Hitting the pause button as the market finds its footing

Hitting the pause button as the market finds its footing


Key Points from This Weekly Issue:


With the market gyrations of the last several days, while it’s certainly been a challenging time for stocks to say the least, given the even wider swings with options it’s been an even wilder ride. Headed into the eye of the recent market storm, last week we held off adding any new call options for that very reason.

Even so, the flip-flopping of the market has not been kind to our existing option positions. That was offset by the recent addition of MoneyOnMobile (MOMT) shares, which rose more than 24% week over week, and a rebound in our inverse ETF positions — ProShares Short S&P500 ETF (SH), ProShares Short Dow30 ETF (DOG) and ProShares Short Russell2000 ETF (RWM). While those inverse ETF positions have been out of favor to a wide degree as the domestic market galloped higher over the 15 months leading up to the end of January 2018, over the last several days those same inverse ETFs have rebounded 4% to 5% softening the market blow.

  • We continue to have a Buy on MoneyOnMobile (MOMT) shares
  • Subscribers should continue to hold all three inverse ETF positions for now

As a reminder, I personally own shares of MoneyOnMobile


As I shared on Tuesday in a special alert to Tematica Investing subscribers and touched on yesterday in the regular Tematica Investing weekly issue, investors are in the midst of resetting expectations when it comes to the speed of the economy and earnings growth prospects vs. inflation prospects and what the Fed may do over the coming months. When I appeared on the TD Ameritrade Network’s Market on Close show yesterday, I explained the soonest we’re apt to see some normalcy begin to return to the market is perhaps next week as we put the biggest week of corporate earnings behind us. Once that is done, the majority of S&P 500 companies will have reported and this will allow investors to size up the likelihood of the 17% EPS growth forecast for the S&P 500 group of companies this year compared to 2017.

As we wait for that data and assessment to happen, we are once again hearing about another visit from the polar vortex that will bring chilling temperatures down from Canada and into the US. That bodes well for our Utilities Select Sector SPDR ETF (XLU) March 54.00 calls, which have received a thrashing over the last several days. In support of those XLU calls, next week we get the January 2018 Industrial Production report. That pending report should show a pickup in utility activity given the severe winter temperatures that hit during the month. As nice as it would be for the utility production data to catapult our February 54 and March 54 calls higher, the reality of the situation we’re likely to see a portion of our current losses in these two positions improve.


With the XLU February 54 calls ((XLU180216C000540000) expiring next week, it’s rather likely the smartest thing to do will be to simply let the calls expire. As someone who has been in that position before, it’s not a pleasant one but there is no reason to trade out of the position when the cost of trading will more than offset any return of capital.

In the coming days, as the market finds its footing, I’ll be looking for new call option positions to put into play. In the meantime, I’m looking for other stocks similar to MoneyOnMobile as well as potential short candidates as well. One that I am researching is National Retail Properties (NNN), a real estate investment trust (REIT) that heavily weighted toward convenience stores, restaurants, banks and other industries. We are starting to see more banks shut locations and the restaurant industry is also rationalizing its space. Moreover, the convenience-store sector is expected to continue to consolidate as profits in the once-booming industry stalled in 2015. NNN shares have already fallen 13% year to date, which means in order to aggressive and short the shares I’ll need to see 20%-25% net downside from current levels. I’ll have more on that as I do the necessary homework.



About the Author

Chris Versace, Chief Investment Officer
I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."

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