Update 89: Stock Market – TINA’s Back!
April 18, 2020 Option Professor OPINION & OBSERVATIONS
OK everybody we all have seen this movie before do you need are review? Here you go….FIRST we get a market CRASH….usually based on way to much leverage (Dot Com-Real Estate-Corporations)…SECOND.. the FED comes to the “rescue” by printing money (money supply just jumped 15%+) and buying assets (they are so far outside of their boundaries it’s a joke) and driving interest rates to ZERO in money market funds (kill the saver). Now we get the THIRD..which is TINA-the acronym for “There Is No Alternative” Simply put…everybody is forced to buy RISK assets if they want to make any money. Even the FED knows they may have gone too far in the short term inflating asset prices as their DAILY QE was $75 Billion per day in March has now been reduced to $15 Billion per day. After the FED left interest rates at ZERO for a ridiculously long time after ’09 and caused asset prices (S&P 500) to jump about 88% in about 4 years (peak to trough) EVEN they have to know that the returning the S&P back toward the all time highs with 22 + Million UNEMPLOYED, no EARNINGS, negative GDP, soaring DEFICITS ect. has the potential to not end well if the rosy outlook about restarts, therapeutics & vaccines should hit a speed bump. On the S&P 500; we have breached the FIRST resistance zone (2640-38.2% retracement)…the SECOND resistance zone (2790-2850 50%-breakdown point) and are now moving toward the THIRD (2930-3030 areas-61.8% retrace & 200 day M/A). We have seen the biggest DIVERGENCE in the Dow & Nasdaq since Dot Com 2002 as people plow into “safe” tech & semiconductors with huge valuations We understand positioning & rebalancing of 60-40 portfolios that Quant guys like Kolanovic/JP Morgan & Tom Lee Fundstrat talk about on TV. We also believe much of that is being done…..after that volume is executed… Who’s going to buy above S&P 3000?….The BANKS made a KILLING (always PROFIT during panic selloffs) during Q1 when they exploded the BID/ASK spreads in both Stocks & Bonds (since the FED was talking to Larry Fink of Black Rock & others in March about their plans…why didn’t they announce to the PUBLIC DON’T Sell into this distressed market we are going to bail you out?) At any rate….they got plenty of MONEY & SET aside BILLIONS for loan LOSSES ect. How will we do into RESISTANCE zone number Three? We believe SUPPORT zones to be 2850..2700/2640…..2550-2450 & 2200-2000.
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We ended the week with a bang as the market zoomed on restart hopes & an anti viral therapeutic from Gilead (Remdesivir) which had positive but only anecdotal news. The Dow outpaced the Nasdaq by 2+X as the 18 yr highs on the divergence between the indexes closed. Could it be the huge stampede into tech & semis & virus stocks may be losing steam…maybe? We saw a downgrade on AAPL this week as questions about expensive I-phones & revenues out of their services business are being questioned. Also; AMZN ran up to 2460 (all time highs) which put the P/E ratio valuation at OVER 100X earnings & OVER 30% premium to its 200 day Moving Average (1867). We feel that 20-30% over is rich….40-60% overheated….70%-100+% is stupid. Virus beneficiaries like NFLX, ROKU, PTON, looked to have peaked and to a lesser extent ZM (10 million users to 200 million users since Jan WOW!) & TDOC…..many believe both these companies will have long runways but maybe price to valuations have gotten ahead of their skis. Dividend plays (COST & JNJ raised) continue to be centered in banks (JPM C WFC), pharma (MRK BMY PFE) & energy (XOM_CVX) & certain REITS (AMT, BIP, CCI,STOR). However; if we get a phase where cash flows are tight..suspend dividends? The high beta ETF’s on our radar VGT VCR SMH VYM MGK have all had a great run in the last month so between here and 3000–time for a trim? NEW ON OUR RADAR–There was podcast with a Mark Cuban interview where he discussed 3 areas he found interesting for the futurist…#1 AI (artificial intelligence) #2 Robotics #3 Precision Medicine….all have stocks that could participate in the sector…so AI…we’ll look toward the usual suspects (AAPL AMZN MSSFT IBM INTC NVDA CRM)…for Robotics (ZBRA CGNX KIGRY ABB PTC DASTY…for Precison Medicine (NSTG AGIO & ARKG). Additional interesting areas include Big Data, Block Chain, Cryptography & IoT (Internet of Things) which is broken down to consumer which is composed of devices and infrastructure that enhancing our daily lives & industrial which is composed of sensors, robots and equipment that improves efficiency & automates operations of industry such as electric grids & smart factories which may expand to return manufacturing to USA. Big data stocks (YEXT AYX SPLK ESTC TLND CLDR MDB)…Block Chain (IBM BABA)….Crypto (MSFT V NVDA PYPL CME AMD GS SQ) & IoT includes (INTC CSCO IBM QCOM ADI EMR NXPI ROK) & the ever present MSFT AMZN GOOG to a lesser degree. LOTS of RISK here…moderation always the key.
