This Week in Episodic Pivots: November 19, 2023

Another big week and big profits

We were right to add a couple positions last week. The market continued higher as investors start to price in future rate hikes. This is taking yields across the curve lower and pushing investors back into risk assets.

Now, I believe that rate cuts will only happen after the economy declines. Federal Reserve chairman, Jerome Powell has told us to expect a “period of below trend growth.” This tells me that the Fed isn’t going to preemptively cut rates to try to keep the economy chugging along.

Powell has told us exactly what he was going to do. And he’s don’t it – despite most people not believing he could raise rates this high without crashing the economy.

But the monetary policy that Powell controls doesn’t have a direct impact on the economy. That’s what everyone forgot. They thought higher interest rates would stop economic growth immediately. That’s not how it works.

It takes 2 – 3 years for monetary policy to work its way through the system. People don’t need to take out new loans right away to live. Businesses don’t have to roll over debt at higher rates immediately – they’ll wait until the old debt matures first.

The Fed started raising rates in March 2022. So we’re nearly 2 years into the cycle. So we should start to see the tightening effects soon. We may already be starting with delinquencies on the rise, a high number of bankruptcies, and the employment situation beginning to weaken.

So be on the lookout for these. But for now the market is ripping higher. And it appears to be holding these new, elevated levels. We can see the market consolidating the past three days after surging higher on Tuesday.

This is constructive market action. And it makes me wonder about a Santa Claus rally to end the year. It’s a possibility. And while the market is higher we are going to hold onto our existing positions and add another one this week.

While the market is rising, we want to own stocks. So let’s get to our new addition.

Wolfspeed ( WOLF 0.00%↑ )

Our best performing open position now is a semiconductor company, Impinj ( PI 0.00%↑ ). We’re up 30% on it already. The semiconductor industry as a whole is doing great. It broke out to new 52-week highs last week. So it’s fitting that we add another semiconductor company to the portfolio.

Wolfspeed specializes in silicon carbide and gallium nitrate solutions for power conducting and radio frequency semiconductors.

The company has been beaten down by a general slowdown in RF and power semiconductors this year. But they had a great forecast when they reported their earnings on October 30. And then last week the company bounced as activist fund Janus Partners revealed a position in the company.

These two factors make it likely the trend will change in Wolfspeed and we can make a little money in this company as this rally continues. And that’s confirmed by the fact that the price broke above its 10-day and 50-day moving averages. That’s strong price action that often comes before a run higher.

We’ll use $32.50 as a fixed stop initially.

Note: I’m not expecting much activity this week as it’s Thanksgiving and no trading on Thursday… And Friday will be a light day. Another note, I expect little volatility this week as well. Could be a good time to sell some slight out of the money options and collect some premium.

And that’s all for this week.

Happy Investing!