May 29, 2020 Option Professor Opinions & Observations
Welcome Back Everybody!…Well we broke thru 3000 this week and tested the breakout point Friday & closed higher..not bad. Many investors (not our readers) are confused at WHY??….Is it because Unemployment is low? Is it because consumer spending is robust? Is it because Earnings are great & guidance great? How about GDP & LEI? AGAIN..as we said #1 Restart was way quicker than expected #2 Consumer bounce back believed more robust #3 Monetary Stimulus was fast & beyond imagination. HOWEVER..the biggest reason is what we brought to your attention 2 months ago! THE BIG REASON is when the FED manipulates the short term interest rates to ZERO; investors MUST invest even if they have no great reason nor understanding of the VALUE of what they’re buying. Do you remember the movie “An Officer & A Gentleman”..if not..stream it. Anyhow one scene has Lou Gossett hosing down Richard Gere & making him do drills so he will quit the Navy. At one point; Gossett screams at Gere…Why Don’t You Just Quit…to which Gere screams at Gossett “Beacuse I Have Nowhere Else to Go”..that’s Stocks. This week we saw more than 2 million more souls file for Unemployment as the Good News was that about 4 million didn’t renew (of course there will be some going back to work as we re-open..we contend many will not be). Personal Income jumped this week by 10.5% because the CARES Program cared so much they ended up paying people more than going back to work. Consumer spending was not so lucky as it dropped 13.5% (maybe the FED can actually spend money for consumers and Amazon deliver the goods??) Demand destruction has been palpable but as we said the Income hit has been made up by CARES/Unemployment. Spain just passed Basic Income for all…since we’ve followed Europe & Japan into fiat heaven..maybe that’ll be our answer to income inequality. China & Trump are at it again…the rhetoric is inflammatory & China will return serve this week. China did not kidnap companies or “rip us off” because Walmart & Nike & Apple and many many more voluntarily moved the supply chains over there to get CHEAP labor and make BIG Profits…now we are supposed to take our tax dollars to lure these same companies back through incentives & tax breaks? The BIG RISK to our view that the SPX could fill the gap around 3300 and stay above the 1 yr 2 yr 3 yr MA’s (2996-2887 & 2794) is IF Trump turns the Covid 19 crisis into a domestic & International political football which freezes up the consumer & IF talk becomes action resulting in a breakdown of supply chains & international commerce. China’s time horizon is decades & Trump’s time horizon is November. The Fed’s still in there; but so is short term investor exuberance…learn how to hedge….if we dip…watch the M/A’s.
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This week we saw some give back in some retail names like TJX, ROST, KSS M & JWN while the big guys COST WMT AMZN plus TGT (8 bucks away from all time highs) had constructive moves. Other rebounders like Oil, Banks, Hotels, Restaurants also seemed to lose some gas this week. Our high beta group MGK VGT SMH VCR seemed to regain popularity by the end of the week as the Russell & Transports-Value lost some luster. Defense was on display as Utilities (VPU) saw money directed their way as investors feel the bills will be paid & the yields are juicy. Some believe there is value in the Russell 2000 (VTWG) and also in infrastructure globally (AMY CCI ECT) as since the printing presses are running wild ..why not throw in some jobs. We’ve got a lot on our radar…let us know if you’d like to hear more This week..watch BABA & be careful if we close under SP 2995 or 2880.
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The Fed’s buying various areas of the markets & some believe the Junk market (HYG VWEAX) is worth a look as well as Intermediate term (VCIT) and the bid reamins on Munis (VWLUX) as bridge financing to states & cities ect seems probable. Short term debt (VUSFX VFSUX) still holds some allure but the RISK seems to be at the longer/extended terms as while there was no inflation after 2008….this stimulus is GLOBAL & 35-45% of GDP & the Dollar had a LOUSY week. So if you want to lend for 30 yrs @ 1+%-Feel Free!
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US Dollar BITCOIN
As we just said…the Dollar sold over this week…started at about 100 and had a 97 handle at one point only to close at 98.29. The Japanese Yen still traded ABOVE its 50 day MA (107.81 vs 107.78)& UNDER its 200 day M/A’s (108.34) so the jury is still out on that one…but it’s close. HOWEVER The Euro is another story as it had a great week as it closed @ 1.11 which is ABOVE both the 50 day & 200 day M/A’s but they remained inverted down so In Sum…we need a bit more price proof to reassure us that a turn is here. The commodity currencies (CA$ AU$) have maintained their advance so far while Bitcoin hovers around plus/minus 10,000 closing at 9470..stay tuned.
Those of you keeping track know that we said months ago that oil supplies would be L shaped (low rig counts-closed Frackers-OPEC cuts) and Demand may be V shaped due cheap prices and summer demand. This would lead us to 25-40 bucks a barrel this year and possibly 40-55 next year which so far has played out to script. OXY cut its dividend 7 the stock was taken to the wood shed and led the oil indexes to fade as well…they’ve all had a big run so a pause to refresh & a pullback seems in order..not quite the bargains.
Gold Silver Copper
While Gold is still overbought basis long term M/A’s…Gold got back on the bicycle this week and is starting top look like it wants to blow out 1800 and accelerate…this week is big….if it turns down then our thought of Summer doldrums could still play out….if not maybe add some more (GDX GDXJ ect). Silver is potentially a superstar if we ever clear 19-21 & if industrial use kicks in (SIL SILJ PAAS). Copper is banging away at that 2.50 price line & could accelerate again if China’s demand kicks in better. These are hard assets in a world of exploding money supplies–go figure
We saw the play Waiting for Godot and now we’re watching the show Waiting for Soybeans as we remain in the 880-820 range for another week. Sugar price are very interesting to us as we are holding the 9-10 levels & if we clear 1130-1150 an acceleration to the upside would not surprise us.
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