Update 94: Stocks-Do We Break 3000? Ask the Option Professor
May 22, 2020 Option Professor Opinion and Observations
Good Day Everybody…we are at a major junction and the big question remains…Do we BREAK ABOVE S&P 3000 or we get TURNED AWAY? If you have read our views on the market you know that are base case has been that the market was earlier this year OVERVALUED (3400 SP) and once it broke 3250/3000 that the market could accelerate to the downside due to illiquid investments (ETF’s) being sold en masse. The collapse was followed by our view that a REBOUND rally REVERTING up either 38.2% (2840) 50% (2790) or 61.8%/200 day M/A (2975-3000) was a good probability. NOW we are here knocking on Level 3 again this week. Why?…because investors are grasping that #1 the Virus fears/REOPENING is happening faster than thought #2 the CONSUMER may come back faster than thought #3 the STIMULUS has been faster & larger than anyone thought. We showed you a higher beta portfolio on our rader MGK VGT SMH VCR which have all snapped back big time. We also explained the beaten down sectors at the epicenter also may play a huge game of catch up which they have. WHY?? …because investors are feeling that if companies don’t hire back & work remotely (half of their expenses will be CUT BIG TIME & Earnings will roar. This all makes perfect sense as long as the S&P STAYS ABOVE the 50% retracement level/3 yr M/A 2790. Three Key 1-2-3 yr M/A’s come in at 2988, 2884 & 2791 all RISING and we CLOSED @ 2955 with a BIG GAP around 2925-2850. The BIG risk to taking out S&P 3000 in the SHORT TERM is the prices have DISCOUNTED much of these views. For EXAMPLE; Rent a Cars Restaurants & Hotels (CAR-MAR_QSR) are up 100% off lows, Materials & Industrials Casinos (VAW VIS LVS) have rallied 30% to 50%, even Airlines (DAL LUV) are up better than 30% PLUS some LEADERS are getting EXTENDED from their 200 day M/A’s like AAPL-MSFT-FB-AMZN about 20% & Semis/Virus stocks like NVDA-ZM-PTON- TDOC 50% to 70%. IN SUM; our opinion is if we hold 2790 we will EVENTUALLY get thru 3000 and a lot more to come as TINA wins again…BUT Trump is saber rattling with China …if that ends up BREAKING BADLY…..be PREPARED for the GAP under us.
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We have shared with you sectors on our radar..the high beta..MGK VGT SMH VCR and also recently the catch up sectors like VIOG (small cap growth)..VOOV (S&P Value)..VOE (Mid Cap) VBR (Small Caps) to name a few on our radar. Gaming stocks like DKNG CHDN PENN have had good runs as has most of the market…so is it time to price out HEDGES like Collars -Covered Calls & Married Puts on situations you thinks may run out of steam or to just protect some gains. Stocks turn before earnings & earnings turn before GDP so we will see if in the short run if stocks have turned enough. We have many sectors & strategies on our radar from Precision Medicine, Robotics, Big Data, Internet of Things (IoT) to Income, Growth & Speculation
The blow off top in TLT 180 continues to hold as DURATION may become a risk that rears its ugly head. With the FED supporting everything from commercial paper to ETF’s on fallen angels we see bids of PFF & HYG which have juicy yields and also IG & short term like VCLT VCIT VFSUX VMBS nad even Munis are improved VWLUX. The reason duration could be problematic is if SUPPLY CHAINS cannot keep up with RESTART demand then prices could pop. We see big cutbacks in oil supply so if DEMAND spikes expect to pay more at the pump..things feel settled…for how long?? Should you have fixed income inquiries….
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Didn’t Elvis have lyrics that said “I’m caught in a trap & I Can’t get out”..well ditto for the US Dollar which is caught between 101 & 99 for 2 months. went home @ 99.79. The Japanese Yen & the Euro still trade under their death crosses so for now …we stick with the buck. On the international scene..they lowered the boom on China stocks as BABA JD TCEHY got sashimied as Trump apparently looking to make China a big part of re-election efforts. We feel this is risky as bringing the supply chains home to workers unfamiliar with the jobs & maybe lacking the desire for the task. To be honest…it looks like you’re getting a chance to get on board…Emerging Markets & Europe look exhausted. Need more info…got questions
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If you followed the updates…we have been spot on in oil….we felt the flood fight between Russia & Saudi would not end well and it certainly didn’t ….followed our view that we would have cutbacks (Rig counts/Shale shutdowns/Opec) which would lead to a L shaped supply picture followed by a V shaped DEMAND with the RESTART. We told you of stocks on our radar COP XOM CVX HAL WPX VLO SLB HES CVR & many more. Our targets for this year was 25-40 which we already saw & potential for 40-55 in 2021 Should you have any questions…simply shoot us an email
Our position on Gold remains constructive as it has been since it broke out at 1350 BUT it is OVERBOUGHT basis its LT M/A’s and the rampant popularity & failure to get above 1800 & the gold stocks still LAGGING give us pause in the SHORT TERM that we could have a SUMMER VACATION for the bulls if it doesn’t get going….LEARN HEDGING…Silver has become a horse of a different color since it broke above 16-16.50 maybe due to the RESTART which has lifted many laggards. Maybe pullback to that region would be good…do not want to see a 15 handle now. Copper got whacked by the China skirmish this week so let’s see find a bid ass well a FCX SCCO.
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Not much to report here as prices are locked in the 860-820 window awaiting some signs on how the planting growing harvest seasons will play out as well as competitors situations like Argentina & Brazil..both countries are a bit of a mess right now…LT Sugar prices may be turning if 9-10 holds.
REMEMBER.. There sis 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.