It's no secret the oil and energy sectors have been outperforming in 2022.
Of course, when a trend like that is no secret, it tends to become a crowded trade. And we've seen a taste of the ramifications of that in recent weeks. There were some vicious pullbacks in all the biggest winners about two weeks ago.
Fast forward to today, and the smoke has cleared a bit. Many of these names survived the exits of hot money and are now showing signs of resuming their prior uptrends.
At the top of this list right now is Exxon Mobil $XOM.
Hey everybody. We aren't able to put up a video Jam Session this week as the whole team is off-site in Washington, D.C. attending the CMT Annual Symposium.
Need proof? Here's me, JC, Strazza, and friends in front of the White House at midnight last night! :)
But I still want to update you on action in our open trades this week, as it's been a busy one. So here goes:
The frenetic trading activity that defined the end of last week appears to be continuing into today. And we're seeing VIX north of 30. If I liked selling premium last week, I should love it today, right?
Well, it just so happens we've got an ETF with pricing in June options that is giving us a lot of wiggle room to sell premium into. So we're going to do just that, betting on consumers to chill.
I've been talking recently about how coming out of the March expiration cycle, if feels to me that volatility (as tracked by $VIX) has changed regimes. During the first quarter of this year, buyers of vol dips were rewarded. But now it is my belief that sellers of vol spikes will be rewarded.
With that quick peek into my thinking as a backdrop, the price action in the broader stock market indices over the past few days has caused VIX to pop from 20 to north of 24 in short order and it feels to me that this might offer an advantageous opportunity for us to step in and sell some premium.
Don't take my word for it. Check it out for yourself.
Sentiment has only been this bearish four times over the last 40 years: Coming out of rampant 1970's inflation, the Savings & Loan crisis of the early 90's, the Great Financial Crisis of 2008-09, and the "Fiscal Cliff" circa 2012.
Do you remember those times?
And you see what happened in the S&P 500 after, right?
Is history going to repeat itself? And if so, how do we protect ourselves and our portfolios from the "risk" of being underinvested if that happens?
Energy names have been working for us. So there's no reason to turn off the spigot just yet. Of course, mindful of our exposure in energy-related sectors already, I want to try to keep any additional risk exposure as limited as possible.
With this in mind, today's play is a bullish bet that we think will take some time to materialize. And we're going to use that assumption to help us lever into a trend at a cheaper cost of participation using a calendar spread.
I caught the last 30 minutes-ish of the live Elon Musk interview on TED Talks Thursday morning and I found it riveting. Sadly, I missed most of the discussion regarding his recent splashes with Twitter.
Picking up when I did, there were other things I should’ve been doing (writing this note, for example), but I was immediately hooked. I couldn’t peel myself away from it.
It felt like a real earnest look into the mind of a savant.
Say what you will about Elon Musk the Man, Elon Musk the Innovator, Elon Musk the Political Animal, or Elon Musk the Podcaster and Tweeter. I’m not here to pass any judgments on who he is, what he stands for, or how he accomplishes his aims.
What stood out for me during the chat was the laser focus he has on things he puts his mind to.
When he mentioned that he understands deeply how EVERY piece of his cars are made and assembled, and when he uttered that there is nobody on Planet Earth currently living who knows more about manufacturing then him, I believed him. He wasn’t trying to impress us with this information. He was saying it matter-of-factly.
I read a book recently that got into the fact that any and all edges in trading, no matter how robust, degrade over time.
The author listed a variety of reasons, but the biggest one that caught my attention is that if the edge is so good, then the simple act of making a bunch of money exploiting this edge will eventually get discovered.
This is an incestuous business where people talk. Brokers talk to their clients. Clients talk to their industry contacts. Word gets around about so and so making all kinds of money. And then copycat traders act and move in to also take advantage of said edge. And this crowding in will work to eventually minimize or trivialize the edge.
Yes, it's tricky both tactically and mentally to get long in the stock market right now. One look at the broader indexes would give any rookie market technician pause.
That said, there are still pockets of strength that are working and growing stronger --- both on a relative and an absolute basis. Which, by the way, is not uncommon. Even in the most vicious bear markets, there are often certain sectors that see gains. And so a bear market may force us to be more selective when searching for bullish bets, but the opportunities are there for those willing to do the work.
With that in mind, today's trade is one of those names that is thriving in this current market environment.
