January 23, 2021 Option Professor Opinions & Observations
Welcome Back!…We saw the markets make new highs and then do a bit of a fade by the end of the week and go home with its tail between its legs. When you have excessive margin debt…Inflows into equity ETF’s and record highs on sentiment surveys plus some divergences between the new highs in some areas and the RSI….and top it off with prices WAY ABOVE their long term averages (the mean) ….. you would have to be a moron to NOT be on the look out for a correction. Areas that have been good to us like VALUE & Cyclicals ( energy, financial, industrials, materials, airlines (Dow Transports Index), hotels ect) all failed to hold the gains of early in the week. The two bright spots were the Russell 2000 (Small Caps) ran back up to close near their 52 week highs in the last 2 hours of trading and the tech heavy QQQ’s held on to most of the weekly advance. SO WHAT NOW?.. Our opinion is that the lows at SP 3740 is a key area….short term charts have rolled over and if we blow out SP 3813 and then 3740…the pullback may have just begun without hitting the SP 3900-4000 area expected by many. Next Week we have EARNINGS from KMB MSFT VZ JNJ AXP T AAPL TSLA BA FB MCD V AAL AAL LLY CAT CVX HON CP and others which is a lot of new data albeit backward looking….we suspect the RISK is that like the financials it could bring a BUY the rumor and SELL the fact outcome as Q1 and late 2020 (holiday sales) and persistent high unemployment (another claims @ 900K) could spell a stumble early in 2021 & fog up those rose colored glasses…a boatload of stimulus awaits & so does the big opportunity. Email us to learn how to subscribe to get the weekly radar list & updates.
While a lot of the market did seem to lose some legs this week (such as pot stocks & BitCoin-MJ & GBTC); others like AAPL MSFT TSLA GOOG FB BABA (relief to hear from Ma?) Game Stop ILMN GM PENN TEVA TDOC did well while real estate & utilities plus international (Europe Asia China) did ok……AAPL is trading near 40X and busted to a new high.. if they report accelerated growth..150 not off the table but pity the bulls if it’s a miss.. Most of these and a lot more are updated in greater detail intermittently on our focus list for subscribers. Suffice to say that preparing for any signs of a correction (covered calls, collars married puts option replacement trades) is on our radar but await price confirmation. Watch your VIX to see if we break 20 and take out SP 3875…if so the train may still have a few stops on the upside. Stocks that are in good uptrends (e.g. Financials) that have had big runs & dividends plus fat call premiums are worthy of a look from the covered call writer to capture additional cash flow & downside protection…..If you believe it’s time to take the time to Learn about the uses & risks of various tactics email us @ [email protected]
A bounce in the bond market off the steep sell of on TLT which had a blow off top in March at 180 and a slow steady grind lower to 150. Should stocks sell off….the bounce may have more legs as in recent time short term very bearish bets have been huge. The mantra is best case 1.35% to 1.50% on 10 yr Treasuries with whisper numbers to 2%+….. that’s with an expected handle on GDP at 6%-7%+….all we see is a stampede into Tax Free Munis in flows into ETF’s ect….an area that subscribers get complete details and of course short term treasuries as a base with high yield… loans…preferred… emerging market debt sprinkled in there to boost yield…the latter may be kept on a short leash….with state & local aid & higher taxes…we have long felt Munis that were short-intermediate term & funds with durations under 7 yrs would serve us well…so far that is exactly the case. Each week subscribers can get specifics on how we approach the fixed income game.