Normalcy starting to return to prices as a month ago EVERYTHING was trading at a huge DISCOUNT to NAV and the liquidity was “frozen” to the FED buying or saying they would buy and sending prices to a PREMIUM to NAV…both probably made no sense. Some closed end Muni funds were at a 24% Discount to NAV and are now flat while High Yield was at 24% but still at 8% Discount. The FED has got 9 Facilities to spread money around to a variety of problems…there will be NO SHORTAGE of problems for them to finance. the PPD/SBA programs are out of money (did you think people would pass on FREE money?)…but the sharps are already playing the ssystem with companies taking the money & then sending their people off to collect unemployment….and other SOLVENT businesses like MULTI BILLION $$$ HEDGE FUNDS are collecting the money & because they know where to go & how to fill out the forms….jumping ahead of the poor slobs who need the dough…disgusting…..how did this happen…well the real estate promoter, ex-hedge fund guy & his buddy from venture capital/private equity land (Trump-Mnuchin-Powell) did not REQUIRE proof of hardship as their buddies/donors would have a difficult time proving hardships from their homes in the Hamptons. At any rate…hard to believe that all these programs will work “flawlessly” but estimates of 2-12 Trillion supporting this bail out certainly has put downward pressure on short term rates and stabilized debt markets for now. This total collapse of revenues/cash flow/demand followed by the avalanche of DEBT be thrown on top reminds me of that scene in Good Fellas where the mob takes over the restaurant and runs up debts until you can’t borrow another penny & they torch it. You may hear more about YIELD CURVE CONTROL ahead if the FED decides to target a long term interest rate by buying/selling as many bonds as needed to hit that target rate…we did this before to finance the cost of World War II…if they do that yields could drop a lot…..the poster child for this lately has been Japan since 2016…we are facing higher debt needs as the deficit jumps with Social Sec/Health Care/Tax Rev & an aging population & this downturn. Japan’s stock index Nikkei recently traded at the same price it was at almost 30 yrs ago & the GDP to debt is way over 200 & we understand their P/E ratio is about 12…so low rates/low growth/low valuations..not tasty recipe. On our radar for income..relative quality/shorter duration VUSFX VFSUX VMBS and for the more aggressive….maybe short term paper on GM & WPX.
Questions or Speak with Us?..email us at option [email protected]
US Dollar/International Markets
Not much to report this week as the Dollar index closed a shade under 100 while the two currencies that are on the ledge remain on the ledge. Something Has Got to Give at some point. The Japanese Yen closed at 107.57 and the 50 day M/A & the 200 day M/A are both around 108.50 so it need to get on it’s horse if we are to breakout to the upside or maybe it will accelerate to the downside instead. The Euro closed at 108.79 and its 50 day & 200 day M/A’s converge around 110 areas so again it needs to get on its horse to get going. The Can $ Aus $ NZ $ all have rebounded after their collapses but the currencies in Latin America (Brazil/Peso) plus South Africa & Russia seem weak to varying degrees. In the international Markets; we see EEM has rallied since the March collapse…had a decent day Friday but overall seems stalled…ditto for FEZ which is it’s European counterpart. As Reggie Jackson said about his role on the Yankees (he was the straw that stirs the drink)…the same could be said for the S&P versus these indexes.
Lots to look at here….Cash prices remain pressured while the June contract trades above 25 a barrel. Rig counts are supposed to be CUT by 33% not easily restarted while Saudi & Russia they will cut more if necessary. Again; our view is that supplies will be L shaped in the months to come and demand may be V shaped which explains our intermediate term targets of 30-40 and our longer term targets between 50-60 dollars a barrel. We also acknowledge that demand is in the abyss and if it remains there all bets are off..but that is not our base case. We thought XOM & CVX were bargains during the drop and both appear ready to defend their juicy dividends… sometimes you have to look at huge volume and panic selling and say to yourself….is all the news discounted?….is there value? so far so good but a 5% break would make trimming and covered write/collars look interesting. Another big one… SLB arose from the ashes after they announced earnings.
Gold Silver Copper
So far holding a core position from much much lower levels has been our opinion and waiting for a combination of a higher Gold price with GDX sustaining levels above 32 has kept us from adding to exposure. The GOOD news…money/credit deficits are far outpacing GDP and rates are so low that if inflation pops…the Gold could fly…..the BAD news is that gold coins are trading at an OFF THE CHARTS premium/ETF’s are raking in the dough both suggests froth & we are deeply concerned with the lag in gold stocks (last time we hit 1800-GDX was about 70 NOT 29!)….somebody’s wrong here… we’ll watch for now to see who’s right….we told you Silver needed to get above the 50-200 day M/A averages @16-16.50 turn turn & above 19-21 to breakout…so this week it traded with 15 handle so it has failed to so far. If it can get going WPM PAAS SILJ are on our radar. Copper is still plugging along in the 2.00 to 2.50 range and our choice FCX up 20%+ in last 2 weeks.
Good news for the Agricultural community this week as $19 Billion in aid was announced and why not….everybody else is getting paid out. The key observation here that may give us a clue..in the past we saw farmers use the subsidies pay down some debt & save for a rainy day…..rather than buy equipment ect. Is that what America will do with it’s found money?..if so GDP could remain stale. As for Beans…we said our gut says that $8 dollars could go to $9 or $10 or more rather than $7 or $6…but our gut is not price evidence…we wait to see wait planting/growing/weather seasons bring us.
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