings as Shoppers Look for Discounts

Home Depot Forecasts Earnings Drop This Year

Goldman Sees Fed Hiking by Further 75 Points on Stronger Growth

Morgan Stanley Says S&P 500 Could Drop 26% in Months

Investors Stung by Treasuries Rout Brace for Next Blow From Fed

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