August 7, 2020 Option Professor Opinions & Observations
Welcome Back!…This week we got some confirmation as The Dow Jones Transports & the Russell in the last two weeks have taken off like a rocket ship. DJTA blew out the snap back highs at 10,100 closing at 10,576 and the Russell blew out 1540 closing at 1569…Great Stuff!….now we still haven’t taken out the 52 week highs on both BUT for the purpose of NEXT WEEK.. we are feeling a MOMENTUM JUMP in the lower P/E value ETF’s MGV SPYV VYM VONV VBE VOE could see an acceleration and these guys are way UNDER their Feb highs so a lot of potential real estate to make up…..and don’t forget we are getting about 3% and better to watch the movie unfold. Sure the FB AMZN AAPL MSFT GOOG QCOM…telecom..e-commerce-delivery guys (UPS-FDX) are still in the hunt….but sideline cash-income replacement and the rotation-re-balancing crowd are going to like 14 P/E & 3% yields too! Listen the P/E ratio on the 10 Yr Treasury is about 180-1 & Investment Grade is in the 50-1 P/E neighborhood which is why Growth can command 30-40-1. This market is a Momentum junkie and we are getting Momentum in the last 2 weeks and it feels like this week could ACCELERATE with a bang. The EPICENTER stocks hit by the Virus…banks, energy,hotels/airlines/ casinos/ Life & Health insurers/department stores (email us for our Radar List). Having said all this the proof is in the pudding so we are depending upon Moving Averages & Relative Strength indicators to get confirmations….if the prices don’t hold their water…a short leash will allow for risk control-VITAL. BIGGER PICTURE….there remains a risk that Q3 will see a turning point as the economic numbers are slowing from May/June and monetary stimulus goes so far…if incomes contract/spending contracts…the sugar high recedes. Plus..there has been ZERO hedging going into the election and we will see if the UNWIND reversal we began to see in the Dollar-Gold-Silver bleeds into Stocks by the end of the month after Apple’s 4-1 split. Never A Dull Moment!
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The big news this week was the USA/China tussle ass WECHAT & TIKTOC have been voted public enemies Numero Uno. Some things we can count on coming out of this pandemic…people will need state of the art telecom communications…they will buy things online (E-Commerce) and they will need these purchases delivered. So in that light VOX or VZ TMUS AMT CCI plus AMZN SHOP XRT IBUY EBIZ & EMQQ (International) with UPS FDX IYT XTN of our featured RADAR LIST longer term. The VIX is very LOW But we told you MONTHS ago that if they could get the VIX down into the 20-25 range by end of August…it could unleash a LOT of buying in Q4 as BIG money doesn’t want to trade side by side with Robin Hood speculators with the VIX going from 20 to 90 to 25 to 40 …..but calmer waters & T.I.N.A wins! Other stocks had news such as DIS DE TGT plus SQ PYPL & processors. Options Activity was seen in Slack & Lyft (pre-earnings) TMUS added a lot of subs and China stocks got hit in what some say is a buying opportunity ass the bark has been much worse than the bite with the administration so look at BABA JD.COM TCEHY BIDU ect…..BUT we want to leave you with thoughts on 2 companies we spoke to you about….FB & GOOG….advertisers may slow down but are not gone forever and these two are must have stocks LT…Hey check out the STAT of the week…we heard this and it just blew us away…3 Billion global internet users…2.6 Billion FB monthly USERS How can this company NOT be able to Monetize that..stock up $50-2 weeks.
The Big News here is that DEBT is exploding at a 4-5 times normal rate and the FED MUST print & buy as they need about $1 Trillion bought to help pay for the stimulus so far ($278 Billion MORE than estimated or 33%+). It’s laughable that anyone in Washington calls themselves a fiscal conservative ass the Deficit was $1 Trillion BEFORE the Virus (greatest economy ever??) and now it’s in the Ozone…..sure the Dems want more money for social & state relief….but we need a LOT & Longer Term support…so do you want to have tons of stimulus bills or just get one big one…that’s the rub as we see it. Anyhow…could we go negative on rates..who knows..but the bet now is that the negative real yield may TIGHTEN (was .60 went to 1.65) and if it does it could be Sayonara (as Brando once said) to the bulls in Euro-Gold_Silver. Short Term Corporates & Munis have been the play but all DEBT stretched. Watch out for mortgages as the agency debt has gone RECORD levels and it seems low/no money down…take money out…with lower incomes is risky.
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US Dollar/International Markets
As we told you in prior updates…we believe the US Dollar will bottom in the 91-92 area and the Euro will top in the 119-120 area temporarily which this week is EXACTLY what has occurred. We turned BULLISH on the Euro around 110 but felt our horse may need a rest…it did. The belief that the negative interest rate differential at 1.65 may be a temporary peak and parabolic spike both favored a bump for the greenback. The Japanese Yen wass hanging on for dear life at 108 and let go of the rope (now 105.106) and the Can$ & Aus$ may fade if the metals fade. Watch Mexico longer term EWW as they may well be the big winner when supply chains get closer to home (they certainly won’t come back to the land of unions & benefits) & VPL VEU VGK (Asia & Europe still haven’t been able to break their ceilings. Lately; the emerging markets better characterized as submerging markets.
Crude Oil/Natural Gas
Inventories declined and the roads are full ass no one is flying and delivery trucks must fulfill all that e-commerce spending…so up she goes….BUT still in the 40’s and we are suspicious short term but fully bullish long term.. check out CVX XOM & VDE for a momentum trade and BP cut their dividend which made them wear a Scarlet Letter (C) but others could follow though CVX seems to rather fall on their sword than cut..XOM @ 8% has got to go. The new kid on the block is Natural Gas which we have been positive on for a month and we were rewarded with a fantastic move to the upside…and may of the stocks have followed suit including our favorite LNG..stay tuned.
Gold Silver Copper & Platinum
We told you that the mining shares (GDX GDXJ SIL SILJ ect) may be telling us that a short term top may be at hand ass they hit our targets and we cashed in some chips. SELLING CALLS against metals positions or COLLARS would have paid handsomely this week (APPLE too) and should always be on the table when markets go parabolic (nice cash flow & down protection). It wasn’t a good Friday for Gold ($40+ bucks off the highs) nor Silver (about $2.50 off the highs)…will it be temporary…until we see that negative rate widen out again which is not what some are expecting near run-stay tuned. Copper…as we told you got turned away at $3.00 and this week accelerated to the downside..our buddy FCX must maintain ABOVE 14 or it’s No Sale. The new kid on the block is Platinum…while it got roughed up Friday with all metals BUT was up over 10% earlier in the week…..the big news is the LT MA”S are crossing upward and suggest a LOT more runway for a metal that is 10X rarer than Gold and used to trade at a substantial premium to Gold & now is at a DISCOUNT of over a GRAND….we hear the same stories about how it’s not used any more..we also heard Silver’s dead-no cameras.
Soybeans Sugar Coffee Cocoa
Well as we said Soybeans are in trouble if they can’t get above 9.00 & 10.00 and this week’s action puts them on life support…not so much so with the other 3 Amigos…..Sugar ssold off the 12.50-13.00 resistance only to hold the 10-11 range and rally back to 13…still hasn’t got thru but if it does…follow the money. Coffee was a friend to us ass we said anything UNDER 100 was a gift and it would spike once it broke 105-110..EXACTLY…that run took it to 128 and of course you got to do the Steve Miller Band trade Take the Money & Run! We backed down to 114 Friday so let’s dust off the buy tickets & get ready to play again possibly….the new kid on this block is Cocoa which this week jumped from 2400 to OVER 2520….good run..let’s see if it continues.
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