Rocket Equities & Options Report

By Tommy O’Brien

Mar 13, 2023

Last week’s letter talked about an AB = CD that could bring the market down to about 3,825. When I sent out the update last week we were at about 4,020, and we almost made it in the next 3 days, reaching a low of 3,846 last week. The pain does not look to be over this morning as markets are lower even after the Fed and Treasury responded as powerfully as possibly last night by guaranteeing all deposits and creating a special vehicle for banks to borrow to try and avoid contagion.

This is not how healthy markets behave. Yields are plummeting as the market is now below Friday’s close. 3,825 looks to be the next stop lower in this market, but the real threat here is much lower prices as banking fears reverberate. Regional Banks are still trading like they could go BK. Be careful in this market. The Fed came in with everything they could hve outside of just bailing out shareholders and savings SIVB, and still markets are lower to kick off this morning, as if the market is not convinced that the contagion has really been contained. The ES just gave back 100 points from where it was at 3am overnight.

The 10 Year and 30 year have bounced decisively out of their channel lines pointing to higher price and lower yield.

The Dollar Index also looks like it could be bouncing off its .618 area and trending higher, which would line up with higher rates.

Crude is pulling back to the lower portion of its trading range.

The VIX finally looks like fear is present, and it is here in a way it has not shown up recently with quite a spike to the upside.

We get CPI tomorrow morning, which has almost taken a back seat to the bank action this morning. The Fed still needs to tame inflation, and while we first have to figure out whether the banking system is more fragile than we realize, the threat of inflation has not gone away. It’s gonna be quite a market if inflation is still raging and meanwhile the Fed now has to worry about raising rates or small banks may crumble. Buckle up for some volatility in both directions as this market tries to price the risks present in an ever changing

Positions:

The benefit of a defined risk trade is that regardless of how far is goes against you they can’t stop you out. I’d still be surprised if the SPY hit 370 by Friday, but it’s not often a $200B bank goes Bankrupt on a Friday. We are holding a debit put spread in the SPY from $370-$330 for a net debit (cost) of about $4.60. This was trading at around $0.17 early last week and is now at about $1.19. The SPY is trading just under 385 right now, down from as high as 393 just this morning, so 370 is not impossible when the trading week hasn’t even begun yet, we get CPI tomorrow, we have a Fed meeting tomorrow, and we have markets continuing to drop as we have 60 minutes to go until the opening bell. I want to see how this market trades on the open and early today as we get a grasp on the real market sentiment. Stay tuned for updates this week!

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