Shortly after the open today, I filmed my weekly In The Money segment with Fidelity Investments. Click below to watch and see my notes below the video:

 

Here are my notes from today’s show:

Macro: Jamie Dimon, the CEO of the largest bank on earth, JPM said last week in his letter to shareholders that “The U.S. economy will likely boom.” Fed Chair Jerome Powell said on 60 Minutes Sunday night that the U.S. economy is at “an inflection point” and about to grow much quicker. With the Nasdaq this week finally making a new high from its prior high in February, and the S&P 500 seemingly making new all-time highs daily, it’s hard to conceive of reasons why or how the stock market could correct, despite being up 10% already year to date. Investors no longer seem particularly concerned with the YTD rise in interest rates given the Fed’s continued assurance that they will not raise rates anytime soon. But it is worth noting that after lagging for much of 2020, small-cap stocks massively outperformed their large-cap brethren since the election and vaccine approvals, but does not appear to be catching its breath, and from purely a technical standpoint the IWM (the etf that tracks the Russell 2000) looks to be forming a head and shoulders top.

That might look like a weird chart formation, but you haven’t seen anything yet.


Trade Idea #1: Long – ViacomCBS (VIAC) What a long strange trip it’s been… stock went from $40 to $100 back to $40. Found some support this week at its 200-day moving average. When the stock first broke out above $40 in Jan, there were plenty of reasons to see why, many peers were also trading well, high short interest, and excitement about their new streaming platform, Paramount+. But then it was revealed that one fund was buying the stock the whole way up on swap with two banks, the fund blew up, the banks liquidated the position, the stock should have never been at $80, $90 or $100, but it probably also should not be at $40.

 

The company was smart and raised $2.5 billion in an equity secondary offering at $85, and the next identifiable catalyst will be earnings on May 6th.

Bullish Trade Idea: VIAC ($41.50) Buy May 42.50 – 57.50 call spread for $2.50

-Buy to open 1 May 42.50 call for $3

-Sell to open 1 May 57.50 call at 50 cents

Break-even on May expiration:

Profits of up to 12.50 between 45 and 57.50 with max gain of 12.50 above 57.50

Losses of up to 2.50 between 42.50 and 45 with max loss of 2.50 at or below 42.50

Rationale: this trade idea risks 6% of the stock price, breaks even up 8.5%, and has a max gain of 30% if the stock is up 38% by May expiration.


Trade Idea #2: Short – The Home Depot (HD)… the stock is up 30% in a little more than a month in a straight line. It went from having one of the worst charts in the entire large-cap space, to, well a moonshot.

HD Trades 25x expected 2021 EPS that are only expected to grow on 3% sales growth.

The company is not expected to report earnings until the third week of May. A pullback to the breakout level near the upper-end of the downtrend could be in order, or a change of market sentiment or a disappointing earnings result.

Bearish Trade Idea: HD ($320.50) Buy May 315 – 285 put spread for $5

-Buy to open 1 May 315 put for $6

-Sell to open 1 May 285 put at $1

Break-even on May expiration:

Profits of up to 25 between 310 and 285 with max gain of 25 at 285 or lower

Losses of up to 5 between 310 and 315 with max loss of 5 above 315

Rationale: this trade idea risks 1.5% of the stock price, has a breakeven down 3%, and a max gain of 8% if the stock is down 11% in a little more than a month.


Lookback: On March 3rd, I detailed a bearish trade idea on bank stocks via the XLF etf, which is now $35, up 5.5%:

XLF $33.20 Buy Apr 33 -29 put spread for 80 cents

This put spread is worthless, and it’s important to remember to keep mental stops to avoid letting long premium directional trades become worthless, once they are worth 50% of the original premium spent, the likelihood of them being in the money again is not great.