Update 114: Stock Market-Rising Tide Lifts All Boats-Read More
October 9 2020 Option Professor Opinions & Observations
Good Evening…..This week was a very key week POTENTIALLY as we took out the SP 3363 resistance last week and the SP 3430 resistance this week and participation widened out considerably. Our original view that Sept Oct Nov time frame will lead to VOLATILITY has still played out and our view that a trading range of 3500-3100 is still in play but now we must consider that SP 3215 (61.8% retracement) could be the low and with stimulus and infrastructure either coming immediately or soon after…..that $4.3 Trillion of sideline cash (not counting private equity & corporate cash) is hard to step in front of as we know sellers will raise their offers to the moon if the market will bear it. Lots of dry powder & heavy Short Interest in the NDX. Covid is scary but the FOCUS may not be on CASES but SEVERITY (deaths) We are not totally out of the woods…..household income has been lost & drawing down savings only lasts so long….job cuts (as we told you would happen 6 months ago as corporations re-size for peak earnings) continue at the airlines, Disney, Warner Media, Banks and more. Housing, e-commerce infrastructure, Communications, Digital Lifestyle will remain the themes. However; a peak at bank earnings (loan defaults-Commercial Real Estate) plus retail sales and closing to what could be another Nightmare on Elm Street (A.K.A the Election) looms ahead…..so the barbell approach we’ve encouraged since March remains-Tech-Growth-Value-Utilities-Epicenter.
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Next week we get earning from the banks and others plus Delta and more stimulus jaw-boning. Looks like B of A is getting into the pay day loan business and we got lots of merger action this week as well…Morgan Stanley got into it with Eaton Vance (is Invesco or Janus next??) while AMD and Xlinx are looking at a $30 Billion dollar deal and some talk of a Exxon Chevron merger but that may be more of the beer talk variety. International Paper IP & WestRock may be ready to profit bigtime on the move to paper shipping materials and as you can see e-commerce delivery just took the Dow Transports to RECORD levels not seen since 2018. This may also confirm an up move for Dow theorists as this piece of the puzzle had been missing. Workhouse is in the finger pointing game as with Nikola about the veracity of some of their data. Our favorite betting stocks DKNG PENN CHDN all are getting hit (DKNG announced a secondary offering-never welcome news) and all should be buys again in the not too distant future but maybe the reduced sports schedules & their nosebleed valuations have caught up to them. Some of the symbols of the recovery stocks on out Radar are TJX DLTR GM UNP CSX JCI BWA ROST SCI IEX GWW WYNN BKNG
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Not much to report here as yields were pretty flat all week with an upward bias. Of note is the % jump in yields has been 50% since the lows and 20% in the recent past…big numbers. TLT which we use to assess long term rates (and where we see the greatest duration risk) closed at 160 and it has broke the 50 Day MA at 164 and intra day broke the 200 day MA at 159.50. So we feel if the markets take off and growth starts cooking…TLT could accelerate to the downside HOWEVER…..the 50 day iss still above the 200 day (164-159) so this could be a garden variety pullback after a huge up move and should we close ABOVE 165 with weaker stock action…forget the bear-get bullish. We favor short term Corporates & limited term Munis but if you want to spike your drink…look to floating rates, preferred, High yield & emerging market debt if you want to stretch part of your portfolio & risk profile.
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US Dollar/International Markets
Europe is in a stall phase as Italy & Spain desperately need help from the Recovery Fund and soon. One of the Europe ETF’s we watch (VGK) closed at 54.50 with the 50day/200 day MA’s at about 53-51 inverted to the UPSIDE so unless we take out 50 maybe the cheap valuations of their shares win out. The BIG OPPORTUNITY overseas could be JAPAN (EWJ) as the Nikkei is flat on the year while the USA is up and Korea (EWY) and Taiwan (EWT) have both made good advances and some believe EWJ will play catch up. Emerging Markets China South Pacific all have been picking up steam. The US Dollar lost steam from last week…we told you a bounce out of 90-92 could go to 94-96 but then a reversal would occur….with deficits stimulus trade deficits and record structural unemployment…can you blame them? So if we hold 92.50/93.00 area (61.8% pullback) maybe we have more upside but the avalanche of printing could spell trouble for the greenback although are the Euro & Yen great alternatives?….No….but Gold-Silver-BitCoin ect.???
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Crude Oil– Natural Gas
For those of you looking to renewables…a stock we have been keen on this year is BEP Brookfield Renewables which hit a low in March around 25 bucks and now trades 52. We have been telling you our view is that 30-35 is worst case for crude prices and we recently hit 36.50 and now trade above 40 again…we believe next year we will see a demand reversion while seeing RIG COUNTS lower than 2015 & fracking is a rough racket plus couple that with a well behaved Saudi supplier and for the patient the CVX SLB KMI & others may pay off…be careful of XOM who we read is borrowing money to pay the 9% yield…silly. Nat Gas is all over the place…LNG need to get back in the 50’s to renew our interest and a break under 45 could be a back breaker
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Gold Silver Copper
Well these 3 had a great week as the Dollar faded and happy days are here again blared out of traders radios. We’ve been bullish copper since 2.50 and FCX since 7 bucks so we’re not just arriving here. We needed to hold 14 on FCX.. we did.. and now more upside. Housing & Infrastructure music to us. Gold & Silver hit short term lows in late Sept and turned up this week as the dollar hit the fade mode. Still in trading ranges with resistance in Gold at 1950-2000 7 the at the highs of 2100. Silver is above the 24 level which is a good sign but resistance at 27-30 looms ahead…..our mining shares GDX GDXJ SIL SILJ all got a bang to the upside…DXY takes out 90-92….we soar.
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Soybeans Sugar Coffee
How did our three bulls do this week?…Soybeans which we told you about since the mid $8 area made NEW HIGHS at 10.80 area and closed at 10.65..if China needs to hit a buy quota—we said the upside could be 10-12 or more. Sugar prices looked great and we said the buy was when we crossed the 12.30 area (50 & 200 day MA’s converged)….this baby closed at 14.22. Finally Coffee which was a favorite early this year…got way overbought…corrected right into our support zone (105-110) pooped back to 112 area for a nice trade but jury still out if that’s all we’re seeing….under 105-get outta town?? After big runs in any markets…always be careful of a reversion to the mean.
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