Grade Incomplete

This is my month of limited trading activity. I’ll ramp up slowly into the holidays and new year. The market has been incredibly strong. Even the Russell 2000 is participating in the rally. I’ll make another post for year end.

Here a few ETFs year-to-date:

QQQ Nasdaq 100 52.2%
SPY SP500 22.7%
IWM Russell 2000 13.0%

GLD gold 10.2%
EEM Emerging markets 5.2%

TLT US20 yr -0.4%
SLV silver -0.9%

My trading account +24.2%. I am holding my own despite having huge cash reserves most of the year. The Nasdaq is up an incredible 52% for the year. The chart formations for SPY and QQQ are bullish. However, as many readers will tell me, charts don’t mean that much.

My overall thesis of AI being a big deal remains. Companies are rushing to invest in AI, perhaps in folly, but right now the people selling the shovels in the gold rush, the big chip makers are benefiting. One perhaps unforeseen effect is the rich, getting even more of an advantage, because it takes a huge capital, and educational investment to understand and use AI well.

Luxury house builder TOL saw 26% of its new house customers paying cash for $1 million dollar homes. This compares to about 10% cash buyers for the past 20 years. Of course 7 and 8 percent mortgage rates are way different from 3 or 4 percent.

Merry Christmas. I’ll have a year end round up around 12/30. Cheers!

Rally days then weeks, Grade B

Stocks and bonds move higher on tame inflation indications. The QQQ again leads the way. I do alright, adding a bit to longs, but mostly still on the sidelines. Grade B okay, not great, but way better than being short equities.

Here are some Etfs year-to-date:

QQQ Nasdaq 100 45.0%
SPY SP500 17.9%

GLD gold 8.3%
EEM emerging mkt 3.9%
IWM Russell 2000 2.3%

SLV silver -2.8%
TLT US20 yr -9.6%

Megacap tech is having an incredible year. I tilt that way with my modest equity allocation. My trading account up 21.2% for the year. Better than SPY and all the other ETFs, but looks meager compared to the gains in QQQ.

My trading activity will be next to nothing for the next month. I have other priorities this time of year. I made add a few shares, take a few tax losses. Everyone is different. For me, taking a few weeks off from the market gives me a fresh perspective.

War and the long bond, Grade C+

War erupts in Gaza. Initial reaction is minor, but as the war deepens and gets more complex, US stocks move lower. Long duration US treasury yields are a tremendous headwind for equities.

QQQ Nasdaq 100 33.2%
SPY SP500 10.1%
GLD gold 8.2%

SLV silver -2.8%
EEM emerging mkt -2.9%
IWM Russell 2000 -4.5%
TLT US20 yr -16.4%

My trading account +14.9 for calendar 2023, down a modest 0.3% since the last report. For 2023, I am doing better than SPY, not as good as QQQ. Despite the recent decline QQQ is still having a banner bull year +33%. It is notable that a lot of investments are now down for the year, with TLT having terrible year so far.

I started buying shares of TLT at much higher levels. Thankfully, the position remains small. For now, I’m not adding to longs. I might add to longs in QQQ and SPY if the decline accelerates. I mentioned SPY 370, QQQ 310 as possible levels, so there is still more room before I add signficantly more.

Earlier in the year, a wise old market observer said that when the long bond yield crosses 5%, that would be significant competition for stocks. Looks spot on as of today.

What next? Long time readers know that I get busier with other activities and have less time for trading towards the end of the year. I am already tapering down, the number of trades, and will likely again take several weeks off from trading options. I might still look at the markets and perhaps buy or sell etfs, but very little for options. This month off seems to help me. So for me, a very few trades are in my near future. I won’t swear off options until mid-November, that that is not far away.

Another late report, slow erosion, Grace C+

The US stock market continue lower, feels worse than the monthly numbers indicate. I lose a bit. Here are a few ETFs 2023 year-to-date:

QQQ Nasdaq 100 34.4%
SPY SP500 12.5%

GLD gold 5.3%
EEM emerging mkt 1.5%
IWM Russell 2000 1.3%

SLV silver -2.0%
TLT US20 yr -8.2%

My trading account +15.8 for 2023, good not great. I have a large cash reserve. The portion invested leans towards big cap tech. Bonds are leading the way lower. I started building a small long position in TLT and was way early. I delta hedge a bit by selling way otm calls, but the decline has been too steep, so TLT is one my few losing tickers for the year.

Adding longs becomes a lot more interesting if we get to a 20% decline from the recent top. In rough round numbers that is 370 for SPY, 310 for QQQ. At -20% bear market news gets real popular. The headwind from bonds is real.

