Why I’m Maintaining a Bullish Stance

Why I’m Maintaining a Bullish Stance

Posted On June 9, 2021 3:43 pm

All the major indices, S&P 500 (SPY), Nasdaq 100 (QQQ) and the Russell 2000 (IWM) are within 1.5% of their all-time highs. Whatever theories you might have trying to dismantle the bulls’ never-ending rally, discard them.  In my Optons360 Concierge Trading Service, I do the research, get a grasp on the business and valuations, and only initiate trades when the proper technical setup presents a compelling risk/reward setup.  

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This approach has made Options360 Concierge Service members average annual returns of 57% over the past 6 years.

As I’ve admitted in the past, momentum trading isn’t exactly my forte, and right now the best action is occurring in the umbrella macro narrative with inflation being the wild card.  Will it be transitory or not?  I think higher wages are here to stay. Commodity-based inputs such as lumber, oil, or semi-chips will work themselves out with a reversion to a mean; the old supply/demand vs. price. 

Likewise, unlike the 2008 financial crisis created by the housing bubble, the recent increase in home prices was born out of need, not speculation. Unlike property flipping during the pre-bubble years or even the post-rumble where investment firms or REITs, gobbled up property at fire-sale prices to turn into rentals, today’s buyer is well-financed, intending to occupy the home as a primary, long term residence.   

second home mortgage stats 2021

And then there are the meme stocks. Yesterday, I described how I’m shorting  AMC (AMC), Gamestop (GME), and Blackberry (BB) using long-dated put spreads. This options strategy gives me a defined risk — the possibility of 100%+ returns with the best part being that they’re “set it and forget it” positions.  If AMC, GMD, or BB revert back to pre-r/WSB levels within the next 7 months, I’m a winner.  If not, my son doesn’t get his braces removed.  The last part is a joke; hence, you should only risk what you can afford to lose.  This is why those positions are in a separate account from my active trading. 

However, back to why I’m willing to try to climb higher for the next few months. Liquidity, liquidity, liquidity, the combination of the Fed’s monetary policy, and Congress’s fiscal stimulus — along with forced savings due to lockdown — provide plenty of firepower for stocks to move higher.  

This pent-up demand has money flowing for travel, leisure, and other sectors as the economy reopens.  It’s also flowing into the stock market.  Again, I dismiss the Meme names as their own little speculation and want to highlight the inflows to Exchange Traded Funds (ETF) and equity-based mutual funds. In late May, some $500 billion flowed into equity-based products; that’s an all-time record and a 2009-2019 trend reversal, when there were no net withdrawals, even as stocks went on a historic run, following the financial crisis. 

These people have the true “diamond hands,” mostly between the ages of 40-65, — their prime earning years. They’ve learned that wealth-building, not increasing income, is through stock ownership. This cohort of late Boomers, GenX, and millennials are buying and holding. Forever.  

Even as the macro currents glide higher on the back of the macro trend mentioned above, the Options360 Concierge Trading Service will continue finding specific setups offering attractive risk/rewards. 

Airbnb (ABNB) is an example of Options360 sticks and moves, rather than marrying a position.  Last week, we closed an ABNB position for 45% after a mere one-day holding period as the stock stalled at the $150 level.  Today, Options360 entered a new bullish position in ABNB on the belief that fundamental tailwinds remain in place with the chart showing consolidation after the breakout building into a bull flag.  

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abnb airbnb stock chart

The bottom line is that this is a bull market, albeit one filled with vicious rotation and pockets of speculation.  I tweaked my trading to use more ratio spreads than traditional diagonals and stuck my nose in meme stocks with some “set it and forget it” positions.  But, the core process remains the same. 

Price takes precedence, creating an attractive risk/reward strategy, setting a proper allocation and acting, adjustments, closing for a profit of loss as price and time dictates. 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.