Option Professor-Stock Market- Did We Get A Capitulation Low October 13th? Read More!
November 5 2022
While we were enjoying the Azores, Madeira Island and the Grand Canaries the bear market bounce from SPX 3500 to 3930 occurred. Of course we told everyone that the set up was there just like in other rallies this year when the VIX was 35-40, the SPX was way UNDER its moving averages and quarterly earnings were about to be announced (positioning on the sell side temporarily exhausted. Pretty much textbook.
After taking out resistance of SPX 3810; it was off to MA resistance at bout SPX 3920 with still an outside chance of SPX 4040 and 4100 (gap) and 4160 UNDER the right set of circumstances. Two helpful things would be a further drop in the DOLLAR & YIELDS combined with a positive outcome at the G-20 meeting and progress on the CPI. We had an opportunity to get JPM 6.40% coupon bonds UNDER par in October and that is now gone. OUR BIG KEY as regular readers know is the SPX closing & sustaining ABOVE 3850.
The problem is the Inflation numbers (PCE & PCE CORE) are not breaking and the JOBS market remains very strong and consumer spending (leisure & services) is OUTPACING wage growth. We believe the PEAK inflation was hit in May-June but the significant down move alludes us. We listen to Powell. He said the 2 BIG mistakes they don’t want to make is NOT tightening enough AND easing too EARLY. They want to SLOW economic growth and so far have failed. They waited to see the “whites of their eyes” on inflation before reacting belatedly. We suspect they also wait for the “whites of their eyes” on economic slowdown.
Investors are plowing into VALUE over GROWTH. The funny thing is WE SAID to do that in AUGUST when our ratio turned as it had in Nov 2021 & May 2022…ALL were outstanding insights on portfolio weights.
WE explained since last year the place to be to STABILIZE portfolios in 2022 as the M2 money supply COLLAPSED bringing asset values DOWN was to ROLL short term Treasury Bills-this month=higher yields.
Ever heard of the Rule of 21?? It goes like this…you take 21 and subtract the inflation rate to get the P/E ratio. E.G. 21-8% inflation is a 13 P/E, 21-5% = 16 P/E. SPX 2023 earns 2.10 X 13 = 2730 or X 16 = 3360. We do NOT have a Earnings Recession yet but if we do the numbers could get sloppy. Time to Talk to Us!
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How Do Covered Calls work? What Sectors are Show Promise? How to Replace Stocks with Limited Risk? Will Natural Gas spike up this winter? Has Gold Silver Copper turned? Will Tech accelerate to Downside?Obviously more like 1. Our Opinion Reports 2. Our Indicators on YOUR Markets 3. A Fresh Look-Compare
Q4 could end with a stampede & a prelude to a tough 2023 or fade UNDER SPX 3850. Time to Talk to Us!
Look forward to speaking with you,
The Option Professor
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