Like I wrote last month, adding QQQ longs on dips seems like a solid way to proceed. 350 is approximately 10% off the recent high. A seasonal play is to look to buy stocks making 52 week lows at the end of October to December. Looks for solid companies that may be seeing tax selling.

Late report, AI train, Grade C+

 Market dips slightly. This report is a week later than my usually third week time. Overall, I tread water for the month, which is slightly better than most indices.

Here are some ETFs 2023 year-to-date:

QQQ Nasdaq 100 36.7%
SPY SP500 15.1%

IWM Russell 2000 5.5%
GLD gold 4.7%
EEM emerging mkt 2.7%

TLT US20 yr -4.6%
SLV silver 0.9%

My account +16.7%, so back ahead of SPY buy and hold. Probably near dead even after dividends. This is a good result, because I feel like I have less downside risk than buy and hold.

I was wrong about a few things. I try a debit call spread on AMZN post earnings, and it is near a total loss. Overall, this minor market dip felt worse than the numbers indicate.

I have been telling people that I believe AI is a big deal. That it probably leads to three more big inventions. The analogy is the steam engine, which tangentially led to railroads, steel, oil, electricity. These big inventions change everything. There will be winners and losers. I tend to think that companies with a significant AI department will be able to out compete those that don’t have that. AI has the potential to improve many processes. The hype says 5 to 10 times more efficient. I doubt that in the short term, but in the long term, those kind of gains may be possible.

Unlike the 1800s and 1900s where physical plants and rail lines had to be built by hand and later machine, the modern revolution is mostly about ideas. AI can help develop new ideas, even though its current state is mostly about taking what is already known.

What does an investor do? My idea is to add to QQQ on every dip. We are a long, long way from bubble stage. That said, the price action of a leader like NVDA after good earnings is a cautionary tale. A lot of people have already leveraged long for the short term. Those may not have the staying power to handle any dips. So keep plenty in reserve, but lean to the long side.

The AI train has a long run ahead. It is near impossible to predict long term winners and losers, thus the thinking to buy QQQ. There are likely new companies or tiny companies that will become big because of the wheels set in motion by AI. Think about going back in time to the invention of the steam engine, and predicting that railroads, steel, oil would become huge industries. A regular worker back in the day would not even begin to imagine what you were predicting, because those industries did not even exist.

If AI is the big deal that I tend to believe it is, we are on the start of a long journey. Social disruptions may be the biggest risk. Industrialization changed how people lived. AI and what follows is likely to marginalize many jobs. That doesn’t mean a bleak future, but it may lead to political and social upheaval. 

Industrialization was a factor in the rise of Communism and modern Socialism. AI may be the catalyst for similar changes. Enough soap box talk, again the idea is to add to QQQ on dips, while keeping plenty in reserve. The AI train has a long run ahead, despite some bumps along the tracks.

Falling behind, Grade B-

I fall a bit behind the rally. My trading account is up 17.2% for calendar 2023 vs. 18.2% for SPY. QQQ is the mega-star, up a stunning 41.1% for the year. Those that got scared and moved to in money markets, CDs are up around 2% to 2.5% for the year so far.

Here are a few ETFs, year-to-date, dividends not included:

QQQ Nasdaq 100 41.1%
SPY SP500 18.2%

IWM Russell 2000 11.5%
GLD gold 7.4%
EEM emerging mkt 6.4%

TLT US20 yr 3.1%
SLV silver 2.5%

Again, my trading account up about 17.2%. The minor pullback led by NFLX and TSLA looks to be a healthy pause, not the end of the road. I don’t have my ear to the ground as closely as I used too, but I haven’t heard or seen any real red flags to signal the end.

Five or ten percent corrections can happen at any time. Especially with QQQ up over 40% for 2023. These are likely to be shake outs, dips to be bought, not the end of the current bull run.

I will be traveling next month, so trading activity may be even less than slow summer movements. AI is real. It is likely to be a game changer. Virtually every company is looking at AI and how they can improve their operations with more technology. 

As with any big new inventions, there will be winners, losers and disruptions. Those on the short end of the stick may suffer. If enough people suffer, social and political upheaval may occur.

Golden Goose v Lean Chicken, grade B

Mega cap tech stocks lead stocks higher. One online person from Investor’s Business Daily waxed poetically about a golden goose, flapping her wings and blowing money all over the place. It was that way this month for those long calls on certain stocks. As almost always, I tend to be cautious, and my meal was more along the lines of lean chicken. I was up about 4% for the trading month, about 14.9% for calendar 2023.

