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Idea of the Week - Members Only (Cestrian Stocks Bulletin #129)

Cestrian Stocks Bulletin
Idea of the Week - Members Only (Cestrian Stocks Bulletin #129)
By Cestrian Capital Research, Inc • Issue #129 • View online
Just because it’s simple doesn’t mean it’s dumb.

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
It Doesn't Always Have To Be Complicated
This week’s idea of the week - yes we know there wasn’t one last week and yes we will supply two this week - is, buy the S&P500.
You can play it simple and pick up some $SPY or you can play it with more risk at buy some $UPRO, which is a daily 3x levered play on the S&P500. (If you want to know more about these levered ETFs, take a look out our Cestrian ETF Select newsletter - we wrote about the 3x daily Dow Jones ETF, $UDOW, here, and about $UPRO, here.)
Our logic is simple. One, investors everywhere will tell you there’s going to be a big war in Europe and maybe beyond, that the Fed is going to remove money from the system until we’re all just grateful to have a couple loaves of bread and some tinned tomatoes, that long Covid is going to decimate the working population and that actually this is all a nothingburger anyway because nuclear bombs.
Well, if we’re not at Peak Yikes yet then we think it’s close.
In November 2021 we were saying to subscribers of our Growth Investor Pro service that we thought the market - in the shape of the S&P500 and the Nasdaq - had peaked, because both charts were showing the relevant ETFs at the top of a Wave 3 up, bumping up against important resistance levels and unable to break through.
Here’s $SPY.
Source: TradingView, Cestrian Analysis
Source: TradingView, Cestrian Analysis
We believe $SPY is at or close the the bottom of Wave 4. And if we’re right, and a Wave 5 up starts soon, then the ETF could add c.$160/share to reach a Wave 5 high of $568 sometime late next year. If you’re minded to use stop-loss orders you could consider placing your stop just below that February low (so around $409), and if you want to play one Fib level upwards before banking gains, consider placing a sell-limit order at around $478 which is just shy of the 0.236 extension of the prior Wave 3 up.
And $UPRO?
Source: TradingView, Cestrian Analysis
Source: TradingView, Cestrian Analysis
Wave 1 up from the Covid crisis to December 2021; then a nearly 0.5 Wave 2 retracement which we would be expecting to turn into a Wave 3 up sometime soon. On a probably cautious basis that the Wave 3 will be the same length as Wave 1 (in reality it’s likely to be longer), we rate UPRO at Buy with a Wave 3 target of $113 or so.
Cestrian Capital Research, Inc - 2 Mar 2022.
DISCLOSURE: Cestrian Capital Research, Inc staff personal account(s) hold long position(s) in UPRO.
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