Rippy Global Weekly Outlook - March 12 to March 17
March 12-March 17, 2023 by Adit Dayal for RIPPYGLOBAL.
Good evening everyone and congratulations on making it through last week. Next week will be an absolutely insane week for the markets with the sheer amount of catalysts we have coming through, so let’s take a look.
As I’ve continuously updated in my weekend newsletters, the Federal Reserve is setting an aggressive stage to bring down inflation via rising interest rates.
Unfortunately, this has caused huge problems for two California banks: Silvergate Capital and SVB Financial.
Although you may have never heard of SVB Financial before this week, they provided capital to 44% of the public venture capital-backed tech and healthcare companies on the stock market last year.
Banks like these invested their cash into bonds during a period of low interest rates when VC backed companies were growing at record rates, but now these higher rates are lowering the value of the bonds they already have.
In 2019, SVB financial had $62B in deposits, but by the end of 2022 they had $173B. This increased the value of their bond portfolio from $13.7B to ~$100B by the end of 2022.
The rate of customer withdrawals along with the rate hikes have forced these banks to sell their bonds at a loss.
Once again, bond prices have an inverse relation to the interest rate levels, which Powell has been hiking in an effort to reduce inflation.
Legendary investors have been giving their takes on this issue:
Bill Ackman has said they he expects more bank runs starting from Monday morning and that “no company will take even a tiny chance of losing a dollar of deposits as there is no reward for this risk.”.
Michael Burry, in a now deleted tweet, said we had our “Enron moment”:
In my opinion, it’s clear that these smaller banks were over leveraged in on overpriced US Treasuries and I’m not sure that this issue is the same for the larger banks.
That being said, depositors are still having trouble getting their money out and if there are more bank runs, as Ackman predicts, the government will need to step in and help bail them out.
Here are the largest companies with money stuck in SVB Financial:
- Circle: $3.3 billion
- Roku: $487 million
- BlockFi: $227 million
- Roblox: $150 million
- Ginkgo Bio: $74 million
- iRhythm: $55 million
- Rocket Lab: $38 million
- Sangamo Therapeutics: $34 million
- Lending Club: $21 million
- Payoneer: $20 million
Like I mentioned earlier, we have a catalyst filled week, so let’s take a look of some of what we have coming up.
#1) Another light earnings week with no heavyweight company reporting, although Meta, FedEx, and Xpeng are going to be interesting.
#2) On Tuesday, OPEC will be publishing their monthly oil report, so watch oil futures as well as $USO which is the US Oil ETF.
#3) The February CPI number will release on Tuesday at 8:30 AM with the expectation for core year over year inflation to drop to 5.5% from 5.6%. As you can see by this chart below this is expected to be the second most volatile event of the month of March, only behind the FOMC meeting on the 22nd. Overall consensus is 6%.
#4) Another inflation report, the PPI (producer price index) report will be released on Wednesday at 8:30 AM.
#5) Quad-witching on Friday, so expect above average volatility. This is when all derivatives contracts expire on the same day, and therefore there is more hedging and rebalancing on this day.
The S&P 500 ($SPX index) broke below the trendine from October 2023 with volume
My key breaks are $3926 for bulls and $3852 for bears although I’m mainly seeing what levels are holding AFTER our large economic releases.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
Options Flow Reading
Here are the biggest options orders by size on Friday:
The largest trades were in MARA puts with a massive multi-million dollar order along with Coinbase puts and calls in the Brazil ETF.
INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
Tesla has gone back down to $170 where I think we will see a short term bounce after 5 consecutive down days. There was a also a $1M order sweep in call options two minutes before the close on Friday.
Apple is still in this flag. $147.50 is the key level for bears to break through and this names saw some huge bearish flow on Friday as well.
ROKU is one of the companies with lots of money in SVB so I think that as the news has spread over the weekend, this is a great short candidate here for a play back down to the $40’s area.
- Huge insider trades in small names: the CEO and Co-CEO of $SMMT bought over $400M worth of this stock at just $1.05/sh.
- $OPK is another name trading at $1.20 that saw a $1.2M buy at $1.18/sh.
- Lastly, the $SOFI CEO I buying in on about $1M worth of shares on this weakness at $5.53/sh.
Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)