Before we get to some dubious speculation, a comment about the market in general:
Kinda manipulated, eh?
I have marked on the chart the low points for the month, which occurred on May 19, June 18, July 19, August 19, and September 17 (presumably because September 19 is a Sunday). If the last four months are predictive, the market will have a big rally this week, and will hit a new high sometime in the next 10 to 20 trading days. Then it will correct and hit a temporary bottom on October 19.
Lather, rinse, repeat.
It would appear that the obvious play would be to buy SPY, or buy SPY options maturing three weeks out, and enjoy the ride.
More specifically, the monthly bottom to top move has averaged around 5% over the last four months, so since SPY closed on Friday at 441, it could rise to 463 in three weeks. One “option” would be to purchase the SPY $450 strike calls expiring on October 7 around $1.85, and wait.
The October 15 options have a much higher open interest, and therefore more liquidity, so that is likely a safer bet. The cost is higher, around $2.65, but if the SPY is trading around 460 by October 7, the October 15 calls are worth at least $10, so that’s a nice profit.
(Govern yourselves accordingly, I haven’t traded options in years, and I am reluctant to start now).
Why is the S&P 500 near record highs?
The conventional wisdom is “money printing by the government”, and that is a big factor, but there is another important factor:
Margins.
Many companies have experienced lower sales due to the lockdowns, but they have also reaped the benefit of lower operating expenses. Many employees are working from home, so as office leases come up for renewal, tenants are cancelling leases, or downsizing space. That’s a big saving. Corporate travel is dramatically reduced. We’ve proven over the last 18 months that you can meet your customers over Zoom, so why pay for an airline flight and a hotel?
Even small expenses like paper and office supplies are down. If I’m working from home and doing everything digitally, I don’t need paper for the printer or photocopier.
So while sales may erode, the remaining sales are more profitable, so as long as we have continued revenue growth, the general market can continue to make new highs.
Dubious Speculation
Now to the dubious speculation: Bitcoin will correct over the next week or two, and then surge from mid-October through to the end of the year.
Why?
It is possible that one or more Bitcoin ETFs will receive approval in October. If they do, the price of Bitcoin will likely increase substantially. For Bitcoin to “go to the moon”, institutional adoption is essential. Yes, we have GBTC in the USA, and QBTC in Canada, but until there are many ETFs to choose from, the mass market will not invest in crypto.
September may be the last month where Bitcoin is on sale.
I continue to predict that we will see a $100,000 Bitcoin before the end of 2021, and ETF approval may be the catalyst.
So, my strategy now is to dabble in the SPX, and hold Bitcoin, and other good stocks of course, diversification is important.
Those are my current thoughts. Let’s see how it plays out.
Dubious Speculation: The Result
by JDH on September 25, 2021
Last week I presented my dubious speculation on how the market would play out. Specifically, I showed this chart:
I said:
So, how did it turn out? Here’s the updated chart:
It turned out the way I expected, sort of.
The big crash happened over the weekend, so the market opened down, big-time, on Monday. That was a lucky break, because if I had put the position on on Friday, I would have gotten crushed.
As it was, on Monday morning I bought 50 contracts of the SPY $450 calls, expiring on October 15, assuming that would give me lots of time for the market to hit a new high at somewhere in the 455 or higher range. I paid $1.71 per contract, so at 455 the options are worth at least $5, and I’m in the money.
It didn’t work out quite as well as I had hoped, because the market continued to fall all day Monday, so my position was well under-water at the close. But, Tuesday was a great day, so on Thursday I decided to sell 40% of my position, 20 contracts, for $3.00. That significantly de-risked the transaction. Provided I can sell the remaining contracts for 90 cents or higher, I can break even.
At the close on Friday they were worth $2.30, so I’m still in the money. I will likely sell them in the next five or ten trading days and take what I can get. I’m hoping we don’t get another crash this week.
NOTE: Buying options is gambling, not investing. It’s easy to get wiped out, so I never play with any money I won’t be crushed to lose. Every now and then gambling is fine, so there you go.
Bitcoin
The other fun event of the week was the Bitcoin “crash”. “Crash” may be a strong word, but on September 7 Bitcoin touched just under $53,000, and on September 22 it touched under $40,000, so that’s a 25% drop in 14 days. That does sound crash-like.
But, with Bitcoin trading around $43,000 as I write this, it is trading at the same price it was in the middle of May, and in August, and where it was in February, so one could argue that the price has been remarkably stable.
I continue to believe that we will see a $100,000 Bitcoin before the end of the year, but I would also not be shocked if we see $40,000, or even $30,000, before that happens. That’s why I see this correction as a great buying opportunity.
I could be wrong, but it will be a fun ride.
I continue to have sizeable gold and other positions as well, but they are boring to talk about, so the markets and Bitcoin are the fun discussion points for now.
Tune in next week to see what strikes my fancy next week.
Enjoy.