July 9th 2020 Option Professor Opinions & Observation
Good Day Everybody!…..ZOOM! The horses were running out of the barn this week as we saw all time highs in FANG and other stocks as well…..forget about valuations & fundamentals….you’ve got a momentum trade and pity the man who has stood in front of it…..Don’t fight the Fed & Don’t fight the tape…2 things we’ve told you here for since March…in fact the high beta portfolio (MGK VCR VGT SMH IBB) brought to your attention had been one of the best places to be….Would you like to know other ETF’s that have been on our Radar List….here you go…ARKQ (autonomous tech/robotics)…SNSR (Internet of Things-5G)…….SKYY CLDR WCLD (cloud computing)…ARKK (AI)…. CIBR (cyber security) ARKG (Genomic Revolution)….DLR (digital realty)….KWEB (China Internet) and a whole lot more…..HOWEVER C’mon…..you got to be getting some feeling of froth ( TSLA up 10%+ Friday on 23 million shares & NFLX up 8+% on 21 million shares). Many shares are 50% or more above their 200 day Moving averages (NVDA-AMZN ) others are 30%+ (AAPL-MSFT) the mere definition of extended. Also: we have noticed a number of things to CAUTION us…namely real estate DELINQUENCIES are soaring….renters are MISSING PAYMENTS and are being DISCOUNTED (Nordstrom says they’ll pay Half rent)…..EVICTIONS are rising (est. 28 million)….JOBLESS numbers are HUGE & many small businesses are letting people go after PPP…..we also see the VIX is ABOVE 25 and there is a DIVERGENCE on RSI suggesting EXHAUSTION while the PUT/CALL RATIO screams overdone and CREDIT SPREADS have been WIDENING. …….NEXT WEEK WE GET EARNINGS…..DAL announces and we’ve seen a 72% DROP in airline travel YOY….the banks 9WFC JPM C BAC WFC GS USB MS) have been sold off going into the numbers so they could catch a bid (up on Friday)…..but Q2 EARNINGS is supposed to be a dud (-50%) and for the year (-25%). NEXT YEAR is supposed to be a banner REBOUND year for small-mid-large cap earnings but the FACT that Value, transports, Russell all lag terribly this advance is cause for concern. The math stinks…last year SP earned about 1.60 X 20 P/E =3200….EXACTLY the area that has been trouble lately. If we drop 25% to 1.20 X 20 P/E – 2400. ……..ADMITTEDLY …This is The WALL of WORRY that will Persist but may not Impede…….we could get surprises in EARNINGS due to OPERATIONAL LEVERAGE (less employees/ less real estate) and the massive switch to work at home and digital living. Also; with the 10 yr Treasury going back into the 1/2% neighborhood the likes of KO NKE SBUX PG WMT trade at high multiples so who the heck knows the normal P/E…..another result of the FED OBSCURING real values. Seasonality; some say, is for the first 2 weeks of July to work & then fade by month’s end as Q# has been known to be the worst performer of the four ……..so the best summation we’ve heard for stock investors..Get on the Plane But Make Sure Your Seat is Close to an Exit!
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There are sector ETF’s BEYOND just tech/mega cap growth & biotech that have cleared their 1-2-3 yr moving averages and have participated in this advance the most such as IPAY VCR VHT VOT VBK KWEB VOO VOX VWILX and a number of others. The catch up trades in energy, banks, restaurants, travel & leisure, real estate continue to labor on in fits and starts. We told you a while ago that the OPERATIONAL LEVERAGE would be the surprise that would return companies back to peak earnings much faster than conventional wisdom. We are and may continue to see a stock market that goes up while the economy & most peoples lives are troubled. We explained months ago to readers that the stocks move BEFORE Earnings & Earnings move BEFORE GDP. The jobs lost were primarily low paying jobs so the Govt programs were able to plug in a relatively modest income hit to the nation’s economy. Technology is great but it has killed a lot of businesses such as conventions….who’s going to want to travel/pay for a booth/hire people when ZOOM will rig up the meeting for pennies on the dollar. Also; with the ease of food delivery….will restaurants bounce back and when? The markets love the subscription model so PTON and WMT and others get a boost from that revenue. On the tech front…forgotten soldiers like CSCO & INTC may start catching a bid. Cloud computing remains front and center because it eliminates employees and improves efficiency..both winners. Some sspeculative isssues on our radar are CRSP WKHS & HEPA for various reasons. Also; Attorney General Bill Barr ws being interviewed about China/Huawei and seemed to think the technology in companies like NOK & ERIC may be worthwhile to compete so we are monitoring those companies in advance of 5G plus this move to digital real estate seems interesting as the New CEO of CLNY wass explaining the new direction that company is trying to take with towers and big data storage figuring prominently. This week is a biggie and by the end of the week we may know whether the SP 3250 area has been surpassed or have we begun our Summer Swoon…..
