Note: Summary notes of the meeting are below the video in this article.
Details:
Technical Analysis and Market Downtrend: The S&P futures are currently down by 0.9%, and a retest of the recent low is anticipated, which has yet to occur after a previous rally. The market is clearly in a short-term downtrend, characterized by lower highs and lower lows, suggesting it is unwise to enter a trade at this time. If the retest of the low does not hold, the market could drop to the 6,400 level (00:00:00).
Impact of Rising Bond Yields: Rising bond yields are creating stress in private credit markets, particularly for banks financing AI startups with loans that are now struggling (00:01:31). This situation can become systemic if interest rates continue to rise. Bond yields negatively affect stocks because they increase borrowing costs for consumers and businesses, reduce equity valuations through higher discounted cash flows, and offer investors a risk-free return alternative of 4.5% to 5% (00:02:42).
Market Volatility Due to Geopolitical News: The market is highly news-driven, which was demonstrated by a quick exit from a trade following an announcement regarding potential conflict, emphasizing market sensitivity (00:03:51). Currently, the market is marking time due to public disagreements between parties involved in a potential conflict about negotiations and demands. There are concerns about the possibility of "boots on the ground," which, while not a probability, is a possibility that Stephen Cox believes should be avoided, as it could prolong the conflict and increase oil prices (00:04:48).
Patience and Strategy of Waiting: Given the technical picture is deteriorating and the high level of uncertainty, market patience is necessary, and they should avoid rushing into a trade (00:06:02). The current technical setup and geopolitical unknowns favor waiting until the following week for greater certainty before trading (00:06:54). If a ground invasion were to occur, Stephen Cox estimates a rapid 4% to 5% market drop (00:08:06).
Defining a Bear Market and Current Trade Positioning: A bear market is defined as a selloff greater than 20%, which would place the market around 5,500. The current trade has priced in a considerable bear market by positioning for a potential level around 5,200. Stephen Cox is waiting and hoping for a further market shakeout to create a better opportunity, which supports the plan to wait until the following week (00:09:15).
Oil Price Outlook and Stagflation Concerns: Nanik Hotwani noted reports suggesting that oil prices will remain elevated throughout the year due to damage to refineries and energy infrastructure (00:09:15). Stephen Cox agreed that oil prices will likely hover near $100 per barrel for the medium term, and if they reach $150 per barrel, the global economy would struggle, leading to stagflationary events (00:11:47). An agreement between the US and Iran could cause oil prices to drop by 15% to 20% quickly, but rebuilding damaged infrastructure could take up to three years (00:10:27).
Safe Haven Assets and Market Over-Selling: Gold is unexpectedly selling off despite the current environment, which is attributed to a stronger dollar, central banks reportedly selling stockpiles, and investors liquidating holdings to maintain positions. The flight to safety has not lowered bond yields due to inflationary pressure, and gold, which is an inflation hedge, is also falling, indicating that everything is being sold off (00:12:54). Stephen Cox suggests that if the market continues in the wrong direction, a 5% drop in the S&P 500 is possible, creating great buying opportunities (00:13:58).
Recommendation to Remain in Cash and Avoid Risk: Stephen Cox advises remaining in cash and allowing the market situation to play out, even if a small rally is missed, because entering trades now is viewed as pure gambling due to the uncertainty (00:14:59). The short put strategy still allows for a strike of 5,700, and if a further selloff occurs, they could write puts at 5,200. Given the uncertainty, waiting a week is not the worst strategy, as the market is still only down about 7% from its peak (00:16:00).
Volatility Indicator and Market Entry Strategy: When looking at options chains, they should monitor the IV rank, which is currently low at 29, suggesting the possibility of more volatility ahead (00:17:00). Stephen Cox prefers the VIX as the simplest indicator for volatility, noting that if the situation escalates, the VIX could rise above 35 (00:18:08). If the market drops to 6,000, the RSI will be below 30, which historically signals an opportune time to become bullish, requiring patience for a buy signal to materialize (00:19:00).
Analyzing Specific Equities and the AI Market: Concerns about prolonged high fuel prices suggest staying away from airline and cruise line stocks until oil prices drop (00:21:08). In the AI sector, the narrative is shifting to distinguish between winners and losers, making broad-based investment via the S&P 500 safer than cherry-picking stocks (00:22:13) (00:24:16). Google's stock has outperformed Microsoft due to the success of their AI, Gemini, although valuations are now matching (00:23:09).
Risks in Software and Infrastructure Stocks: The risks for companies like Oracle are the potential loss of consulting premiums as AI takes over, while the relevance of Salesforce's CRM systems is questioned in the face of rapidly developing AI (00:24:16). A proper CRM system integrated with Google's Gemini could pose a significant threat to competitors (00:25:30). HubSpot's recent stock collapse makes them a potential buyout target for Google, which would be a decisive event in the market (00:26:38).
Google Stock Investment Advice: Stephen Gavin asked about buying Google stock, which Stephen Cox affirmed is an "absolute buy" for a five-year horizon due to undervalued estimates and room for multiple expansion. However, they should not buy anything this week, including Google, due to the Middle East conflict uncertainty (00:27:30) (00:29:09). Dollar-cost averaging, as suggested by Nanik Hotwani, is an acceptable strategy for buying Google stock, provided that they only invest a small percentage and are prepared for a potential drop to $260 if negotiations fail (00:31:08).
Hedge Strategies and Risk Tolerance: Michael Carroll asked about implementing a ratio put or bear put spread for protection, which Stephen Cox discouraged for new cash investments, preferring to wait until next week (00:29:09). However, for those who are already fairly long in the market, a bear put spread on SPY is not a bad idea to offset potential losses (00:30:08). Stephen Vajda noted that they had successfully purchased two puts on SPY the previous day (00:31:08).
Methods for Going Long on the Market: Roy Tyrrell inquired about the best way to go long when the RSI hits the buy signal, and Stephen Cox suggested buying the stock directly as the safest method. Alternative methods include using call options via spread betting with platforms like IG, or buying a long-term call option (a "leap") using a traditional options broker (00:34:03) (00:36:13). IG allows for easy transfer of funds between spread betting and share dealing accounts to purchase an ETF or index directly (00:36:13).
Interactive Brokers Contract Multiplier Clarification: Stephen Gavin asked for assistance in locating the contract multipliers on the Interactive Brokers platform, noting that they had previously judged them based on the maximum return (00:37:18). Stephen Cox demonstrated that the multiplier can be found by examining the futures contract details, such as where one point equals $5 USD for the MEES micro future (00:39:56). The ES contract has a much larger multiplier, where 50 times 6,000 is a significant amount (00:40:49).
Final Market Outlook and Trading Decision: Stephen Cox reiterated their decision not to place a trade until next week at the earliest and encouraged everyone to remain in cash due to the market's current volatility and dependence on external decisions. They emphasized that going in blind is essentially gambling, as the market could move drastically in either direction (00:41:32).
Discussion on Energy ETF (XLE) Strategy: Nanik Hotwani inquired about a potential trade in the XLE energy ETF, assuming oil prices would remain between $110 and $115 (00:42:26). Stephen Cox suggested defined-risk strategies like short puts or, preferably, bull put spreads, such as selling a $54 put and buying a $50 put underneath it. However, Stephen Cox would personally avoid this trade this week, fearing that a news announcement could cause oil prices to drop by 20% rapidly (00:43:26).
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