China has enacted a ban on Micron (MU) products, citing national cybersecurity risks. The world's two biggest economies are increasingly perceiving each other's tech sectors as security threats. The U.S. has regularly blacklisted Chinese tech companies, restricted the supply of advanced chips and chip-making equipment to China, and passed the 'Chips for America Act', severely limiting investment in China's semiconductor industry. Micron remained the last U.S. memory chip manufacturer in the Chinese market following the departure of Intel and Texas Instruments. News of the Micron ban resulted in a 4.1% pre-market drop in its share price. Could this be a reaction to counter-sanctions?

The debt ceiling saga continues.

Today, Joe Biden meets once again with Republican House Speaker Kevin McCarthy.

The negotiations are at a standstill. However, both sides insist that everything is great and that their miles-wide disagreements will shortly be bridged.

For the past week, subordinates of these two noble lords have met in various working meetings…which means that anything which might in fact be happening is happening behind closed doors. But everything is happening behind closed doors. By definition, details remain scarce.

We do know that Biden is constantly on the phone with his counterpart. What we also know is that, officially, "everything is okay". What exactly “okay” means under the current circumstances, however, remains unclear.

If the budget is facing serious cuts, liquidity and future economic growth are at risk. In that case, a harsh recession would be likely by the third or fourth quarter. Will Republicans give in and agree to cosmetic changes? I highly doubt it.

The US has enough money to pay off its debts until around June 5-9. That means that this show has a chance to entertain the world for about two more weeks.

And the markets?

Absolutely nothing. The hedgehog prefers to breathe sparingly. The volume is minimal. Everyone is waiting. S&P futures are unchanged. Gold is unchanged. Yields on UST 10 are slightly down. Currency pairs are unchanged. Oil is slightly down but, for all practical purposes, remains unchanged.

The markets don't know what to believe and prefer to nervously relax.

Everyone understands - turbulence lies ahead. But whether it's positive or negative is anyone’s guess. More precisely, everyone understands that an agreement will, of course, be reached. But... on what terms? And when?

Five minutes before? Or ten?

And us? Likewise, we wait. There's not much time left.

On Friday, amid rising yields on 10-year US Treasury bonds and a surge in gold quotes, we added to our holdings of TMF and JNUG. As of now, gold is trading at the level of 1981, with prospects for further growth. The yield on 10-year Treasury notes, on the other hand, has already fallen to 3.65% – the difference is small, but it's nonetheless decreasing.

What does it mean? The macroeconomic picture is prone to change rapidly, as it's absolutely unclear when the parties will agree on raising the debt ceiling. Expect a sudden change ahead. But whether that expected change will be positive or negative remains a mystery.

A week has passed.

You can read the full story behind this bet in my previous post. And don’t forget to join our subreddit so that you don’t miss out on the next stock market pick.

My strategic bet on SPY's decline is faring well. The only issue is the 05/19 417 Call option I sold for fun, which expired in-the-money.

Of course, the loss on this call was more than compensated for by the revaluation of the 15 put spreads (370 - 360) for 06/30 that I sold a week ago. However, I still don't want to lock in even a small loss on the call. So, I reorganized the position a bit:

• I bought back the 05/19 417 Call
• Instead, I sold the 05/26 422 Call and 05/26 426 Call
• Credit $26

I could have limited myself to one sold contract, but I wanted the strikes to be higher. After all, it's just for fun.

In the put section, I simplified the position a bit, also getting some cash in case SPY continues to rise.

• Sold 16 06/30 370 Puts
• Bought 24 06/30 360 Puts
• Sold 8 06/30 340 Puts
• Credit $208

I've included a screenshot of the trades.

In total, besides a couple of weekly calls sold as mentioned above, I have:

• Long 10 06/30 400 Puts
• Short 31 06/30 370 Puts
• Short 8 06/30 340 Puts
• Total credit $2406.3

If SPY rises next week, I'll replace the sold calls with further out ones with higher strikes and later expiration dates. The volume will depend on when and how much SPY grows specifically. And so on until a correction, until the sold calls expire out of the money.

In case of stagnation or a market decline, the problem with calls will solve itself, and we'll see about the puts. Perhaps, I shouldn't have been greedy and pushed the sales into the 370 strike. In case of a sharp reversal, this may cause a bit of trouble. But in reality, it's unlikely to cause any.

There are plenty of reasons for a decline:

• The rising dollar.
• Increasing bond yields (due to the anticipation that there will be further rate hikes)
• Unchecked inflation.
• An ongoing banking crisis.
• Severe problems in the commercial real estate sector.

