May 12th 2023

Regional Banks Are Ruining A Rally

Regional Banks are ruining everything. Inflation is heading in the right direction, jobless claims are climbing at a steady pace (good news), and the Producer Price Index rose less than expected. Things are going in the right direction, but the banks keep dragging the market lower.

Let’s take a look at some of the positive items.

Earlier in the week, we saw the Consumer Price Index come in better than the market expected. Yesterday, jobless claims came in slightly more than expected. While that seems like that’s bad news, it’s actually good for keeping inflation lower. The 4-Week Moving Average of Jobless Claims rose to 245.25k, but anything less than 300k is still manageable within the economy.

Then we had the Producer Price Index.  The actual numbers both month-over-month and year-over-year came in less than expectations.  That means the cost to produce goods is coming in better than expected.  Yes, prices are still up 2.3% year-over-year which has an impact on consumers, but the numbers are decreasing over time.

The S&P 500 (SPY) did finish lower overall yesterday, but there’s more to the story.  After the initial drop, the index spent the rest of the day fighting its way back higher.  Here’s a 5-minute chart showing that it was actually trending higher most of the day.  The market responded favorably to these reports.

But due to some earnings misses from the likes of Disney (DIS) and the ongoing bank crisis, the S&P 500 is stuck in the same trading range and has been unable to break higher.  The daily chart is below.

In the meantime, the Nasdaq (QQQ) continues to be the hot hand.  That was helped by Alphabet’s (GOOG/L) I/O Conference where everyone’s favorite buzzword, “AI”, was brought to the forefront.  Yes, Alphabet is ready to fight Microsoft (MSFT) for artificial intelligence supremacy.  

Is anyone else worried that the two of the top companies that collect more data about us and know more about us than we know ourselves are also the ones managing artificial intelligence that will take over our lives?

Maybe that’s why everyone at the I/O Conference was very quick to avoid the topic of what will happen to jobs as AI continues to take over more aspects of our lives.

Today I’m looking at The Tractor Supply Company (TSCO). The stock has been on a solid uptrend (black line moving from lower left to upper right of the chart). There’s a swing low of around $230 that was set just before May.

The 2 JUN $230 put is currently offering $1.69 in credit (pre-market prices). As long as TSCO stays above $230 by 2 JUN, the trade will reach max profits. If TSCO falls below $230 at expiration and you are assigned shares, your cost basis would be $230 – 1.69 = $228.31.

To place the trade as a short put, you will need to put up $22,831 in margin.

Do you have a better way of trading TSCO? Let me know!

If you have any questions, comments, or anything we can help with, reach us at any time.
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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation. 


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