Weekend Market Report
Welcome to another edition of the Weekend Market Report! This week was volatile with many technology stocks selling off. There is so much chatter about the AI story being over that it begs to be asked, "Is the AI Story truly over?" In this Weekend Market Report, we focus on Tesla (TSLA), Ford (F), Nvidia (NVDA), and the Semiconductor ETF (SMH), and attempt to answer the AI story question. All this and more!!
General market commentary
This week, the markets had a wild ride as earnings kicked off in earnest. Across the board, volatility ramped up and many of our favorite stocks sold off violently. Earnings from Tesla (TSLA) and others were weak or missed targets. Market chatter started to wonder if the AI story is over.
For example, Nvidia (NVDA) is down nearly 20% for its all-time high and had a rough week. For chart peepers, it looks like it's making lower highs and lower lows, which is a bearish sign.
I did not exit my NVDA position for the following reasons:
- Pelosi bought a ton of call options on it
- NVDA earnings are not until August,
- Technically, the 50 DMA is still over the 200 DMA, and;
- GPU demand appears strong.
Yet, I will watch this one like a hawk. I will watch for any price that bounces higher and fails to break that red downward trendline.
That said, I sold a lot of my tech holdings this week. Many of their trends broke after hitting my trailing stop targets. Premium members know which ones I sold first and I'll do an in-depth review of why I sold them in my monthly portfolio update. If you want access to that information, please upgrade your membership.
I also opened up a lot of option trades this week. I sold cash-secured puts, bought some calls, and, sold some covered calls. For the past two weeks, I've been earning enough cash flow from selling covered calls on Ford (F) to earn two steak dinners in New York City.
I'm beginning to find my footing with options and find them to be a great way to manage and hedge risk and take the opportunity when it knocks.
Long holders of gold and silver saw prices on the two metals ease a bit this week. This was in line with our forecast last week for lower prices. Right now both gold and silver price forecast models are 75% correct.
The S&P500 historical volatility forecast was for higher volatility last week and initial data shows the forecast to be correct, so the model is currently 75% correct.
We expect the % accuracy to vary until we have at least 10 predictions or so. We'll evaluate the model then if it's bunk or not and anticipate the directional accuracy to be between 60 to 80% correct if the backtesting is valid.
Ford's Earnings Disappoint
I still am a Ford (F) holder but it keeps disappointing me. I suspected earnings would be a miss and they were, by a long mile.
On Wednesday, Ford announced a second-quarter operating profit of $2.8 billion, down 26% from $3.8 billion reported in the second quarter of 2023. Wall Street was looking for $3.7 billion, according to FactSet. -via MSN
Traders punished the stock and Ford gapped down hard on Thursday morning.
I am a long-term holder of Ford and I've been frustrated with them. I bought them as an alternative to Tesla (TSLA) because they started to produce electric vehicles (EVs). I'm a fan of EV but it appears they're not catching on just yet.
So what to do? Sell it? Hold it? The answer for me is to experiment with it with options. I started selling covered call contracts on it hoping it will get assigned away. Then I realized that if I closed out that trade a day before expiration, I could keep 90% of the premium I collected and then do it again next week.
I roughly generate $200 to $300 of income from the premium every week for 5 covered call contracts. Since I have 1,000 shares, I split those contracts up across two weeks and sell another 5 covered calls for two weeks into the future when it expires.
This has been incredibly profitable for me. My annualized rate of return is over 100% and my risk is pretty low. I'll keep doing this till I either sell the entire stock position or get assigned.
Tesla's Earnings Disappoint
What started this tech sell-off was Tesla (TSLA). They reported earnings after the market closed (AMC) on Tuesday setting the stage for Wednesday's broad declines.
Tesla's profits as a share of sales were weak by industry standards. It generated a margin of just 5.2% on its $95.4 billion in revenues. That's better than Ford at 2.2%, but trails GM (6.1%), BMW (6.2%), Mercedes (8.8%), Stellantis (9.8%), and Toyota (10.8%). As for return on capital, Tesla's anything but a superstar. On its $66.5 billion in shareholder equity, it earned a measly 7.5%. - via MSN
Are Semiconductors Peaking?
I sold my SMH holdings this week after it broke through my stop-loss sell target. I generated a modified ATR trailing stop loss that tells me the levels at which I should sell if price action drops below it. That happened a lot on several of my holdings this week which leads me to wonder - only wonder right now - if the technology stocks have reached their peak.
The Semiconductor ETF (SMH) fell hard this week and it looks to be in correction mode.
Is the party over for Semiconductors,? It's hard to tell because for SMH, it's still looking bullish. The 50 DMA is above the 200 DMA, and oversold the RSI is pointing to it being over sold, but it is down 15.11% since long-term all-time high.
From a technical trading view, it's ripe for a lift higher but with all the chatter about the AI story being over, it's hard NOT to keep that in the back of your mind.
Right now I'm out of this successful long-term trade. I made money and followed my rules. Will I get back in? Hard to tell right now as I am concerned that the AI story is coming to an end. I will wait things out till August when Nvidia releases earnings.
Also below the fold is my analysis of the AI Story, is it over or just beginning?
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