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Stocks and bonds received a brief boost following Wednesday’s FOMC meeting as Chairman Powell struck a relatively dovish tone. However, the markets quickly reversed as Janet Yellen, who was speaking in front of congress at the same time Powell spoke, made clear there’s no plan for a blanket backstop/bailout for depositors.
On Thursday, both equities and interest instruments tried to resume the rally, but started falling by midday as investors reassessed the ramifications of what is likely to be an economic contraction, as bank lending and overall financial conditions begin to tighten.
The flight from cash accounts, whether savings checking or anything not explicitly covered by the FDIC $250k limit, will keep flowing out of the banks, even the top tier banks like JP Morgan Chase (JPM) or Bank of America (BAC).
So where is the money going and where can investors look for alternatives? Let’s come up with some ideas.
Gold has been the traditional ‘store of value’ for more than 5,000 years. It’s also been enjoying a nice rally as of late, gaining nearly 12% since the implosion of Silicon Valley Bank (SVIB) on March 9.
A great low cost vehicle for exposure to the yellow metal comes via SPDR Gold Trust (GLD).
Two main attractions for GLD are the low cost of a 0.40% fee and the fact it owns physical gold; in this way it tracks the underlying asset very closely, as opposed to other gold ETFs, as some use futures contracts that are subject to term structure that require them to roll positions.

This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including Magnifi Communities’ relationship with Magnifi.

Next up, ProShares Bitcoin Strategy ETF (BITO), which tracks… you guessed it, Bitcoin. Bitcoin has often been referred to as “digital” gold with the optionality that it could also become a “currency” for the internet age.
I don’t have an opinion on what bucket of asset class BTC and other cryptocurrencies might fall into, however, it has a core cohort of believers and they seem to have faith, no matter what regulations and their impact may be lying in wait for the industry.

This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including Magnifi Communities’ relationship with Magnifi.

What I do see is Bitcoin is up some 57% for the year-to date and BITO is keeping track right along with it.
The fund’s fees are 0.95%, which seem reasonable for such a volatile and new asset class.
Additionally, there’s a host of other funds, such as Blackstone Alternative Multi-Strategy Fund Class I (BXMIX), which seeks to achieve its objective by allocating its assets among a variety of non-traditional or “alternative” investment strategies. These “alternative” strategies allow investors to gain exposure they would otherwise get with most equities on the market.

Alternative can mean many different things when it comes to investing. Alternative sectors, strategies, or assets. All of which are ways investors can unlock more value from the market, and ultimately, their portfolios.
How to Unlock More Opportunity with Magnifi Personal
Start by taking a look at a variety of Alternative investments to see which one you should add to your portfolio. Assess risks vs. reward of each particular strategy or vehicle and feel yourself becoming a more savvy investor with each use of Magnifi Personal.
Make sure you stay tuned for all your VIP content from All Start Funds to make sure you’re getting the most from Magnifi Personal and your investment account.

Exchange-traded funds (ETFs) have become an essential part of investing.

Not only do they allow you to diversify with strong stocks, but they’re also relatively inexpensive. However, as with any investment vehicles, there are some common misconceptions that we’d like to dispel.

No. 1 – ETFs Are Inherently Risky

All investments carry risk. All risk with an ETF is tied to its underlying holdings, or the assets the fund invests in. For example, an international ETF or managed fund may have higher risks than a U.S. investment grade corporate bond ETF. But that risk is not related to whether you choose to hold a managed fund or an ETF, noted Blackrock. At the same time, as we noted, ETFs do offer greater diversification than an individual stock, which may help reduce risk in a portfolio.

No. 2 – ETFs Are Limited

That’s not true at all. In fact, ETFs actually come in hundreds of “flavors.” You can gain access to specific industries and, or countries. You can also use some ETFs for broad investing for all countries, and most of the holdings in individual indices, such as the QQQs or the DIA. Or, you can buy a healthcare ETF, which offers broad diversification with pharmaceutical, healthcare, and biotech stocks, for example. You’re never limited…

No. 3 – ETFs Don’t Pay Dividends

Again, not true. Look at the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ), for example, which carries a balanced portfolio of large-cap value stocks, while also providing investors with a 10% yield.

