Weekly Article 28
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This is the weekly article and Pod/Video Show 28 – The Title Is: The Charts, Chico. They Never Lie.
The markets were hammered this week and the economic data has only gotten worse. We’re going to discuss where we’re headed, update to last weeks bear market call, talk about some tactical short-selling strategy, look at some charts then wrap it up with a review of the LongVol Report & AST Alerts for July.
Spoiler: We killed it.
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We publish the article of the week every Friday here on TheLongVol.com and then the podcast/videocast is on Spotify and YouTube.
Three main topics for today’s show – as always, a life update then:
- Articles of Interest from This Week
- Short Selling Strategy
- Broad Market & Charts (Housing in Trouble)
- Review July Performance of AST Alerts
- Q&A for The Week
Quote of The Week
Favorite Articles This Week
Short Selling Markets
Short sellers get a bad rap, so before you get all emo and comment something silly let me say this: I don’t short sell penny stocks or any of the pump and stuff nonsense. In fact, I don’t short sell much at all anymore. What I am going to discuss is short selling the indices and single name stocks as a way to generate a) Portfolio revenue or to b) Take advantage of broad market selling
Starting with last weeks article of the week & Issue 29 of The LonVol Report. My views that we would:
A) Correct much lower
B) That short-selling single names would be profitable into and through August
The Nasdaq saw about a 11% sell-off in July (before the rally end of month) but the last 8 days were the majority of that move (6% of that 11%).
But as the Gekko quote above “information is the greatest commodity I know” – it’s the execution of that information that matters so let me expand.
- I don’t go around looking for tops or bottoms on markets – that’s a waste of time.
- When there is potential for a 5%-10% correction I care because that leads to large trades
- Most of the trades are expressed on SPX/Nasdaq/Etc – it’s the most direct way and without single stock risk (meaning you don’t have to worry about getting the sell-off right but missing because a company has positive news)
What we saw this week was perfect time for that.
It’s rare for me to run that for portfolios but when it comes it’s welcomed.
Shorting individual names is a little different than shorting index names because sometimes they don’t track as well and sometimes (like this week) many of them are reporting which means the implied vols on the options are higher + you have to worry about earnings risk.
When I short single stock names I usually try to make sure they are correlated to the broad market.
I won’t short much (if at all) in fund or the managed portfolios because the risk is just too high and there are so many stocks that are great longs that it makes it so the juice is not worth the squeeze.
But to start July we talked about rotation out of Nasdaq and were short-biased (I discussed in in The Sunday Report again) with large price targets much lower that were hit.
That made it ideal for shorts on names like $NVDA, $SMCI $AMD, $TSM and others.
These are technically driven ideas – nothing to do with valuation or fundamentals, an important note worth noting. Part of our long/short strategy mandate for accredited investors at the firm is using event-driven, macro and short-term trading opportunities to drive portfolio revenue and this week (and coming) should be ideal for just that.
- When we get scenarios where there is significant risk-off then the approach to shorting changes – the structure, the size the gains.
- That’s part of an analysis process that tries to figure out the big picture (discussed later because I think we range/trade lower into September)
- Expectation of the market environment allows me to understand where the price-action should trade so that I have an idea (ex. on a rally making sure I sell v. holding and then giving back profits)
- Avoid bull traps
- Structuring a swing short
- Trading opening drive shorts because they come in with the sentiment that price is now bearish v. bullish
Wrapping this part of the show/article up.
July was a great month for shorting Nasdaq and Nasdaq names – we spotted that shift in the report and readers profited from it.
If you are a Professional and need multi-user access, please email.
Broad Market Analysis.
Selling, big rally to technical resistance, news catalyst (ISM – very ugly) big risk off. Last week I mentioned that my concern was that we would see a hard landing and that’s become clear: things are deteriorating (not that they have not been) but they are progressing rapidly and that is driving the narrative for the market selling.
The ISM report shows the Fed is losing on both mandates:
- Inflation & Employment claims data were terrible
- You’re also seeing some companies report that consumers are in a bad spot
So, while Wednesday looked good it was sold incredibly hard with this data, not good. We did reject that $19,700 area discussed last week meaning the short-thesis remains in tact.
Again, part of the job is to take the data, digest it then paint the picture to execute on. As that data changes so do the positions/trades and more so during times like this.
Hard Landing: Through the Lens of Home Builders
The housing market is inflated – anyone that argues against it is just not being intellectually honest – and let me be clear, we get things wrong too, and that’s okay, but staying wrong when new data presents itself is not; that’s how money is lost and mistakes are mad and I hate both with a passion.
Last week I posted this link here on my socials and was met with the usual: “This is not 2008 again there are no strippers with mortgages” – (really these were 3/4 of the replies)
First, this is what happens when people talk at you v. listening, it’s annoying if I am blunt.
