Where Is This Rally Headed?

By Stephen 'Sarge' Guilfoyle

Let's review the stock market as we head into 2024, and revisit my recent biotech pick.

The U.S. equity market indexes have all rushed into year's end with those more focused on small- and smaller-cap names making up a lot of lost ground between themselves and the major equity indexes. Coming Into Friday, the Nasdaq Composite was up 44.22% year to date with the S&P 500 up 24.58% for the year. The Russell 2000 is up 16.97% for 2023, while the S&P SmallCap 600 is up 15.41% and the S&P MidCap 400 is up 15.5%. 

But if we flip the script and only measure performance from the low point of late October up until last night's closing bell ... the Nasdaq Composite is up 20.35% and the S&P 500 is up 16.6%. From those October lows, the Russell 2000 has gained 26%, the S&P SmallCap 600 has gained 25.4% and the S&P MidCap 400 has added 20.9%.

Can This Sudden Change Continue?

So, does the now-great rally of 2023 continue to broaden out? Nvidia (NVDA) is up 221% over 12 months. Over those same 12 months, Meta Platforms (META) is up 199%, Tesla (TSLA) is up 105%, Amazon (AMZN) is up 80%, Alphabet (GOOGL) is up 59%, Microsoft (MSFT) is up 57%, Apple (AAPL) is up 47%. Those are all great years. Some of them are far better than being "merely" great.

That said, artificial intelligence remains a driver, and those who can design and or manufacture the high-end chips required for large language model training will in my opinion, continue to grow sales, while growing margin even if this growth slows. Those who best know how to monetize their cloud software created AI opportunities will be next in line. Those are names like the cyber security names as well as Salesforce (CRM) and ServiceNow (NOW) . Those two are up 106% and 83% respectively for the year. 

Smaller caps will struggle somewhat with evolving, along with this latest industrial inflection point for the U.S. (and global) economies due to its almost prohibitive costs.

These expenses do present as a barrier to entry for many. For every Palantir Technologies (PLTR) , which is a mid-cap and does seem way out in front technologically speaking, there are other, unheard of names struggling just to keep up as a weakening U.S. dollar strips them of any advantage they already had in importing materials or competing at home against larger, multinational corporations. So, I have my doubts. Not that it can be done, but I have my doubts that smaller caps will continue their recent outperformance of the major large caps over a very long time frame during a period of easing monetary policy overlaid upon already irresponsibly easy fiscal policy.

Just some food for thought ....

My Biotech Trade Keeps Beating

On that note... last Thursday, I gave readers Cytokinetics (CYTK) as an idea that had been up 17% that day. Well, this past Wednesday, the stock hit a new 52-week high, which has now been exceeded after the company posted encouraging data from a Phase 3 clinical trial for its cardiac myosin inhibitor "aficamten" in patients with cardiomyopathy. Myosin inhibitors are used for patients with a condition called obstructive hypertrophic cardiomyopathy, which causes thickening of the heart muscle, impairing its ability to pump blood. 

 The trades that I laid out for you were the sales of Jan. 19, $41 puts for about $14.30 and the sale of Jan. 19 $30 puts for roughly $8. The chart now looks like this...

This was a great victory for us. For those who followed us on that day, the Jan. 19 $41 puts are now trading at $0.05, while the Jan. 19 $30 puts are trading at $0.02. Many of you seasoned traders are already flat this trade if you went there. That's beautiful. For those who might be newer to trading options, cover the trade. What are you waiting for Jan. 19 for? To claim complete victory? Cover the trades now, claim the massive win, and get the risk off of your book. Keeping the trade open for another three weeks only allows risk to creep back into the trade as you are what, fighting for a couple of pennies. 

 To put this in terms that those who don't trade options understand, if you pay $0.05 for something and sell it at $14.30. That's a gain of 28,500%. If you paid $0.02 for something and sold it for $8, that's a gain of 39,900%. Rock and friggin' roll. Don't risk losing that.

At the time of publication, Guilfoyle was long NVDA, AMZN, MSFT, GOOGL, CRM, NOW, PLTR equity.