Episode #57: OptionProfessor Market Update

NEWS: Well the big news this week should really not surprise anyone & sets right in my base case. The S&P 500 may very well have seen a short term peak @ 3027 and it’s failure to take out 2950-3000 sets up a further downside move. The Fed in Jackson Hole essentially says that they will watch the data which shows decent consumers spending albeit on credit and that the trade war is killing manufacturing, capital expenditures and the farmers. Trump appears unhinged with his banter and Powell will not underwrite either overly aggressive trade/currency wars or short term re-election schemes. Save some ammo for a rainy day.

Stock Market- I never liked the rally to 3027 and said so. My reasons included the lack of new highs in some major stocks and more importantly the Transports (DJTA) and the Russell 200 (RUT). Today; on a percentage basis, both are far weaker than DJIA/SPX. Cut to the chase; the rollover has support at 2825 and 2700 area but with VIX @ 20 area plus the Presidential banter…who knows?

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International…strong dollar and trade wars weigh on Europe & Asia & Emerging Markets….don’t catch a falling knife but also don’t put your head in the sand. If & When this thing settles down (maybe by mid Oct); valuations & prices & trends may be much more compelling. Cooler heads/humility must prevail on trade and today that seems far fetched….but we all know things can change.

Bond Market- Yields dropped sharply with an inversion and the 30 yr Treasury hitting record lows. The returns on long term duration (EDV) are many times the historical norm so one wonders if a pause to refresh is in the cards. I do know if economic number (GDP/Inflation) were to surprise on the upside in Q3-Q4; the risk on duration would be huge. Right Now..not the case.

High Yield- this is an area that is giving a clue that stocks are just having a correction. So far HYG has not broken & one would think that if it was game over; HYG & Leveraged Loans-International (VWOB) and the bunch would be in the toilet. So far; they are not.

US Dollar-good size drop today on DXY but still well within the parameters I have said which is 99-95 (97-98 area now). Hey, a strong economy & elevated comparable rates will get people hanging around your currency.

Crude Oil-still stuck between 50-60 (53-54 now). A break above 60-65-70 would certainly make the oil stocks interesting as their

P/E ratios and Dividend Yields are nothing to sneeze at. Right now….it’s a falling knife.

Gold Silver–OK I have been talking the bull story since the break above 1350 witha pullback call @ 1520 area which we saw.

Right Now..turmoil and budget deficits and stimulus talk globally sounds like printed money is getting out of control. A percentage held in GDX & GDXJ has been a good call and remains so but still be aware that we are way above the 200 day moving average.

Soybeans- China was supposed to be buying now they got tariffs on the beans…a real tank job. As I’ve said before break above 9-950-10 combined with new would get my attention….farmers not as made whole as previously advertised.

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