Opportunities, or perhaps not.
MARKET CRASH, MARKET CRASH, MARKET CRASH....
To levels not seen since May.
Yeah, people are really shitting the fricken brick aren't they, 17 posts I counted in 20 minutes declaring the AI death, the end of the Rotation, telling people NOW is the time to go into cash.
The human mind is fascinating.
Seasonally, markets rarely top in July, I believe only once in like 50 years.
And yeah it might happen again, but now is the time to look for opportunities, not waive the red flag and panic.
Let's see what the market might be offering us -
1. SOXL / SOXX
The SOXX index is basket of 30 semiconductors. SOXL is the 3* leveraged SOXX index and is down 50% from it's highs. Note that buying leveraged ETF's is not recommended for the faint hearted, decay will destroy your investment in the long run
ALL the stocks within this ETF are now below their 50D average
The last 3 times this happened?
1. September '22 - October 22, marked the NASDAQ lows at 10k.
2. August '23 - October '23, Marked the summer low of NASDAQ at 14,100
3. April '24, marked the low of NASDAQ at 16,800
2. Small caps, RTY / TNA
Probably quite biased as I am heavily positioned here as my favourite bet for the remainder of year and likely into '25, but RTY is down 10% from it's high in a mean reversion move I had referenced as likely to occur in a previous post.
This isn't the end of the rotation despite what many may like to think.
It might take longer, it might be delayed by various factors we cannot control. but it will occur, and just like at the start of July, many will be taken aback in the sudden move when it does occur.
My preference here is to DCA when R2FI is in it's low 40's / 30's. We currently sit at 53%, down from the 70%'s a day prior, so the move down will be quick, but painful for those overly leveraged.
Welcome to markets, manage your risk appropriately.
3. TQQQ / SPXL
Market has, rather obviously, cooled off a fair bit. Not a ton, but the impact has been a lot for leveraged ETF's. You only have to look a lev ETF's tracking the major Indices to see the damage dealt. But the more damage dealt, the more upside there is.
There is now a 45% move from current prices to ATH in TQQQ, and a 20% move for SPXL.
Measuring the general markets breadth, almost all indices have 50% of their stocks above the 50D average, and thus 50% are below. We are nearing the powerful 30% level which, if we don't count black swans, always marks a pretty solid accumulation zone for the next uptrend.
Attached is the breadth for SPX, NAS, RTY and the general market through MMFI
4. Short volatility?
In case you somehow didn't notice...VIX is flying. Like flying, flying. Somehow Yellen forgot to dilute the volatility in markets for once and boooooom, off it went. But volatility never lasts, it always dies down eventually.
You can short volatility through varying methods...
4.1 Short VIX directly - You would have to use future contracts that expire, and personally I find this very akin to gambling
4.2 Short UVXY - This is a decaying long volatility product, it will always decline overtime regardless of what happens, but it can have spikes of 2000% in times of darkness. Managing your margin is critical here.
4.3 Long SVXY - Down 30% from highs, this is a short volatility product you invest long in, in order to benefit from a decline in volatility. Sounds complicated? Yeah it is. But in theory it should rise over time, with the exclusion of Armageddon
Note that all volatility products come with their own risks and black swans will destroy you, unless you have literally millions in cash to manage your margin. Never put all your capital into a single investment and spread your bets.
Personally I will not be shorting volatility, despite not believing in the prospect of a black swan, I find other potential investments more interesting.
I will be DCA'ing into TNA gradually, and likely adding some exposure to TQQQ to ensure my portfolio benefits from a general market climb rather than concentrated solely in small caps, as tech now seems more reasonably valued.