Update 96: Stocks-Acceleration-Just like Our Forecast-Read On

June 6, 2020 Option Professor Opinions & Observations

WOW….the only way to describe this week in stock price across the board. If you are a regular reader you know that after the capitulation selling in March (advance decline line & volume SCREAMING panic low); we have been all over this REBOUND rally. Not only have we told you possible levels of concern (2640/2790/3000…now 3250-3350) but EXPLAINED WHY & HOW it was happening so you wouldn’t get caught BEARISH or OUT like so many who looked at where the PUCK WAS and not where the PUCK WAS GOING! Let’s give newcomers a quick review of base case…..we got a self induced lock down of our economy at a time when stocks were EXHAUSTED by about ALL measures (SP 3400)…..which caused a PANIC unwind of 3 years of buying…..this allowed Trump/Mnuchin/Powell to put their PLAN into action….which was to EXPLODE Fiscal Deficits/National Debt/Money Supply & the Federal Reserve Balance Sheet & to make Money Market Rates ZERO! Not terribly sophisticated..ANYONE can run up DEBT & the FED CONTROLS short term rates……so now then you have investors SHORT or OUT with NO RETURN on cash…..PANIC….ACTION…you give 1200 bucks out to people & more for kids PLUS you jack UNEMPLOYMENT benefits REPLACING LOST INCOME (Personal Income JUMPED in May 11% with 40 Mill+ jobless) & you create PROGRAMS set up by MNUCHIN so POWELL can LEND money and comply with the FEDERAL RESERVE ACT of 1913 which speaks of purchasing TREASURIES…….NOW we have programs for every day (month??) of the week (Municipal Liquidity Facility/Primary Secondary Market Corporate Credit Facility/Temporary Asset Backed Securities Loan Facility ECT)……which allows them to by everything from Mortgages IG to Junk Bonds…EXAMPLES of Fed HOLDINGS are ANGL HYG HYLB IGIB IGSB JNK LQD SHYG SLQD SPIB SPSB USHYY USIG VCIT VCSH….a long way from TREASURIES huh?…..RESULT is Investors first plow into high beta names we told you about months ago like MGK VGT SMH VCR and now have plowed into EPICENTER stocks (cyclicals/hotels/airlines/travel/restaurants ect) PLUS small-mid caps and dividend paying stocks & staples-Value. Heck even HERTZ whose stock was at 40 CENTS rallied Friday to almost $4 DOLLARS closing @ $2.57 and they just DECLARED BANKRUPTCY!! We told you the REASONS we rallied #1 RESTART much quicker than expected #2 Consumer quicker to spend #3 STIMULUS (LEVERAGING) is beyond imagination & of course the BULLS BEST FRIEND…T.I.N.A….the FED has created a THERE IS NO ALTERNATIVE situation for investors who want or need to make money….that’s OUR View. HOW MANY PEOPLE DO YOU KNOW UNDERSTAND WHAT’S GOING ON? They understand their ACCOUNTS are UP…for Team Trump-Mission Done!

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Stock Market

What a Ride!! We got the BEST 50 day rally ever/65% of S&P made new 3 month highs & 97% of S&P trade above their 50 day M/A. SURPRISED? You shouldn’t be as history shows us the trajectory or symmetry of the decline can be matched by the recovery (Remember RECORD 15 day DECLINE in March). In March & April the train was leaving the station for the high beta stocks on our radar MGK VGT SMH VCR and accelerate they certainly did (AMZN FB MSFT AAPL GOOG NVDA AMD ect) and they continue to perform well as short interest at CME & under investment by active managers saw a real panic after the employment report shocked the bears. The VIX is comfortably under 30 which we told you was key for this nascent rally. HOWEVER some of these stocks are stretched a bit (trading 20% to 40% ABOVE 200 day M/A’s) which could mean selling Out of The Money Calls to Hedge or Collars would be worth a look (email us if you need explanations). So what areas could be the next in ROTATION….how about the boring Value/Staples/Small cap/Midcap/Industrials/Materials/ Overseas/Gaming and epicenter stocks (banks/travel/restaurants/dept stores ect) ? On our Radar List beyond our higher beta names includes VIOG MGV VTV VONV VOE VOOV VIS VAW VDC VFH VEU VEA VGK VPL VIGI VXUS VYM in addition to many individual names. OUR EXPECTATIONS remain a potential of filling that gap up near 3300-3350 BUT reality is we have rallied almost 50% off the lows and the FEB LOWS were right around FRIDAY’s Highs plus exuberance could be assigned to Friday’s mood. RISKS NOW include #1 VIRUS SPIKE (or BULLISH if no NEW cases by June 15th), #2 CHINA & Trump (he now has his boat legs back w/ market rise), #3 REVISIONS likely in the Unemployment Report (2.5 mill up & 13.3% rate??) as the Bureau of Labor Statistics only had a participation percentage in the survey of households and businesses in the 60’s & numbers they’ve NEVER dealt with so experts paid millions are probably not that far off (8.3 mill down/19+%). #4 VALUATIONS…if you use the Buffet Russell 500- divide by GDP you would need ice & tilt your head back as you would have a NOSE-BLEED:):) BUT our “Three Amigos” Trump Mnuchin Powell still call the shots through keeping short term rates down & giving money away to anybody who asks (PPP extend 24 months & Unemployment likely extended too)…..so if someone wanted to trim or sell fat out of the money calls/collars…no fight here…our 2 big support zones are 2990 & 2790 and with this weeks run up we’re getting further from shore BUT investors have been SELLING BONDS & adding stocks…if this goes from a skip to gallop then we could get the juice for the S&P could to join the Nasdaq by making new highs sooner rather than later.