With an expense ratio of 0.04%, the ETF offers exposure to some of the biggest and most stable companies in the market. Top holdings of JEPQ include Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA), which has climbed nearly 30% this month.

This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including Magnifi Communities’ relationship with Magnifi.

This exposure, coupled with a steady income from dividends is proof there is an ETF out there to satisfy whatever strategy you choose, including income investing.

No. 4 – All ETFs Have Low Expense Ratios Debunked, different funds employ different strategies and sometimes strategies or fund managers demand higher expense ratios than other funds. The AdvisorShares Ranger Equity Bear ETF (HDGE) has an expense ratio of over 4%, much higher than that of your run of the mill ETF. Typically, a range of 0.5% to 0.75% is considered fair and a ratio above 1.5% is considered high.

This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including Magnifi Communities’ relationship with Magnifi.

Another reason for this difference is some funds are actively managed and others are more of the set and forget variety, so the fund managers need to do less work in order to let the fund’s strategy play out.

No. 5 – Net Asset Value Isn’t Worth Knowing

One of the key terms to understand is Net Asset Value (NAV), as we’ve noted in prior articles. The NAV is the sum of all of the LIT ETF assets (the value of its holdings in cash, shares, bonds, and other securities), less liabilities, divided by the number of shares outstanding.

For example, let’s say an ETF has $10 million in securities, $4 million in cash, $2 million in liabilities, and has a million shares outstanding. That would give the ETF a net asset value of $12, calculated with: ($10 million + $4 million – $2 million) / $1 million, which is 12. With that information, an investor can determine if an ETF is worth considering.

Fidelity puts it this way…

“It’s basically an indication of the fair value of a single share of the fund. It provides investors a reference point around which they can gauge any offers to buy or sell shares of the fund. If you own 100 shares of an ETF whose NAV is $50, and someone offers $55, you have a solid basis from which to judge their offer. In reality, though, most ETFs trade much closer to their NAV.”

Now that we have put those common misconceptions to bed, we are ready to get started on our investing journey. With a little assistance, of course…

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The insights in these articles are often derived from a conversation with Magnifi Personal, allowing us to bring quality financial insights to our readers. Give it a try and see how it can help you improve your investing today!

My eyes are jumping all over the screen as I scan for opportunities in the market.

Given we appear in the midst of a slow motion train wreck that is the global banking crisis, it probably makes sense to pull back for a big picture look at the macro-economy and funds that represent major asset groups. To say it’s chaotic and confusing would be an understatement.

Bonds have rallied sharply (price up, yield down) and commodities are tanking; both suggesting recession is looming.

On the other hand, equities and major currencies have held steady indicating little to no concern for a broad economic slowdown or turbulence. Large-cap tech has held up especially well; Invesco QQQ Trust (QQQ) is actually up 4.3% since Silicon Valley Bank went into receivership on March 9.

The biggest moves have come in the bond market as forecasts for the path of interest rates have been abruptly recalibrated. We will get some clarity on Wednesday when Powell and the Federal Open Market Committee (FOMC) make a decision on whether or not to continue raising rates.

Just 10 days ago a 50 basis point hike was all priced in. Now, there is a 50% chance it will be just 25 bps and a 15% chance there will be no rate hike at all. Investors had been hoping and begging for a Fed pivot, I don’t think many people thought it would be major bank failures that would cause the pause. No one expected a bank to fail for owning too many ‘risk free’ long-term bonds such as treasuries and mortgage-backed securities.

The change in expectations can clearly be seen in the yield curve; that is the relative interest rates across maturities. Three weeks the spread between the 2-Year Treasury Note, which was yielding 4.67% and the 10-Year Treasury, which was 3.55%, was 1.02 basis points. That was the largest inversion on record. On Monday morning, the 2/10 spread was down to just 15 basis points.

The inverted yield curve, which is typically a signal of an upcoming recession, has been one of most highly tracked and hotly debated aspects since the Fed started hiking rates a year ago. If you recall, the curve first inverted last April. The recent price movements also reflect the largest and quickest reversion or flattening of the curve in history.

