Epic Bear Market Unfolding and Adding to McDonald's Short

I've filled out my put position on McDonald's today. Full caveat: it has room to go up another 10 percent. If it gets up there, then I'm going to make far more than I will lose if I'm wrong at this spot.

The stock market is entering month 11 of a bear market and yet. Look at this pattern on XLY. I was bearish on XLY and I was early, but that pattern eventually broke.

Look at McDonald's and auto parts in this context. If this is a bear market, do you think these stocks already at relative all-time highs, or near those highs, versus the S&P 500 Index are going to explode higher from all-time highs?

There are scenarios where stocks such as McDonald's and Autozone, trading at or near all-time highs and at or near relative all-time highs versus the S&P 500 Index somehow lead a new bull market. I don't know what they are outside of something like a hyperinflation scenario, but they're out there. The bear market scenario looks more compelling though. Here are patterns that look like technology a year ago. This isn't like 2000 though, when there was a 2-year stealth bear market in value stocks as the tech sector kept soaring higher. There are some examples such as FedEx and Boeing, sitting at lifetime support, where you could make a case for them not going lower. If the market rallies, they could bounce a lot. The stocks above have ignored the bear market and they benefited from 2020 to 2022. If this is a bear market, these are the types of stocks that might outperform technology as short candidates for 2023.

Puts on McDonald's

I bought November $240 strike. I'm going to add December and January. That green line is my sort of stop area. I may hold above, depending on how the broader market behaves.

Someone mentioned adding a Substack on the AMA post so I am cross posting there now.

I'm Loving It Again

This might be a great short come Monday.

Poor Low

The low yesterday is screaming for a retest. The level traders are watching for is 3650. Below shifts the market into a bearish position, above 3700 area is bullish. I added shorts near the close yesterday because what I see is the same move that has already happened three times. The percentage and nominal point move in some indexes and sector ETFs was almost a perfect repeat of the move in early October. Two differences. The move in October took two days. The move yesterday chased out a lot of bears. It might have been largely short covering by bears. 

Structurally speaking, today is a far more potentially-bearish market than yesterday, and arguably more bearish than it has been for weeks, if not a couple months. Totally meaningless for now if the market wants to move higher. I'm talking about potential energy. It'll become important when the market next turns down. However, if markets start reversing today, then do not be shocked to see a new low within days. Or today for that matter.

BTC bounced right at my support area as did QQQ. The 3500 also was a 50 percent retrace of the move from the March 2020 low to the January 2022 top. Of course a big rally would unfold and I missed it, despite having charted it several times. Bonehead error.

The collapse analog in gold is still extant. I can also see a case for going long here if you're bullish, but I'd like to see more strength before being long. A down move will be far larger than an up move from here.

My Domino's trade didn't pan out. Yet. I'm still holding my puts. I watched big gains evaporate, but I only have a small loss at this point. The market reaction to Pepsi and Domino's earnings, carrying up stocks such as McDonald's along with them, was very optimistic. In a nutshell, the markets sees the consumer as still strong, which technically it is given those results. I take the pessimistic view moving forward. I think these earnings were warm in the same way a family burning furniture keeps their house warm in winter. Both Pepsi and Domino's reported economic contraction because revenue increases were less than their price increases. The question is what happens with the relationship between costs, prices and consumer demand moving forward? Similar to what I'm saying about the market being more structurally bearish after yesterday, these firms have propped up their earnings in 2022 by raising their prices and potentially making their products less competitive if the consumer retrenches in Q4 or in 2023.

Specifically on the charts, DPZ could get ugly with an ongoing rally. MCD is far closer to its resistance line, but it has room for a 20 percent rally all the way up to around $300 by January. That would be an incredible bear setup if it transpires. DPZ would look ugly up there, whereas MCD would be screaming, "Short me!" I don't think that rally is likely, but it depends greatly on the broader market.

Finally, overall the markets are still doomed. I can't count how many people are complaining about the Federal Reserve's rate hikes killing growth when the interest rates are still negative 3 percent measured by core inflation. The West and most of the world is in a mess because of negative interest rates, yet people want more negative rates. If the Fed or politicians give in to this growing chorus, then more apocalyptic scenarios must be contemplated.

More proximate to the markets, crude oil is tracking with financial assets. In the short-term, stocks can ignore all manner of bad news, but if crude tracks higher, then inflation isn't going down much. The Fed funds rate will probably reach at least 5 percent and become a new floor. Assuming the economy weakens there could be rate cuts coming eventually, but if crude stays high maybe not. Look at the 1970s. Powell has specifically mentioned the mistake of cutting too early. My sense is most of the market, including most of the analysts and economists, are out to lunch. The mega bears and "hyperinflation" guys are on opposite sides of some issues such as where the price of BTC is going, but both of them understand the scale. Their debates are useful. Tune out the others.

Futures blasted higher while I was composing this post, past my get out line. I'll wait to see how the market behaves at the open before closing out short positions. The only two winners propping me up are gold and oil, both of which remain weak for now.

Why I'm So Bearish Example

SBAC is a popular stock with income investors. They install and own wireless communications infrastructure. It lost long-term support less than a month ago. It has plunged $90 in about a month since then, arouind 27 percent loss.

I see similar charts all over, McDonald's being my favorite. We'll see if I am clueless or not in the coming days, weeks and months.

All My Positions

I have short positions of varying size on all of these. In terms of number of options, XLP is by far the largest position. By dollar size, CME, APPL, MCD, SHW are relatively large. If I group together all my energy positions XLE, COP and USO, that would be larger than everything, but some of these are weekly puts that I may take off early next week if crude doesn't dip quickly. XLP puts are cheaper though, and thus I anticipate they could be my largest position at the conclusion.

Update: I forgot to list BITI calls, a short position on BTC.

Put Buying Spree

I have massive OTM puts on all of these. Plan on adding to XLE and XLI. I didn't buy puts on FXI, but included it because it is important for emerging markets. It looks like the same setup as in October 2008. I still have cash left and am looking to add more on one final pop in the market.