Postcards: Invest in America... But Be Ready to Trade It for Less Risk with Puts

Dear Old Friend,

Wake up! The S&P 500 has exited “textbook” bear market territory and, at 4,293, has regained “official” bull market status.

(Of course, if you drift around in the market mainstream waiting for “textbook,” “official,” or even “official textbook” signals you’re already too late, but that’s a story for a different day.)

Crowd sentiment means we could be staring at the possibility of a 100-plus point rally and the beginning of a new bull market…

…or the start of a dramatic rotation that takes the air out of the Great 2023 Artificial Intelligence Rally.

The S&P 500’s 470-point rally this year - and a lot of flowery, AI-bullish rhetoric - has a lot of investors feeling like the worst might be over. That, and every talking head and pundit from the WSJ to CNBC has been saying as much lately.

We’ve heard flowery bullish talk before, in April 2022 and again that August, when “the worst was over”… right before near double-digit declines on the S&P 500. The worst was not over.

I don’t buy it anyway: the truth is, with the Relative Strength Index creeping above 65, the market is now in overbought territory. That often means declines are ahead, and investors who aren’t paying attention lose their shirts at times like this, just like they did last year.

So we’re going to be on the lookout for the sign it’s time to profit on a big, broad downside move…

Seven Stocks Have Propped Up This Market, and Momentum Is Green, But..

I think we need to look at the possibility that the engine is running out of steam.

And a new chart from subscriber Mr. Bern5K shows it might be time to start thinking about going short in the market.

It is intriguing, but in and of itself isn’t enough to start buying puts. The reason is simple: We don’t have a negative momentum reading yet.

We want to see two declining days in a row, characterized by heavy selling volume.

Friday has been the best day for the markets in 2023. While you might be a speculator, doing so smartly is essential. I’d like to see money flow out of sectors like energy and utilities and target those sectors before aiming at the S&P 500.

We measure these outflows by the hour, but it’s not all we’re measuring…

AOC, the Four Pests, and The War ‘For’ Poverty

It’s another hazy day in Baltimore. Wildfires continue to pump smoke across the East Coast. Despite poor forest management likely being the cause, the know-everything leaders blame climate change. The solution: Give central planners and the pencil pushers I described last week – greater control of the environment… and the economy.

As if central-planning has an excellent history of environmental management. See exhibit A: Chernobyl…

But consider this. In 1958, central planners in China decided to eradicate the “Four Pests”: Mosquitos, rodents, flies, and sparrows. The latter was a disaster. Chinese officials saw sparrows eating valuable grain and told people to shoot the birds. Since most people didn’t have guns (funny how that works), they banged pots and pans until the birds collapsed from the air. The nation started to declare victory against the sparrows (because you need a common enemy – in the central planner case – Big Oil!)

Sparrows nearly went extinct. And what happened? Without the sparrows, the nation didn’t have enough natural predators to eat the bugs, and an ecological disaster precipitated by central planners led to a surge in insects and locusts that destroyed crops and helped fuel the Great Chinese Famine.

But you can’t make an omelet without cracking a few eggs – so it goes – and to bring about the great “Green” revolution. This infantile and illiterate movement is less about the environment and more about exerting a greater influence on the U.S. economy.

What will this global economy look like without oil in six years when their centralized visions of EVs fail to come to fruition and supply chains take a beating? What comes when we keep Africa impoverished in the name of “environmental justice?” What comes when you crush the economic freedom of a nation even further?

A lower standard of living. Turns out the natural pest is their ideology.

Why and How I’m Long Ovintiv

This weekend, I’ll discuss Ovintiv(OVV). But this is a Permian Basin energy name trading WELL below the sum of its parts. Michael “Big Short” Burry owns a significant stake. At $38, it has strong management, a low Graham value, and a fair value closer to $55.


See you out there,A person with a skull on his arm Description automatically generated with medium confidence

Garrett Baldwin

Florida Republic Capital (Available on Substack)

Twitter: @FloridaRepCap


About the Author

Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.

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