Stocks Dive on 3X Witching-What Next? Bounce on Short Covering? Read & Learn


December 17th 2021 Option Professor Opinions & Observations

We got what we expected out of the Fed last week with 2x taper ending in March and 3 “hikes” next year. The stock market initially went euphoric with a run above SPX 4700 only to tank as the tech sector which got slammed then stabilized while financials energy value dividends gave back their advance by the end of the week… triple witching. Okay; that’s what has happened..what’s the reality of what is coming next. OUR VIEW is that the 10 yr Treasury and money markets are still a joke so if you want a guaranteed money loser vs inflation… have at it. The new variant is problematic (Radio City & Hamilton cancelled performance in NYC)……but if South Africa is an indicator the situation rolls over and deaths & hospitalizations are manageable. Retail sales were skinny in Nov but Oct was revised upward big time (maybe early shoppers) BUT without stimulus/unemployment the less fortunate among us (the spenders) may be less inclined to spend. The fed balance sheet at $9 trillion coming down may be offset by 2 factors which are less issuance next year (maybe all this selling is to create tax bills-revenue for govt) and more important the US Dollar is the big dog and foreigners are buying up our debt like mad (almost 70% of auction last week was foreign buyers). They get a massive increase on the local yield and they get a currency play. The ECB is easing and Japanese does nothing and do you want your $$ in the Yuan (ask Jack Ma how that’s worked out!). We feel we may be in a 2010-2015 repeat when the Fed promised hike but the data went south and so did those plans. Inflation may not go away on its own as shelter inflation (rents ect.) plus wage inflation is sticky. Maybe if stocks cool the employment participation index rises. We currently believe 3 MAJOR themes for 2022 makes sense……#1…investors will want income on their investments and reasonable P/E ratios as the look for the return of their capital…..#2….the heyday of durable goods purchases (Home Depot ect) will be replaced by money going into services (travel-leisure-re-openings) as the consumer is still in great shape and wages are flowing and global recovery continues plus the old song goes “People Just Want to Have Fun!”….Finally #3….A hedged Portfolio in 2022 may make a lot of sense as it is a Mid Term Election Year and at some point the market will get whacked as Long Term Moving Averages on SPX are about SPX 4200-3700-3500 and if Fair Value P/E is 18X at 2.30 earnings could put us at SPX 4100. The drop does happen earlier rather than later historically. We hit SPX support at 4600 Friday (50 day moving average)….more underneath at 4575-4500 and worst case at 4400 while closes ABOVE 4650 could very well start the engines for year end and January Effect prices..LEARN MORE NOW!

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Jim Kenney

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