Trade The Journey

Trade The Journey

Continued Turbulence!

Top of the Morning! I hope everyone is enjoying the labor day weekend and staying cool during this heat wave. During the week, I placed two successful options trades, both of them being bearish puts without spread. I felt confident that the market action would continue downward still feeling affected by an increasingly hawkish Fed and luckily I was right.

Consumer Confidence recovered as consumers feel more optimistic about the future. The present situation and expectations index both increased over the month. Consumers indicated they are interested in fulfilling their purchasing and vacationing intentions. Consumers also indicated that they were optimistic about short-term financial prospects, labor market outlook, and business conditions in the near future.

Job openings remain relatively unchanged as did quits & separations, meaning that workers are remaining at their job. The number of quits & separations have retreated from their highs in January when workers had the opportunity to move to better-paying jobs or leave the workforce to start their own business.

Job openings increased heavily in transportation, warehousing, and utilities but fail sharply in durable goods manufacturing. Quits increased sharply in transportation, warehousing, and utilities, meaning this industry is having a challenging time finding and keeping employees.

Layoffs and discharges increased in small businesses but decreased in companies with 1,000 to 4,999 employees. The hiring rate also increased for the latter.

Total construction spending fell in July most notably in residential construction. Nonresidential construction spending increased overall. Highway and street construction spending led all spending in nonresidential. Total private construction fell slightly in July.

Both residential new-single family and multifamily spending in the private construction sector decreased in July. However, single-family homes fell sharply back to their March high. Nonresidential spending in the private sector increased slightly.

Total public construction spending increased slightly for July. Residential spending in the public sector increased slightly while nonresidential spending reached a six-month high.

Homebuilders are slowing the pace at which they build and bring new homes to market as rising rates and prices force potential homebuyers to delay purchasing a home. Housing may already be in a recession as rates may rise a little further as the FED continues to hike rates to slow inflation. As the employment situation changes, this may put further downward pressure on the housing market.

The Fed has repeatedly stated that its top priority is price stability. The economy and the market may end up being a casualty in the Fed’s fight against inflation. Countries around the world are echoing similar sentiments with the exception of Japan and China. China has been easing in an attempt to help stimulate its economy while in the midst of issuing another lockdown due to rising Covid numbers.

If the economy does move into a recession which I believe it already has then the market may be facing even more volatility ahead. Volatility on each of the indices rose sharply as market participants pull back their exposure to stocks and bonds. Bond buyers pulled back perhaps in anticipation of another seventy-five basis point rate increase.

Manufacturing in August recorded its 27th month of expansion, coming in slightly higher than July. Prices fell notably and lead times eased for delivery. Manufacturers reported that they continued hiring with fewer turnovers as panelists are optimistic about demand. However, panelists indicated that they are worried about a potential economic slowdown. New Orders increased as did the backlog in orders. Customer inventory levels remain at low levels indicating that demand is still present. Supplier deliveries, inventories, and imports also known as inputs continued to hinder production but to a lesser extent according to the report.

Overall respondents were optimistic due to the fact that demand is high and the inventory levels are improving. However, in the food, beverage & tobacco comments, respondents indicated that inventory levels are too high and there is concern that they may not be able to offload the inventory. Instead of typing out the components of the manufacturing chart, I decided to upload a picture instead.

Of the six biggest manufacturing industries, five – Petroleum & Coal Products; Transportation Equipment; Computer & Electronic Products; Machinery; and Food, Beverage & Tobacco Products – registered moderate-to-strong growth in August.

Lead time for capital expenditures, production materials, and maintenance, repair & operating supplies decreased by an average of four days.  The supply chain concerns that once plagued manufacturing are beginning to ease due to falling prices which should improve new orders and backlogs according to the report.

The market awaited the employment situation report because of its influence on the Fed’s future monetary decisions. A tight labor market will give the Fed confidence to continue its hikes but it also could serve as a sign that inflation could be stickier than the Fed would prefer.

Total nonfarm payroll employment increased by 315,000 and the unemployment rate increased by 0.2% bringing the rate to 3.7%. The labor force participation rate increased by 0.3%. Most of the employment measures remained little changed, meaning that the people looking for a job still have a good chance of finding one.

Telecommuting decreased from the previous month. A total of 5.8 million jobs were added in the past year. Notable job gains in August were in professional & business services, health care, and retail. Average hourly earnings rose by 0.3% and the average work week fell by 0.1% bringing the total hours worked a week on average to 34.5 hours.

The manufacturing workweek and overtime hours were little changed. The labor market remains tight, although inflation continues to take a bite out of consumer spending power.

Mortgage applications fell 8.3% from the previous week. Loan applications across the board fell from the previous week. The purchase and refinance index both fell from the previous week. The Adjustable-rate mortgage share of applications continued to increase. Conforming and jumbo rates for loans of thirty-year fixed mortgages continued to rise. Mortgage rates trended higher reaching the highs of 2009.

The sell-off in the indices continued with volatility trending higher. Each of the indices closed the week below their 50 SMA’s indicating that participants are likely moving money to the sidelines. Bonds fell during the week as did Cryptocurrency. Crypto is an excellent indicator of risk sentiment and Bitcoin dipped below a key reference level of 20,000.

Only time will tell if the latest rally was a real rally or a dead cat bounce. My opinion is that the market could be headed lower in the near future as the evidence that future rate hikes will damage the economy. The dollar continues to strengthen as central banks around the world tighten in hopes of avoiding further currency flight into the dollar. In a podcast called forward guidance, one of the participants indicated that volatility in the bond and currency market proceeds that of the equity market.  As I continue to learn, I’m noticing that professional traders and investors have a set of indicators they look for to help determine the direction of markets, the most important being capital flows.

As I learn more about capital flows and global liquidity, I will share it on this blog.


Verizon: Put Trade at $44. Net Profit $58.00

Reference level: $43.76

Review: Weekly options trade based on the chart and overall market sentiment. Keeping this trade on for the entire week would have improved my return tenfold. Placed this trade using a slightly in-the-money put. With a high theta, this trade had to work immediately and it did.

Paramount: Put trade at $23.5. Net Profit $22.00

Reference Level: None

Review: I placed this trade with the intention of exiting if it did not work. I was overall bearish on the market. Placed a slightly in-the-money put trade with a high theta and gamma. This trade worked immediately and I exited a few hours after the open. Once again, I should have held the trade and closed it closer to the expiration date.


This past week in Review:

This past week was a bit of a challenge as I spent more than I intended. Although the purchases could be characterized as necessary, I could have spread out the purchases over time. Not doing so caused a cash crunch during the end of the week.

I’m learning that managing your cash flows is a function of timing and planning. Some purchases especially big ones can be made over time and unnecessary purchases can be delayed indefinitely. Cash flow management is very important in the effort to reach your financial goals.

I am continuing to pay off my credit accounts and I am happy to report that I have nearly reached the coveted 700 credit score level. I’ve come a long way from having a credit score of 495 and only being able to bank at the payday loan facility. One thing I have done to improve my credit score is undertaken manageable credit accounts.

I increased the amount of credit I have while slightly increasing the amount of credit outstanding.

Grade: C+

Reason: Continued improvement

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