Update 108: Stock Market-Stampede or Blow Off Top? Read More
August 28, 2020 Option Professor Opinions & Observations
Greetings!….What a week…between the New Record Highs in the S&P 500 & the Nasdaq…..we had a major Fed announcement….a major Japanese Leader resign….a Cat 4 Hurricane…..the RNC deal….a 100+ year member of the Dow got booted…..protests & tragedy in Wisconsin….another million out of work.. So how was your week???. As we said months ago; late August could be pivotal as if we could keep the VIX between 20-25…big money may commit more $$$$ as relative stability has returned which is EXACTLY what we saw in the last 2 weeks. Important to note that the VIX stayed above 1996-2000 which saw a stock boom & Dot Com bust. Now we expect the end of this year and beginning of next year to be strong BUT our CONCERNS are in the NEXT 90 days. The jobs market stinks as 30 million collect benefits & we hover in a ball park 10% jobless….big companies (Coke) and profitable companies (Salesforce) and distressed companies (Airlines) are all handing out the pink slips…so the right sizing of companies that we told you about months ago involves cutting staff-so earnings rise. What will this do to consumer spending…..the Fed keeps printing (money supply is UP 30% while money velocity TANKS. We’ve pulled forward a ton of demand that is bound to cool off and the election is going to be a mess. Valuations or re valuation of companies had been the big driver (e.g. AAPL was 20X P/E now nearing 40X LULU was 56X now 86X and many more)……this is how short term bubbles form….call volumes have exploded and the skews suggest possible nervousness ahead…..IPO’s have exploded….Buffett still sits on his wallet….SO WHAT”S THE CALL?….well our view is Do Not Fight The Tape BUT the Time Zone ahead (Sept-Oct-Nov) AND the fever pitch of the rally AND the distance between stock prices & the moving averages (reversion to the mean) AND long term Treasury yields RISING AND the VIX trading 21+ AND VALUATIONS discounting a very ROSY picture….means that you MUST monitor prices and have defensive tactics at the ready (Covered Calls Writes -Collars-Married Puts-Replacement Trades-Trimming ect)….because if we roll over for CAUSE….the volume coming OUT will dwarf volume coming IN Caveat Emptor….
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Where to start…..many companies either made all time highs or 52 weeks highs or just had a great week……some that had our attention was the streaming wars companies (ROKU)…epicenter stocks (cruise lines- airlines restaurants-hotels-casinos)….Covid winners (Dick’s PTON ZM) and WDAY CRM CMG AMZN & cloud computing WCLD & MSFT……next week we’ll see how AAPL & TSLA trade post split…buy the rumor sell the fact..we’ll see…also smaller company (OSW) in Health & Wellness on cruises rose. With the boycotts in pro sports and rumors of less games in other sports ahead..they hit DKNG & PENN but longer term some say a 1.5 billion dollar market may look like 12 Billion over 5 years so keep an eye out there. Some are suggesting that a hedge on the QQQ may be worth a look as a Nov 275-250 debit put spread was at 6 and if a trader owned the Q’s and sold a covered call in Oct at 131 the 5 bucks received would pay for a good size of the debit BUT you must be clear on the real and opportunity risks of the strategy and other factors so consult your own advisor & brokerage firm.
Fed boss Powell came out with his let the inflation run hot before reacting to it spiel which allows him to keep printing & financing ballooning deficits ass far as the eye can see. Will the Dollar fail & will Gold ect zoom and will we look like Japan (1990-Present & 1933-1948 which employed this cheap zero interest scheme and where markets net go nowhere…time will tell..you tell us who will buy Trillions of Dollars of negative yielding debt…plus other Consumer/Mortgage/Corporate/Junk/Sovereign DEBT if EITHER the Dollar hits the skids or if INFLATION comes back…have you been to the store…buy a car or a house or pay bills lately….seems like we got inflation already…. ..the FED used 5% of GDP after 2008 GFC and now is at 44% of GDP..crazy.. for now short-intermediate tax frees have done fine but most of the debt market is EXTENDED & a reversion to the mean (moving averages) started
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US Dollar/International Markets
The Dollar lost it’s steam a bit this week as Fed talk of printing ad infinitum scared the bounce crowd and put the Euro back in the forefront as the Dollar pressed 52 week lows and Euro 52 week highs…..if we break 88-90 DXY it will open the door for 85 area which is the highs of 2012 & 2013….will the Fed defend the Dollar?…hey they just bought Junk Bonds so why not….but if yields creep up to .85%-1%+ that could be enough to stabilize it. If the Euro can take out 120…125 could be the target (highs of 2018)…..but a failure to do so..a moderate pullback towards 115 is not yet off the table. The Japanese Yen got news this week with Abe resigning for health reasons and we saw the Yen went into the tank toward 105…we never trusted the Yen since it failed in the 110-112 area…the Canadian $$ still looks weak as well but the Aus$$ has picked up steam as we told you 50 above 200 day MA Mexico is bracing for worst recession in a 100 years yet their stock market EWW hangs in there…..Brazil EWZ was up almost 5% Friday..watch for a turn…Europe is hanging in there EWU EWG EWQ but will stall lead to fall? .India INDA has had a big run so has BABA & Emerging Markets VWO. The world will probably follow the US so Sept-Oct Nov still is a 90 day close call
Crude Oil/Natural Gas
Hurricane Laura and her predecessor did not kill the refineries and or supplies were ample ass prices well behaved…we heard SLB was the play and it rose 4% on Friday….people are sour on oil sstocks but our view is they pay good dividends and will ultimately benefit from the reality that supplies have tightened (frackers rig counts OPEC) and the demand ahead will push prices substantially higher…everybody (PE) left now we come in. Natural Gas was a favorite of ours when it broke 2.00 and while it dipped Friday after a long run we saw LNG (53) has the 50 and 200 day MA at 50.
Gold Silver Copper Platinum
Gold liked what Powell said and had a good week up 40 bucks on Friday but remains in the new trading range of 2100 and 1900….Silver 30-24..Platinum 1100-800 with copper showing the legs to break out above 3.00….on the stock side the GDX and SILJ rebounded but still off their highs while 2 stocks in the Copper mkt we told you about FCX & SCCO were superstars this week
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Soybeans Sugar Coffee
Well one of the three amigos had quite a banner week…..the one that hass been Waiting for Godot…well this week Godot actually showed up as Soybeans provided a payday for the patient bulls as prices shot up over 50 cents a bushel and closed near the highs on good buying including China ect Sugar prices were bouncy between 13 and 12.50 but we remain constructive as long as the new range holds (11-13) as we believe demand during the recovery will boost commodities in general. Coffee prices continue to matriculate up the charts trading wonderfully technically..we had a buy under 100 followed by a breakout above 105-110 and pullback to 110 breakout point and now at 126….not the bargain it was….but Bellissimo!
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