Option Professor-Stocks-Panic to Joy-Tech Earnings Out-Time to Fade-Trade-Read On!
July 24 2021 Option Professor Opinions & Observations
Good Day Everyone!….What a week we just had….on Monday the fears of the Variant causing a growth scare got the S&P to tank (pretty much to its 50 day moving average) and then by Friday soar as short covering and sideline cash took us to a new high on major indexes. The combination of Snap & Twitter coming in with great results and guidance by companies at 20 year highs flushed out the naysayers but in reality took us a little bit above from where we were the a week ago. As we said BEFORE the month began…July will be choppy & potentially brutal…well if you checked your P&L on Monday..it looked kinda brutal. There are conflicting views on what lies ahead…the whole planet is bullish which is concerning (positioning)….and we are well over 1000 points above our LT3yr MA @ 3227….Over 7,000 Dow points @ 27,707….and OVER 5,000 Nasdaq points at 9,825….so overbought is an understatement. Countering that argument is Liquidity & Yields on Treasuries PLUS Earnings on the S&P that according to Ed Hyman at Evercore has estimated 220 for Q2…estimated 230 for Q3 and 240 for Q4…at 19X1 P/E could mean 4180 now then 4370 & 4560. Inflation is not going anywhere….rents are up 9.2% for the first 6 months and expect 6% for the year…they’re a huge part of CPI & PCE…wages are climbing everywhere…even fat cats at Black Rock are getting an 85 pop….and housing has gone thru the roof not yet accounted for in the numbers. Companies are passing costs along and if Chipotle raises prices…do you think they’re going to take them down soon??…companies know the consumer got $$ and they’ll get it! Breadth in the market is narrowing as about 50% of the jump in the Nasdaq 100 this year has come from 8 stocks (MSFT GOOG AMD NVDA AMZN FB MRNA PYPL). NEXT WEEK we get earning from the big tech guys and some buying late this week was front running those number which should be monster as Snap & Twitter set the stage. ALSO the Fed speaks on Wed and other data will come out including income & spending expected strong. B of A says global PMI’s peaked in May and the Jobs report showed Claims JUMPED…but some say id you focus on the clouds you miss blue skies. Three big RISKS remain Variants + Inflation + China geo-political…..the Fed meets in Jax Hole Aug 27 plus Sept 22 plus Nov3 and ends in Dec15th…BUT….if you expect the Fed to lead you are a fool…like the police…they come in after the fact…by the time they change policy…..the mess is already upon us….so behind the curve they happily remain. Despite the rally Friday the VIX closed ABOVE where it opened…so if that gets back above 18-20…maybe some rain falls Remember we are monitoring the theory that Stocks Top 2-4 months after yields top so March+4=July…1 week to go? We have explained how to get Income Growth International & Speculative exposure to SUBSCRIBERS-Get Our Insights!
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Next week it will be about earnings on tech and then what?? There are a lot of sectors that still are struggling a bit although Tech Consumer Discretionary Health Cate and Communications are not amongst them. The reflation trade including metals & energy are discounted so we keep an eye on them for a turn. The value trade has had the bloom taken off the rose with the disintegration of yields and the yield curve. PFE & BioNtech got good news with 200 million more doses. AXP got a record number of new accounts (household wealth & travel) and revenue spiked too. It looks like nothing will stop the bull run except something unexpected so we enjoy the ride and look for signs of surprises.
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The trillion dollar Treasury market is not supposed to gyrate in price like it did lately. Are yields dropping due to worldwide liquidity coming our way> Are yields dropping because some in the know sees a big drop in stocks coming (like in the 2 months prior to the March 2020 collapse)? Are they dropping because the road ahead will get slow?? Whatever the reason 10 yr at 1.75% in March has been solidified. Corporate debt is a joke….Carnival CCL just sold 7 yr notes at 4% replacing 7yr notes issued last year at 11.5%…..yes defaults look like low risk now…but the LEVERAGE on corporate balance sheets is enormous and when was the last time excessive leverage ended well? Senior Loans are now interesting to some and Munis look great as states are collecting big time on higher incomes. Preferreds and EM Sovereign debt has bounced nicely….so income investors are hitting on all cylinders….who’s right stocks or bonds??
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US Dollar/International Markets
The Dollar (DXY) has done as we forecast.. held the lows and rallied messing up the shorts and positioning just like bonds (another forecast that proved correct). The 50-200 day MA’s come in at 91.36/90.90 inverted to the upside so the trend is up albeit slightly extended. Inflation has hit emerging markets like Brazil & Russia pretty hard and as a consequence their interest rates are jumping. Europe Asia-Pacific & EM (Latin America Yes China No) are hanging in there but their vaccination rates and reopening are going badly (Japan). The big story here is China who cancelled orders for Corn..and is nationalizing the education firms possibly sending them in the tank PLUS FXI KWEB BABA BIDU and anything else answering to Xi. Sure they are discounted but where is this regime going?…After 2022 Olympics??
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Crude Oil/Natural Gas
Crude prices snapped back but what about the energy shares?….Last time we saw this lagging divergence between the commodity and its stocks was in Gold last year when we hit about $2100 Gold and the stocks lagged. Result was the stocks were right and Gold tanked to $1675…Again??….If not these stocks are a huge bargain as Baker & SLB think Shale will be slow to return keeping supplies tight as firms return capital )Vitol $2.9 Billion) rather than invest. We will keep subscribers up to date on our thoughts. We told everyone that Natural Gas was a buy at 2.50 (now at 4.04) and LNG was a go at 70 (now 83.89)….why not stay informed by subscribing and gain from our decades of experience??
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Gold Silver Platinum Copper Crypto
We told you last week that we want these metals to trade and hold ABOVE the 1 yr MA on our long term charts. So far that has not happened so we are sidelined after catching a great move from the March lows where we got bullish. As we said copper was consolidating but still had great supply demand fundamentals (the new oil). This we we popped to the upside and we are trading above the 50/200 day MA’s inverted to the upside. We told you the 61.8% corrections in both GBTC & ETHE from their lows to their highs may be OVER and we will see if prices can build on their gains from this week. The meeting with Wood-Musk-Dorsey (3 Musketeers) seems optimistic so let’s see if China’s damper on mining and the relocating to Canada & USA fixes the energy usage complaints and like Willie says “on the road again”
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Soybeans Sugar Coffee
Well the big play here is Coffee as a frost in Brazil sent price soaring (didn’t hurt SBUX either=higher prices). Soybeans & Sugar have been stable after a bit of a drop…overall ags-oil-metals have been ok…..should you diversify….too late??
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