Stocks Mentioned: Solana (SOL), Credit Acceptance Corporation (CACC), Cheniere Energy (LNG), Copper miners (COPX)
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January 03 2023
Central bank gold purchases
Buy Solana (SOL) at $11.78
After bottoming around $8 on 30th December, Solana has screamed higher to a high of $12.05. The chart setup looks spectacular.
The up move on 12/30 reversed two weeks' worth of multiple bearish flag patterns on the hourly chart. The high volume bottom and high volume trend reversal imply capitulation in my opinion. I count two distinct completed bullish flags since then (12/30/22 and 1/2/23), with the third flag forming earlier today.
Flag patterns are nice to trade because it's easy to set a stop loss. In this case, the stop would be at $11.25, a price which invalidates the pattern.
Entry at $11.78, stop at $11.25, for a risk of 4.5%.
SOL hourly chart
January 04 2023
Even if you believe tech is still in a bear market, beware of shorting here. The rallies will be violent as we get closer to the end.
SOL - The move up to $14.24 has been swift. At some point, the uptrend will get tested. I'm watching for that and will update accordingly.
I was early to the bond trade, buying the 2Y ahead of the December FOMC decision. But I believe in the long bond trade, last week's move notwithstanding. The Fed will eventually come under political fire for hiking rates into a recession, especially if their counterparts are easing. FOMC is a committee of 12. Even if Powell wants to get the Fed funds to 6%, the other members aren't going to vote for it. In academia or bureaucracy, it is better to stick to the consensus than to be bold and be wrong. With everyone and their grandmother realizing we're in a recession, it's going to be career suicide for other Fed voting members to agree to continue hiking to the Fed's target 5.1%.
The national debt stands at $31.46 trillion. Congress just passed a $1.7 trillion omnibus bill. Analysts estimate that interest on the national debt will go up to $700 billion for this fiscal year, up from $475 billion last year. If the Fed keeps hiking, the bond market will implode, causing a deflationary depression. While Powell may want that, the other voting members certainly won't. It would be career suicide. No central banker wants to be (in)famous for causing an economic collapse.
The recession will clear up the inflation problem (it already is), making it easier for the Fed to save face. Maybe we get another 50 bps hike on February 1, but I think 30Y yields have peaked. The BoJ is already back to buying bonds. That should keep the lid on global yields while we wait for the Fed to follow.
My bias is to be long bonds, but with caution.
An alternative trade is to find a commercial bank without a problematic loan book, holding the bulk of its assets at the Fed as excess reserves. Guaranteed interest income, no mark-to-market losses on commercial loans. I'm sure there are multi-millionaires looking to buy a bank just for this purpose, so there's the likelihood of getting a takeover premium if you can buy shares in such a bank. DM me if you do have ideas. Analyzing bank stocks is not my forte.
CACC got sued by the NY AG and CFPB. Re-initiate the short position!
If we close at the 52-week low today, that'll set off the scanners. One look at the chart, the news and the valuation and this could potentially become a crowded short trade. So beware! This move is based just on a lawsuit. CACC share price movement is full of surprises.
January 05 2023
Time to re-open the Cheniere Energy (LNG) short.
This time, no puts. Just outright short shares. I wish I could have picked a better entry but you can't win them all.
January 06 2023
USD.JPY looking interesting again. If it doesn't cross 134.5 but gets rejected, it'll be time to short dollar-yen. For now, just observing. To me, yen, gold and treasuries are the same trade - a bet on deflation.
Copper miners (COPX) moving out of their consolidation pattern. Looking for a good entry to buy in.
Several cryptos have exhibited flag patterns, including bitcoin. I chose Solana because the chart was less messy. Any other crypto long would have been stopped out today.
January 07 2023