The market is trying hard to rally with the only thing standing in its way the past couple of weeks being the Federal Reserve.
Through last week, every time we got a nice rally, Fed governors started talking again about doing whatever it takes to fight inflation, including more interest rate hikes. And each time one of them spoke, that day’s rally evaporated.
We haven’t heard any comments this week — yet — and the market has gone higher in a hurry through Tuesday’s close…
The Fed isn’t thinking this through, and here’s what I mean…
We have inflation the Fed created on the Main Street side of the economy. And causing carnage on the other side, Wall Street, that’s not going to cure the inflation problem.
It’s not like turning a light switch on and off… The Fed needs to get the heck out of the way and stop trying to play God in managing the economy. If it just did that, the market and inflation would take care of itself.
We need to change this system, but that’s an argument for another day…
From here, I’d like to talk about a great trade we closed last week from Money Flows Elite in Tesla Inc. (Nasdaq: TSLA)…
With Money Flows Elite, I track which stocks institutional money is flowing in and out of over the first two trading days of every month. I find the six best stocks where money is flowing in, and three stocks where money is flowing out as a hedge — this is what I call “fighting with both hands,” allowing us to handle whatever the market throws at us.
We usually enter six long and three short trades — underlying stocks and either calls or puts — on the third trading day of every month, holding until the final trading day unless we hit a profit target or need to get tactical, like we did with Tesla this month..
We nailed our short position in TSLA for a 12.08%* gain on the underlying short position, and a 62.79%* gain on the put.
Since the strategy’s inception on Sept. 30, 2020, through Oct. 21, 2022, the average return for stocks is 9.13% over an average hold time of 25 days, pushing this TSLA gain just north of our average for underlying stock positions.
And here’s how we did it, and why we exited early…
Tesla reported earnings on Oct. 18, sinking about 5% after hours after missing on revenue, reporting $21.45 billion versus expectations of $21.96 billion.
But here’s why we closed this position instead of waiting until the final trading day of the month…
The market was firming up, the bad news was priced in already and the government is looking into his purchase of Twitter — which I think he wants out of. Ending this deal would be great for Tesla stock because he’s had to sell off a chunk of his massive stake to put enough money together to get this deal through, and it’s been hurting the stock.
If this Twitter deal is off the table, TSLA can run a whole lot higher — and it has already, rising from $209 a share when we exited to $229 by Wednesday morning, which would have crushed our puts.
And that, my friends, is how it’s done.
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*Stated results are atypical for given period. Past performance is not indicative of any future results. Trade at your own risk.