Just a quick update on my thinking post Independence day, and a trade to consider:
I must say that these markets are – at the very least – resilient. I cannot believe that the S&P is again testing new all-time highs after all the economic challenges they have recently gone through.
There is really no outcome on the tariff issues – Trump continues to put off deadlines, talk about deals and haphazardly create cut-outs wherever he favors them for the moment. I don’t care what the bulls say, the US economy moves forward on consumer confidence and consumer spending, and tariffs are an added burden on the consumer. Whether the actual effect of those tariffs will be felt in the next month or the next six, it will be felt. This is why the Fed continues to play patty-cake with the promised rate cuts for 2025, their continued (and in my mind correct) expectation of returning inflation. No matter what the stock market does, the bond markets continue to signal that the S&P is at least somewhat upside down here, with long-term rates hovering right at 5% and not backing off. P/E ratios are at historic highs. The recent tax bill passed in Washington promises another 6 trillion in debt over the next 10 years, according to the conservative Cato Institute.
What the heck IS holding stocks up? Well, employment figures are good, and my trading sense is that everyone is bearish (for good reasons, I think) and many funds are simply caught short in a big melt-up squeeze.
No matter to me – I’m still a non-believer. I refuse to be the last guy to buy at the top. Here’s a lifetime trader’s word of advice: You can survive not being the first guy to buy at the bottom, you can survive not being the first guy to sell at the top; but you cannot easily survive selling at the bottom or ESPECIALLY buying at the top. That’s a disaster. I will continue to raise cash through the summer and if bond rates continue to climb, I will continue to roll into long-term treasuries as a holding zone.
One small (and I mean SMALL) exception I’m making to this is Solar and other renewable materials. We’ve seen the big moves on nuclear, and the retracement on that recently. What we’ve also seen is a tremendous slash and burn on Solar and renewable materials (MP), followed by a scorching rally in both. These moves are undoubtedly related to the on/off or maybe non-existent ‘deal’ with China that continue to plague the stocks.
Like the markets in general, I won’t buy at the top. We got some fatastic buys in some of these ‘sustainable energy’ shares with Centrus (LEU) and First Solar (FSLR), SunRun (RUN) and Solaria (SPWR). I hope you managed to buy some of these at my suggested levels. In the latest retracement from the on/off Chinese negotiation, another opportunity is setting up, in MP materials (MP). We’ve sat through a lot on this one, but it’s all coming home for us positively now. Admittedly, I did not expect such a positive move forward with any of these so soon – but the prospect of a long, drawn out ‘negotiation’ with a possible complete failure to find a ‘solution’ with China will ultimately drive these stocks for the time being.
And even if Trump and Xi lock arms and sing ‘Kumbaya’ at some point, the rare earths market is so tight that any legitimate player in it will have all they can handle in 2026 and beyond, even considering the 1970’s Trump budget bill that was just passed. And MP is perhaps the ONLY US-based legitimate player in rare earths. This is what inspired my suggestion of MP about a year ago. Time to buy more.
Sell MP 27 and 25 puts in equal quantities for a combined price of $3.50. (for example, you sell one 27P for $2.10 and one 25P for $1.40) — any broker can do it, and you can too on any good options platform. OR – try to buy MP outright @$28.50.
That’s all for today
dan@dandicker.com