The sudden change in expectations can be seen in the Fed Futures, which had priced in a terminal or final peak in rates at 5.67% in August of this year to having already peaked at 4.99% earlier this month.

The expectations seem to be if the Fed does hike again on Wednesday, that it should be the last rate hike for this cycle. The theory being that fall-out from the banks will take the form of stricter lending standards, more regulation, and the need to offer higher returns on short-term deposits to stem withdrawals.

This will have the effect of tight financial conditions, which should help subdue inflation, the Fed’s primary goal.

This, in turn, should cause a further flattening of the yield curve, back to a normalization in which longer-term bonds pay a higher interest rate than shorter-term.

Two popular bond ETFs I’m keeping an eye out for are the iShares 1-3 Year Treasury (SHY), which is a proxy for the 2-year and the iShares 20+ Treasury (TLT), which is a proxy for the 30-year bond. Both are extremely liquid, which is crucial during these turbulent times and both have low fees of just 0.15%.

You can see SHY has provided a cumulative return of 1.42% over the past 52-week, with all of that coming from yield, which has more than offset the decline in the underlying price.

Meanwhile, TLT lost a cumulative 16.85% over the past 52-weeks as their lower yield could not compensate for the decline in price.

The rate at which this recalibration occurred qualified as a 10 sigma move – that would be 10 standard deviations from the 12 month expectations – and is leading many analysts to believe this is the end of the tightening cycle and we will see a further normalization of the yield curve in the next year or so.

One way to play this would be to go long on TLT, while selling, or shorting, SHY. For those looking to limit risk, and possibly add some leverage for higher returns, using options tied to TLT and SHY could make sense.

Both have very liquid options with high daily trading volume and tight bid/ask spreads. To set up a position with a well defined risk one should consider buying or using debit option strategies, which limits the potential loss to the cost or amount spent on the options.

If one is expecting a further reversion from the inversion, you could buy calls on TLT, which will benefit from a rise in price/drop in yield versus buying put options on SHY.

While both TLT and SHY should trend in the same general direction such a position will benefit if TLT rises more relative to SHY. This type of paired action also provides a hedge against a sharp adverse move in one direction.

You can use Magnifi Personal to find and analyze these funds, as well as other bond based ETFs such the more obscure Invesco Senior Loan (BKLN), which tracks an index of leverage loans tied to corporate bonds.

Once you find other options you are interested in, you can even have your personal AI investing assistant compare investments, highlighting the important data points of each selection.

Let Magnifi help you unlock a level of investing you had only dreamt about before. Now the power of an AI assistant is in the palm of your hand.

The S&P 500 and Nasdaq Composite rebounded last week, up 1.4% and 4.4%. Despite the recent pullback, the 50-day moving average still has a positive slope and is still well above the 200-day moving average on the S&P 500, a silver lining. While this doesn’t mean we’re out of the woods yet, minimal technical damage has been done despite the recent correction. The bulls have played defense where they need to for now near upper support at 3765.
As long as this support level continues to be defended on a weekly closing basis, there’s no reason to believe we are heading down to retest the 3500 level on the S&P 500, where the index bottomed in October of last year.

(Source: TC2000.com)
As highlighted in previous updates, the short-term picture improved slightly with a golden cross in February (50-day up through the 200-day moving average following 15% plus correction), but this recent strength has not yet translated to an improvement in the bigger picture as both indexes remain below their 20-month moving averages.
The first confirmatory sign of this breadth thrust would be a monthly close back above the 20-month moving average for the S&P 500 (4200), pushing the S&P 500 back onto a bullish reading.
While some investors have understandably turned bearish after the failure of two major banks (Silicon Valley Bank and Signature Bank New York, as well of fears of additional bank runs, it is important to remember that while the fundamentals are important, we did see a very rare breadth thrust on January 12, which takes extreme buying pressure to occur. This signal has a strong track record with positive returns 88% of the time over the next 12 months, a 16% average 12-month forward return, and no undercuts of a previous major low (3500 in this case) over the next 6 months.
Obviously, the seemingly deteriorating fundamentals could lead to a failure in this signal, but I will gladly bet on a signal with a ~90% track record over the fundamentals. I believe some of this has already been discounted into the market.

