Best Bear Buy
As we step into May, the financial market is buzzing with earnings season, the latest FOMC decision, and updates on inflation via the latest economic results. One piece of news that caught my attention, and most of the financial world, this week centered on Carl Icahn's investment firm, Icahn Enterprises. Rumors began to swirl of a potential scam, similar to the infamous Madoff Ponzi scheme.
According to recent allegations, Icahn Enterprises may have been using money taken in from new investors to pay out dividends to old investors, similar to Ponzi-like economic structures. This is concerning, as it means that the sustainability of the firm's investments might rely on the willingness of new investors to come on board.
Additionally, there are reports that Icahn Enterprises has taken on too much leverage in the face of sustained losses, which is a major red flag. As a result, shares of Icahn Enterprises have sold off this week, raising concerns in the market. However, in a statement on Wednesday, Icahn Enterprises said it was operating from "a position of strength," with about $2 billion in cash and cash equivalents on its balance sheet as of March 31. In the wake of the Hindenburg short report, which alleged that IEP units were "inflated" and that the company trades about its net asset value, IEP stock plunged 40% over three days.
Then on Friday, Billionaire Carl Icahn's Icahn Enterprises saw an 18% jump in value after announcing that it would pay a $2 per unit dividend, which helped to erase at least part of the previous 3-day decline. Despite this positive news, Icahn Enterprises still faces scrutiny and challenges. The situation with Icahn Enterprises is ongoing, and the company will release its Q1 results on Wednesday after delaying its earnings release from Friday. It remains to be seen how this situation will continue to unfold and what it will mean for the future of the company.
This was a stark reminder that in the world of finance, what appears to be real might only be an illusion. As I was reflecting on this situation, I was reminded of a book I read in my book club recently, Dead Souls by Nikolai Gogol. It tells the story of Chichikov, who arrives in a small town and tries to purchase "dead souls" - deceased serfs still on the tax rolls - in order to present himself as a wealthy landowner. The parallels between this story and the current situation with Icahn Enterprises are uncanny.
In Dead Souls, Gogol gives readers an encompassing picture of the ailing social system in Russia after the unsuccessful French invasion. The main character, Chichikov, comes from a well-educated family but with little money, and he tries to acquire wealth at any cost. He builds an illusion of aristocracy by blending in with the cream of the crop society. It reminded me of The Beautiful and Damned by F. Scott Fitzgerald, which I also reviewed a few months ago.
The point is, we often default to the truth and don't question things that are clearly an illusion. This is where Malcolm Gladwell's book, Talking to Strangers, another book club read previously discussed, comes in handy. As traders, it's crucial to question assets that seem real but might only be an illusion. When considering new ventures and strategies it is important to remain vigilant. This could include assets like NFTs and SPACs, which have become increasingly popular in the current market but are extremely new and even, in some cases, unregulated.
In conclusion, the Icahn Enterprises situation serves as a reminder to be cautious in our investments and to question what we think is true. We must continue to learn from history, literature, and current events to make prudent decisions in the ever-changing financial market - and this is exactly what we discuss in our weekly webinars within our YellowTunnel community, and highlights the importance of community and strong support system!
Within the YellowTunnel trading community, you can review our non-opinionated AI trading program and openly discuss and explore different trading strategies with other participants. We offer a 30-day risk-free trial that gives you access to the YellowTunnel platform and lets you decide for yourself. If, after 30 days, you believe YellowTunnel's predictive software and trade intelligence platform is not for you, we will refund your membership! That is how confident we are in our signal accuracy and trading tools.
For more information on the YellowTunnel tools and our trading community, I suggest reviewing our latest Strategy Roundtable, which we hold weekly on YellowTunnel. I also recommend checking out our latest Roundtable webinar in its entirety below:
How To Trade a Bear Market Strategy Roundtable
With the unpredictable nature of the market and the uncertainty ahead of us, I can’t emphasize enough how vital it is for our readers and members of the Yellow Tunnel community to keep referring to our Live Trading Room so as to maintain a close tie of how our I and my AI platform is navigating us in and out of select trades. It’s FREE and I highly encourage everyone to sign up to the Live Trading Room and keep checking in throughout the trading day.
Every Monday and Wednesday, I highlight our best strategies and potential trading setups via the DISCORD server. It’s the future of bringing together a trading community’s total services, educational products, live chat venues, support, news, how-to tutorials, webinars, live-trading demonstrations, and tons of market analysis. It is incredibly interactive and full of crucial and timely information. Just go to:
I also want to emphasize to traders how vital a stop-loss discipline is to winning and being successful in an unforgiving market. We employ specific stop-loss instructions with every trade. The buy and sell programs controlled by high-frequency related algorithms can create great profits or cause sudden losses, so it is imperative to maintain an element of controlling risk with each trade.
Recent Trade Review
In our Profit Accelerator Trader service, we recently identified a great opportunity in $LLY to collect an extra premium due to elevated implied volatility. Our PAT model spotted this trade during our live trading room session last Wednesday, which you can review here:
$LLY Trade Live Trading Room Recording.