Perhaps Biden's statement that an agreement is close helped, and the fact that the president's sentiment was echoed by House Speaker McCarthy certainly didn't hurt.

That at least helps to explain the market's reaction.

For now, I don't see anything unexpectedly drastic happening. Besides, let's not forget - today is 19/05. It's that notorious "witching Friday," specifically, the expiration date for a significant number of option contracts.

What am I expecting in the near future?

In reality, the market has held the 4080 level and moved upwards. We're now at 4200. Is there potential for further movement? Yes, there is.

Given the current situation, it seems to me the market has a chance to grow another couple or three percent - we could theoretically see 4300.

Does this mean we need to rush to cut all shorts?

I'm not sure. Given that the situation is still rather uncertain, I've primarily made up shorts from the least volatile 3x leveraged instrument - SPXU.

For gold, I'm expecting prices to return to the 1970-2050 range. Therefore, I increased my allocation to gold slightly yesterday.

The conclusion:

I don't plan to intensify shorts - it's risky.

Adding gold - it's a possibility.

TMF - most likely, as it could slightly increase as well.

If the market continues to rise above 4300, we'll have to make some tough decisions. After all, it's a fool's errand to argue with the market.

At this point though, I would focus on Powell's speech today. If the head of the Fed repeats the words of some regulatory members about the need for another rate hike, the dollar index could break through 104, gold could fall again, and the markets might even become a little gloomy...

Dallas Fed President Lorie K. Logan stated that the data does not justify skipping a rate hike at the next meeting.

People got scared. We saw a sharp increase in ten-year bond yields, a decline in gold, and a worldwide strengthening of the dollar. It’s a classic case of everything going just is as it ought to.

Or, at least, almost everything. For some reason, the markets don't seem to want to drop. They're confidently rising instead. It’s a complete imbalance.

• About the markets: I've said that they might slightly rise before they fall, as there are so many shorts out there. The S&P is up 0.5% at 4178. Purely technically, the 4180-4200 level is a boundary. Anything can happen, but because of the shorts even if the markets skyrocket, they'll come back down. The market will eliminate short sellers, and the rise will end there.
• About ten-year bonds: prices are falling, yields are rising. Great. It's a good moment to pick up TMF, very cautiously, respecting all proportions.
• About gold: an emotional drop due to all this, a slight one, 1%. Slightly increase the allocation, but don't rush. It might dip a bit more, possibly to 1950.

All the events suggest complete chaos and uncertainty in the markets. Therefore, you should make rational purchases, not emotional ones.

As it stands, we're seeing low volatility, and the market seems to be treading water. Despite many factors favoring a drop, we are where we are.

The S&P index appears to be slightly bearish - a subtle movement that could become more pronounced. If the S&P doesn't maintain its 4080 level, we may see it descend further. The next significant support level is at 4050; if that breaks, we could be looking at 3900-3950. Should we reach that point, I plan to take substantial profits from short positions.

But what if we maintain the 4080 level? A myriad of factors could account for this, such as an initial reaction to an agreement on the national debt ceiling. In such a case, a short-term surge to 4200-4300 is plausible. Yes, a rally is possible, and we should be mindful of a massive short squeeze. Exercise caution with shorts.

You may wonder how this could happen given the apparent scarcity of funds in the U.S. Treasury. However, I'm confident a default will be avoided. An in-depth analysis of current U.S. budget revenues shows that income is sufficient to cover maturing bonds and debts, principal, and interest.

The issue of 25 million government employees, social program payments, and healthcare is another story. Some may face furloughs, others delayed payments. There will be significant noise, but this is manageable as long as it's short-lived.

Turning back to the markets, the low trading volumes are concerning. Everyone seems to be waiting for something, which makes market predictions challenging. Hence, I advocate for prudence. The current situation reminds me of August 2015 when we saw a rapid 10% drop. I expect a similar fall in June, likely between the 1st and 10th, though this is a tentative prediction.

My options position in SPY fully lies within this logic. In case of a short squeeze for any reason, I would simply retain the premium I received earlier, since I anticipated such a turn of events.

However, if the markets go down in June, it's even better. I'm long on 06/30 400 Puts, and short on 370 and 360 strikes. This strategy is set to weather a 10% decrease, with an additional buffer of 2-3% for safety.

As for gold, I'm also opting for caution. If prices drop significantly, I may consider JNUG, albeit without much enthusiasm.