My view is relatively straight-forward. Housing, like Nvidia in Q1 saw appreciation and eventually people realize those gains. The economy has been in a chokehold with rates & raging inflation and that doesn’t make life easy for anyone, the ultra-wealthy included.
We can look at that ugly ISM data to see that things look bad and given the article last week about Nasdaq Correction, the technical projection would seem to agree.
But looking through this through the lens of housing is what I want to do…again maybe you see it through your lens in the markets you cover.
- The consumer is out of money and/or spending what they make to stay afloat
- Inflation is not going to slow and with a Fed cut it continues to rage: inversely, if they don’t cut in September housing and the consumer only gets worse
- If they do cut the idea that the consumer is going to form a black-Friday Best Buy style line to get a mortgage is an unrealistic expectation – in fact this has been floated by agents the last 2 years “if you don’t buy when rates drop it’s too late”
Again, I have a problem with that – I run a fund and we manage money for clients. I am very clear on the idea that we are patient, sit in large amounts of cash at times and employ short-selling as needed.
But narrative is narrative and whatever one you decide to run with is the ultimate decision maker on whether or not you make money.
I’ve been clear on my view for housing to drop since last fall – BI covered it. Inventories are rising and while we may get a short-term bump the builders are very close for me to look to short. – Again not investment advice.
But the charts always tell the final story. So as you sit here reading, watching or listening to this and digest the data (as I do) it’s the charts that never lie.
Those same charts signaled that many of the tech names were in trouble (discussed above) and the still suggest that both a) Homebuilders and b) The SPX and Nasdaq are in trouble.
And with that, let’s get into some charts to talk levels + sentiment.
- Charts in the video only
This is a net positive as I see it – these names need to reset and when they do, whether September or later, they will be bought again.
From my view, we can short-sell as needed and then sit back and wait for certain names we’ve been tracking to setup – it’s just a patience game.
This is not really a luxury most advisors have – and most have to sit through the sell off for the “10 year plan” as I’ve called it and most at the larger wire houses/pods have to put money to work: in short, they cannot really sit in cash.
No thanks. I enjoy the flexibility because it allows us to be patient and tactful when needed and right now that’s what is called fore.
If you are a Professional and need multi-user access, please email.
Swing Trades from The LongVol Report
We had a lot of data in July and that data caused what I wrote about “Inflection” a few weeks ago – in short, we’re coming out of this cycle and a September rate cut is coming. That caused a lot of money flows to shift and I expect that continues into end of the year.
We were ahead of a lot of the moves.
- 6 for 7 on Swing Trades
- Aggregate +35.7% on Shares
- Aggregate +436% on the DITM call structure trades (no shorts in July)
- $TSM (Taiwan Semi Conductor) was as good as it gets with an entry and exit that was timed well because 3 days after we reached the target the stock began the -21% move lower.
- I had added this to The Swing Monitor back in May and it remains in there still
If you are a Professional and need multi-user access, please email.
- $BABA has been in and out of the report but we were in it ahead of China Third Plenum
- The stock is very “gappy” and I’ve talked about that a lot – originally the plan was to hold this trade into September or later but we reached a target (we send the alerts out with suggested entry/size/stop and a target range – Example: $10.00-$12.00 exit area)
- This remains in the Swing Monitor and I own 2026 LEAPs on it but we will likely be in it again long
- Tough stock to “hold” because of China fears and even with the valuation it just cannot get going so this fits perfectly into the Swing Monitor mindset: DITM Option Structure + Time + 7-60 day holds.
- $XHB (Homebuilders ETF) has been in the report for some time (we traded it in June) and likely becomes a short-here in coming months.
- The targets hit very quick (usually average hold is 3 weeks) and we’re higher as of now but we did consolidate 8 days after target was hit meaning the options are about the same price as our exit (take profits!)
As we head into September Fed cut and the rest of the year the Swing Monitor and Portfolio should continue to be active. It was a bit slow in Q2 but we’ve shifted tides on a lot of things.
We suggest you use a minimum $25,000 portfolio but a $10,000 portfolio can work – the cost of the options because they are deep-in-the-money are pricier so that’s our reasoning for the balance.
The 21-day trial is free and you can access both:
- The LongVol Report each Sunday
- The AST Alerts
Final Word.
- Report out this weekend Issue 29
- More market downside to come still but some names approaching proper buy zones
- Q&A for this week
Opinion, not advice. Not a solicitation.
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About the Author
Daniel Bustamante is the founder, managing partner, and CIO of Bustamante Capital Management L.L.C., a multi-strategy investment management fir. He has over 15 years of experience in the financial industry, specializing in equities, futures, and event-driven trading strategies.
He is also the founder of TheLongVol.com, a blog and newsletter that shares his insights on his investing process, travel, and other private investments. He has been featured in Bloomberg, Arizona Business Journal, Business Insider, Yahoo! Finance, Forbes, Seeking Alpha, and other publications over his career on Wall Street.
