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Morning Commentary

DONíT OVERREACT †

By Charles Payne, CEO & Principal Analyst
4/19/2024 9:35 AM

Every time I board an airplane, I expect turbulence; even though I’m accustomed to it, fear runs up my spine for a split second. It doesn’t stop me from taking planes; I have never considered jumping out of one. My father was in the U.S. Army, and we moved around often. Once, as a child, we were flying to Germany, and the plane hit an air pocket, and I screamed: “The plane is falling!

All the adult passengers chuckled.

For my life, I do not understand when investors throw in the towel when the market hits air pockets. It's not life or death, but they still pull the latch and bail out. It's extraordinarily frustrating. Handholding is a big part of what we do, and I think nobody does it better, but sometimes, it is still not enough.

The market always recovers – always.

Maybe it won’t, and maybe the sun won’t come out one day.

It's OK to worry, and it's wise to make some adjustments. But if the goal for investors is to make real money over time, then it begins with a certain level of maturity. Be fearful of the recent action, but do not panic. It's time for adjustments, but you want to be on this plane.

Where Are We Now?

The stock market is in a short-term downtrend as directional bias has shifted.

I want to see the S&P 500 hold above 4,750 or higher.

Breadth

Seven S&P 500 sectors were higher in the session, but Technology (XLK) stocks weighed down the market.

There were stark improvements in breadth, but there was a stampede to get out of specific Tech names.  Overall, the volume was light, as the story was mostly the buy-on-dips crowd sitting on their hands.

Market Breadth

NYSE

NASDAQ

Advancers

1,367

1,902

Decliners

1,420

2,253

New Highs

12

21

New Lows

58

238

Up Volume

1.95 billion

2.90 billion

Down Volume

1.61 billion

1.98 billion

Israel Strikes Back

Accounts will be in flux all morning, but Israel launched missile strikes on Iran last night in relation to the rocket and missile attacks on Israel last Saturday.

Initial scuttlebutt saw reports that nuclear research facilities, where nuclear weapons are made, were attacked.

Financial markets react:

Currency

Today’s Session

Impressive reversal from the massive swoon last night.  

Hedges

We are getting a lot of questions on hedging. Here are some brief thoughts.

·         Broad Market

You can buy puts on major indices or leveraged products.  For instance, if you think FANG and innovation stocks are going sharply lower, you could buy MicroSectors Solactive FANG & Innovation 3X Inverse ETNs.

They have rallied to $31.54 (pre-market) from $26.08 in little over a week.  But see how they have fared over the past six months.

The fact is, I think these are not right for the average investor that has a life and enjoys sanity.

·         Current Positions

If you are sitting on 15% or more profits on names you desire to hold long term, even as the market may hit a patch of turbulence, it’s worth looking into writing covered calls.

Seasonality of the market could be bumpy until June, so I would consider going out that far.

The hope is your position doesn’t move too high that it is called away, but if that is the case, you will get the strike price for your position.

If the stock is lower and not called away, you keep the premium on the call option.

You must be able to deliver 100 shares for each contract written.

Note, we do not send out alerts on covered calls, but are always willing to help and share our opinions.

The market was ahead of itself in many ways (see chart at mid-March), and this move is natural.  I think it is too early to panic and fret.

On the contrary, this is when we refine our list of stocks we were spying to buy at higher levels.  

Again, I would rather write calls on big winners and raise cash closing troubled names that may not come back anytime soon.

Resolve

We admire resolve whether it’s in people, sports teams, or the stock market, but keep in mind, the S&P 500 opened higher in each of the last four sessions only to finish the session in the red. 


Comments
Charles as always is spot on. A "loss" is never realized until a "sale" has completed.

P. Krueger on 4/19/2024 11:08:34 AM
 

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