(Source: Market Data, Author’s Table)
Meanwhile, we received yet another signal in the week before last, which has bullish implications. This occurred when we saw the first 90% downside volume day (NYSE volume in a single day shows over 90% of volume being declining vs. advancing) and when this occurs shortly after a breadth thrust, the forward returns have been quite bullish.
In fact, the average 3-month forward return is 7.68% and the average 6-month return is 11.11%, as well as an average forward 6-month drawdown of 2.60%. Currently, we’ve already seen an average drawdown of 2.80%, and the market is higher 92.9% of the time, suggesting that any retest of the lows on the S&P 500 should provide an excellent buying opportunity, with a floor for the market likely to come in in the 3750-3800 region if we do see further weakness.
Overall, this confluence of signals is quite bullish. While there’s absolutely reason to be cautious and hold a little extra cash given the unusual circumstances with fears of bank failures, I prefer to side with the technicals when we have very rare bullish events occurring that suggest potential selling exhaustion.
The other point worth noting is that the reaction to the news matters more than the news itself, and with the S&P 500 and Nasdaq Composite actually up last week, there appears to be some buyers stepping in and looking at value vs. worrying about the scary fundamentals – a positive sign.
Valuation & Sentiment
Looking at valuations, we are still yet to head into a low-risk buy zone, however, we are getting closer to one, with the Shiller PE Ratio sitting at 28.0 heading into the week. Although this is still above the long-term moving average (as shown below), this is a major improvement and the lack of progress in the market combined with growing earnings for the S&P 500 is allowing valuations to finally start to play catch up to what was a very expensive market previously. Ideally, I would prefer to see the S&P 500 decline below 25x earnings from a Shiller PE standpoint, but we are finally getting closer to a value zone where it makes sense to put some capital to work.

With regard to overall sentiment, the equity put/call ratio shown below (pink bars) has seen a major pullback in readings over the past month vs. very elevated put/call readings in December and January.
The increase in the put/call ratio is a positive sign, suggesting that we are seeing some fear trickle back into the market, which can help the market to hammer out short-term or medium-term lows.
For now, this indicator still remains on a neutral reading, but the pick up in negative sentiment is positive from a contrarian perspective. Assuming these market declines were to continue or that market participants remain bearish on balance, we could see this indicator head back to a contrarian bullish reading by month-end, as it did briefly in January which helped to put in a market bottom.

(Source: CBOE Data, Author’s Chart)
What’s The Action Plan?
Heading into the week, the S&P 500 remains near the midpoint of its support/resistance range (3500-4315) at a current price of 3920. Normally, this would suggest a balanced reward/risk, but as highlighted previously, the floor for the market from now until August is likely to come in between 3700-3800 based on the two bullish signals that have fired. This  suggests that the real range could be 3700-4315, placing the S&P 500 in the lower end of this range.
Given this setup, I remain roughly 70% invested and would not hesitate to add to my position in the S&P 500 if we see a pullback below 3770 toward support. For now, I continue to hold cash in case this pullback deepens, and continue to believe that a focus on mid-cap and large-cap names makes the most sense as well as a focus on high-quality businesses, given the very volatile environment.
Which brings us to our stock pick of the week…

(Source: TC2000.com)
Capri Holdings: One Retailer Proving To Be Recession-Resistant
Capri Holdings (CPRI) is a ~$5.3 billion company in the Luxury Retail industry with three iconic brands: Versace, Jimmy Choo, and Michael Kors.
The new name for the company (previously Michael Kors Holdings with ticker KORS) was adopted followed the closing of its acquisition of Versace (2018), and the company has steadily increased earnings and sales since 2019, with annual EPS improving from $4.97 to $6.21 and revenue up to $5.65 billion despite having to wade through a global pandemic and headwinds in China which is one of its major markets due to COVID-19 related lockdowns.

(Source: Company Presentation)
Capri Holdings generates sales from its operated stores in the United States, Canada, Latin America, Europe, Middle East, Africa, and Asia, as well as e-commerce sites. Following the completion of its Capri Retail Store Optimization Program at the end of FY2022, the company closed a total of 167 underperforming stores, leaving it with a total of 1,294 stores globally made up of full priced and outlet, and another 4145 doors in terms of wholesale.
The company’s mix is skewed towards Asia where it has 576 stores (44% of stores), followed by the Americas and EMEA. In regards to its largest brand, this continues to be Michael Kors, with the company operating 827 retail stores, down slightly from 834 in the year-ago period.

