Update 112: Stock Market-How Low Do We Go From Here? Read On

September 25 2020 Option Professor Opinions & Observations

Greetings!…Well we told you a few weeks back that we had a BLOW OFF short term top and last week that DECELERATION was upon us and this week we saw strong selling followed by a week end rally. We told you credit card data. open table & hotel bookings were all rolling over and with no stimulus package the risk of those numbers softening is high. We saw durable goods orders roll over this week and while ISM & PMI numbers are hopeful Goldman Sachs CUT GDP estimates for Q4 in half! Let’s face it there is risk to the downside particularly if 3428 SP holds next week as the scary election (Trump may refuse to leave/rigged election/AG Barr at the ready) PLUS the panic to get RBG replaced but no panic on stimulus PLUS a COVID SPIKE in some states & EUROPE reminds us we are no out of the woods. Earnings will be forthcoming and as we told you in MARCH-APRIL…be prepared for surprises on the upside as less employees & real estate would help return to peak earnings. Hey..the long term trends are intact (we told you they were reestablished in APRIL when we got back above 2800 SP (3 yr MA) BUT REVERSION TO THE MEAN is occurring EXACTLY as we said & we EXPECT more to come. The 1-2-3yr MA’s on SP are at 3108-2963-2886 and we believe they are all FAIR GAME between now and year end but we targeted SEP-OCT NOV ass the time frame for this correction BACK toward the mean. This includes any and all OVERBOUGHT markets like we told you GOLD & SILVER would revert back down and it has big time….Again prices could get very choppy between now and the election & thereafter so IF we close up above 3428 we would be encouraged but maybe they would just be running the stops. Could there be an October surprise after rebalancing early next week? Sure…if it has anything to do with vaccines & stimulus (credible) then that would be different but we still have 13 Million on the dole and almost 900,0000 new claims last week….caution is the better part of valor.

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Stock Market

We got a big run in Covid stock beneficiaries late this week (PTON ZM TDOC ect) as the news of a Europe spike in Covid case got traders running with the idea of more cases coming our way and an extension of the status quo. The Nasdaq finished the week positive by we believe more wood to chop at lower levels absent a break in stimulus talk. Lots of stocks to follow-trade including JETS as more money for airlines on the way likely. The cruise lines (CCL ect) got upgraded as well as safe to sail expected soon. Uber caught a bid as we prepare for the Prop 22 vote & sports gaming in on the huge bull run (DKNG PENN WIMMY CHDN) as millennials maybe have found a pastime better than Robin Hood….online & anonymous…just like the want it. Stocks such as TECH PEP QCOM UPS XPO STC TGT Fire eye all were on the radar and vaccine stocks like NVAX & PFE & MRNA (who has certain technology that could unleash 23 more drugs) also got a look and GILD may be a worthwhile value around 62. Speaking of value…that trade hass been put off for now ass trends were broken and resistance held but we will keep an eye on that ball because quality firm & high dividends have value especially if we see the yield curve steepen. CSCO has a PE ratio that’s reasonable and when we return to in office activity then they will shine plus the generate 14 Billion in free cash flow and pay way above 3% dividend. WCLD & CLOU had good weeks as we ran back to tech at the end of the week. Disney Hong Kong opens this weekend so keep an eye on DIS

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Bond Market

The times they are a changin’ in the Bonds as we said markets are reverting to the mean and JUNK bonds have been been retreating for 2 weeks & had their worst week since April. At some point overleveraged (CCC debt was very popular) and the public’s appetite for crazy was going to correct. Defaults rates are at 8% and could go to 12% easy with a stalled economy and the unknown ways things may break (forbearance-stimulus-election). RECORD junk issuance this year and no beta protection in 60-40 portfolios which forces investors to take more risk-accept lower returns or redirect part of their risk % into more aggressive areas (Gold/Alternative Plays).IG short term is insulated ass the Fed is clear about supporting those but the rest (HY-Munis-Preferred Mortgages) may not have such assurrances though they have traded ass if they did. We said still with IG short term corporates and stay away from duration as if the Fed want to steepen the yield curve (help banks) and inflation up/Dollar down…risk & no return.

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US Dollar-International Markets

We told you that the Dollar hit a low in the 90-82 selloff zone and looked to rally EXACTLY what has occurred. We told you the Dollar TOPPED in March and fell 11% which sent Stocks & Gold-Silver & Euro soaring NOW we see the US Dollar hit the short term bottom in early Sept and since Stocks-Gold Silver Euro have been in the FADE MODE. We said if the Dollar breaks 93-94 and maybe goes further to 96-98 it could be a catalyst for a FURTHER FADE International market that benefit from a stronger Dollar and weak local currency (Turkey TUR Brazil EWZ & Mexico EWW) got a bounce but overall Europe’s PMI’s & Banks & Virus spike put them on the outs and Emerging Markets & Asia are fading as our economic numbers fade…the world is on defense as we said it would be in this time frame…if the numbers change-we change but for now FOMO has left the building…not the country.

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Crude Oil Natural Gas

After last week when we got a big jump to the upside..this week was a big nothing in price movement but we closed with a 40 handle. The BIG news was the machete they took to energy stocks in the last 2 weeks which wreaks of give up on the idea of a V shaped recovery and DEMAND returning soon. Best of breed is Chevron CVX with the best balance sheet to survive & thrive and a heck of a dividend north of 7% and so far secure. Keep an eye on this sector & the banks…very unloved very cheap. Natural Gas was a big winner when we spoke about it under 2.00 and a breakout up toward 2.75…we broke 2.50 and tanked toward 1.75 and this week on WED soared out of the blue to 2.75-2.90 area…our buddy LNG needs to break 52.

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Gold Silver Copper

Another REVERSION to the mean story ass when the Dollar turned that panic we saw to 2100 Gold & $30 Silver was OVER. We feel in the months ahead Gold in the 1800-1700-1600 areas and Silver $17-$20 range could be in the cards followed by a nice resumption of the powerful uptrends fueled by monetary base explosion and structural stimulus that will last for years. Copper has been a real soldier comparatively but did break 3.00 this week and our buddy FCX retreated as well (more reversion to the mean). Long term still up trending so don’t throw the baby out with the bath water.

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Soybeans Sugar Coffee

Blood Sweat & Tears sang “What goes up must come down” (were they traders?)…well that was the story on Soybeans as we shaved off about 50 cents off a great run which we told you about months ago. Resisstance was 10.00 & 9.50 on the way up…let’s see if it’s support on the pullback. China is supposed to buy 130 bill in 2nd half of this year to comply with phase one so maybe they’ll be back at the bar after backing off. SSugar; we told you was a go after it got above 12.30 an it had a good week while Coffee hasda a big pullback to former resisstance & breakout point 105-110 and turned up…it could be ready to re-caffeinate the bulls in the weeks ahead.

REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm/broker/advisor to determine your own suitability. Past performance is not necessarily indicative of future results, Use Risk Capital Only.

Jim Kenney

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