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What the bears STILL don’t understand

Jul 24, 2023

Good morning! 👋

The markets are up in early going ahead of what is sure to be a busy earnings week. All eyes are on Big Tech, but I think the far bigger story is something else entirely.

Here’s my playbook.

The big rebalance is here

This move is being billed as necessary to reduce the influence of the so-called “Magnificent Seven” tech stocks that have propelled the markets higher: Apple, Microsoft, Nvidia, Amazon, Meta, Tesla, and Alphabet. (Read)

As I noted in last Friday’s Ask Me Anything, it’s really a self-serving move on Wall Street’s part.

Wall Street’s fund industry (and many advisors for that matter) have gotten caught flat-footed because the diversification they’ve peddled for decades has now bit ‘em in the asteroids. Quite a few of their clients haven’t owned “enough” of the right stocks, which means they’ve gotten left behind.

So now they want to “fix” that with a “special rebalance,” to refocus attention on small caps, mid-tier players, etc... all of which plays into the racket and a half that has been masquerading as target date funds, ETFs, and the like over the years.

Three things to keep in mind.

  1. It would be absolutely normal to see some additional volatility today. People think that means to the downside but volatility cuts both directions so an upside knee jerk wouldn’t be unusual.
  2. More often than not, rebalancing is an opportunity for savvy investors who take advantage of the situation to put extra money to work in stocks where they’re light—especially Big Tech, as I noted this morning during a pre-market chat with the super-savvy Stuart Varney. (Watch)
  3. The rebalancing is purely a technical exercise and NOT a reflection of the underlying business case for owning these stocks.

Bye-bye birdie

I mentioned that Elon Musk would take a very different path when he purchased Twitter and, specifically, that he likely had designs on a “super app” that’ll become the center for entertainment, media, financial services, and more.

Today’s X-rebranding is the first public step. (Read)

At the risk of sounding like a broken record, what I would give to be able to buy Twitter stock right now.

Props to Batman and his “Bat Signal,” but I think Musk nails the “X” signal...

The Fed’s last hurrah?

The big three—the Fed, the ECB, and the BOJ—are all expected to announce major rate-related decisions this week. (Read)

It’s about time.

Investing implication: If you think that the rally off October lows was strong, you ain’t seen nothin’ yet if there really is a pivot in the wings!

I believe the S&P 500 could easily crest 4,700 by year-end, with stocks like those I recommend in our premium research journal, One Bar Ahead® doing considerably better. Upgrade to Paid

How to “trade” earnings

Roughly 150 S&P 500 companies are slated to report earnings this week.

The pattern lately has been for the go-fast crowd to buy in ahead of earnings and drive the stock up. Then to sell afterwards as a way of capitalizing on the FOMO that steps in.

While that’s frustrating for individual investors who don’t understand how the game is played, it’s an opening for those who do.

Let me explain.

Pros know that retail investors tend to “wait” for the headlines, so they often trade ahead of key earnings events to drive the stock higher into critical announcements. Then, if the numbers are good as expected, they use all that incoming retail money as their exit. Prices fall. 🤦‍♂️

If you’re a trader, there are two ways to get in on the action.

  • First, you can buy a little ahead of earnings or play along more aggressively using call options, spreads, etc. Plan on exiting before earnings are announced using some form of profit target/trailing stop once the call begins or just ahead of show time.
  • Second, place LowBall Orders or other trading instructions to catch the post-earnings swoop if there is one. Doing so can help you lock in profits, buy on the cheap... whatever you fancy.

If you’re an investor, simply take a deep breath and enjoy the fireworks. If anything, make volatility work in your favour by using every post-earnings dip to accumulate a few extra shares.

Buy low, sell high.

Tesla to make a $24,000 car… in India

Elon Musk met India’s Prime Minister Narendra Modi last June, and my eyebrows shot up.

Now CNBC is reporting that Tesla reps are set to meet with India’s commerce minister this month for talks centered on making a $24,000 EV there. (Read) This builds on Musk’s 2021 missive in which he told Tesla employees that he was aiming to release that car in 2023. (Read)

$500 a share in 36 months, perhaps another split, too.

And yes, betting against Musk today is still like betting against Jobs back in the day.


Bottom Line

Mindset is what helps you transform possibilities into inevitabilities. Especially in the financial markets.

Invest in optimism!

Let’s MAKE it a strong week—you got this!

Keith 😊

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