Update 69: Stocks-All Time Highs+ Complacency=More Highs or Sell Off?
OPTION PROFESSOR WEEKLY MARKET UPDATE
NOVEMBER 15, 2019
OPINION & OBSERVATIONS
THIS WEEK/NEXT WEEK
More new highs in most stock indices this week as the belief that worldwide economies have turned and a trade deal is imminent dominated the landscape. Also; one can not discount the concept of a market feeding on itself with investors not fully invested chasing prices and those shorting are getting blown out. Obviously the veracity of these views will be tested in the weeks to come as more data is released on the economy and a China deal will either occur or fade as past deals have. We want movement on IP & Ag purchases & opening up their markets while China wants tariff rollbacks & termination….lots of real estate between those 2 positions. What we do know is that valuations are running hot while treasury yields have risen more than 30% and the planet is issuing more debt than ever seen before (US budget OCT deficit 134 Billion). Sure this means plenty of liquidity out there but it also means that if a contraction or inflation increase occurs…things could get messy & it appears no one is preparing for that outcome. Next week IF the stock indices fail to exceed this weeks highs….aggressive traders could have a point to trade against from sell side
Can’t fight the Fed and can’t fight the tape but we can’t totally disregard warning signals like the lack of new highs in the Russell and Dow Transports plus valuation concerns illustrated by the relationship between the Wilshire 500 and GDP @ levels not seen since the Dot Com bubble. Some stocks such as Apple AAPL have been trading more than 30% Over it’s 200 day moving average while being described by some commentators as “bulletproof” and as having “Sky’s the limit” upside. Maybe everyone is right or maybe we are getting ahead of our skis. I do know that in a month additional tariffs are scheduled (Dec 15) and if they go into effect & the “deal goes south the world may look different going into Christmas. Until we stop making new highs…early for bears
As we said Treasuries yields dropped way to far @ 1.4% as the race to negative yields was premature. PMI’s and other economic data has stabilized and some believe has bottomed out ergo yield have backed up over 30% in a vicious snap back leaving duration bulls (longer term debt) watching their gains and values fly the coop. Last week we told you 135 area on TLT was a key support area and we tested that area this week….if we turn up from here & get a market correction then the move to 2% on the 10 yr may be over although some see a 2.25% 10 year yield in Q1 if the economic numbers sustain a turn….lots a debt out there…collateral?
After a snap back rally last week off a precipitous decline off the 99.50 level; we saw a bit of a roll over in the dollar this week. Our base view remains that the US Dollar is a ball park range of 99 to 95 and this week it had a 97 handle on it. The admin has said a weak dollar would be helpful to trade and the Oct budget deficit was $134 Billion so at that pace they may get their wish.
While our base case remains that oil is in a trading range of 60-50 our suspicions that the Saudi ARAMCO deal (1.2-2.2 $Trillion) may engineer a rally to increase the appetite for that offering coupled with that some moving averages turning up and some oil related stocks have caught a bid in recent weeks…..next 6 weeks could be critical.
Our base case remains that the breakout occurred when we took out 1350 and screamed to 1580 where prices got way overbought (20%+ above 200 day moving average) but those excesses are being worked off. We entered pullback support @ 1400 to 1450 and await to see if prices overshoot to the breakout area of 1350-1400..if so it would be a gift if you believe the case for accelerating prices down the road is still intact (Tudor Jones had a longer term target of 1700)
Where are the Chinese buy orders??…well the rumors have made the 8 dollar level a trade able low this year and even got prices thru initial resistance of 9 bucks a bushel…now if we are to have substantial upside prices need to take out 950 & 10 and sustain it …if we get a China deal it is presupposed a AG purchase plan is to be included.
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