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The Fed Balance Sheet has actually shrunk in the last 4 weeks and we believe it is under 7 Trillion…but for how long as the job numbers that have excited everyone may stall out as the easy lifting may be done.Credit spreads have been widening…defaults will be rising and revenues still are hard to come by for many distressed firms…many loan sharks (private equity) lay in the shadows willing to loan at high rates or buy assets on the cheap in industries that are not bouncing back. Leveraged Loans & High Yield & even preferred have not recovered ABOVE their 1-2-3 yr MA/s so mas problemas ahead. Mortgages & all the rest on Powell’s Christmas List (IG intermediate & LT plus short term Corps). Powell & Mnuchin are dancing so close to that line in the Fed Act 1913 because the Fed is LENDER of last resort not the grant giver of last resort and are making loans they know won’t be repaid and they are not supposed to lose money when they lend. Short term stuff VUSFX VCSH still look ok while VWLUX (tax free) has done well but what shape are these states really in when the dust settles???
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US Dollar/ International Markets
The US Dollar is on the ledge…ass we told you many have said we are in a SECULAR BEAR market on the Dollar BUT we were not on the wagon despite the fact that the 50 day is now UNDER the 200 day MA (death cross) BUT hold your horses… the 1-2-3 yr MA’s are NOT inverted and the the 3 yr MA is about 95.50!!…So while we RESPECT the fact that we could break DOWN we remember when the S&P was at 2200 & the 1-2-3 yr MA’s never inverted and once back above the 2800 area we were in a BULL market again…so we have precedent to still believe…but we’re getting closer. China’s market went nuts this week with KWEB right in the thick of it with BABA TCEHY JD.COM ect…..BUT be aware that retail investors are plowing in & valuations are absurd in some cases so Caveat Emptor…..the rest of the world is either on the verge of breaking out or will turne DOWN at the RESISTANCE here…VPL VSUS VGK are three of many on our radar.
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We are suspicious of prices in the 40’s near term unless our calculation of DEMAND is woefully inadequate…could be as AIRBNB CEO was saying most people are DRIVING to their holidays which make sense. Stockpiles have been bouncing around and Friday both prices & oil stocks turned up…oil stocks have faded off their bounce so let’see if they have legs next week. Longer term; we believe in the recovery and the Supply pinch (Frack/Rigs OPEC)…so into the 50’s + next year is still on our dance card as we speak.
Gold Silver Copper
Gold “broke out” above 1800 (went to 1830) but faded by the end of the week. We have positions we have had for years but have been hesitant to add up here because bullishness, coin premiums, distance away from longer term moving averages, RSI divergence still tells us to be careful. NOW if we sustain ABOVE 1800 then our tune could change but why goof up a great position by ADDING at the wrong time….not on our watch. SILVER is more interesting on many fronts including the MA’s are in the 16’s per ounce and we’re trading 18-19 plus the Gold Silver Ratio iss in the 100 area and the industrial use for Silver could be happening and finally if we clear 20-22 it could rip as the last time Gold was at 1900 Silver was 40-50!!Copper has been a friend to us ass we told you it was going to make a move to 2.50 (it did) then clear 2.80 (it has) and our buddies FCX & SCCO have been matriculating (Hank Stram) up the chart at a nice steady pace.
What’s on our Metals Stock List? email [email protected]
Soybeans & Sugar
After a very good run the resistance has been problematic for both markets. Sugar has to clear 12.50-13.00 (it hasn’t) and Soybeans need to clear 9.50- 10.00 to open up the higher seats otherwise they both stay in te bleachers. Stay tuned…more weather and crop progress ahead so you never know.
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