MARKET WRAP

Following Netflix’s larger than expected move to the upside on earnings, the large cap indices woke up in a good mood and mostly stayed that way. SPY/SPX finished the day +0.6%. QQQ ended the day +1.3%. A bit of a different story in small caps as IWM finished the day in the red -0.6%. Keep an eye on IWM vs QQQ into mega cap tech earnings for any signs of rotations or divergence. TLT closed -0.5%, it had been bouncing off its lows the past week and helping equities, but not today. Oil/USO did continue to help, down again. Notably, the VIX was slightly higher today even with stocks higher as breadth today was worse than the past few days. ORCL and NVDA led tech stocks higher. More on some of the euphoria in today’s MRKT Call, some thoughts on valuations on today’s On the Tape and some ways to approach potential FOMO later in this email.

MRKT MATRIX: January 22, 2025

Today’s Top Stories:

• S&P 500 rises to fresh record as Trump optimism, strong earnings reignite stock rally (CNBC)

• Nasdaq 100’s Historic Bull Run Has Further to Go, Evercore Says (Bloomberg)

• JPMorgan’s Dimon Says US Stock Prices Are ‘Kind of Inflated’ (Bloomberg)

• Tech Leaders Pledge Up to $500 Billion in AI Investment in U.S. (WSJ)

• Musk and Altman Spar Over $100 Billion AI Venture Hyped by Trump (Bloomberg)

• Trump Says He’s Open to Elon Musk or Larry Ellison Purchasing TikTok (Bloomberg)

Today’s MRKT Call is Presented by SoFi

Trump Enthusiasm Pushes Stocks to Record Highs

Liz Young Thomas joins the show today and discusses the new administration and the headlines so far, especially in big cap tech. Guy with a look at valuation readings. Liz discusses the importance of diversification here while signs are showing some upside euphoria, especially within the put call skew (to the upside) in the market. ORCL, MSFT, NVDA, STX, NFLX and more as we kiss market highs today.

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Today’s On The Tape is Presented by Betterment

Clear Eyes, Fully Vested, Can't Lose?

Dan Nathan and Guy Adami kick off this episode of the 'On The Tape' podcast with a discussion on the frosty New York weather before diving into key financial events. They cover Donald Trump’s AI initiative with Larry Ellison, Masa Son, and Sam Altman, dubbed 'Stargate,' pledging $500 billion toward AI infrastructure in the U.S. They discuss the market's reaction, exploring adjacent tech stocks and the seemingly overhyped announcement. The duo also reviews notable earnings from Netflix and the implications of its all-time high stock performance, followed by conversations on new executive orders, Trump's stance on TikTok, and pending tariffs. They emphasize Jamie Dimon’s views on inflated asset prices and give advice to listeners on handling market uncertainty, drawing on historical and contemporary contexts.

What’s Next?

It’s unclear yet if the market takes out these prior highs, but with the market already testing the highs and significant earnings reports scheduled for next week, it’s crucial to evaluate the risk/reward of new positions, especially short-duration trades in single stock names. Here are some things to to keep in mind:

Key Points to Watch

• Potential for Major Single Stock Moves:

  • Some stocks may see significant upward moves into or out of their earnings, similar to Netflix’s..

  • If several large moves occur consecutively, it could trigger FOMO-driven trading, where momentum builds quickly, leading to exaggerated market behavior and people looking for the next huge movers.

• Avoiding FOMO Mistakes:

  • Emotional trading driven by FOMO often leads to errors.

  • Monitor the options market closely, as elevated FOMO can inflate call prices. This presents an opportunity to utilize those inflated prices to your advantage.

Slightly More Responsible FOMO

• ORCL Case Study:

  • ORCL’s prior high was just under $200 before selling off after December earnings.

  • Recent news about OpenAI has driven ORCL up nearly 15% in two days, leading to a surge in upside call volume.

  • Traders are positioning as if ORCL is a meme stock, driving up prices for calls at or above prior stock highs.

• Strategic Approach:

  • In a situation like this, if you wanted to participate in more ORCL upside (or something else making a similar move) but missed the initial move, instead of buying expensive upside lotto ticket calls (like everyone else), consider long call spreads on pullbacks that sells those upside calls at elevated premiums. (Liz mentions upside skew in today’s MRKT Call)

  • Just as an example, the March +185c/-200c call spread right now costs less than buying the $200 call outright and has a breakeven about $16 lower.

  • This is not an ORCL recommendation, simply an example. Story stocks like NVDA and TSLA often exhibit similar behavior, especially during FOMO-driven rallies.

Some Best Practices During FOMO

• Take a Breath and Be Patient:

  • Avoid chasing. Wait for pullback days to enter trades more strategically.

• Leverage Market Euphoria:

  • Use inflated call prices to create higher-probability positions with better breakevens by selling overpriced calls in spreads and avoiding emotional trading during periods of heightened euphoria.

Upcoming:

• Earnings:

  • Thursday: AAL, TXN

  • Friday: AXP, VZ

• Next Week: 

  • Mega-cap tech earnings and an FOMC meeting.
    
    

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