Tickers discussed:ARKF, ARKG, ARKK, ARKW, ARKQ, KRE, XOP, XRT, AFRM, CNTY, BABA, PTON, COST, NFLX, USO, GOOS
Trades about to Happen features technical set ups that are close to actionable levels.
Portfolio Positioning for Q4
Here is my framework for Q4. Keep in mind that I am a technical trader primarily focused on price action rather than broad macro narratives. That said, here are the themes which I am working from. The premise primarily is focused on a rising rate environment.
- Commodities across the board. The world is short anything coming out of the ground. From oil to grains, base metals, to uranium are moving higher. This is a result from in most cases over a decade of under investment coupled with a war on carbon. Also ESG mandates, coupled with the push toward electrification, has bumped demand while holding back supply and capital.
- Financials – Rising rates favors financials. Barring a big resurgence in covid that would impact the recovery, I think the lows for the 10 year bond rates are in and are heading higher.
- Re-opening Trades – Cyclicals should do well as the real economy re-opens. Hotels, Airlines, Travel, Cruise lines, etc
- Industrials –
- Materials- Steel, lithium, fertilizer, specialty chemicals should do well.
- Energy – Look at the charts. Going higher.
- Small caps – ( IWM ) THe index is loaded with regional financials and other domestic real-world economy companies. The domestic aspect is important because companies do not have any currency risk with the potential of a rising $USD.
- Ponzi – Ponzi is a short cut way to describe high valuation, high-growth companies that either have sky high P/E’s or in-fact, lose money. A rising rate environment is toxic to these kind of names. I think they’ll be tons of pain ahead, despite many of these names already off 25% – 40%.
- Maga-cap Tech – Altho I think Mega cap tech will hold its own because of its great earnings support, I think they’ll be more of a market perform to underperform compared to the re-opening trade.
Trades about to Happen
In the charts below, I have identified key support / pivot levels where traders can focus attention in the days ahead. I have found that setting a bunch of alarms, then waiting for them to trigger. Once triggered, the trader can then evaluate whether to take the trade or not based on market conditions and current portfolio exposure.
$KRE is the regional banking ETF. I am bullish financials in a rising rate environment. Regional are more sensitive to interest rates than the big banks. Also, XLF has a ton of other financials that are non banking related. Traders can alarm $71 and buy the breakout to ATH’s
I am bullish oil and energy. XOP is the OIL E&P ETF and an easy way to play the space. Stay long against $99. I do not like XLE due to the overweight positions in CVX and XOM. OIH is the oil services ETF that also merits a look along with individual names in the space
This is the equal weight retail ETF. $91 is a big pivot level. As it stands, traders can be short against it with a stop slightly above. Bulls would be favored on a daily close above $91.
A couple of big gaps below to fill below $105. Above $105 and bulls remain in charge. A break below $105 is your short entry with a target of 92.50 with the possibility of filling the lower gap to 70 if things get really ugly.
I like domestic gaming. CNTY is trying to break out. Alarm $14.50 and get long on a breakout. Other tickers. BYD, CHDN, CZR, RRR, IGT, SGMS, MGM. I do not like companies with large exposure to Macau LVS, WYNN, MLCO
BABA has been absolutely decimated. Now, price seems destined for $130. That will be a must-hold level. If it breaks, it goes way down. If it holds, it will most likely be a great long entry. Set an alarm there.
Peloton is an example of a bubble stock that I think get decimated in this market as traders / investors leave high valuation names in droves amid a rising rate environment. Peloton has great products and is well -liked, but loses money. It has a negative P/E of 120. If price loses $80, I think it gets cut in half to $40. You can see the massive void beneath that level.
Retail darling Costco is coming off a torrid ramp from 385 to 470. Our team captured most of the run. But now price has rolled over from a double top and violated key support at $445. While below $445, price is open to a drop toward $422 on both a measured move basis and 50% fib retracement level.
Chart looks totally different than most of tech. Outstanding relative performance. Price is set for a measured move target of $650-$660 on a break above $615. As I write this, price has in fact broken out. Traders can buy any backtest of $615 in the days ahead. I like it long.
This is the oil ETF. While not a great entry here, I wanted to show you the big void above price where there should not be a lot of resistance until price gets up near $70-$75. If you get a pull back into $50, hit it long. I think oil goes higher. There is a perfect storm that is holding back supply just as economies around the world re-open. The paradigm for energy has shifted from “How much does it cost?” to “Never run out”. China notified its utilities and major industries to secure energy inputs at any price.
ARK ETF Complex ( ARKF, ARKG, ARKK, ARKQ, ARKW )
I think the types of names the funds hold ( high valuation, high or neg P/E ) are going to get killed in a rising rate environment. I reviewed all these names in this morning’s Before the Bell Premarket prep video. I plan to use rallies into resistance to establish PUT positions. Not crazy size, but enough to matter. In general, I think this is an easier way to go than to hunt individual names. The options chains for these tickers are pretty liquid so they are good proxies for the bubble names I think will have a hard time in Q4.
Link to the video HERE
This high-end apparel retailer is sitting on key support at $35. Bulls need to step in here or else there is a lot of downside below.
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