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Make lemonade from lemon

Jul 25, 2022

Good morning!

‍The markets pretty much stink lately but I’m inspired by Ferrari driver Carlos Sainz’s first ever F1 victory ever this weekend at the legendary Silverstone circuit.

Here’s to hoping your day goes like his did … from utter chaos to victory despite raucous market conditions!

Here’s my playbook.

Make lemonade from lemon

Between interest rates and politics, the current volatility roiling markets is here to stay for a while. That’s definitely frustrating, but it’s reality.

There are only two things you want to be buying right now IMHO.

“Must haves” not nice to haves – meaning companies making products and services you cannot live without versus those that make products and services that are just “nice to have.” World-class names = best, not rest.
Inverse hedges – people who are only buying stocks because they want ‘em to go higher are missing 50% of the profits from stocks that fall. There’s no margin and no need to do anything stupid. Examples include SH and PSQ, for example.

What to do if you’re getting antsy: Lots of people are. They want to buy small caps, diversified holdings, talk about “more” stocks – I get it, but that’s a monster mistake.

The ONLY moves to be making now are defensive in nature. That means buying companies that are going to hold up against nasty selling or at least hold up “better.”

Many of my favourites have big, growing dividends which means they’ll fall less, stabilize first and grow fastest when the selling ultimately does stop. Not coincidentally, they’re also “low-beta” so people who own ‘em will enjoy a smoother ride than those who don’t.

Recession, what is there to debate??!!

Meta announced that it’s tossing in the towel on “Novi” the company's cryptocurrency/wallet project. This effectively ends the company’s digital currency ambitions for now. (Read)

The stock still stinks. Meta is not a buy until shares are under $100 or Zuck’s gone.

What’s next for Tesla?

JPMorgan cuts Tesla's price target to $385 even as Deutsche Bank and Goldman Sachs have targets of $1,000 and Piper Sandler have $1,035 on the board. The average target is $883, BTW. Read

Makes me wonder who (in JPMorgan’s client base) is buying!?!?

I’m content to nibble meanwhile.

A quick trade idea

I told you a few weeks ago that analysts were not ready for earnings season and that there would likely be a host of “pre-emptive” downgrades ahead.

Guess what?

Piper Sandler just downgraded Netflix (again) because they don’t think “Stranger Things” is going to move the needle.

Here’s a trade idea if you’re of like mind:

Sell-to-open the 22July22 $160 put
Buy-to-open the 19August22 $160 put
Total cost =~$3.25 as I type

This is called a “calendar spread” and it’s a limited risk trade designed to take advantage of volatility collapsing in the near-term option while benefiting from the underlying movement of the stock. Basically a 2 for 1 play.

The trade’s breakeven points are $133.97 and $196.12, meaning it will make money if NFLX finishes anywhere between those two numbers on July 22nd. (The stock is trading at $175 right now) Max profit is roughly $900 at $160, BTW.

If you’re keen to learn how to do this stuff on your own and would like to receive trade ideas just like this one a few times a week or as market conditions dictate, please consider Trade with Keith.

Live One Bar Ahead™ Event tonight!

How would you like to hear my take on where markets are headed next, what to buy to defend your money, and perhaps even turn a buck or two?

I’ll be talking about all those things and more tonight at 5pm EST exclusively with members of the One Bar Ahead™ Family. I will also be taking your questions until the cows come home!

If you’re a member of the OBA Family, you should have received a sign-up link in last Friday’s pre-holiday update. If you’re not a member yet and would like to be, I’d be honoured.

We hold “chalk talks” like tonight’s session roughly once a quarter as a way of sharing knowledge and helping you know what to do next! Sign up here.