US bank stocks and Psychological Ploys in the stock market

Psychological Ploys

Before we determine whether US banks stocks are cheap, let’s look at what the Fed is doing in the markets

How do you get the majority to embrace a particular narrative? In this instance, we have bulls, bears and neutral. There are three separate groups with three different views. Well, you punish all three of them, and you punish them so severely that there is only one outcome to embrace, but the outcome is so obscene that every now and then they will question it, so you punish them again and again.

The bulls are questioning the rally as they banked some profits in the hopes of buying back at a lower level, but the markets never pulled back. So, while they did not short the markets, they are getting punished for their stance; they are losing money on the long positions they closed out.

90% of the bears that shorted the markets during the coronavirus selloff got hammered when the Dow reversed course so fast, and they believed the reversal would fail. They assumed that this market would at least let out some steam before trending higher. This pullback would give them the opportunity to recoup those losses, but it has not come to pass.

The neutrals are the ones taking the biggest beating; they are sitting in cash. They are getting hammered for being savers as interest rates are almost zero and they losing on banking any profits as the markets soar higher.

In effect, the Fed is employing the most dangerous strategy of all; it’s now using high-level Mass Psychology in a negative manner on everyone. Friend and foe are now all targets so anyone relying on just one tool is going to be blown out of the water. We will expand on this more, but for now, investors need to steel themselves to view sharp pullbacks that will be triggered for no reason and randomly as opportunities. It is time to prepare for psychological warfare, and the only way to prepare for this warfare is to understand that the underlying theme is deception. So, what you think is happening is not really happening and vice versa. The markets are not going to crash, but they will appear to be in crash mode for brief periods, and then they will reverse just as fast. If you prepare yourself for this, then the mode of attack is simple; embrace every pullback until the trend turns neutral or negative.

While we lost on the options, our other holdings are performing remarkably well. So, our strategy going forward will be only to look at options that have a minimum of 6 months of time premium.

In Summary

Trying to gauge the short-term direction is almost a waste of time because everything is being controlled on the short timelines. So, the best strategy in such a manipulated environment is to focus on the longer trend. The short-term trend is being manipulated because the Fed wants individuals to embrace the market yesterday and not tomorrow. And don’t bother asking why? For it does not matter; you don’t fight the Fed, no matter how strong you think you are.

We are not stating that it’s guaranteed that the Dow will go to 28K before pulling back; we don’t have a crystal ball. What we are stating is that if the Dow closes above the stated levels, the odds are above average that it could hit those levels. We are choosing to focus on the underlying trend as we have to change our line of attack given the Fed’s new strategy. This plan is simple, we will focus on the long side and when the Markets let out steam, while everyone howls, we will smile and pile into top-quality stocks.

So, prepare yourself mentally to deal with sharp gyrations from time to time, for the rewards will be huge. We are now in a different market, technical analysis, fundamental analysis, and any time of single analysis will fail. This is psychological warfare of the highest order. The order is to change the masses perception with such subtleness that they will think and believe they arrived at a conclusion that was already chosen for them.

Hence, let’s look to exit these June puts, at the best possible price you can get. Our other plays are holding up very well. Now murphy’s law might kick in, but we can’t sit and focus on one small event. With the new data we have, we have to focus on the long term and not the short-term game. Now the other option for those willing to take on more risk is to hold them and take a risk that the market will suddenly revert to the norm, let out some steam quickly and before trending higher.

Are banking stocks cheap?

financial report

From a historical perspective, US banks stocks are very cheap and 12 to 24 months from today, a large percentage of these chaps should be trading at least 50% higher. KEY still makes for a good play, and we are issuing two more plays, one in the Trend portfolio and one in the ETF portfolio.


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