EB Daily Market Report - Special Update - Monday, April 17, 2023
ChartList Update
I'm working on updating a few of our ChartLists and will hopefully have those updates on our website sometime over the next couple days. I'll keep you posted.
Q1 Earnings - Sneak Preview
At 4:30pm ET, I'll be hosting our Sneak Preview to Q1 earnings. I'll look at a few companies that have already reported, checking out Wall Street's reaction and sharing my thoughts as to the best reports among these companies. Then I'll look ahead to this week's earnings reports, providing you which stocks I expect solid reports and possibly solid reactions.....and those stocks where I expect the opposite.
We'll send out room instructions in a separate email. This webinar will begin promptly at 4:30pm. I hope to see you there!
Quick Update
I wanted to give everyone a quick update, primarily based on the April max pain information that was sent out over the weekend. As you might expect, there is quite a bit of net in-the-money call premium across our key index ETFs and many prominent stocks, including those on the Dow Jones, NASDAQ 100, and in our stock portfolios. I've eliminated all leverage relating to the QQQ and am simply riding the QQQ. I did move a small percentage into the TNA, which is a leveraged 3x small cap ETF on the long side. Its underlying index that it tracks is the Russell 2000 ($RUT). StockCharts.com no longer tracks the $RUT, but its ETF is the IWM, which currently looks like this:
Recently, I showed these bottoming structures (blue circles). A breakout from this consolidation could result in a very strong short-term advance in small caps. Therefore, I've added exposure in this group. Consider the 3x TNA a VERY aggressive trade. I don't own much, because of that.
And from Fidelity.com, here's the composition of the IWM:
Industrials, financials, and health care dominate the Russell 2000. So you should consider this index when you believe value is the better option over growth. I would consider options expiration week to be one such time, especially after a period when growth has widely outperformed.
Check out the top 6 industry groups currently in the IWM, comprising nearly one-third of its portfolio of stocks:
Banks ($DJUSBK) are the largest component, which helps to explain why the IWM has been underperforming the other major indices in 2023. Should Friday's rebound in banks continue, small caps would be in a position to participate. Also, note that the only industry group considered to be "growth" in this Top 6 listing is software ($DJUSSW).
I don't expect to see the entire stock market hit hard, but if we do see a temporary pullback in the SPY and/or QQQ due to options expiration, I wouldn't be surprised to see it move into mid caps ($MID) and small caps ($SML), which have lagged. Remember, it's Opposite George (Seinfeld reference) week.
On my TP Live show this morning, I mentioned that the AD lines are beginning to improve on both the $MID and $SML, so rotation into these groups IF we see short-term options-related selling in the SPY/QQQ wouldn't be surprising to me at all.
I wanted to pass all of this along, because I continue to receive a lot of questions about using leveraged ETFs. I only like to use leverage when I believe the risk/reward is solidly in my favor. For the SPY/QQQ, it's options-expiration week and both are above their respective max pain levels. I'd conclude, based on this, that it could be in market makers' interest to see lower prices this week. That may or may not happen, but do I really want to take on leverage when market makers could be trying to manipulate prices lower? That's not my style. I'll gladly own the QQQ and consider a partial return to either the QLD or TQQQ when the timing is more appropriate - possibly later this week if we near the rising 20-day EMA on the QQQ.
Happy trading!
Tom