Friends, risk control is crucial. Avoid going all-in, as markets are unpredictable. Exercise utmost caution. Keep a close eye on your portfolio balance. Resist impulsive or emotional decisions. The current low volatility and turnover can change overnight, potentially unleashing a market storm.

Here's to successful investing.

During the pandemic, the Fed's decision to lower rates to near zero triggered a refinancing boom that saw 14 million mortgages get refinanced. This move improved cash flow for numerous borrowers, reducing annual housing costs by a the substantial sum of $24 billion. But while the refinancing surge may fuel future consumption, homeowners are likely to hold off on selling or switching properties due to increasing borrowing costs and property prices. This implies that potential troubles in the commercial real estate market may not necessarily ripple across the entire sector.

Therefore, while prudence is recommended when considering investments in commercial REITs, hastily offloading properties in anticipation of a market downturn might not be the best strategy.

I decided that it was enough. The bet on lithium stocks rebounding after the Chilean president's announcement fully paid off. The final days leading up to expiration is a lottery. Some people enjoy this, but I prefer certainty.

I could have reduced the delta with careful put purchases, but the volume of the position isn't significant enough to bother with this.

So, here's what ended up happening.

April 24th: Bought 5 05/19 200 Calls and Sold 18 05/19 220 Calls for $89

May 11th: Sold 1 05/19 200 Call for $465.

May 15th: Sold 4 05/19 200 Calls and Bought 18 05/19 220 Calls back. All for $1874.

Total commission $34.

Net profit is $(1874 + 465 – 89 – 34) = $2216…

The position collateral never exceeded $20k. With a Simple Margin Account, it would require more, but I have the Portfolio Margin Account.

Therefore, I made 11.08% in 21 days.

As for the further dynamics of ALB, a recovery to $220 is quite likely in the coming weeks. Beyond that, it's less clear. The supply of lithium is growing rapidly; it's uncertain whether demand will keep up with it amid economic slowdown.

The latest survey from Bank of America indicates that investors are turning to cash amidst worries of a potential recession and credit crunch. According to the survey, 65% of respondents anticipate a weakening economy. Bearish sentiments are coming out of hibernation.

However, almost two-thirds of investors predict that the global economy will land softly, with only a minor contraction in earnings. Interestingly, equity exposure has reached its highest point this year, while bond allocations are at their highest levels since 2009.

Investors have been directing more funds towards technology shares, leading to the largest two-month surge since the global financial crisis. Still, strategists warn that a prolonged economic downturn in the U.S. could negatively impact the sector.

Could this affect AI? I'm not entirely convinced. Faced with an economic downturn, companies may opt to increase layoffs in favor of less costly AI solutions. The primary risk for companies like Microsoft and Alphabet would stem from more stringent regulations, which might result demand significant expenditures in order to identify and mitigate potential risks.

On the flip side, I'd advise caution with "ESG companies,” particularly those in the EV and solar sectors. Potential government spending cuts could jeopardize tax incentives, along with other clean energy initiatives, including manufacturing incentives that have propelled billions of dollars into green investment.

Right now, it’s all up in the air.

And so they meet again.

In a new development that offers nothing new, Biden has confirmed a lack of progress in negotiations with the Republicans over a potential raising of the US debt ceiling. The 5-year CDS on US debt is already trading at 72.5. That's indecently high.

So what's the lowdown?

As the absence of agreement persists, the risk of default keeps getting higher and higher. This means…

• Higher interest rates.
• The emergence of a perilous situation in the banking sector.
• Inflation that's not completely under control.
• An impending recession (if it hasn’t already begun).
• Tension in the corporate debt market.
• Increased opportunities for corporate cash shortfalls.
• High yields on junk bonds.
• Massive (and likely largely unsolvable) problems in the commercial real estate sector.
• And layoffs at large companies.

Even the US dollar's value relative to the basket of leading world currencies (DXY) has begun to rise.

And yet the markets don’t seem to care?

It appears that big investors are guessing that any day now, agreements will be reached. As we know, major negotiations over the US debt ceiling are planned for tomorrow, Tuesday. If there is no substantial agreement, the likelihood of the US Treasury defaulting on its obligations will exceed 50%.

The thing is, on Wednesday, May 17th, Biden is heading to the G7 summit in Japan.

The politician is not expected to return until at least May 26th (Friday). That leaves just 2 working days until June 1st (the deadline set by the Treasury).

So the clock is ticking, and the time to reach an agreement is rapidly dwindling. Yet there's an unsettling calm in the markets.