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Bond Market

AS WE WARNED YOU….DURATION may be risky with all this printing & exuberance as we said “Do you want to lend ANYONE money for 30 YEARS at anywhere near 1%??….This week apparently no one else did either as TLT which WE SAID had a blow off (possible generational) BLOWOFF at 180 on March 9 and now trades with a 150 handle. The Fed doesn’t have as much influence on the long end and actually WANTS a steepening yield curve so banks (VFH) can make money & it looks like forward growth expectations are positive. This can be positive to a point for stocks as money flows their way. Forget about old standards…the FED is loaning in manners UNHEARD & UNPRECEDENTED Amounts & Directions and they approved PRIVATE Equity in Retirement Plans (Eugene Keogh rolls over in his grave) Will Powell & the Fed pour Cold Water on this Rally this week….. Election Year….Nah! Team Trump knows they got what they wanted out of this CRISIS…..Our Radar List includes VCSH VCIT VUSFX VMBS VWEAX PFF

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US Dollar/International Markets

We told you in prior UPDATES that the Dollar Index was in a RANGE of 101 & 99…and which ever way it BREAKS may indicate the next trend…well LAST WEEK the DXY broke under 99 & had a LOUSY week…this week was NO BETTER & in fact we closed with a 96 handle (96.95). Some say the Dollar has begun a SECULAR bear market which would be POSITIVE for EARNINGS but at this point we do NOT share that opinion. Gone are our yield & growth advantages plus our deficits & balance sheets are a mess. Our LT 1-2=3 yr MA’s come in at 98/97/95.50 areas so they’re not inverted buy 2 have been BREACHED…..Did we learn anything from STOCKS where we told readers that S&P getting back above 2800 (3yr MA) may result in a 2016/2018 scenario of BULL MARKET as BREACH is not turn down. So before we say SECULAR…let’s see if we can get under 95 and how long it stays there BEFORE we stick a fork in the US Dollar. The Us Dollar is pointing down & It COULD happen as Euro & Yen are closest to getting above MA’s with British Pound/Can$/Aus$ to follow…all need a bit more but this could EXPLAIN the better performance of EEM & FEZ & VWO…more??

Crude Oil

What we told readers was that we would get an L Shaped supply curve (rigs closed/Frackers shuttered/OPEC Cuts) & a V Shaped Demand that could send oil prices back up to 25-40 area this year (fill in March gap) and possibly 40-55 in 2021. This is EXACTLY what is transpiring. HOWEVER we have now 4X the price in Crude (10 bucks to 40 bucks) on lower volume so we would suggest keeping close tabs on your oil stocks (XOM CVX COP XOP XLR VDE ect)) and if you feel they are running out of gas (no pun intended) you could dust off defensive tactics like trailing stops, trimming (if you double on a stock & sell 1/2 you have a free look at the remainder), out of the money covered calls, collars ect….BUT some do say longer term…a lot more runway.

Gold Silver Copper

We have been CLEAR about our concerns about GOLD being OVERBOUGHT basis its 1-2-3 yr moving averages & the failure of cash prices to exceed 1800 & the retail rush to buy coins 150 bucks over spot…..those CONCERNS this month came home to roost as we now have a 1600 handle on spot & GDX has trimmed better than 15% off its highs. NOW…we have the 1 yr MA at 1560 area and GDX tested the breakout point & 50 day MA around 31 area so this week the 50/200 day averages around 28-31 important to hold & let’s see if this weaker Dollar/Debt explosion/Consumer Rebound puts legs under our wobbly fighter. Silver is exciting to us because it’s trading with a 17 handle and its 1-2-3 yr averages come in around 16-17 bucks…not bad….PLUS if we can clear & stay above 19-21 it has the potential to look like Bo Jackson when he turned the corner in Monday Night Football (YouTube it:)…lots of open space and if we’re V Shaped on the economy..well that could be a tailwind…maybe that Gold Silver Ratio will finally tighten. Copper; as we have said has been approaching the 2.50 level & this week it blew it out…will it last??…we’ll see this week but the momentum is ok but getting above 2.60 could be a tough hurdle. FCX & SCCO had a good week.

Soybeans etc.

We told you to keep an eye on Soybeans and with China buying Monday & Tuesday we got a pretty good spike to the upside. Still resistance looms above at 880/900/950/10 so while constructive we need more stronger price evidence upward to get us thru & into higher levels above. Sugar prices have been on our radar and this week they got moving….some say that food supplies could get tighter IF Demand come in way stronger than supply chains are prepared to deliver…..only time will tell….follow the numbers.

REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Please 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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