(Source: Company Presentation)
In regards to the company’s long-term vision, Capri Holdings is confident that it can grow its three brands to $8.0+ billion in annual revenue long-term, with a high confidence that it has untapped potential in its Asia region, driven by further growth in its retail sales. Capri Holdings expects to achieve this by growing its retail store base to 1,400+ stores (10%+ growth), with a focus on increasing its retail footprint for Versace by up to 40% while continuing to right-size its Michael Kors footprint, with this initiative nearly complete.
When it comes to strategies to increase revenue overall, Capri Holdings is looking to grow its second-largest segment, Versace, with an aim to grow to 20+ million customers. Since 2018, the company has done an incredible job growing at a better than 25% CAGR, but through better use of data analytics, it hopes to accelerate this growth rate. Plus, Capri Holdings believes that it hasn’t even scratched the surface for the potential of its accessories business within Versace, with an aim to grow accessories sales to $1.0 billion from just $200 million currently.
It also sees the potential to increase footwear revenue to $300 million per annum at Versace. So, while it may have seemed like Capri Holdings was overpaying for Versace in 2018 for $1.12 billion or more than 1x sales, this is because this is a business that could easily grow to $2.0+ billion, if the company successfully taps into new areas of growth.
Meanwhile, Jimmy Choo is in a similar position, with the lowest revenue of the three segments and a relatively small customer base. Although the opportunity isn’t as large, Capri Holdings believes it can more than double the customer base to 10 million and lean into Gen-Z and young millennials through collaborations and digital innovation. This demographic is massively under-represented within Jimmy Choo and it’s a huge growth opportunity in both China and Japan.
Plus, like its strategy for Versace, Jimmy Choo sees the potential to nearly triple its accessories business to $300 million and expand accessories to 30% of its mix to drive higher margins. Assuming Capri Holdings is successful with expansions at these two brands, I believe the $8.0 billion per annum revenue goal figure company-wide is a conservative one.
Recent Results & Earnings Trend
Just last month, Capri Holdings released its fiscal Q3 2023 results, which showed revenue declined 6% year-over-year to $1.51 billion, an ugly headline for investors that were looking for growth on a year-over-year basis given the guidance provided earlier in the year.
That said, revenue was more or less flat on a constant currency basis (down just 0.5%) and retail sales on a constant currency basis were actually up year-over-year, an impressive feat given the sharp pullback in consumer demand we’ve seen for many other retail/apparel brands. Plus, from a big picture perspective, Capri Holdings grew its customer base by an incredible 20%, suggesting it is clearly making progress when it comes to delivering on key metrics for ultimately realizing its long-term goals.
While investors that dug into the results might have been able to look past the weaker revenue figures, the 17% decline in quarterly earnings per share [EPS] of $1.84 was well below estimates, which has set Capri Holdings up to earn barely $6.00 this year.
Not only is this a 2% decline on a year-over-year basis assuming annual EPS comes in near estimates, but it’s more than 7% below the guidance provided at the beginning of the year when management was clearly too optimistic about how calendar year 2022 (FY2023) would play out. The main reason for the softness was operating margins that were well below estimates at Michael Kors (22.9% vs. goal of 24.0%), resulting in Capri Holdings slashing its FY2023 guidance in the eleventh hour which certainly didn’t please investors.