Here are some etfs year-to-date:

QQQ Nasdaq 100 38.2%
SPY SP500 14.9%

EEM emerging mkt 7.9%
GLD gold 7.1%

IWM Russell 2000 6.6%
TLT US20 yr 3.1%
SLV silver 0.7%

I am pacing SPY which is decent. I feel like I have less risk than all in buy and hold, so matching market returns with less risk is a good outcome. At the start of 2023, almost everyone would take +15% for the first half of the year.

With all that, another Investor’s Business Daily online commentator talked about making money but feeling miserable because they were under-invested. I won’t go that far on the feelings, but certainly there were home runs that I did not take advantage of. I was long NVDA. One position was a NVDA bull call spread, long the 300 strike, short the 320. That spread tripled in value, which sounds great, and is great. However, straight call buying returned 10x to 20x+, depending on the strike.

An old tiger can’t change it’s stripes. It was a stretch for me to buy premium at all. Almost all cautious investors are lagging QQQ, which is up an incredible 38% for calendar 2023. I talked to a relative and despite a huge position in NVDA, that person says they are not near their all time account highs. I am in a similar boat, but suffered a near catastrophic margin call in 2020.

The AI revolution is the real deal. Society changing technology, perhaps as big as the invention of the steam-engine or the widespread adoption of electricity. It may spawn dozens of new companies that are not even public yet. That said, trees do not grow to the sky, moon shot stock chart often explode like sky rockets.

I told someone else that NVDA is likely in a range between 300 and 500 for the next year. Rough plan is to sell calls above 500, sell puts below 300. Captain Obvious will tell you there isn’t much premium at 300 when the stock is near 430. Why 300? Because Cathy Wood (ARKK manager) sold her NVDA around 300. She would love to get back in near those prices. Why 500? Because after the news, two analyst with years of training gave 500 as their one-year price target.

Again, it is a rough outline. The golden goose of NVDA is no where near done, but overly aggressive option buyers are unlikely to be rewarded so well going forward. Reddit gamblers are still buying puts on NVDA—that’s a big bull. Fundamental amateurs are saying it is way over valued. All good news for the bull case.

One step forward Grade B-

The Nasdaq100 moves ahead, as most other sectors spin their wheels. I continue to have a lot of cash equivalents, but my equities lean towards tech, so I benefit from the rally. I am up a respectible 10.4% in my trading account for calendar 2023, about +2% for the trading month. A good month. Here are a few other etfs:

QQQ Nasdaq 100 26.4%
SPY SP500 9.5%

GLD gold 8.3%
TLT US20 yr 7.3%
EEM emerging mkt 2.8%

IWM Russell 2000 1.0%
SLV silver -0.7%

Again, my trading account +10.4%.

The mega cap tech names are leading. I have small to modest long positions in: AAPL, AMZN, GOOG, META, MSFT, NFLX, NVDA, TSLA. QQQ and BRK/B are some other longs. Not everything is going up. DIS has been and remains a solid company, but a lousy stock. I have other stuff too, it's not all tech, but that's what is leading this rally. BRK/B has 30% of their money in AAPL, so moves in sympathy.

Overall, I am cautiously optimistic. The record cash levels in mutual funds, and overall sour sentiment means that if a bull train starts to leave the station, a lot of people will have to stampede to get on board. If someone is a portfolio manager, getting left behind often means getting fired. I don’t have that kind of pressure.

I am still keeping a lot of dry powder in case there are further declines. As of now, it looks like the October 2022 lows were a signficant low. It isn’t all puppies and rainbows. Rising interest rates mean that cash is a meaningful alternative. Some are saying we are in a secular bear market for bonds. This eventually means double digit interest rates, and likely a real bear market in stocks. When? That’s the question. For now, I remain cautiously bullish and will act like the October lows will hold.

The Mouse that Roared Grade B

Most markets rally. I mostly follow along, so self-grade is B. SPY now up 7.8% for calendar 2022, my trading account +7.9%.  This trails the Nasdaq100, but I’ll take up over 7% over four months or so.

Here are the tracking percentages, without dividends:

QQQ Nasdaq 100 18.9%
GLD gold 8.6%

SPY SP500 7.8%
TLT US20 yr 7.3%

SLV silver 4.4%
EEM emerging mkt 2.9%
IWM Russell 2000 1.8%

Notable, is that all are now green for 2023, and TLT is tracking with SPY. 2022 was a hard down year for stocks and bonds. So much so that some people abandoned the old 60/40 stock/bond portfolio.

