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August 29th Daily Market Note: Bulls take the opportunity to claw back Bearish Advances in final week of August. One of our China positions soars.
🕑 Added 2023-08-29 17:47:58 +0000 UTCHi Folks, here is my Daily Market Note for 8/29.
Daily Market Note: August 29th 2023 by Larry Cheung, CFA
Bulls take the opportunity to claw back Bearish Advances in final week of August
Forward-looking Conclusions of this note:
- Macro: Recent macro data on fewer job openings and softer consumer confidence combined with China stimulus resurfaces the goldilocks scenario on a Fed Pause – sending stocks notably higher.
- Stock-Specific: We saw an opening for new setups on Selling Put Options on select companies yesterday morning and this was discussed in the previous Daily Market Note.
- Bonds: Traders take the post-Jackson Hole window of opportunity to reprice the 10Y Yield down to the 4.1%-4.15% region. I expect the 4.03%-4.07% region to be a contested level to focus on next. Clearing that would be positive (in the short-term) for technology stocks.
- China: One of our top China ADR portfolio ideas, Pinduoduo, shows its feathers today with a $1 Billion beat on quarterly revenue expectations – 14% above consensus. PDD is one of my larger positions within my strategy.
Daily Market Note & Context
As the fear & greed index swung to Fearful just 12 days ago with QQQ having corrected almost 9% in the month of August, my research work came to the following conclusions in my note on 8/17, which I made available to the public:
- U.S. Technology was setting up for a bounce before any further weakness
- China was preparing for sporadic large 2-4% gap ups as short-selling positioning started to become crowded
- That near-term positioning for the U.S. 10 Year Yield to fall using Micro Treasury Futures was more likely to work than positioning for further upside in rates
Much of this has come to materialize as Bulls reclaim key levels on the S&P 500 and Nasdaq that they had ceded in August’s difficult landscape. My observation was that if a nasty NVDA post-earnings fade and a supposedly hawkish Jackson Hole meeting could not stop dip-buyers, then this market is positioned for further advances to claw back losses in August. The month is not yet over, but the last 5 trading sessions has once again prompted the sell-side to resurface in major media outlets to vocalize buying the dip. The difference, however, is that a safer entry into QQQ and related-stocks was back during 358-360 on the Nasdaq 100 ETF, whereas now it trades nearly 375.
I continue to believe the single-name opportunities mentioned from my previous Letters still have upside, but in just 5 trading sessions, risk-reward has once again shifted away for new entries. It's now also important to remember that seasonality becomes toughest in September and October, which is just days away.
In China news, one of my top ideas Pinduoduo delivered a large-sized beat on its earnings expectations, surpassing estimates by more than $1 billion dollars. This is a very positive print in the context of a slowing Chinese consumer. My longer-term thesis, which I shared with folks, was that PDD’s TEMU marketplace was gaining serious momentum in markets outside of China like the U.S. I also believed their growth rates and margin expansion opportunity allowed them to be one of the better companies to fight a deflationary China narrative.
I understand that most folks are much more interested in BABA, but as discussed in my Trading Community Introduction Document, I honestly do not care so much about the hottest stocks and really would prefer to find companies that nobody cares about yet has meaningful upside. Such situations are called stealth ralllies.
My Sell Put positions on PDD have nearly completely evaporated, an idea shared with members. For my core position with Direct Shares, I will monitor to see next steps. There will be give-back after large upside days like today, but if PDD continues to execute, I see 110 or better on this name in 2024. Always remember that patience is a pre-requisite for navigating the China landscape.
PDD Sell Puts Idea given to members back on 8/10 - Cheers!
More to come.
-Larry
Do not FOMO. Size carefully. Setups are emerging all the time. Difficult seasonality is ahead. Capital preservation above all. The markets are always open. Never take a trade without an edge with positive expectancy.
Kind Remember that I cannot take 1:1 questions related to individual positioning/companies as I cannot provide financial advice. I also do not use Patreon DM much. Please contact me on Instagram @LarryCheungCFA if you have a pressing question.
