September 18, 2020 Option Professor Opinions & Observations
Greetings Everybody! Our view remains that we are in a TRADING RANGE of 3500-3100 for now. As we told you for week that the VALUATIONS & PRICES were stretched in the Nasdaq & we directed you toward HEDGING strategies like Covered Write/Collars/Married Puts/Replacement Trades. The stocks that were bid up like AAPL TSLA MSFT AMZN GOOG NFLX ect had great jump in sales during the last 6 months BUT Price to Sales has soared & that we have already adjusted to ZERO interest rates…the comps are getting tougher as you look down the road…..in fact indicators like credit card spending, open table & hotel bookings have rolled over a bit and even housing starts were DOWN 5.1% in August…not panic time but pausing time The economy thru the lens of ISM #’s (56) and new orders index (near 70) give a firmer footing BUT almost 13 MILLION people are still getting $$$$ from Unemployment Benefits. As we have told you; the Russell Value versus the Russell Growth Index took out the 1999 highs….this week Russell Value was UP while growth sold off. As we told you…while we see much better values as TECH-SEMIS -MEGA CAP GROWTH-CONSUMER DISCRETIONARY (we we brought to your attention in March & April) as they approach their 200 day/1 year Moving Averages….we believe that the BARBELL APPROACH we said was the way to go REMAINS…(Growth-Cyclicals-Value)….In MARCH we told you the way we come OUT OF THIS is #1 TECH leads the way as WORK FROM HOME ect creates huge revenues for the likes of AMZN AAPL MSFT NVDA ect and with rates at ZERO VALUATIONS WOULD SOAR.. this is Exactly what happened #2 As we normalize the cyclical & the value names would play a serious game of catch up and the epicenter stocks as well.. OVER the next 3-6 months we believe this will happen. #3. We EXPLAINED that companies could return to PEAK EARNINGS much FASTER than any thought as they would CUT JOBS & NOT REHIRE plus cut back on Real Estate expenses (2 huge costs) again EXACTLY as we are seeing now. We said TANGIBLE ASSETS would be king (real estate-precious metals-businesses). You Should Ask….WHAT IS THE TAIL RISK?….it comes back to the value of the DOLLAR. In March; the Dollar hit about 104 during the crash as people rushed to “safety”…then they discovered the INTEREST RATE ADVANTAGE the USA had went out the window when Powell brought rates to ZERO. This led to a 10%+ DECLINE in the Dollar and BOOM there goes Tech & Metals & Real Estate. Around LABOR DAY; the Dollar stopped going down and Stocks & Gold & Bonds have now stopped appreciating. The Fed is TELLING you they will let INFLATION rise for a sustained time and OUR VIEW is that it is because it will happen as CURRENCY VALUE will be determined by factors #1. MONETARY DEFICITS (USA Money Supply is UP 25% more than 4X the NORMAL) #2 FISCAL DEFICITS (USA Fiscal Cliff looks like Niagra Falls) and #3. TRADE DEFICITS (No matter all the tough talk & tariffs-Ours is HUGE). Airlines & restaurants ect will be smaller…what to do?…they’ll RAISE Prices. In the next 3-6 months….our view is investors will WAKE UP and realize that the 10 yr Treasury yield is a joke & that the 30 year Treasury yield is a farce as the economy rebounds and the DOLLAR hits the skid after this short BOUNCE it’s enjoying. The Fed WANTS this in our view because MONEY VELOCITY is TANKING and you can’t get VELOCITY in a FLAT Interest rate structure (ask Europe & Japan how it’s working). Simply put the BANKS need to get involved to get Velocity going which means they need a SPREAD between short rates & long rates….otherwise it’s no good. Did you notice CORPORATE DEBT issuance has soared even on lousy companies BEFORE the election (CCC paper is outperforming)….maybe their higher Earnings can help them handle it….or the Fed gets a facility & buys.