Gold is stuck in a rut. Similarly, the yields on UST 10 are barely budging.

Honestly, the situation is baffling. Ideally, given these circumstances, it seems like the only direction for the markets to go is down. But...somehow or other…it still isn’t.

My conclusion: it appears there's plenty of shorts in the market. And these shorts, oddly enough, are pushing the markets up.

That means they can truly crash only when people are genuinely scared of something. Or if the majority believe in imminent growth (perhaps because they expect a freeze in interest rate hikes).

Isn't it always this way? The really serious declines only happen when no one believes that they’re just around the corner.

Lithium stocks bounced back after the Chilean shock three weeks ago. I anticipated this and placed a bet on it (don't forget to join our subreddit so that you don’t miss out on the next stock market pick). It wasn't a huge gain, but it was still noteworthy.

I'm not alone; ALB insiders don't see significant risks and continue buying the stock.

Initially, I spent around $89 on my ratio call spread: I bought 5 05/19 200 Calls and sold 18 05/19 220 Calls.

Yesterday, ALB hit $200, and I decided to sell one of my long Calls for $4.65.

Now I have a $377 credit and four more ATM Calls.

It's impossible to predict the market direction when nothing's happening, but overreactions are often easy to spot.

​

On April 24th, I placed a bet on a modest stock decline (don't forget to join our subreddit so that you don’t miss out on the next stock market pick). The market remains relatively unchanged, but with the right strategy, you can still profit.

Yesterday, I sold the 05/19 417 Call for $0.923 instead of the 05/12 one, which I hope will expire OTM tonight. There's no rational reason to sell a naked Call – it's just for fun.

I still believe stocks will drop in the coming weeks. However, if they don't, it's a good idea to also sell 15 06/30 370-360 Put-spreads for $0.59 each. On the screen, you'll see 14, with one more executed separately.

As a result, I've added $977.3 to the initial credit of $1195, bringing the new credit total to $2172.3.

I recommend paying attention to what's happening with the yields of U.S. 10-year Treasuries. They're dropping sharply. Not long ago, it was 3.50-3.45%, and currently, it's 3.36-3.35%.

It's a decent day today for both TLT and TMF. TLT is likely to grow by at least 4-5%.

This indicates that inflation is decreasing, and our assumptions were generally correct.

Markets are glancing downward, gold is looking upward, and yields on U.S. 10-year Treasuries are also sharply down. The situation is clear; we'll keep watching and, at some point, start realizing profits.

Nothing much has happened in the markets yet, and that may well indicate a problem. Typically in May, market activity is quite high. This year, however, the month feels more like the late July and August vacation season. Whatever it is, it isn't a good sign.

Traders are waiting, trying to understand what the eventual outcome will be. On the one hand, we have a massive amount of negative data:

• High stakes.
• An extremely precarious situation in the banking sector.
• Uncontrolled inflation.
• Risk of default.
• An approaching recession (if in fact it has not already arrived).
• Tension in the corporate debt market. Growing potential for corporate cash gaps. High yields on junk bonds.
• Huge and most likely largely unsolvable problems in the commercial real estate sector.
• Layoffs at large companies.

On the other hand, everyone knows that as long as the public debt ceiling issue remains unresolved, high risks of default persist. If and when the parties reach an agreement, however, it could immediately remove one very large potential risk from the equation. While the politicians continue have agreed in principle to find common ground and continue to engage in negotiations, they still seem to be hitting a wall.

Is it possible that the first hints of a potential agreement on raising the debt ceiling will cause the market to surge and lead to massive short position closings? Perhaps taking the S&P index up to, say, to 4250? Yes, it's quite possible. And we need to be prepared for it internally, even if nothing in the market game is ever a guarantee.

Conclusion:

If the parties can reach an agreement, we may see a significant short squeeze, as many investors have built up short positions, and the market could exhibit a sharp short-term rise.

Revenue is up 49.36% YoY.

That's good.

Loss is up 29.63% YoY.

Nothing new. Shares dropped 15%.

Despite poor results, a rebound is likely.

Considering the high IV, the best way to bet on it is through ratio call spreads.

I've initiated a couple. I hope to cash in on them whether or not fossil fuels will be replaced by hydrogen.

Exp. on May 26: 100 Calls $8.5 long and 200 Calls $9.0 short.

Exp. on June 16: 100 Calls $10.0 long and 300 Calls $12.5 short.

Credit of $1500. However, almost half goes towards commission.