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8/16/22 Betting on Jail & A Surprise Rate Cut

News:

Markets open the week in the red. But it didn’t last long … By lunchtime, the major indexes all pushed into positive territory and held their gains into the close.

The gains were modest…

China Rate Cut

Image From Wikipedia

In a surprise move, the Bank of China cut interest rates on 1-year loans by 0.1%.

Covid lockdowns and overbuilding in the real estate market have slowed the world’s second-largest economy.

  • China is the first major economy to cut interest rates. 
  • Central banks around the globe have been raising rates to fight inflation.

Sector Roundup

8 of 11 sectors ended the day in positive territory. At the top were the “safe” sectors…

  • Consumer Staples (XLP) +1.0%
  • Utilities (XLU) +0.8%

At the bottom…

  • Energy (XLE) -2.0%
  • Financials (XLF) & Materials (XLB) were technically red but practically flat.

Big Short Bets on Prison

Michael Burry, the man who made a fortune betting against the housing market in 2008 and was made famous in the movie “The Big Short,” has made another strange bet…

Photo of Christian Bale as Michael Burry
Image from Paramount Pictures

According to an SEC filing from his hedge fund, Scion Assets, he sold all stock and bought about 500,000 shares of The GEO Group (GEO^).

GEO Group provides “diversified correctional … services.” It’s a for-profit prison company.

Our take: 

  • Burry was right once and wrong a lot more. 
  • We opened a position in GEO because the story is getting a ton of press.
  • Burry has been calling for a massive market crash in now-deleted tweets. He’s a perma-bear, and we believe out of touch. 

The Index

New York area manufacturing “declined sharply,” according to a survey conducted by The Fed.

Activist investor group Third Point disclosed a $1 billion stake in Disney (DIS)

  • The group is pushing the company to spin off ESPN and buy back shares.
  • Shares rose 2.0% 

Certain meme stocks are continuing to defy the experts…

  • Bed Bath & Beyond (BBBY^) rose another 24% on Monday
  • Revlon (REV) spiked more than 30%

Technicals:

The VIX is falling, and that puts wind in the bull’s sails…

VIX Chart showing downtrend
VIX Daily Candles – Chart via thinkorswim

RSI levels are still overbought, but the market continues to defy that signal and push higher.

Our advice: don’t fight the trend. And the trend is bullish.

Timing:

This week:

  • Retail earnings start this morning. See our full list here.
  • Minutes from the July FOMC meeting drop on Wednesday afternoon
  • August options expiration is this Friday

Watchlist:

*Low Float
^Open Position

*VEEE on watch
*VRNA resistance at $14
*REV resistance at $10
*GIGM support at $2.20
*FPAY support at $2
MAXN support at $20
AEHR support at $18
SUNW support at $4
COGT support at $14
SIGA on watch
ALT on watch
AERI resistance at $12
COCO support at $14
KOD support at $10
LQDA support at $8
RYTM support at $23
TCDA support at $12
RAD support at $10
VUZI support at $10
VERU support at $18
RVNC support at $21
MRSN resistance at $8
PAVM support ta $2
CPRX on watch

Secondary watchlist … +100m float

PCT support at $10
GEO^ support at $7.50
ARRY resistance at $24
SPPI support at $1.4
TCRT resistance at $2
BFLY resistance at $8.75
ABCL support at $12
BNGO support at $3
^GERN on watch

Secondary watchlist … +100m floatPCT support at $10
GEO^ support at $7.50
ARRY resistance at $24
SPPI support at $1.4
TCRT resistance at $2
BFLY resistance at $8.75
ABCL support at $12
BNGO support at $3
^GERN on watch

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