Stocks Hit 52 Week Highs as Inflation Cools Down!

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Market News and Short-Term Predictions

The US inflation rate slid to a more than two-year low this week, a major step toward ending the cost-of-living emergency — and possibly the Federal Reserve’s historic monetary tightening, too.

At 3% last month, consumer-price inflation is now just one-third of the level it reached a year ago, which was the highest in four decades. This is a solid tailwind for stocks as there is less fear over continue of federal fund rate hikes in the coming months.

It's more likely now, the game will be how long it takes for something to break in order to drive the Fed to cut rates :) Could be 6 months or years. That's why you stay long in the market!

Speaking of being long the market, the S&P 500 hit another 52-week high today after ripping 4 days straight after a meager pullback.

What is interesting is that this past month, the market going higher isn't just big tech and the AI story. With the optimism around the economy, GDP growth, lower inflation, and decent earnings we are seeing a rotation into early business cycle stocks. That is exactly what I have been calling out the past month saying real estate and industrials were laggards that may catch a bid in the second half of this year.

At the bottom, we see healthcare, but don't you think I'm not keeping an eye on stocks in that sector right now. I'm actually scooping up a little bit more in two positions I already own.

Healthcare continues to be a core sector for me outside of tech as I see the most growth and stability in both tech/healthcare in the longer term.

Also for all my crypto followers, a US judge recently ruled for XRP to not be seen as a security. That is partially why altcoins rallied hard today and you saw COIN jump up 20% as there is less fear that the SEC would be able to target them for selling securities. Bitcoin also hit 52-week highs as there is also hope that a bitcoin spot ETF is coming soon with big players like fidelity and BlackRock applying to create them (also why COIN could be up as there is speculation they would be the custodian).

Lessons to Be Learned

If you hadn't heard yet the Activision buyout looks more likely after news came out this week related to court rulings.

I sold out of my ATVI merger arbitrage play (for a second time) before the acquisition has been officially completed. You may ask, why would I sell the shares when they are trading below the buyout price of $95? As the saying goes "there is no such thing as a free lunch".

You have two factors that cause a gap in pricing. The first is uncertainty. There isn't 100% clarity that the deal will go through. A US judge on July 10th ruled that the blockbuster game deal won’t thwart competition in the markets for console, subscription, and cloud gaming and harm consumers. She denied the agency’s request for a preliminary injunction that would have stopped the deal from closing.

A couple of days later and the US Federal Trade Commission asked a California judge to temporarily block Microsoft Corp. from closing its $69 billion takeover of Activision Blizzard Inc.

So that means there are still things to be taken care of before the deal is finalized, so with the uncertainty the gap is created. Granted the uncertainty has gotten better vs. a prior month and that is why the stock no longer trades in the $70s.

The second piece to arbitrage gaps is the value of time. Even if the deal was guaranteed to go through 4 months from now, it still probably wouldn't trade at $95 because that means someone is locking in money for 4 months to get 0% returns (if someone was dumb enough to buy it at $95 lol). At some point, it trades to par with something like a 4-month CD because they both would offer a similar return over the next 4 months.

Portfolio Update

Stock/Option Watchlist

Stocks: TSLA, ENPH, LLY, CHDN

Options: SPLG, PLTR, BAC, MPW, F, AAL

See premium membership for details on interested entry points/strike prices.

Options Trading Portfolio

Closing Trades

No closing trades this week.

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