Week 31 of 2022 - Don't go against the Federal Reserve.

"Never go against the Federal Reserve" is a saying on Wall Street. However, last week's US stock market did not believe in this superstition. Several Federal Reserve officials have come out with hawkish statements, but the stock market turned a blind eye to these negative news, and even celebrated the news, continuing to rise. It only dropped slightly on Friday after the release of the double-expectation employment data. The Nasdaq still rose by 2.3% for the whole week.

Nasdaq five-day volume-price chart.

The job market can no longer be described as 'hot'.
The employment data released before the market on Friday was one of the most important macroeconomic data of the week and one of the two most important data for the Fed's interest rate decision.

The expected value for new job additions was 0.25 million, but the actual number was 0.525 million, which is double the expectations! The unemployment rate has also reached a historical low. This data can no longer be described as 'hot', we have to use the term 'very hot'. After the data was released, the Biden administration immediately came out to take credit, saying that under their wise leadership, the US economy did not fall into recession and that everyone can find a job!

Source: Huitong Finance

On the other hand, average weekly wage growth has also slightly exceeded expectations at 5.2%. This is a worrying sign for efforts to lower inflation, because once the cost of wages rises, it is difficult to bring it back down. Therefore, the stock market's reaction of declining on Friday was sensible.

The probability of a 75 basis point rate hike in September has greatly increased.
After the release of strong employment data, the market bets that the probability of a 75 basis point rate hike in September has increased significantly, rising from 34% a day ago to 68%.

The degree of inverted interest rates has reached a new high in 22 years.
As a leading indicator of economic recession, the ratio of the 10-year Treasury bond yield to the 2-year Treasury bond yield has been inverted for more than a month, not only the longest inverted time this year, but also the largest magnitude of inversion in 22 years.

In the 6-24 months after the inversion, the probability of an economic recession in the United States is high. In the past 100 years, this indicator has been accurate 15 times, with only one exception.

Currently, the market has not priced in the danger of a conflict between China and the United States.
On Monday night, when 100,000 people were tirelessly tracking Nancy Pelosi's private jet and the sparks of the cross-strait situation seemed ready to ignite, the US stock market was completely indifferent. I don't know if it's because the funds are well-informed or if their judgment is too accurate.

Source: Lianhe Zaobao

However, I do not believe that the probability of military or economic conflicts between China and the USA is zero. I attribute the current situation in the stock market to being overly optimistic. This risk will eventually be priced in.

This week's strategy: reduce positions!
The upward trend of the stock market this week has slowed down, but many fundamental news are not optimistic. Therefore, I significantly reduced positions in Sell Put, including 6 contracts with a strike price of 300 for Microsoft, 1 contract with a strike price of 700 for Tesla, 1 contract with a strike price of 850 for Tesla, and also sold COINBASE's CC. I took profits and reduced leverage in preparation for the next round of pullback.

My live trading record

1) $Tesla (TSLA)$: Reduce positions!

The news of Tesla's 1-to-3 stock split was announced, but the stock price plummeted by 6%. This is a typical scenario of "buy the rumor, sell the fact." Stock split will not help the fundamentals in any way; it only increases the stock's liquidity. I closed 2 Sell Put contracts on Monday, significantly reducing leverage while taking profits to be on the safe side.

My live trading record

My live trading record

Anyway, I definitely won't chase after Tesla above 900.

The next step in my position adding plan is to sell 1 lot of Sell Put with a strike price of 800, if the price is around 800; if the price drops below 750, I will buy 30 shares of the underlying stock.

2) Microsoft (MSFT): Close SP arbitrage position.

I was too optimistic when I sold the Sell Put with a strike price of 300. I endured a lot of pressure during the downturn, but now I finally come out on top, I'll quickly close the arbitrage.

My live trading records

If there is a price below 270 next week, I will add to my position by buying LEAP CALL or selling a Sell Put with a strike price of 270.

3) Nvidia (NVDA): Continue waiting for a pullback.

Nvidia will announce its earnings report on August 24.

The uncertainty in the chip industry has increased significantly since the beginning of this year, but Nvidia's early deployment in AI and cloud computing has given it a deeper moat. If the price drops below 160 next week, I will buy LEAP CALLs to increase my position.

$DBS Group Holdings (D05.SI)$: Waiting for a selling opportunity.

As expected, DBS's financial performance announced this week was very robust, similar to the other two local banks. The net interest income for the second quarter saw double-digit growth, in line with the fundamentals of Singapore's economic growth. Corresponding to the expectations of the Fed's interest rate hike, a steady growth is also anticipated for the third quarter.

I have always believed that bank stocks are the best way for retail investors to bet on the growth of the Singapore economy. The combined weight of the three local banks in the market makes up 38% of the Straits Times Index. When the Singapore economy is performing well, bank stocks thrive; if there are economic issues, bank stocks won't perform well either. For those looking to enter the market, perhaps it would be wise to wait after the dividend payout. Unlike the U.S. market, Singapore's stock market tends to be more stable without extreme ups and downs. Patience is needed for a good entry price.

Source: The Straits Times (Singapore)

The dividend payout of $0.36 per share is as expected. A major characteristic of the Singapore stock market is its generous dividends, making it a favorable choice for long-term investors. Over the year, a 4% dividend yield is almost guaranteed, and with a good entry point, a stable return of 5-7% is achievable. If you seek higher returns, it may indicate being too greedy.

But my view on COINBASE remains unchanged. Its competitive advantage in the industry lies mainly in compliance and business reputation, rather than sustainable technological superiority. Therefore, once the stock price reaches the range I set, I will sell out of COINBASE.
Never forget the original intention.
The purpose of our investment is to improve our lives, to have more time to spend with our family or to do what we love, rather than the opposite.