☕️ Will the S&P 500 cruise or crash from here?

Howdy! 👋 

Earnings season is starting to quiet down but there’s still a lot of money on the move. 

Opportunity, of course, isn’t far behind. 

People playing for pennies at moments in time usually lose out to those playing for dollars over time. 

Here’s my playbook. 

1 – Meta’s big tobacco moment 

El Zucko’s moment of reckoning may finally be upon him.  

California’s AG is co-leading the charge against Meta and experts consider it a much bigger, potentially more serious case than the one Meta lost in New Mexico a few weeks back that’ll cost it nearly $1B. (Read) 

I agree and have said that for a long time based on my own experience with Meta’s repeated refusal to take down criminals impersonating me, using my intellectual property, trademarks and copyrighted materials. 

Interestingly, the case does NOT involve Section 230 of the Communications Decency Act which Meta and other social media platforms have hidden behind for years. 

This one focuses on a very narrow area of the law… app design features and alleged misrepresentations on safety related to the failure to warn consumers of the dangers associated with using Meta. Youth, especially. 

Meta, of course, says that the “limited” claims are unsubstantiated, and the financial demands – aka damages and penalties – are vastly disproportionate. 

On this we may agree or we may not – that’s moot. 

What matters to me from an investing standpoint is that Meta could get positively shellacked and its stock carried out feet first.  

Why? 

Because Meta needs every penny of whatever it generates to pay for its AI ambitions. And anything that interferes with that potential could crater the stock if Wall Street agrees. 

Trade Idea: I believe that investors who have large positions may wish to do some prudent pruning. And those who want to speculate, could potentially consider buying LEAPs puts – a bet that the stock goes down. Volatility hasn’t shifted yet to the downside which means those are still comparatively inexpensive. 

I’ll have an idea or two in today’s One Bar Ahead® update so keep an eye on your email. 

Keith’s Investing Tip: Learning to trade around core positions is an essential skill even if you have no trading aspirations. Doing so will help you understand the psychology involved and assemble better, more consistent long-term profit potential by avoiding risks like this that can and often do surface outta left field. 

2 – Extended hours options? Not so fast 

The Cboe – pronounced “see-bow” – had planned to launch extended hours options trading for what they’re calling “the most liquid single-stock names” including Nvidia, Tesla, Micron, and other mega-cap heavyweights. Previously, this kind of extended trading was reserved for index products only – VIX, SPX, that crowd. 

Naturally, this is being billed as financial innovation and, based on what I am seeing on social media, much of the investing and trading public seems to have swallowed this hook, line and sinker. 

Cboe has said plainly that more volatility means more fee revenue for them, so the exchange operator's incentives here aren't neutral. In fact, decidedly one-sided is more like it which is why you want to keep your eyes wide open. 

Pre-market options books are thin and spreads are wide, which is exactly the environment where inexperienced or undercapitalized retail traders and investors get picked off by market makers and prop desks whose sole purpose in life is to maximize short-term profits no matter who they have to destroy and whose money they take doing it. 

MyPOV: Just once… I wish regulators would clamp down on stuff like this rather than egg it on for the simple reason that most investors are not even remotely prepared to deal with Wall Street's sharks and if the regulators are really there to protect the investing public then… dang it, they ought to be there. 🤷🏻‍ 

Coupla things come to mind. 

First, the Cboe is deliberately concentrating on the roughly 20 most liquid stocks which means volatility on 'em is going to go up. That likely means new opportunity for anybody who concentrates on that group of stocks. It also means tremendous opportunity for concentrated, specialized ETFs with options overlays. 

Second, overall market volatility is likely to increase once trading begins in the extended hours because the same thin order books mean wider spreads, and wider spreads mean bigger swings on every headline that drops before the opening bell or after the closing one. 

Think about it. 

Earnings surprises… Fed speakers… Overseas news breaking while New York sleeps… A single tweet from your favorite rabble rouser… all of it will get priced into some of the most heavily-traded options in the market with far fewer players standing on the other side of the trade to absorb it. 

Keith’s Investing Tip: As scary as this sound at first blush, it’s important to remember that volatility = opportunity. That means better LowBall Orders, better premiums if you’re selling puts and so on. Heck, even better opportunity for folks who are simply DCAing/VCAing. My point is that there’s always a bright side, especially when it comes to your money. 

3 – Time to Katy-bar the door or plow higher? 

The VIX – Wall Street's so-called fear gauge – dropped to the lowest reading of the year – 14.2 which means that traders are betting on 30 days of smooth sailing. (Read) 

And if you believe that, I have a bridge to sell you. 

August is typically a month of swoons – thin summer liquidity, algos overreacting to headlines – so it’s time to be on guard.  

Contrary to what many think though, new highs and "be on guard" aren't a contradiction. 

In fact, they're the same trade.  

8,000+ … an S&P 500 target I’ve put on deck is still very doable this year with one big caveat.  

It may be too low. 

You see, 8,000 translates into earnings of around $400 at a 20-22 PE. If the PE finishes at 22+ which might be entirely in the cards, we could see 8300 - 8400 which is going to catch a lot of people by surprise and on the sidelines. 

So yeah, while there could be a “crash” or at least a late summer/early fall correction, cruising is almost always far more profitable. 

Evercore ISI, btw, just said it thinks 9,000 is possible. (Read)  

I’m not sure I’ll go that far but I’ll take it. 

You?  

Keith’s Investing Tip: Be in to win… or you won’t. 

4 – Peter Thiel buys Vista Energy, should you? 

Peter Thiel's hedge fund just disclosed a fresh stake in Vista Energy, the biggest independent shale player down in Argentina's Vaca Muerta. Nearly $76 million worth, making it the second-biggest position in his whole book, right behind Amazon. (Read) 

Naturally the question on many retail investors’ mind is ‘should I buy too?’ 

Two things to think about before you do. 

First, scads of investors think that they should buy “just because insert known investor(s) here did” but that’s a very slippery slope. In fact, imitating a hedge fund billionaire can be very dangerous for your money.  

Thiel's buy works for his time horizon, his access to Milei's own government, his risk tolerance, his ability to eat a total loss and shrug. Not yours. 

And second, you must ask yourself if there are better choices out there given your risk tolerance, goals and objectives. For me, the answer is yes… one that’s more geographically diversified, has a lower long-term beta, lower breakevens and so on which means I tend to get a smoother ride.  

The One Bar Ahead® Family has this covered as well. And if you’d like to know what they know about what I know – boy, that’s a mouthful – you know where to find me. 

5 – I believe these two stocks have an exceptionally bright future 

The fabulous Liz Claman asked me back for a wonderful conversation as we headed into Friday’s close. (Watch) 

She wanted my take on two stocks that – imho – have an exceptionally bright future. In fact, I think investors who don’t own ‘em may be kidding themselves… about being investors. 

Enjoy! 😃 

Bottom Line 

Steady investors beat anxious investors and – yep – the profits prove it! 

You got this — I promise. 

As always, let’s MAKE it a great day and start the week strong.  

Keith 😀