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Lots to talk about here from Zoom to Snowflake & don’t forget the Apple show (though some apparently did). Zoom sales are up 350%+ in the last year and has 150+Million monthly users.. fantastic numbers…but the valuation is equally fantastic…the risk is will it be sticky when a vaccine comes out and how can they keep the pace & grow from the numbers out of the pandemic. Competition has got to be coming from others looking to create new revenue streams. Snowflake has a great story…the AI of cloud as it allows you to analyze and share data while getting insights…all very good for business. Great customers (146 of the Fortune 500 & counting) Great revenues (+133% in recent months) Great early investors ( Buffett & Brad Gertsner ect) Great Management (Frank Slootman-brought Digital Domain & ServiceNow to market/Partnerships (Salesforce)……so what’s not to like?? Well the price came out at 120 and rose to 319 down to 215 and went home at 240 so a wild ride it has been ass 100-150X Sales is a tough valuation. Other news was on Ford (new plant makes EV’s like the F150)…also Fed EX which is hiring 27%+ more than last year for the holidays and some say they could score big with VACCINE distribution. Berkshire Hathaway BRK.B is liked for some as when we turn the corner Buffett has got the AAPL/best insurer in the land/energy/banks /Japan rebound and a huge cash pile. Also Face book at 240-245 & APPL 85-95 area has bids plus Boeing who got news hammered (1000 cancels on Max) supposedly is near 150-158 support. Industrial names like Emerson Electric & Honeywell are worth a look as well as CPRI & OLN & DAVA. Too much to include here…so its time to go to optionprofessor.com and submit your email to learn about access to more.
We have had the view that the ETF’s on fixed income have been very overbought and would pull back closer to their moving averages and in the last six weeks they have done just that with TLT fading from the 172 to 162 and now have a number of moving averages crossing over. Longer term we see longer term rates rising as the recovery expands and the value of the Dollar resumes it’s secular bear market by year end. We have ETF’s we focus on to get income and ones we would suggest you avoid like the plague…to find out more go to optionprofessor.com and submit your email.
Us Dollar/International Markets
The Dollar rebound continues albeit mildly…if the DXY breaks above 94…look out below on the markets that rose in part due to a weak Dollar. We believe a break ABOVE 120 on the Euro could spell 125 but the Yen & Can$ remain subdued…some believe the AUS $ could make a run at parity if it breaks ABOVE 75-80 over the longer term….we’ll see how that unfolds. On International markets …most were on the defensive China (FXI) Europe (VGK) Asia (VPL) and Emerging Markets (VWO)…following the USA for now.
Crude Oil/Natural Gas
Lat week we told you the Saudis were discounting…this week they’re scolding OPEC…one the better performing sectors this week was energy (VDE) before pulling back…their remains short term DEMAND fears…we stay with our call….30-35 worst case downside and big cyclical appreciation as we get a more expansive recovery in the year ahead….again not enough room here to cover the ETF’s on both Oil & Nat Gas (which pulled back as we told you 2 weeks ago after overbought big up move) so simply go to optionprofessor.com & learn how you can subscribe to our Focus List.
Gold Silver Copper
The precious metals remain range bound with Gold 2100-1900 and Silver 30-24 meandering back and forth…if we break 94-95 on the Dollar Index..what we said for a while is that SEPT-OCT-NOV could be dicey for both Stocks & the Metals…..we saw a print in the 1800’s already during the decline ….can’t rule out a 1600-1700 print in the next period ahead. BUT longer term is a horse of a different color so we have a list of Gold & Silver stocks & ETF’s that we told you about in March April BEFORE they ran….Kinross just paid their first dividend in 7 years…get over to optionprofessor.com & learn about how to get our Focus List in metals. Copper is a Goldman Sachs favorite (Readers know it has been ours for 6 months!)…and our buddy FCX hit 17.50 this week…our bet since 6 bucks.
Soybeans Sugar Coffee
The Soybean trade we told you about for months (remember the reference Waiting for Godot) is staring to accelerate as it looks like China is trying to help Trump get votes in the Farm Belt (along with his Billions in giveaway money) and he’ll call off the dogs a bit. we jumped to 10.43 this week and we brought thiss to your attention in the $8 range…not bad. It’s getting OVERBOUGHT short term but when beans go sometimes they go nutty…we felt a break above 10 could open the door to 10-12 window…RSI’s very hot In the Sugar trade.. we told you that the moving averages came in at 12.30 area and we could accelerate on a break above that area…this week we did and we closed near the highs…a close above 13.20 would be powerful but staying above 12-12.30 bodes well for the future. Coffee was a darling earlier this year as our focus list had us bullish in the 95-110 area BEFORE the move to 137….the break UNDER 130 put a fork in this one ….now our view at 113 is that if 100-110 hold…maybe it get back on the horse…..
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