DailyPlay Updates – September 20, 2022

Investment Rationale

Stocks started to the downside yesterday, only to reverse intraday into a day of gains, with the SPX getting as low as 3947 before closing at 3900. As I mentioned in yesterday’s weekly outlook, the key level we’re focusing on is 3889 on this Friday’s close. Any significant breach of that level breaks the weekly cloud chart into a further bearish picture, and likely opens the door for a bigger decline than those simply looking for a test of the June lows would expect.

With the Fed’s next move coming tomorrow at 2pm ET (the consensus expectation is for a 75 bp. rate hike), the real focus will be on Chair Powell’s press conference words and tone. He’d likely need to make an even stauncher hawkish comment than he did from Jackson Hole last month in order to get investors even more fearful than they already are.

I’m not in the business of outguessing the Fed, but I am in the one of anticipating how investors will react to news along with how they are positioned going into it. As I told my institutional clients Sunday night, my research shows that investors have the lowest “Risk On” positioning they’ve had since the Covid meltdown in Spring 2020. That is more tactically bullish than bearish, but strategically the opposite, so keep that in mind as you play the next month or two of market swings.

We have on a short XOM $95/$100 call spread that expires Friday and is up about 62% on it. With the Fed meeting tomorrow, let’s take partial profits today by taking off 3 of the 6 spreads. Yesterday it’s closing mid price was 76 cents. (We’re short from $1.99).

XOM – Daily