Us Dollar/International Markets
The US Dollar so far has held the 88-90 low mark on DXY but certainly has plenty of clouds above. The yield advantage that gave us a stronger dollar has returned to a degree and growth in Japan & Europe stinks when put in comparison to the USA so we would not be surprised to see a counter trend rally that no one seems to be positioned to see. This may be a reason why Gold & Silver have not held their rallies & other big bulls in grains/Foods/Oil have faded a bit lately…..hard to trust the dollar with a stimulus package & 18 million receiving assistance but sometimes the market surprises traders. If it busts under support at 88-90…bar the door Katie…because the 20% dollar drop being predicted will look much more real and popular. We have levels on the Euro, Yen Aussie & Canadian $$ plus the BP that we believe are very important which we share with subscribers weekly in our updates. The international markets (particularly EM) has benefited from the weaker dollar so if that dynamic is to pause one might conclude a corresponding pause in the bull runs will occur as the overseas trades may be a bit crowded. Reverting back toward the mean is natural at some point and we may be approaching that reality in the next 30-90 days….if next week we see sizeable weakness in Europe, Emerging Markets, Asia & Latin America (started already?)..then some trimming may be in order. We follow specific regional international markets for our subscribers each week.
Crude Oil/Natural Gas
The oil/energy stocks have been losing altitude as demand fears and supply concerns have resurfaced (poorer countries want to pump for the $$$). We got a failure at 54 WTI this week and if we get a 40 handle in the weeks to come it could be problematic…..long term moving averages that we follow still should support markets on any pullbacks and those who agree with our long held longer view should scale in on any lower prices.. the combination or low natural gas prices domestically with the high prices overseas and in Asia has led us to be bullish on LNG for a long time…despite potential backing and filling.. we remain so…subscribers get our focus list weekly.
Gold Silver Copper Platinum BitCoin
We told you Gold failed at $1950 area & Silver failed around $28 and those are the levels that if surpassed would put those 2 metals in a position to accelerate….longer term they should take them out but if we take out Gold $1800-$1750 and Silver $24-$22 on the downside then the timetable for such a move is extended. Some Elliott Wavers are suggesting a low in early Feb followed by rally and then a pullback into June and then a rally to rip your face off going into late 2021. We follow individual metal shares & broad based ETF’s for our subscribers which includes updates on key ones. Platinum is interesting to us for a number of reasons..the scarcity of supplies…the industrial value and most important is the relative uncrowded trade as compared to Gold& Silver…which could spell lots of volatility as should interest increase (in our opinion it will) & be met with buying volume..a recipe for a tangible asset to appreciate could occur….many ways to approach it…Copper prices got bouncy as supply demand news changed a bit…prices being extended always contains a risk of reverting back toward the mean so further sell of could lead to some acceleration….the stocks we follow in copper have been big winners and taking some off the table or defensive tactics may be appropriate if prices buckle. We told you BitCoin can have 30%-50% corrections along the way & suggested that the 40-50 area on GBTC could be a neighborhood for that to occur (in 2 weeks we got to ballpark 48 and pulled back to 31 or a 35% DROP!)…..is the pull back over?…maybe as the year after halving is supposed to be gang busters (3X?) but as e told you 95% of supplies held by 2% of accounts means lousy liquidity….so despite marquee names aligning themselves with it…we maintain dollar cost averaging and risk capital be used…if stocks drop maybe 20-25 can be had…..we update subscribers weekly.
Soybeans Sugar Coffee
Soybeans which we have been keen on since 8 bucks had a short term blow off top last week to about 14.50 (reversion to the mean) and got good news (for the bears) out of Argentina which led to mass selling culminating Friday with about 60 cents drop….should have some support at former highs at 12-11-10…ditto corn & wheat (reversion to the mean)….one Ag Market that is soaring is Live Cattle as the high corn prices kept cattle out as the expense to feed them became too great (2.5%+ rally Friday)..eat fish:):) Sugar & to a lesser extent Coffee followed what we talked about generally about commodities as they went on a big rally….way above LT moving averages.. are reverting to their mean. When markets make parabolic; we suggest if you’re in scale out of positions or scale into defensive tactics like covered writes, collars, married puts, and options as replacement trades. Subscribers can submit questions on this and other areas for response. How Can You Be a Subscriber?…..shoot us an email at the email listed above
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