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Effects of monetary policy & cov19 on the S&P500Last time I covered the S&P we had just agreed to a phase one trade deal after having the prime rate cut 3 times and pumping out $60Billion of new USD every month over the last quarter. I was long all the way to top of the 10 year ascending channel, all the conditions were perfect for a great run for 2020. Then the onset of this Corona Virus showed us just how fragile global markets are right now. The S&P500 was around 3243 when cov19 started hitting the news. We had a reaction pull back followed by a dip buy bounce followed by a hard sell off that resulted in the S&P shedding 500 points dropping from 3400 to 2900 in less than two weeks. We have now broken through the bottom of our 10-year bull trend line. In December 2018 we broke the trend meaningfully when we fell from 2950 to 2350 and 300 points under the bull trendline. That dec18 break was over Chinese American trade war escalations but after a one month free fall, we fully recovered over the next 3 months. If we hold at the same soft bottom we saw in December 2018, we can expect to see the S&P somewhere around 2710. That’s only a couple hundred more points below where we are now. What concerns me is that we are just now seeing deaths in America, we had our first state declare a state of emergency and without a doubt there are 49 more states behind that state that will also likely be calling a state of emergency and bruising the stock market with each announcement. We also know investors have been shrugging off risk for years and may be desensitized and bargain hunting at some point, regardless of the state COV19. I was long when this hit. I had already realized a lot of my gains but was still holding calls that were up as much as 300% that went red within 2-3 days. Luckily I had hedged my holdings with shorts on Apple and small holdings for calls on 3x bear ETF’s. The end result my hedges ended up being worth almost as much as my long holdings were despite being much smaller. My 6 puts on AAPL were up 800%, my other puts up several hundred percent as well. I used the 1000 point DOW bounce days to add to my calls on bear ETF’s but with expiries further out as my last short holdings were April expiry and decay would start effecting profits as we near the month before expiry. Also in reverse I have a few long calls with distant expiry to capture gains in the event cov19 is fully contained tomorrow. I will likely take some portion of my gains from these shorts when we hit that 2710ish mark on the S&P, for good measure. I am converting my gains into REIT holdings because with these rate cuts and a real estate economy that is far from suffering, the REIT’s should dominate, I am doing a separate write up for that. In the meantime, how low this could go is difficult to say, it could manifest into a recession or depression. My approach is not to try to catch a falling knife. If I think we are nearing the bottom, I will start making small purchases on conviction holdings and continue to average down or average up at major support/resistance lines. Something important I have learned is that any major market movement like this is a huge opportunity! You just have to make sure you are on the right side of it at the right time with enough appetite for the risk and of course a little capital. If you are not looking at how you can take advantage of these market movements to make money, you are missing some great opportunity to get ahead, this is literally how the rich get richer and the poor get poorer. This is not investment advice, DYOR research. Also if you trade crypto, consider checking out our free level two market depth data available on vcdepth.io
SP:SPXShort
by EncryptShawn