Option Professor-S&P 500 @ Highs-Where’s the Transports? Russell 2000? Must Read.
June 4,2021 Option Professor Opinions & Observations
The Option Professor is a Graduate of Boston College and has Decades of Investment Experience. He has Educated Thousands of Investors Worldwide on the Uses & Risks of Investing.
Greetings Everyone!…..We got the much anticipated jobs data today and for us it was as expected. We got a 559k number versus an expected 675k number…..but what did you expect with added unemployment benefits til September and people making money in real estate & the stock market. The wages kicked up (inflation) considerably and that could be sticky as once wages increase it’s hard to take it back. Participation rates stinks meaning people don’t want to go back to work (more job openings that unemployed). So what we should probably anticipate is slower number thru the summer and a kick in the fall as conventions re-open & unemployment enhancement runs out. This lead everyone to say the Fed’s runway to ease remains and yields dropped (10 yr Treasuries in the 1.50’s) and a short covering relief rally in tech & nosebleed valuations that were hit on rate hike fears. Did you notice Transports were down & small caps went nowhere? Did you notice that value banks & energy & materials & Industrials (the leaders) hardly budged on Friday. Did you notice that S&P pressed the highs but VIX ended at 16.42 ABOVE the 15.90’s area of last Friday. The Advance Decline line made a new high which had us bullish all week long. HOWEVER insider selling has been rampant & companies (AMC) are selling stock not doing buybacks. We are about 1000 pts ABOVE our 3 yr Moving Average and guys like Rieder of Black Rock are using words like “convexity” which could mean raise cash by replacing long stocks with call options (if we tank potentially lose less & have cash to buy). Just in time inventory was hit with a double whammy in that supplies collapsed during Covid & Demand has gone thru the roof…..this is transitory and correctable. We agree with some respected analysts who say we are at PEAK growth and we will slow with inflation (stagflation) as Q3 & Q4 unfold. The Fed knows the punch bowl is overflowing and potentially flooding the party (liquidate the corporate bond facility). Don’t forget they bought during the crash at pennies on the dollar and are now selling into a buying frenzy. The wind of change may be blowing as many things may have PEAKED in May (Commodities-Shortages Homebuilder Stocks-Transports-Russell 2000 ect.) So What Now?????….Next week is key as Thursday we get CPI which is expected @ +.4% year over year @ 3.4%….to steal a line from President Biden…”C’Mon Man”…how can we not blow that number out with the way prices are going nuts all around us??….so that could be the fly in the ointment…we know the bulls say….buy all you can…Jay & Janet have our back and they may be right….but we think keeping things on a short leash in the next 30-60 days may make a lot of sense…we will tell our SUBSCRIBERS what are view is on playing it.
Let it ride has worked so far in stocks but the growth of those of you who hold a market index or 60-40 portfolio have seen your accounts appreciation slow to a crawl in the last 2 months. Friday we saw the meme stocks give it up (AMC GME BB BBY KOSS WKHS BCTX SKILZ EXPR and others). We saw the high valuations that tanked get a rebound rally as rates fears eased (DOCO ZM ect) and we saw the split frontrunning continue (NVDA). We saw a great opportunity to ride the wave Friday on Biogen (BIIB) which opened and ran in anticipation of Monday’s decision by the FDA on their Alzheimer drug which is hopeful to slow the progression of the disease. Some people like Founder run companies like SQ SHOP TSLA COIN ABNB CRWD ROKU PTON TWTR PLTR ZS NFLX RBLX FB RNG OKTA TWLO TWTR and many more. Some like companies that let you do everything on line you want or need like IBKR BKNG AMZN SHOP CHWY ETSY PTON ABNB CVNA RDFN ect…so if that’s your cup of tea…there are some examples. We reviewed some 13F filing from the large universe of filers (this is dated material so positions can change at any time so it may be unreliable). Having disclosed that; we found Michael Burry’s (Big Short movie)kind of interesting with a partial list of ARRC SXC IMKTA TAP HFC CXW GEO DNOW LUMN UBA and many others. Certainly not the more prevalent well known names of the others.
The bond market loved the jobs report as shorts scrambled to cover (the pain trade is rates drop). The Fed is liquidating corporate bonds and talk of removing emergency easing is long overdue. We told readers time and time again that March price collapses in bond prices (record) probably was the taper tantrum and discounted much of what we are seeing. If we take out 1.75% 10 yr & 2.55% 30 yr….then the higher rate mob may have a point but if bottlenecks & supplies come back on line…it could be bye bye inflation and hello lower yields….shocking but could it explain Fed?
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US Dollar/International Markets
The DXY (US Dollar Index) popped above 90.50 only to finish the week with its tail between its legs (90.13)…we told readers the rebound rally ended on the break under 91.75 (key moving average)..we now need closes ABOVE 91.20 to get back the mojo. European currencies (Euro & Pound Sterling) are benefiting from economic and vaccination acceleration and the Emerging Market currencies hit record. The Loonie (gotta love the nickname of the Canadian Dollar) & the Aussie and even the Yen are gaining ground…would a stock market correction change the tune in the next 60 days? China is trying to suppress the Yuan, commodity prices & crypto and may succeed at all but to use it as a reserve currency seems like a stretch. China is trying to pump up population by approving a 50% increase (3 kids) in procreation but many doubt it will work. Chile let pension plans liquidate as much as they want (had 10% limit). We love Europe, the Pacific-Asia, and Emerging Markets as the reopening story is at varying stages and will accelerate,
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Crude Oil Natural Gas
Our views on energy have been spot on for OVER a year and we continue our beliefs that supplies are not in line with demand and the potential for companies that relish in oil above 50 (free cash flow) will endure. Which energy areas do we like (refiners-leveraged players, exploration & production (E&P)? SUBSCRIBERS have benefitted from our opinions. Natural Gas turned up at 2.50 (now 3.09) and LNG turned at 70 (now 87.35)…..some of the reasons investors SUBSCRIBE
Gold Silver Platinum Copper Crypto (BitCoin-Ethereum)
Ok we called the turn in March in all 3 precious metals (Gold Silver Platinum) and we had a great 2 month run. We are monitoring the pullback (they rallied Friday) to see a new entry point as we suspect that a 1950-1800 Gold trading range may develop for awhile. Silver breaks above 30 and Gold above 1950-2000 and the land of milk and honey may be upon us and probably a product of sticky inflation the Fed standing still (just like post WWII in 1946 & 1947!) Copper could be in trouble if housing slows (lost 20K jobs in this report) and Chile is wacked out as pension plans are dumping and the government wants to spread the copper wealth around the population. We told you BitCoin (GBTC) hit its LOWS at 28 with a chance of 22 and Ethereum (ETHE) support would hold (20-23)…so far so good.
Soybeans Sugar Coffee
Did the markets PEAK in May? This week they did launch a turnaround due to weather and shortages but the highs of last month remain intact. There are ETF’s we use to gain exposure to these and other agriculture markets. The huge opportunity in these markets in the last year in these areas have been astounding. Learn more & proceed with caution.
REMEMBER There is 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 discuss your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only Opinions & Observations provided are for informational purposes