(Source: YCharts.com, Author’s Chart, FactSet Estimates)
Not surprisingly, the stock fell 23% on the day following its earnings results given that it was priced for a beat and the company instead delivered a miss and a guidance cut. However, looking ahead to FY2024 and FY2025, we can see that annual EPS is expected to rebound and hit new all-time highs. This is despite what’s still a challenging economic environment, suggesting that the FY2024 and FY2025 results don’t come near highlighting the true potential of these brands.
That said, if one does want to invest in the retail space, luxury retailers are one way to play it, given that while they may be seeing some headwinds from the tougher economic environment, they aren’t seeing nearly the headwinds of most retailers where their average consumer is much less affluent.
Let’s dig into Capri’s valuation to see whether investors are getting a solid price for what’s set to be several years of growth ahead.
Valuation
As shown in the chart below, Michael Kors (now Capri Holdings) has traded at an average earnings multiple of 17 since going public, and closer to 12.5x earnings (4-year average) since its acquisition of Versace in December 2018.
Following the recent decline in the stock, Capri Holdings has found itself trading at its lowest earnings multiple (~6.6x forward earnings) since March 2020 and September 2022, which both marked major lows for the stock. In fact, on a forward 9-month basis from periods when CPRI fell below 6.0x forward earnings (March 28th, 2020 and September 23rd, 2022), the stock has enjoyed an average draw-up of 63.4%, an incredible return for investors willing to be contrarians during violent corrections.
Typically, single-digit earnings multiples are reserved for businesses in secular decline or with anemic margins, and with earnings estimates pointing higher and ~65% gross margins, this is clearly not the case for Capri Holdings.

(Source: FASTGraphs.com)
While some might assume that a fair value for Capri Holdings is 12-17x earnings given that this is where the stock has traded since it went public and since it acquired Versace and changed its name to Capri Holdings, I prefer to be conservative when trying to figure out fair value.
However, even if we use what I believe to be a fair multiple of 10.6x earnings (a 15% discount to the stock’s 4-year average PE ratio) to account for the multiple compression we’ve seen in several sectors and using FY2024 earnings estimates of $6.44, I see a fair value for Capri Holdings of $68.25 per share. This translates to a 61% upside from current levels, representing a very attractive return for investors stepping in to buy the stock after this correction.

(Source: FASTGraphs.com)
If we take a longer-term view and look at what the potential is for investors willing to hold the stock for a few years, the upside potential is significant. As shown above and using conservative annual EPS estimates that assume the company meets its 2022 Investor Day targets, we can see that Capri Holdings should report annual EPS of $8.49 in FY2027.
Even if we use a multiple of 13.0x earnings which is below its long-term average (17.0x), this would translate to a fair value for the stock of $110.35. Assuming the stock were to trade in line with its price target, Capri Holdings would nearly triple from current levels, suggesting it’s one of the most undervalued names in the market today. This is especially true given that I erred on the side of caution and used very conservative earnings estimates post FY2025.
Summary
It’s easy to be pessimistic and think that something is fundamentally wrong with Capri Holdings following a 42% share price decline in just 28 trading days, however, we have seen this movie before several times. In fact, the stock has regularly suffered 30-45% declines in less than 50 trading days over the past several years given that it is a high beta name in a sector that tends to move like a school of fish when it’s out of favor.
In the case of the recent decline, it was primarily due to the significant miss on guidance on top of already mediocre Q3 results and the mean reversion in the overall market due to fears of further bank runs, which resulted in another leg down for beaten up stocks where sentiment was already in the gutter.
When it comes to companies with iconic brands in their portfolio, investors must be careful not to miss the forest for the trees. Capri Holdings certainly meets this criterion with three luxury brands that continue to grow market share globally. Looking at it from a big-picture standpoint, while FY2023 annual EPS will miss guidance by a mile, this is an aberration in the long-term trend with annual EPS set to hit new all-time highs in FY2024.
So, for investors willing to stomach a little short-term volatility and buy when blood is in the streets, I am hard pressed to find a better value out there than CPRI at ~6.6x FY2024 earnings estimates.
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Christian TharpMarch 17, 2023 ETF Watchlist The market is in flux. With assistance, in its various forms, coming in to save the banking industry from what seemed like utter collapse, it appears the market has been given to continue it’s march higher. Until it decides to slip into the other direction that is. The markets

One thing you need to be true with chart patterns is a large number of other traders need to be able to easily identify them. If not, then you have that much less of a chance of it working out. Take our stock today for example, it actually has a couple of patterns going on, depending on how you splice it.
From one standpoint, you have what could be argued as a large, drawn out bull flag. On the other, you have an inverse head and shoulders. However, the latter is the one we are going to focus on for today’s edition.
Apple (AAPL), our stock in focus, appears to have formed an inverse head and shoulders within the context of that large bullish flag we mention, both of which are bullish. A break above the 157.5 mark would confirm both of them.
Upon confirmation of these patterns, we would likely want to look for entry into a long, or bullish, trade. Join today to see if this is out next trade!
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Good Luck With Your Trading!
Christian Tharp, CMT

