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Another Thing Going for the Bulls
In early November, I wrote a blog post discussing four reasons for a year-end rally. They included: 1) The big institutions were coming back into the market because the Fed signaled they are done raising interest rates. 2) Sentiment. Most people are bearish and underinvested. 3) Seasonality. November and December are historically two of the strongest months. 4) Technicals. Two O’Neil follow through days, a Zweig Breath Thrust, and the major indexes regaining their 50-day moving averages.
Now, the bulls have something else on their side that could signal continued strength into early next year: Massive options activity. I follow unusual options activity via OptionsHawk. Over the past two days, there were huge trades in four of the largest Mega Cap stocks that could bode well for more strength into February.
1) 11/15/23 Nvidia (NVDA) buyer 35,000 February $460 calls $65.65 as Jan. 380 adjust. A $230M trade.
2) 11/15/23 Amazon (AMZN) massive buy 148,700 February $135 calls $15.20 as 117K of the $115 adjust up. A $226M trade.
3) 11/15/23 Meta (META) with 35,000 February $300 calls bought $47.04 as the $250 calls adjust.
4) 11/16/23 Microsoft (MSFT) buyer of 31,500 February $350 calls at $36.12 in a $122M position adjusting the $300 strike.
I use unusual options activity to give me added conviction in the markets. I also do my best to interpret what the big institutions are doing because they control the market. These trades are clearly large institutions sticking with the trend in these Mega Cap stocks. One comment from OptionsHawk: “I would note massive trades taking profits and adjusting out in time tends to signal a view there likely is a near term pullback as they maximize value of the more theta-exposed trades while taking a view that over the next 3+ months new highs are likely.” Does it mean all these trades have to work? Of course not. But I’m certainly not betting against them.
I can be reached at: jfahmy@zorcapital.com.
Disclaimer: This information is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. None of the information contained on this blog constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. From time to time, the content creator or its affiliates may hold positions or other interests in securities mentioned on this blog. The stocks presented are not to be considered a recommendation to buy any stock. This material does not take into account your particular investment objectives. Investors should consult their own financial or investment adviser before trading or acting upon any information provided. Past performance is not indicative of future results.
Four Reasons for a Year-End Rally
Here are the reasons I am expecting continued strength into the end of the year.
1) The big institutions are back! Since they control the market, it’s important to analyze what they are doing, and they came back last week with strong volume. The main reason was they interpreted the Federal Reserve is done with their current rate-hiking cycle. That doesn’t mean the Fed will cut rates anytime soon, but it does mean stability for the markets. In other words, we are unlikely to see higher rates into year-end.
2) Sentiment. I look at many different sentiment measures and they are all near the low end of their bullish ranges. For example, the NAAIM Exposure Index was at its lowest level since the October 2022 lows. I can’t believe that a normal 10% correction over the past three months created just as much fear as a nine-month bear market in 2022. Either way, all this bearishness is good because the market tends to fool the majority.
3) Seasonality. November and December are historically two of the strongest months of the year. This is important because so many seasonal statistics (both bullish and bearish) have played out very well this year.
4) Technicals. We completed a rare Zweig Breadth Thrust last week. Here is the definition from Investopedia. It is basically when stocks move from a very oversold condition to a position of strong momentum in 10 days. Bottom line, this bodes well for the market over the next 6 to 12 months. Here are the statistics provided by Ryan Detrick, Chief Market Strategist at the Carson Group, LLC.
Over the short-term, I wouldn’t be surprised to see the market digest some of its recent gains on light volume. If this happens, it could set us up for further strength into year-end. As always, have a plan, know your timeframe, and stick to your own investment objectives.
I can be reached at: jfahmy@zorcapital.com.
Disclaimer: This information is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. None of the information contained on this blog constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. From time to time, the content creator or its affiliates may hold positions or other interests in securities mentioned on this blog. The stocks presented are not to be considered a recommendation to buy any stock. This material does not take into account your particular investment objectives. Investors should consult their own financial or investment adviser before trading or acting upon any information provided. Past performance is not indicative of future results.
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