Update 115: Stock Market-Rosy Prices On Spotty Data=Volatility-Read

October 16 2020 Option Professor Opinions & Observations

Good Day Everybody!….This was a pretty good week for stocks until the last hour of trading on Friday. As we said…the mid Sept highs at about SP 3430 was taken out and we could be setting up for a run toward the SP 3550-3600 area but news keeps coming out throwing water on the rally and we see a RSI DIVERGENCE in a number of the strongest sectors (Dow Transports) that could spell short term trouble. YES! we got great news on consumer spending with the retail sales numbers (we have told you about IBUY & XRT as easy ways to play it for months now). Consumers have gone Shopping which has replaced Entertainment…..are the closets getting full?? Aggregate Households are feeling good with wealth up debts down and savings up but shrinking with all this spending. The annual government deficit is at $3.1 trillion (our ENTIRE national debt was in the 3-4 Trillion range in the 90’s)….it’s a RECORD and only helped in costs by low rates. Also industrial production is negative and the trade deficit is jumping too. You’ve got many record or new highs in all the retailers many with very rich valuations and we still have half the lost jobs from earlier this year still lost (weekly jump in claims)……our suggestion is to remain vigilant as we approach the election…..some believe the upside for stocks is limited in the short term on the frothy part of the market and call options are enormous….does covered calls…collars…replacement trades using calls/spreads make sense…get the facts & decide…if we accelerate thru SP 3420 those odds increase….for now TINA & the Consumer are winning…next week we get EARNINGS from many companies such as BIIB KO COST HAL T VZ CSX TSLA AXP and many more with more to come…Fastly went from 135 to 85 in 2 days (almost 40% drop)…will we see more mutiny as data-prices-election collide? Stay Tuned!

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Stock Market

What’s in store next for the stock market? Are the lows in at SP 3200? In the next 10 weeks (year end) will we see a stampede into stocks? We believe in following the numbers so SP 3420-3363-3300 are keys for us and RSI staying above 50. We told you since July-Aug that Sept-Oct Nov could be VOLATILE months and so far we got our fair share….more to come? Well…chew on these numbers…the 1-2-3 year moving averages on SP are 3150-2998-2913 so could something occur to see a break toward those numbers? We’ve seen NEW highs on SP & Dow Transports with DIVERGENT RSI’s which can be short term problematic. P/E ratios (valuations) have exploded and 2020 targets of SP 3500-3600 have pretty much been reached. So prepare your plan if clouds surface and save some dry powder in the weeks ahead. We continue to believe the barbell approach will endure (tech-growth-value-materials-industrials-epicenter) and we may see a catch up trade soon. Many stocks & ETF’s on our Radar such as BEP BABA LULU MRNA SWKSS ITB FB UPS TSM QRVO AKAM and many more (oil could surprise in 2021).

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Bond Market

As we said…barring any surprises….we expect yields to rise as deficits-currency-et el will send yields up/priced down….something we told you for months and we see Treasury Bond futures sell off from 193 to 175 since March and TLT (20yr proxy for T-Bonds) fall from 180 to 160 similarly. Short term corporates and limited duration Munis have been our call with the exotics of floating rates-preferred-Junk and EM debt added for risk takers. The Fed may WANT longer term yields to rise to steepen the curve and get Banks & MONEY VELOCITY to get going as Japan & Europe get none with a flat curve. That’s our story and for now we’re sticking to it…..we’ll soon see

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US Dollar & International Markets

The Dollar was hanging in there this week not taking out 92 and trying to approach 94…we have told you that the move from 104 down to 90-92 area was OVER and a bounce would occur that would correspond to corrections and consolidations in the markets that ran up (Stocks-Gold-Silver-Euro ect.) So the next big leg up in metals-stocks-ect. and rates will probably need a break of the 90-92 Dollar rate otherwise a surprise move to 94-98 could spell a further correction of size in the aforementioned markets…..On the international front Europe’s got Covid spike problems and more and Asia and EM all are seeing a malaise presently…..again if the Dollars breaks–UP!

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Crude Oil/Natural Gas

Our view remains that the 30-35 area should be worst case for crude oil prices and so far 36 area has held (we are at 40). The rig counts …fracking business…and a cooperative OPEC spells supply controls and with all these cars sales going on…they’re going to drive somewhere and should jet fuel make a comeback we like the upside on oil & oil stocks in 2021 barring a surprise change in the current trends. We stay with best of breed like CVX COP KMI VLO EOG PSX SLB XOM BO RDS.A OKE to play this sector.

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Gold Silver Copper

As we told you when Gold & Silver topped out at $2100 and $30 bucks…we will see pullbacks toward their moving averages and consolidate their advances…this view continues so far this month. Do we anticipate a upside move between now and 2021??…..if we see the Dollar drop & long term rates rise (Inflation & Money Velocity could then jump)….we will add to core positions and ride the next wave which we told you was happening on the break ABOVE $1350 Gold & $19-21 Silver months ago. GDX GDXJ SIL SILJ are all on the radar plus many more….end of the calendar year & the beginning of the new year is Metals Time…..so don’t get caught sleeping at the wheel! Copper still maintaining the 3 buck level…infrastructure & housing…lots a copper used and needed and our buddy FCX (been bullish since single digits) still seems the place to be as long as above 12-14….we have others too

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Soybeans Sugar Coffee

We told you about Soybeans in the $8 area and we thought we could get a run with China buying…we cleared 10.00-10.50 but are stalled a bit now…we thought the recent move opened the door to hit 12 but just under 11 has been the max….prices got extended so a dip was in order….countries like Brazil with a lousy currency may step in and create a competitive pricing atmosphere…staying above 10-10.40 could keep us on track….election?? Regarding Sugar the call to get long when the 50 day 200 dayy MA’s converged at 12.30 was spot on ass we took off into the 14’s…now a bit extended but the trends remain up…if we clear 16 with cause….accelerate? Coffee continues to hold 105 support and if we print above 115-120 then things could get very exciting as they did when we said sub 100 was a steal.

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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