Option Professor-Stocks-Risk On?-Commodities Squeeze Over?–Read More

May 14 2021 Option Professor Opinions & Observations

The Option Professor is a Graduate of Boston College with Decades of Investment Experience. The Option Professor has Instructed Thousand of Investors on the Uses & Risks of Investing.

Last week we spoke of a rollover in price that could be precipitated by the inflation number as the Fed is our friend and we are not entering recession so that leaves one culprit. Down she went to about S&P 4050 only to recover most but not all the weekly loss as the CDC said off with the masks! The CPI and PPI numbers were Huge as some dismissed the JUMP in used car prices, motels-hotels and airfares as temporary BUT the wise ones said that housing rises of 2+% were way out of line with reality (prices up 18%-rents to follow)and Health Care costs flat certainly will be rising….both big components looking forward. Put that together with negative real yields and you have the recipe for VOLATILITY to be around for awhile. The Quant boys (Kolanovic-Lee) thought it was either overdone or that the attempt at a crash ang getting the VIX above 30 failed (subsequent big drop under 20)…so it’s blue skies and green lights from here. The favorites remain banks energy epicenter (cos. that got whacked by Covid) industrials materials and value. We let our SUBSCRIBERS know how to get exposure to these areas and more. The squeeze on commodities hit a speed bump with the crop report hitting the grain markets hard and word that more mills and saws doing their thing will hit Lumber’s cannonball run. INSIDERS have been selling at a pretty good pace ($24.4 Billion) including Bezos Ellison Brin and Zuckerberg…plus Yuan of Zoom but he seems a little late. Watch housing stocks with the break in Lumber prices. Also a lot of high flyers are down (DKNG ect) so we will see if they get their boat legs back. Comparing this time to the Roaring 20’s (last epidemic) seems silly as 1910-1920 was a bad period for stocks and we entered the decade at a 9 PE ration…now 3X that measure Excess & Speculation abounds (spacs-valuations-AD line roll-put-calls-meme-ect) but we have households with $$$ but is fiscal and monetary stimulus going to abate in the 2nd half of the year? Our guess is that we may see more upside BUT 2021has a high probability of topping and a sharp decline is coming…. WHY? …because our 3 year Long Term Moving Average on the S&P 500 is at 3140 and we are OVER 1000 points above it! Only a fool would not recognize that reverting back toward the mean is a high probability after we stop making new highs on a monthly basis….whether than be in June or later is debatable…we believe being ready with ways to reduce risk is not debatable. This could be the most important thing to LEARN more about as the tides change ahead of us.

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Bond Market

Surprise!..Inflation is on fire and yields drop and bond prices rise..go figure? Well it seems that Q1 was the worst on record for bond prices dropping so it appears much of what we hear is baked into prices. Same story…10 yr 1.75% and 30yr 2.54% and some data suggests if yields peak (March) that 2-4 months after stocks peak (May-July) so keep an eye out for that relationship. EDV & TLT failed to take out their lows and Junk Binds and credit spreads remain in a kind of looneyville. Until we see those yields taken out we are concerned that the planet thinks we’re going to higher rates.

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US Dollar/International Markets

We told readers awhile ago that the dead cat bounce in the Dollar ended when we broke about 91.75 about a month ago as that was the MA we watch. If we get back above that level you could build a case for Dollar turn but now Europe is getting going and their yields have risen so the BP Euro & the Aussie-Canadian have benefited from commodity inflation and robust reopenings. If we take out the 88-90 area.. could be timber. We love the European markets and certain sectors which we share with SUBSCRIBERS–great week this week!…They open next as we said for months..followed by Emerging Markets (India cases turned better)…we have ways to gain exposure their too (China?)

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Crude Oil Natural Gas

Energy shares had a great week…no surprise to us (we’ve told SUBSCRIBERS to be bullish for 1 yr)…and a march to 80 crude oil (Goldman Sachs call) still seems plausible. In our NEWSLETTER we have outlined SPECIFICS & the reasoning and while bumps in the road can happen..our theme remains. We told readers that 2.50 was the turn in Nat gas and so far that is spot on….what energy shares look best? Should you go with E&G, Refiners or Integrated? SUBSCRIBE Today!

Gold Silver Platinum Copper Palladium BitCoin Ethereum Coinbase

We told readers that the traditional inflation hedges TURNED UP in March and are now in the PROCESS of mounting what could be a face-ripper 2nd half of the year rally. WHY?..how about negative real yields versus rising inflation numbers (Core inflation is annualizing at 11%)….how about a Dollar closing in on a 15% loss of value in 14 months! or how about all LT Moving Average pointing UP! Silver ABOVE 27 and Gold ABOVE 1850 would suggest game on BUT if we fail next week from these levels the timetable may be late summer /fall which was our original forecast. Lots of ways to play it…SUSCRIBE to hear ours. Copper like lumber and grains got a wake up call as mines producing…mills working and crops coming threw water on these short squeezes this week…we said copper was extended so be careful. Palladium git hit but bounced off 2800 which looks like a good line in the sand. Crypto got a shock when TSLA says they are suspending accepting BitCoin for cars & Musk lampooned DOGE on SNL. We look at technicals and MA’s to gauge Crptos (ETHE GBTC) and staying ABOVE 35.50 ETHE is good and getting ABOVE 45-50 GBTC reignites uptrend. Coinbase announced earnings and revenues were great but comes 90% from transactions which some believe is on borrowed time. They are flexible to add coins (DOGE coming)…RSI’s at 40 price under 260– Above 280 RSI 50…yeah!

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 about your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only. Opinions & Observations are for informational purposes only.

Jim Kenney

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