DailyPlay Update – January 27, 2023

Investment Rationale

Buyers have been dominating January equity activity, and yesterday was no different; the SPX marked its best close since early December. Energy and Consumer Discretionary were the leading sectors, while Health Care and Staples were the worst, with the latter actually closing lower on the day.

Next Wednesday is the FOMC rate change and press conference. Bulls are thinking that they can influence the Fed and push them to halt the rate raises. I don’t think that is gonna work, nor is an equity rally what Chair Powell likely has in mind to reduce the quantitative tightening he’s in the midst of doing.

Today is a weekly option expiration, with the SPY 410 strike having the largest call open interest and the 390 strike having the largest put open interest (and twice that of the 410 calls). With the SPY having closed at $404.75 yesterday, the 410s are far closer and might possibly act as a magnet today. The second most put open interest expiring today is in the 395 strike, so that would only come into play on an approximate 100-pt. SPX decline.

As a heads up, I will probably be reducing long exposure before next Wednesday’s rate announcement, likely using Tuesday and Wednesday to do so.