The S&P 500 and Nasdaq Composite were both down sharply last week, declining 4.5% and 4.7%, respectively and closing on their lows. The significant declines in the indexes combined with one of the worst weekly drops (16%) since March 2020 for the SPDR S&P Regional Banking ETF (KRE) was related to the failure of Silicon Valley Bank (SIVB) last week, which marked the second-largest failure of a financial institution in United States history.
The failure was related to not having enough cash on hand nor liquid assets to convert immediately to cash, and with Silvergate Bank’s (SI) downfall earlier in the week which already created some anxiety among investors, it’s possible this could have been one reason for a sudden increase in depositor demands and the ensuing bank run.
Although this is certainly devastating news, we’ve seen regulators act quickly, with the New York State Department of Financial Services taking possession of Signature Bank New York to ensure deposits are protected in what’s being called a “similar systemic risk exception” to Silicon Valley Bank where Treasury Secretary Janet Yellen ensured all deposits at Silicon Valley Bank were fully protected.
While this has stabilized financial markets and keep short sellers at bay that might have otherwise been looking for other vulnerable targets in the Financial Sector (XLF), this decision could severely erode confidence in the Federal Reserve’s “raise at all costs” narrative that’s seen it already increase rates to 4.5% – 4.75% at breakneck speed.
Some investors might view this as positive news, and it certainly is a positive over the short-run as there’s nothing like fears of a bank run to push the market into a downward spiral. However, if the Federal Reserve is forced to take its foot off the proverbial gas regarding rate hikes, it could come up short when it comes to stamping out inflation, and it may have to revisit rate hikes again down the road if it’s clear that enough has been done.
The other worry is that the Fed Put is now back in place which could result in an increase in risk-taking among market participants if they think the Federal Reserve has their back. This is not ideal, and we were finally seeing substantial progress in reeling in speculative activity with the Federal Reserve’s credibility it’s gained over the past 12 months by not wavering despite the negative market reaction.
Overall, I see this news as short-term bullish for the market but medium-term and long-term neutral, given that the previous course taken by the Federal Reserve was ripping the bandaid off at all once, and potential rate cuts following a pause once inflation cooled down. The updated course could be a 25 basis point hike this month followed by a pause to bandage up the current situation, but it then leaves risk on the table that inflation remains above the Fed’s target and stays in the 5% range, leading the Federal Reserve to come back later to finish what it started.
In summary, last week’s news was certainly a pivotal development for the market and one that could lead to choppier markets for longer, but with a bullish short-term and medium-term bias (1-6 months).

(Source: TC2000.com)
Moving to the technical picture, while last week’s decline was rough, it did nothing to impact the short-term picture, which improved last month when we saw a golden cross on the S&P 500 (50-day up through the 200-day moving average). However, this recent strength has not yet translated to an improvement in the bigger picture, with both indexes remaining below their 20-month moving averages (requires a monthly close above 4200). Meanwhile, though the decline was rough, it actually set up another bullish signal, which was a 90% downside volume day (last Thursday March 9th) shortly following a new breadth thrust (Jan 12th, 2023).
Historical forward returns and drawdowns (D/D) are shown below, with an average forward 3-month return of 8.26% and an average 6-month forward return of 10.66%, as well as an average drawdown of just 2.72% and 2.76%, respectively.

(Source: Author’s Data & Table)
Assuming this plays out like prior signals (the most recent signal was October 26th, 2020, we would see the S&P 500 trade up to 4270 by mid September, which is in line with the breadth thrust signal that suggests we should see 4400 by mid summer and potentially 4600 on the S&P 500 by year-end. Meanwhile, the average drawdown in this data set suggests that we should see a floor for the market near 3750, which is consistent with the breadth thrust data shared in previous updates that suggests a range for the market this year of 3700-4600 in line with past breadth thrusts. Obviously, these signals could fail, but with 88% win rates historically and limited drawdowns, I see this as the time to be optimistic, not pessimistic like everyone appears to have become as of last week.

