It’s Here! 2021 All Markets Forecast-Option Professor-Enjoy!
January 15, 2021 Option Professor Opinions & Observations
Welcome!….Read This Now—We Have a Question for You at the End..
Here’s the 2021 Market Forecast & Ways to Play It from The Option Professor that will provide insights into the opinions & observations of what’s ahead in Stocks, Bonds, Us Dollar/International Markets, Metals-Gold Silver Platinum Copper & BitCoin (GBTC), Agriculture & Food plus much more. The rampant consensus view of a great year for stocks-with inflation picking up–international markets up-rates rise-dollar weak-unlimited stimulus-Fed accommodation could very well be hit by a headwind by the end of Q1..in the form of steepening yield curve predicting PMI’s to rollover toward 50–stimulus stops before jobs return–Livingston Report suggests slower growth & economic numbers in 1st half of 2021–ect. We look for an outstanding reload opportunity in many markets BEFORE we get the move toward the rosy numbers suggested by the major firms. Each week we will bring updates on our opinions on the areas listed below.
When we are looking for GROWTH we look toward VGT SMH VCR MGK VOT VBK which exposes us to Information Technology, Semiconductors, Mega-Cap Mid Cap & Small Cap Growth names, Consumer Discretionary and other individual names. We focus on our proprietary mix of multi time frame moving averages and relative strength gauges among other things to determine trends and overbought oversold conditions. For the VALUE & Dividend & Distribution Cash Flow goal we turn to MGV VOE VBR VYM VYMI VOE (mega-cap mid cap small cap value) plus sectors like VFH VDE VPU VNQ (Financials, Energy, Utilities, Real Estate). We have looked to epicenter stocks (those derailed by Covid) BJK PENN MGM CAR JETS ABNB HLT MAR QSR SBUX among others to gain diversity to gaming, leisure-rent a cars-hotels-restaurants ect.. We see IBUY & XBUY as great opportunities for e-commerce and XRT TJX ROST WMT TGT LOWE as a way to play retail. For access to the IPO markets which had a big year in 2020 we look at IPO and for ESG investing we see ESGV & VFTAX as decent vehicles as their holdings are diversified and quite respectable. Transportation is not to be ignored as e-commerce ect. looks good for IYT among others. Payment processors (SQ PYPL IPAY V) are on our radar plus Cyber Security & Cloud Computing as well (HACK CIBR FEYE & SKYY WCLD). Additionally we look toward thematic & potentially disruptive technologies thru SNSR ARKF ARKQ ARKG ARKK and soon ARKX (Internet of Things-Fintech Innovation-Autonomous Technology & Robotics-Genomic Revolution/Precision Medicine-Innovation & Space). Some potential disruptors for 2021 include EXAS IOVA CDNA PSNL TDOC NVTA PACB CRSP. Another interesting thematic is MILN which tries to focus on Millennials and their activities. Playing the theme of 5G..we look to SKYY QCOM TSM TMUS as best bets. When looking for portfolios designed for asset allocations of 80/20, 60/40, 40/60, 20/80 we turn to VASIX, VSCGX, VSMGX, VASGX for that objective.
Yields have risen quickly at the end of 2020 & the start of 2021 with a breakdown of TLT under 155 and shouts of 1.5% to 2% on the 10 yr Treasuries this year. Maybe a bit ahead of their skis but here’s our take for this asset class. Duration & credit risk are the 2 headed monsters when discussing debt (throw in the value of the currency you’ll be paid back in for good measure). So, in our opinion when we are looking for some yield, decent credit quality and shorter duration VFSUX and VMLUX is where we turn (short term corporates and limited term municipals) ..when we want to go out further on the risk spectrum to seek greater yield ..we turn to VWLTX VWEAX VWOB PFF FFRHX (Long Term Munis, High Yield, Emerging Market Debt, Preferred, Loans) which have varying risks of duration, credit quality, possible currency-government stability, and liquidity among others. The Fed monthly buying is huge and a change of circumstance may be slow.
US Dollar/International Markets
Our view on the US Dollar in 2020 revolved around our interest rate edge over Europe & Asia going out the window as the FED brought fed funds toward zero thus we thought the DXY 104 top would not last and the break under DXY 100 confirmed it. Recently; though we recognize very dodgy fundamentals, the rise in our yields returned our yield advantage and the popularity of being “short dollars” made us feel the 88-90 range could hold up for now. The EURO has support around 120 & 115 which is about where the 50day & 200 day moving averages reside…its neighbor, the British Pound benefitted from improved hopes for Brexit where support is at 134 & 129 basis their moving averages. We have been bullish the Australian Dollar since the break above & holding of the 70 level (what a deal 55 was in March-twice as rich & move to Queensland:)…now at 77.support at 75 & 70. The Japanese Yen has flourished as our consumers continue to gobble up Asian goods (China record trade surplus) so while a pullback could happen as retail sales in Nov & Dec slowed…longer term their economy may shine. In sum; the trends for foreign currencies extended and a risk of reversion. The international markets are supposed to be the land of milk and honey as global stimulus is around 29 trillion and their valuations are cheap to ours by comparisons…we look to VEA VWO VWIGX VPL VGK for exposure to Worldwide, Emerging Markets, International Growth, Pacific and Europe. Specific countries can be had with EWW EWZ GXG EPOL TUR EWG EWU EWJ EWH INDA EWY EWT EWS for risk in Latin America (Brazil-Mexico-Columbia), Eastern Europe (Poland-Turkey), Germany-UK, Asia (Japan-Hong Kong-Korea-India-Singapore-Taiwan)….plus China (FXI & KWEB).
