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A defensive trade idea

Aug 19, 2022

Good morning!

‍The markets are on track to snap a four-week winning streak if futures are an indication of what’s to come when the opening bell rings.

Not a surprise.

Here’s my playbook.

Is the summer rally over?

That depends on the timeframe you’re talking about. There’s clearly some consolidation on tap and portfolio managers are beginning to think about window-dressing for the Fall.

Don’t be a hero. There’s still plenty of volatility ahead. Between elections, the Fed’s next move, China’s heat wave and shipping problems, there’s a lot to roil markets.

Stick to the best, ignore the rest. If you’re buying companies for the helluvit or just because you “like’em” you’re playing with fire. Sorry to be blunt.

What you want to do is invest in the inner ring of top-quality names, meaning companies that are still putting up numbers, can protect margins and will grow anyway. The reliable names you’ll kick yourself if you don’t own 5 years from now.

We talked about ‘em a few of the best choices recently in the One Bar Ahead™ Masters Classes so that’s where you want to be shopping. If you’re a member, you can find the links in the OBA archives. (click here for session #3 of 4).

Time to prune and weed. Meanwhile, there’s no doubt you’re sitting on some terrific profits if you’ve been reading along since late June when I told you that there was a summer rally on tap.

Trimming makes sense, especially since it frees up cash for the next dip.

A defensive trade idea CSCO

The company beat revenue and profits while also delivering an optimistic annual sales forecast yesterday. (Read)

That’s GREAT because it proves, once again, that executives know their companies better than sell-side analysts. Something we’ve talked about many times.

A trade idea. The action feels funny to me coming into today’s session and a quick look at the chart tells me that chasing shares higher is a higher-than-average risk proposition. I think traders are setting up for some quick profit taking.

I’d rather own CSCO at $40 a share, an 18.7% discount to where it’s trading now in the premarket as I type at $49.20.

If you’re of the same opinion, consider selling the October 21, 2022 $40 puts for $0.50 - $0.75 if you can. Those traded last for $0.15 but a quick downside push this morning could spike volatility and premiums.

If that happens, you’d own CSCO for $39.25 - $39.50 come October if prices are below that at expiration. If not, you’d keep the extra $50 - $75 per contract.

If you’re an investor. CSCO is a defensive name and it’ll probably do okay over time as all things digital accelerate. But I wouldn’t count on it for outsized growth. There are bigger fish to fry and better choices out there.

Meta exploits people for money

I told you about Meta’s AI Chatbot a while ago and how it said CEO Mark Zuckerberg was creepy among other things.

BlenderBot3 is at it again. This time Meta’s own AI chatbot said the company “exploits people for money.” It also said, “he doesn’t care” and that “it needs to stop.” (Read)

Yep.

On a related note. You’re not imagining things if your Facebook and Instagram feeds have gotten more invasive. Meta now tracks its Facebook and Instagram users with injected code when they visit websites via in-app browsers. (Read)

What to make of Meta. The company is still an avoid like the plague situation to my way of thinking and will be until Zuck gets sidelined or has adult supervision.

Ether crushing Bitcoin

Ether has surged 106% from a June low of $880.93 but Bitcoin has managed to rally just 31% from a low of $17,601 the same day.

What’s driving it. Two things … 1) Ether is the backbone for Ethereum which is a critical blockchain engine element and 2) it’s about to “merge.”

The “merge” is a shift from what’s called “proof of work” to “proof of stake” and it’s being billed as an upgrade that will make Ether more competitive, faster, and efficient.

There are risks. The Feds have it out for crypto, the merge could get delayed or traders who are up big simply may decide to cash out which would turn the recent run into a buy the rumour sell the news situation.

My take. Digital currency is the future but just not the one people are planning. I think it’s still worth owning Bitcoin and Ethereum on a purely speculative basis but that Ethereum remains the better bet for now.

iOhmy AAPL

In a rare miscue, Apple has told users worldwide to update their devices immediately after finding a security “exploit” flaw that could allow criminals access to EVERYTHING.

Why you should care even if you don’t use an Apple device. Cybercrime will cost the world $10.5 trillion dollars a year by 2025, just a few short years from now.

The average cost of an individual hit is $150 per personal identifiable information record. A small business that gets hacked and has 1,000 PII records compromised could face breach costs of $1.5 million. A breach of 50,000 records and you’re talking $7.5 million.

The big picture. Cybersecurity is one of the single largest investing trends in human history. C-level executives cannot not spend money on it which is why we’re talking about trillions of dollars in Capex over the next decade and corresponding levels of profits for cybersecurity stocks.

I’d hate to see you miss out. I have my favourites and have recommended ‘em in One Bar Ahead™. (Get the stocks now) I certainly hope you have yours!