I am still keeping a large reserve, in case of sudden drops, in case better opportunities come up. There is chatter about the bearish stance by many portfolio managers and individual investors. The standard play is to go opposite. By its nature, all in, all out market timing is a losers game.

Why is that? Because tops form with a relative maximum of buyers, and bottoms the opposite. This means that the average market timer is likely to lose. Most people are in cash or short near the bottom, and fully invested or leveraged long at the tops. I don’t see many online posts about being leveraged long.

The over aggressive posts were about once a week on Reddit while the bull market was roaring ahead. The post title refers to an old movie, The Mouse that Roared. This run has that kind of feel. Not that many on board, not that many are optimistic. I include myself in that camp. However, I’ve managed nearly a market return with what I feel is lower than market risk. I’ll take that. 

Again for newer readers, I am not as young as the average person active on the Internet. As such I need to be more conservative, because there is not as much time to replace losses with money from wages.

Slip Sliding Away, Grade C

SPY and IWM slide, with IWM now negative for calendar 2023. QQQ remains up a good bit. My portfolio treads water for the trading month of March, down just a bit, grade C. Here are a few etfs, 2023 year to date:

QQQ Nasdaq 100 14.7%
GLD gold 8.3%
TLT US20 yr 7.3%
SPY SP500 2.0%

EEM emerging mkt -0.8%
IWM Russell 2000 -1.8%
SLV silver -9.1%

My trading account +4.1%. Not bad, not great. It is doing better than my buy-and-hold retirement account. I do a few post earnings trades, selling puts below support levels or calls above resistance. These have mixed results.

One concerning position is in Berkshire Hathaway. I got assigned on March 295 puts (293+ close). I plan to sell more calls on Monday (already sold April 330 calls), to delta hedge the position.

I continue to be extra cautious. Delta hedging most positions.

Rally rolls on, then stumbles, Grade C+

The 2023 US stock market rallies keeps on rolling, then stumbles. I make modest gains, as I remain in chicken mode. My account is up 4.4% for calendar 2023. As expected this lags the major indexes. QQQ is up a whopping 13% already. It is extremely unlikely to annualize that torrid pace. If it did that would mean up over 70% for a year.

QQQ Nasdaq 100 13.1%
IWM Russell 2000 10.8%
SPY SP500 6.5%
EEM emerging mkt 4.7%

TLT US20 yr 2.8%
GLD gold 1.0%
SLV silver -9.1%

I am keeping my eyes on TLT, the treasury bond etf. The rally in bonds has sputtered. Competition from higher yields usually means tougher sledding for stocks. Precious metals are at the bottom on 2023 standings. Again, higher interest rates make it more expensive to hold metals.

Some small new plays this past month include ABNB, AMD, AXP, UPS. I sell strangles, often delta hedging via buying a very few shares. These are tiny positions.

On a completely different topic, it is new piano day for me. A Roland FP10 digital is scheduled to arrive today. I am a self taught (with the online aids), about a dozen years in. Playing music does wonders for my mental health. Piano in particular, requires my complete attention, to play near my potential. I recommend taking up a musical instrument, even though it takes substantial time and effort to progress.

Strong start to the year, Grade C+

Markets roar to start 2023, with almost everything up. My trading account was up about 2.6%, which sounds good, but trails all the US stock indexes. Keep in mind that I was mostly in cash on Christmas 2022, and slowly deployed assets. So I’ll take it.

Here are a few etfs year-to-date for 2023:

EEM emerging mkt 10.1%
TLT US20 yr 6.7%

QQQ Nasdaq 100 6.2%
IWM Russell 2000 6.1%
GLD gold 5.7%

SPY SP500 3.5%
SLV silver 0.0%

Last year’s big losers, bonds and the Nasdaq were up big. Emerging markets had a year’s worth of returns in three weeks. Captain Obvious will say that the pace is unsustainable. The bigger question is what next? Is this another short term rally in a longer term bear? A short term bull market? A new longer term bull?

My guess is that this is a short term bull. Enough juice to get people excited, but not near enough to make new all time highs. The middle road is the most likely scenario. So lower lows may also be unlikely. One play would be to sell puts at the 2022 lows, because there may be more buyers there.

As always, I am not one that makes bold moves. So perhaps credit spreads, selling puts 1% or 2% below the 2022 lows, and buying some protective puts a bit below those.

Thanks for reading. Happy Lunar New Year for those that follow that calendar. It is the Year of the Rabbit, or I like to say Year of the Hare because it rhymes.