Commodities may be repricing like 2005 as supply shocks, a weaker dollar and underinvestment in the sector leads to structural bull mkt. It’s started?
Crude Oil & Natural Gas
Our view in 2020 was to get into oil early in the year as -37 dollars a barrel was as bad as it would get. The industry has consolidated and supplies and the ability to reload supplies may be tight as the recovery unfolds and usage and jet fuel normalize a bit. While prices of oil & oil stocks have rebounded strongly and there may be a likelihood of price giveback…we believe 2021 will be a net big year for this sector. A weaker Dollar makes local currencies rise and increases prices to boot. The names CVX COP PSX KMI SLB HAL OXY VLO HESS SU EOG APA CXO and others are always in the hunt; we also turn to VDE for a one stop shop…for those who like renewables we watch BEP & ICLN and for Natural Gas LNG and stated as much since May 2020 which has gone from the 40’s to almost 70 today.. overseas NG prices are up. Finally; China is light on the buy quotas in the Phase 1 deal-more to come??
Gold Silver Copper BitCoin
All the people who bought Gold in 2012 at 1900 finally got their money back in 2020! We called the breakout on Gold at 1400 and Silver at 20….then called the parabolic top at 2100 area Gold & 30 bucks on Silver (way above M/A’s and sentiment was intoxicated). We then called for a pullback closer to the M/A’s 1 year at 1775 Gold & 22 Silver which we just saw…we then said 1950 Gold 28 Silver are the Great Wall separating the Metals from big gains and both markets faded off near those levels. Over time we should exceed those levels IF the dollar/fiat money weakens further, inflation gets well above interest rates, and BitCoin doesn’t steal the show. We will gravitate toward GDX GDXJ NEM GOLD AUY RGLD FNV KL KGC on Gold and SIL SILJ WPM PAAS on the Silver. Copper has been a metals champion this year and we recognized hat at 2.50 and its recent highs have been 3.75 ball park, AGAIN the weaker dollar makes prices go up on hard assets as they cost more to produce (the resource trade) and 45% of Copper comes from Chile…if their peso goes up so can copper prices and their were Covid supply interruptions which is a theme of many commodities this year. We have told readers about FCX & SCCO (Freeport-Mcmoran & Southern Peru Copper Corp) since we broke above 10 on FCX (June ) Now @ 30 and above 35 on SCCO Now @ almost 70..both markets extended in price & RSI.. expect volatility and buying opportunities. BitCoin has had a off the charts year as 95% of supplies is controlled by 2% of the accounts…translation…it’s illiquid and when the herd runs in it squeezes shorts and when they want out (like when the stock market corrects)…you get a tank job. We use GBTC as a proxy and we got our buy signal in Aug/Sept between 10-15 Now @ 39…our guess is that if stocks correct in Q1 sometime….that typical 30% to 50% correction is BitCoin is coming….some say the year after halving (like 2017) could lead to a 3X by year end…we’ll discuss dollar cost averaging as a tactic
Soybeans/Grains Sugar Coffee
The crop report got an already bull market to be concerned about supplies (common theme). We brought Soybeans to readers attention in Q1 in the $8 range thinking we were not going to $7 and China had a lot of buying to do (Q3 China buys jumped 63%). Corn & Wheat also had big 2020 and; while all are quite extended basis price, RSI and distance from moving averages , supplies have been a concern. China is also behind on their buys in this area basis the Phase 1 deal so additional buys from they not off the table. For those who abstain from the risk of leveraged contracts and options…one to look toward ETF’s on Corn (CORN), Wheat (WEAT) and Soybeans (SOYB) to see if they are appropriate. Other way to take risk GPRE (Green Plains). Sugar prices gave us a buy signal when the 50 day MA crossed the 200 day M/A and that was at 12.30…we said resistance was 16…it ran thru it and has pulled back only to close at 16.45 as of this writing…potential sizeable in 2021 and to avoid contracts & options…the ETF is CANE….finally Coffee was a big winner earlier in 2020 when it ran from UNDER 100 to almost 140….it was extended and then pulled back toward 100-110 area which has held nicely…closed at 128 as of this writing…so the floor appear to be 100-110 and the ceiling 135-140….will a weaker dollar and supply demand dynamics take us for a run in 2021??…..for stock players the ETF is JO.
We will be following many things for you in our weekly updates on these and other ideas. The stimulus, vaccine distribution and the cyclical nature of the Virus (spring is coming) and the consumer is ready to go. We expect unemployment to decline throughout the year & also GDP & Earnings to be strong in Q3 & Q4…and valuations on some sectors to expand while others tighten. Rarely do markets behave like trained seals/Updates to follow.
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