By selling out-of-the-money premium and holding the position overnight, we were able to collect a 0.5-1% return. This means we sold options contracts that were priced higher than the current market price of the underlying asset. By doing so, we received an upfront premium from the option buyer, and if the price of the underlying asset did not reach the strike price by the expiration date, the option would expire worthless, allowing us to keep the premium.
We were specifically looking for liquid names with weekly option availability, as half of the volume of options are weekly and 0 DTE options. This allowed us to execute our strategy with greater flexibility and efficiency. Selling OTM puts and call spreads is one of the most popular strategies in a bear market, and we were able to take advantage of this market condition to generate profit.
The model results have been impressive, and we've seen a significant difference between our paid and free services. Our paid services come with SMS messages that provide timely alerts for when to get in and out of a trade. The model results have shown consistent profitability in our trades, and we are confident in our ability to navigate the market and generate returns.
If you want to see more of our live trading room recordings, you can follow the link below. No payment is required; just create a free account to review the recordings and gain valuable insights and expert analysis. Our team is dedicated to helping you navigate the complexities of today's market, and we're always here to provide the guidance you need.
Live Trading Room YellowTunnel Recording
CURRENT TRADING LANDSCAPE
After four consecutive days in the red, the major U.S. indexes are on pace to snap their losing streak with a rally on Friday, buoyed by a strong U.S. jobs report and an uptick in oil prices. The Labor Department reported on Friday that the U.S. economy added 253,000 jobs in April, a surprising jump from March that underscores the resilience of the labor market despite rising interest rates and high inflation. The energy sector topped the S&P 500 sectors with the price of West Texas Intermediate crude oil gaining 4% to $71.31 on Friday after the jobs report.
Regional bank stocks, which had taken a beating this week on contagion fears following the collapse of First Republic Bank, were advancing after St. Louis Fed President James Bullard struck an optimistic tone on the economy and the recent banking turmoil. Bullard said that while banks have had some issues, the "regional banks will do just fine coming out." Shares of PacWest Bancorp, which had declined 45% this week on a report of the bank weighing strategic options, including a sale, were up 77% on Friday.
Tech giant Apple also contributed to the Friday rally with shares soaring after it reported upbeat results. The company's stock surged nearly 5%, hitting a nine-month high and on track for its biggest daily gain since November. Meanwhile, Starbucks Corporation reported better-than-expected results for the second quarter of fiscal 2023, with both earnings and revenues increasing year over year, though the stock declined 5.5% in after-hours trading after the company said that sales in China had moderated after reopening. Elsewhere, chipmaker AMD's stock dropped 6% in extended trading on Tuesday after it issued guidance for the current period that fell below analysts' estimates.
Following the announcement of a quarter-point interest rate hike by the Federal Reserve on Wednesday, the market experienced a noticeable reaction. This was the tenth hike of the current cycle, and Fed Chairman Jerome Powell stressed the bank's commitment to reducing inflation to 2%, stating that they are "prepared to do more." Although the Fed's statement did not include the phrase "some additional policy firming may be appropriate," Powell emphasized during his press conference that the bank is "prepared to do more if greater monetary policy restraint is warranted." As a result of the announcement, Treasury yields rallied across the curve, and the value of the dollar decreased.
The impact of the Fed's decision was felt in the stock market as well, as prices tumbled following the announcement. The Fed's statement also highlighted the continued presence of elevated inflation, and Powell emphasized that the Federal Open Market Committee is strongly committed to bringing it down to the desired level of 2%. During his press conference, Powell further clarified that it would not be appropriate to cut rates, given the likelihood that inflation will not fall rapidly.
Despite the absence of the phrase "some additional policy firming may be appropriate" in the statement, Powell's comments indicated that the Fed is not ruling out the possibility of future rate hikes, should the need arise. The dollar's value took a dip in response to the announcement, as the Fed indicated that this latest increase could be the last of the current series. Overall, the market's reaction to the Fed's decision reflects the ongoing concern about inflation and its potential impact on the economy.
Investors remain concerned about the impact of the Fed's interest rate hikes on other banks, with JP Morgan Chase's acquisition of all the deposits of First Republic Bank causing all three major U.S. stock indices to close lower earlier in the week. While JP Morgan's shares rose by 2%, First Republic Bank's stock was halted.
The ISM manufacturing survey brought some good news, showing a slight improvement in U.S. manufacturing activity in April, with a reading of 47.1, higher than the consensus of 46.7 and up from March's 46.3, suggesting a slower contraction.
We are keeping a close eye on the $20 level of the VIX and the SPY's overhead resistance levels, which presently stand at $418 and $430. On the downside, the $SPY has support at $410 and $406. Our expectation is for the market to remain range-bound for the next 2-8 weeks, and we would advise caution during this period, suggesting that subscribers consider hedging their positions. We are currently bearish on the market. See $SPY Seasonal Chart: