Update 82: Stock Market-Where to Now?
February 29, 2020 Review & Forecast OPINIONS & OBSERVATIONS
We are going to review our opinions this week and provide you with current views, Ok..last week the bottom fell out of the stock market and we closed out the week with a huge volume flush out…spike to 50 on the VIX and reversal on the close…..obviously the bulls are hoping 2850 will hold and reparations will begin which is possible but in this time frame where so many companies have lost faith in their ability to predict EARNINGS…valuating companies has become guesswork at best. Certainly P/E ratios that were excessive have been coming off but are S&P P/E ratios correcting from 19 to 17 sufficient? What will 2020 Growth & Earnings be? As I write this China was announced at a horrific 35.7..the worst in history. Next week Mon. USA PMI & ISM numbers Tues Fed speaks/USA Auto Sales Wed USA Service Sector #’s Thurs OPEC meets/USA Factory Orders more speaking from more Fed guys and Friday we get the US Payrolls (Jobs)
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When we broke above the 3050 area we targeted the area around 3400 S&P as a possible exhaustion area based on number of factors including the failure of the advance decline line to make a new high, the valuations being way ahead of earnings and growth, complacency in the VIX, RSI’s extended, prices of index & key stocks trading so far above their 200 day moving averages (overbought), the Transports & Russell failing to take out their 2018 highs, the dismissive attitude of supply chain interruption & the Virus, the lack of interest from readers to inquire about the uses & risks of hedging (collars-married puts-covered call) and much more. So now we look for support technically and Central Bank intervention to help guide us thru this Katrina like event. Our opinion is we have no idea how this will play out but hope it is just a Q! & Q2 tragedy. We have ranges we hope will hold and they are 2850…then 2700-2600…then the lows of Q4 of 2018 2350. If you believe that extremely low interest rates will bring TINA back…will encourage consumer spending (a new generation of household creators)….a refinance boom and lower gas prices (more cash for consumers to spend)..more Federal spending (stimulative deficits)….5G …the cloud-edge computing still coming….then a buy plan to phase into the decline or wait until we see an S&P monthly low surrounded by higher lows to enter could make a lot of sense…..VIX (fear gage) hit 50 last week which historically has been a stretch point (during the crash times it hit 90)….on our radar is VYM & SCHD which provides diversification and dividend income and of course discounted high flyers MSFT AAPL GOOG AMZN and the semiconductors & the health care sectors could be worth a look. Energy is so out of favor and dividend yields are so juicy…iss XLE, XOM, COP, HAL,SLB, CVX, worth a look? Remember Baruch & the “Buy Your Straw Hats in the Wintertime”
OK…the phrase here is how low can you go..think about it…we’re at the point where we should have Federal Budget Surpluses but we’re running huge budget DEFICITS….so how can we finance them…how about we get rates toward zero….the Fed may cut but I’d bet they know they need to inject liquidity (balance sheet expansion right now)……the last time we had a panic into Treasuries the yield went to 1.4% and snapped back to 2%…..when we get clarity or a break in the action…one view is you will be left with easy access to consumer loans…pent up demand…a supply chain that could cause scarcity & higher prices….a huge snap back in growth and rates near zero on 2-10 year paper….if all these profits that huge amounts of bond players are sitting on want to actualize (sell)…who’s going to buy (maybe the Fed?)…we are now seeing what happens ( in stocks) when a hugely populated bulls party ends with the scream of FIRE! Liquidity is an issue as ORDER IMBALANCES expose inefficiencies in the financial system. If you’re in enjoy the ride and the yields you locked in but we said the trend is UP on TLT for a long while now but the 200 day average is in area 138 and we trade 155….a move between say here to 165 could be a time to fade.
We’ve been talking trading range here for more than a year and recently we peeked out above 9950 DXY…but 100 is the real Wall….and the about face from that area reinforces that belief…..if we close above 100 the risk of a melt up exist (98 area now)…otherwise our opinion is Fed printing & huge budget deficits..Admin desire for weaker dollar..makes south bound logical. Yen Pound Euro ect…..all paper currencies look a bit questionable currently.
OPEC meets this week and as we warned you after the big guys (Saudis) ran the prices to 66 bucks a barrel so they could sell the ARAMCO deal prices could slide back down and a break under 50 could send us sliding if OPEC can’t get uniformity in reducing supply (also said Jan gets a lot of pension buying in stocks & maybe stocks will do like oil after all those monies are in) So Now…let’s see if 40 bucks can hold and if the Saudis can get cooperation on cuts…the oil stocks have gotten so far under their 200 day moving averages & their yields have gotten so high that either they are becoming a Good Buy or they will become a Bye-Bye….electric cars coming…gas is here.Watch RDS.A BP XOM CVX SLB HAL VLO KDI and many more for clues
Gold Silver Copper
We have been all over Gold since it broke 1350 and we told you of Tudor Jones forecast of 1700 per oz…after the move to 1600 we told you of overbought conditions and a possible pull back to 1450-1400 area and a renewed move to the target 1700…we told you of GDX above 17 and 22 and resistance around 30….so now we are pulling back the short term excesses in both Gold & Silver (weaker because of industrial demand stumble)…..what now…we test support 1550-1575 then 1500-1450 and long term averages point to 1375-1400 worst case if we are to remain bullish…if you believe higher prices are ahead because of easy credit..huge deficit spending and a Fed who dreams of inflation & an administration who craves a weaker dollar and worldwide insanity on monetary policy..the obviously you’d see bargains on the dips and plan accordingly.
Grains & other
Here comes more subsidies (not socialism of course because it comes with votes)…and the demand side is on it’s ear…watch for planting & growing news to increase volatility…..tough times sometimes don’t last forever
REMEMBER There is a substantial risk of loss in option trading and short term 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.