‘This one feels a lot like 1999’ : An ex-Wall Street strategist breaks down why he is approaching the markets with a ‘tactically bullish’ strategy — And 3 pieces of advice on how to play a market set for a correction

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It was a sort of hands in the air kind of moment, said Peter Cecchini, a 20-year market veteran, who started adopting a strategy of being “tactically bullish” in the markets around Thanksgiving of last year.

“There are times when you’re playing chess and everyone else is playing checkers and you’re actually the fool,” said Cecchini on  Bloomberg’s What Goes Up podcast released on January 1. “You have to recognize when an obsession about things like earnings, growth, when that is just less important than the narratives that are driving the markets. And for me I didn’t feel like there was anything to derail the narratives, that the vaccines were here, that growth was going to pick back up, which it has.”

On the podcast hosted by Sarah Ponczek and Mike Regan, Cecchini, who spent nearly 10 years as chief global market strategist and head of equity derivatives at Cantor Fitzgerald, discussed the current state of the markets and his outlook for 2021.

Now, Cecchini runs his own research and consultancy firm, AlphaOmega Advisors. Based on his years of experience, he is saying the current conditions remind him of the dot-com boom, a time when many new investors were entering the marketing and trading stocks on their computers through e-trading accounts.

“This one feels a lot like 1999. I remember asking myself how companies that had almost no earnings, negative cash flow, almost no revenues could be worth hundreds of millions of dollars,” Cecchini said. “And ok, it’s not a perfect analogy but from a sentiment standpoint it does feel quite the same.”

Market strategy

But for investors currently in the market, how do they position themselves for a wave that keeps going up but that at some point will inevitably correct?

On the podcast, Cecchini says investors will need to start looking at more sophisticated investing strategies, as it has become very difficult to buy put options, Cecchini said.

Put options give their holder the right, but not the obligation, to sell a stock at a specific price within a specific time period. Investors often use put options as a form of investment insurance to ensure losses do not exceed a certain amount.

Right now, most of the strategies available to investors involve making a directional bet, Cecchini said.

Read more: ‘It could be a Roaring 20s that will end badly’: An equities chief who oversees over $7 billion shares his investing playbook and major predictions for 2021 and beyond

“And what I mean by that is the only way to really fund a Russell [2000] strategy is to sell a call, to buy a put, or a put spread, so that you are selling a little bit of volatility to fund your downside protection,” Cecchini said. “And you’re making a directional bet, that is a lot more directional than if your buying a Russell [2000] put for example. The same is true for the S&P [500].”

For investors who are long, he recommends selling calls to overwrite your portfolio. Calls give the buyer the right, but …read more

Source:: Business Insider


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