DailyPlay Updates – May 26, 2022

I don’t know about you, but yesterday seeing the market move up post-Fed statement made me feel as if we may finally get a rally that can last beyond 24 hrs. Then, after the close, Nvidia’s earnings report/guidance didn’t give investors happy news, and the stock was quickly off 10%, making a hopeful bull move scenario get tossed down, again. (NVDA is just another one of the bellwether names that has really disappointed investors post-earnings, and keeps the see-saw market very much at play.)

When a market can toy with your emotions as easily as this one is doing right now, it is also actually sending some important messages – the most important of which is that what has worked in the past is not yet ready to work again. Our desire to “buy the dip” and to quickly get rewarded for it – as one could have done anytime in 2021 – is not yet an apparent successful strategy to employ. In fact, this year could still easily be much more about “selling the rally” as the more constant and successful way of approaching the 2022 market. (Now, if we could just get some rallies to sell.)

Several prominent bullish equity strategists and economists have eaten crow this year – unable to synthesize the macro changes that very quickly occurred. They’re still thinking that the 2021 market is this year’s market.  It’s not. It’s not going to be.  And their reticence to have made changes to their 2022 outlooks have cost their clients who followed them significant capital. (Even yesterday, one of the well-known popular economists lowered his forward earnings estimates and year-end forecast. But frankly, it’s too little and too late.) As a theoretical example, it’s like an analyst –after Netflix blew up in April – lowering their price target from $480 to $440 (with the stock at $225) – because they simply couldn’t come to terms with the fact that their analysis (and the fact that they are supposed experts on the name) completely missed what the real story was. Instead of making the target a far more realistic number that investors can make reason with, we are still often given an unrealistic and unlikely reachable target because they simply can’t face the music of a name and sector that they completely missed the boat on.

Though rallies can happen at any time, we haven’t yet seen what I call “Analyst White Flag Day” – when droves of sell-side analysts finally throw in the towel on their unrealistic upside price target.  Until that happens, I’d still think we all need manage our portfolios to lower risk exposure, as well as raise cash to be able to buy when we can get a better sense that we’ve finally seen the lows.

CVX – Daily

An update on our CVX long June 3 $160/$170 call vertical spread: We’ve already taken half off, and with the stock closing yesterday at $175.41, we are in good place with just over a week to go to expiration. However, if we see any close between now and June 2 beneath $166.94, we will exit the remaining contracts we still have on.

– Rick Bensignor
Chief Market Strategist