Analysis: AMZN CSCO SH PSQ QQQ BA WYNN AEO PYPL

After you receive this alert, we will make the following trades

  • Sell 17 shares of Amazon (AMZN) at or near $2,115. Following the trade, the portfolio will own 30 AMZN shares, roughly 1.9% of the portfolio.
  • Sell 2,440 shares of Cisco (CSCO) at or near $42.50. Following the trade, the portfolio will own no CSCO shares. In closing out the CSCO position, it returned -21% since being added to the portfolio in June 2021.
  • Buy 585 shares of the ProShares Short S&P 500 ETF (SH) at or near $16.25. Following the trade, the portfolio will own 3,310 SH shares, roughly 1.6% of the active portfolio.
  • Buy 2,940 shares of the ProShares Short QQQ (PSQ) at or near $14.30. Following the trade in this new portfolio holding, the 2,940 PSQ shares will account for ~1.25% of the portfolio

With the above trades, we are putting into action the comments we shared earlier this morning. We believe this added level of protection coupled with the high level of cash is going to insulate our portfolio against a larger downdraft that technically looks like a strong possibility based on the charts. For those members that are prohibited from utilizing inverse ETFs, such as SH and PSQ, we would recommend building your cash position even further as you make the trades for AMZN and CSCO.

Below is more of our thought process behind the trades being executed above:

With the precision of a surgeon the market has been sliced up into pieces, and no group has been diced and chopped up more than technology. That sector is responsible for the lion share of losses on the Nasdaq 100 (QQQ) for the past eight months.

Bear Market

We are fully into a bear market with an extremely hawkish Fed, hell bent on raising rates to snuff out inflation. We'll see if they put action in place or if this is just more lip service and by that we're referring to Fed Chair Powell's aggressive comments on Tuesday about tightening - "What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down - and if we don't see that, then we'll have to consider moving more aggressively." The charts of the tech group are taking on water and there could be much more water to fill up the boat.

Witness Cisco, which we managed to skirt a disaster last quarter with some good guidance, however they are now getting punished for weak forecasts. There is plenty of resistance above and it'll be a monumental task to rise above 50 for this former tech darling. It's time to cut it loose, but we'll keep an eye on this in the Bullpen. When a stock is not working, we have to make a decision and if the charts are saying to cut it, you cut it. While this will be painful to some, much like our past decisions to exit Boeing (BA) , Wynn Resorts (WYNN) , American Eagle (AEO) , PayPal (PYPL) and others over the past seven and a half months, it looks to be the right decision.

Given the prospects for a challenging summer, we are adding not only to our existing market hedging position that is the ProShares Short ETF, but we are also adding the ProShares Short QQQ ETF as well to provide us with some nice protection against our long tech names in the portfolio.

Even after exiting CSCO shares, roughly 20% of the portfolio's weight remans in tech sector and PSQ shares offer us some insurance against that. PSQ shares act in a similar fashion to the SH ones, which move counter to the S&P 500. As a reminder if the S&P 500 moves down 2%, our SH shares move roughly 2% higher. The same is true for PSQ shares, which track the Nasdaq 100. Also, like our existing position in SH shares, we view the use of PSQ shares as tactical in nature, which likely means we will be utilizing the shares for a shorter duration than we would most other positions in the portfolio.

As a reminder, the general time horizon for the majority of our long positions is 12-18 months subject to their respective fundamentals and technicals.

(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)

Note: With Chris under the weather and Bob on the road, there will no AAP Daily Rundown today. We apologize for the inconvenience and will be back with the Rundown on Monday, May 23.