(Source: CBOE Data, Author’s Chart)
So, what’s the best course of action?
Heading into the week, the S&P 500 is back in the lower portion of its strong support/resistance range (3500 vs. 4315) at 3860 and also in the lower portion of its range using short-term support at 3765 – 4315 resistance, resulting in a slightly positive reward/risk setup for the market short term. Given that the 90% downside volume day which often occurs post-breadth thrust is out of the way and we see strong medium-term returns with limited drawdowns following these signals in a post-breadth thrust environment, I would strongly consider adding to my position in the S&P 500 if we saw a pullback below 3780, especially with the recent increase in negative sentiment.

(Source: TC2000.com)
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Over the past few months, as Powell & Co. made it clear they would stay the course of rates going higher for longer, many people abandoned any nuanced analysis of ‘dot-plots’, terminal rates or curve inversion and adopted the stance the Fed would simply keep tightening “until something breaks.”
I would venture to say last week’s failure of Silicon Valley Bank (SIVB), which at $200 billion was the second largest in history, and the following intervention by the FDIC and bailout/backstop for depositors to prevent a contagious run on other regional banks qualifies as something breaking.
So how do we put it all back together? Or more importantly, how do we take advantage of this state of confusion.
Remember, from chaos comes opportunity.
For option traders, chaos expresses itself as increased volatility, both realized and implied, and the pump in premiums has drawn to selling iron condors to take advantage of the dislocation. 
The CBOE S&P 500 Volatility Index (VIX), which is a broad measure of market volatility, shows recent events certainly spooked investors. The VIX spiked to its highest level in 6 months.

My view is the recent price action, in which full asset classes such as Treasury Notes, some sectors, like regional banks and certainly individual names, experienced 10 sigma moves – that would be 10 standard deviations from the 12-month expectations – will now have a reversion to mean.
This expectation for a stabilization in price has me drawn to iron condors like a moth hooked on meth fueled lightbulb.
The first move Options360 made on Monday was to establish an iron condor in the SPDR S&P Regional Bank ETF (KRE); this sector ETF, which includes SIVB, First Regional Bank (FRC) and Western Alliance (WAL), has dropped over 18% in the last week; that’s not normal for the banking business.

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So, yes, I dove straight into the center of the storm by establishing an iron condor, which consists of simultaneously selling both a put spread and call spread as a means of collecting premium.
While I can’t give the details of the specific trade, my expectation is that KRE will hold between $45 and $53 over the next week or two. More importantly, implied volatility for the sector will decline from over 115%, the highest level since the 2008 financial crisis, back towards the 52- average of 19% as the dust settles and reversion takes hold. 
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In the wake of the SVB collapse, most banks took a hit as investor worry around this spreading to other banks increased dramatically. This made the entire financial sector look weak and take a nose dive. However, this dramatic decline has led to many other opportunities to crop up, we will take a look at one today.
PNC (PNC) established a pretty strong trendline at around 147 that it held for months, until recently. Even before the banking failure, the stock looked weak. Then, the banking collapse happened and that sent the stock reeling. It fell all the way to a low of 124 before finding a bottom, now we think there could be an opportunity to play the rebound if the space continues to recover.
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Good Luck With Your Trading!
Christian Tharp, CMT

The market was rocked by the news of SilverGate and Silicon Valley Bank failures, sending the market reeling with fear of contagion. The fear of this type of financial collapse spreading to other banks spooked investors, leading to big declines across the board last week.
Then the government stepped in. The Fed released a statement in which they assured depositors would be receiving all of their deposits bank in full, stemming the negative effect this event might have on the rest of the market.
As for our benchmark index, the S&P’s failure to hold the 3900 zone last week should be a sign of lower prices to come. A quick close back above that mark would likely negate that forecast. The next major level of support down should be 3800.
Today, we would really like to see the dust settle to see where the market will be headed in the wake of all this. If you were going to have a “risk-off” day, today would be a good day for that. Remember, cash is a position…
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I look forward to trading with you, but until then, as always…
Good Luck!
Christian Tharp, CMT