Option Professor-Stock Market-What Will Change of Fed Mandate Do to Stocks? Read
November 24 2021 Option Professor Inc Opinions & Observations
We got a data dump of information today so we wanted to provide our views. Jobless Claims came in at the LOWEST level since 1969! The inflation numbers came in at the HIGHEST level in 31 YEARS! The consumer is making money (personal income up ) and consumer spending is strong (data shows the consumer is spending at a pace almost 3X as the pace their income is growing!). New Home sales were up. What this is telling us is that if the SPX can hold the 4630-4600 support zone (so far so good) that by year end (less than 30 trading days) and thru end of Jan Effect a strong market could persist led by consumer spending (what else?). As always; there is risks that could derail this opinion such as a spike UP thru 1.75% on the 10 yr (great for financials -high dividend-value cyclical not so much for growth & tech)….also the Dollar seem to be taking off hurting internationals….and of course all the nonsense in Washington with infrastructure, the debt ceiling, the Fed Meeting (more tapering from $15 bill to $30 bill?) ect.. We are looking further down the road and see a more murky picture in Feb-March 2022 time frame and definitely in the 2nd half of 2022. The Fed may pivot to more aggressive tactics to quell inflation (it’s huge even sans food & energy). The political hate between parties will probably get the volume turned way up (election year). Margin pressures may take a toll on earnings combined with difficult comps and bottleneck unwinds could lead to oversupply and discounts. The energy crisis may have legs. After China Beijing Olympics things could get hot between China/Taiwan. Finally; the risk of a Covid wave could re-emerge as seasonally that is when people get sick. Positioning may be complete as well. We EXPECT a significant REVERSION to the MEAN before year end 2022 and higher we go the more precipitous the drop. We maintain the mantra of Don’t Fight the Tape & Don’t Fight the Fed….keep hedging tactics handy- watch your P&L’s.
The SPX has tested some support 4650-4600 (closes ABOVE 4660 important) and the rate scare on the 10 yr Treasury still has us under 1.75% so far. The value trade has picked up some steam as tech & consumer discretionary (hit by margins compression) have corrected. The consumer has money and is spending so the holiday season-year end -January Effect story still has some juice but we see certain sectors as better places to be than others.
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Yields rose sharply as some believe that the Fed is way BEHIND the curve and Powell now has a secure job so they can commence with their 2ns MANDATE of fighting inflation…also is they have to cut rates down the road…they need room. Until we see TLT UNDER 140 and 133 we remain Doubting Thomas…..nothing like price proof to convert us…..we’ll see.
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US Dollar/International Markets
We said the US Dollar had some resistance potentially in this 94-96 area (DXY) but with our yields DWARFING Europe & Asia that train has left the station. Further down the road (say 100 or so) that may change but Covid cases in Europe and ECB BOJ staying easy has given the Dollar the green light. As a result; Europe & Pacific Rim have languished despite valuations and great export news while Emerging Markets (sans Turkey to their peril) have had to raise rates.
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Crude Oil Natural Gas
Crude Oil had about a 10% correction due to fears of strategic reserves output and Europe in potential lockdown. We now have seen a snapback rally as 50 million barrels USA and 5 million out of India ect. failed to impress a market that is still way under supplied and OPEC + threatens to cut supply on their side…could be a cat fight. What we do know is that investment in more supply my oil companies is not happening at a rate of concern and a tight market is expected next year BUT WTI UNDER 80-82 still suggests risk to the DOWNSIDE. Natural Gas needs closes above 5.5 to reignite although LNG is turning UP today. We have views on XOP XLE OIH and others so contact us to LEARN more
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Gold Silver Copper Crypto
Gold & Silver popped ABOVE resistance but failed to hold water. The Dollar strength and fears of Fed hikes the culprits. BUT the major support on Gold (1760-1800 area) has held so far but really a CLOSE above recent highs at $1870 needed to get tye bulls to run. Copper is in short supply and new supplies are hard to come by as we hold $4…could be a big opportunity as build back better and global housing has a big 2022. We told readers in JULY was the time to add risk to GBTC ETHE and we always love 30%-50% pullbacks to add…ditto right now
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Soybeans Sugar Coffee
These are markets we were bullish on LAST YEAR at substantially lower levels. Right Now…Soybeans are traded UP off the 12 area we said was former resistance now support & Sugar & Coffee have been stable (some call for 3.00 Coffee)
Remember All investing ibnolves risk and it is not right for everyone. Consult your brokerage firm to determine your suitability and risk tolerance. Past performance is not indicative of future results. This is information only It is NOT advice