Stock Market- Bear Market Bounce Ended 10 Days Ago-What Did You Do? Must Read!

April 8 2022 Option Professor Opinions & Observation

As we went into an OVERSOLD SPX into early March; we spoke of a rally after the Fed announcement in Mid March as a sell the rumor buy the fact scenario was unfolding. After the run to SPX 4630 (albeit about 30 pts more than we ever expected); the reality of tighter monetary conditions and Fed Balance sheet run off put the bears very much in charge. The BOND market saw yield spike UP big time this week in a market that is a bit OVERSOLD but broken nonetheless. RECESSION talk is mounting albeit not for this year as it take time for the Fed to hike & consumers to run out of cash. The Fed has a goal & they generally accomplish their goals (this one is to slow inflation (i.e. growth-stocks-real estate) We didn’t mind not fighting them on the way up (2008-2021) when they put $9 Trillion on the Balance Sheet-rates at 0! Somehow investors are more than happy to fight the Fed on the way down (2021 to present). Sorta Strange but typical.

We are aware EARNING SEASON starts this week and the bar is pretty low. BANKS start us off and it will be interesting if a collapse in IPO’s SPAC’s, Trading, Mortgage Applications and Deposits are offset by addition Free Cash Flow. Stocks that have free cash flow (profits) & pay dividends are certainly in favor so we hope for the best with the first reporters. CPI is out Tuesday, Earnings on Wed PLUS PPI followed by Thurs Retail Sales, Biz Inventories & Indust. Prod. on Friday. We have a 3 day holiday weekend and we’ll throw in a Full Moon on April 16th….if all breaks well…big hikes+ in May! We for one do not believe the Fed is kidding (Stocks do- but why not hike intra meeting?)….and will achieve their goals.

As we get further into Q2: we will know how corporate earnings are going, maybe progress in the war, if wage & price inflation abates as we switch from goods to services spending, GDP slows and supply chains/freight rates loosen. We will also see if the Feb LOWS HOLD on SPX (about 4100) & QQQ (about 320). Dow Transports tested them THIS WEEK! Should we get all those thing to occur by EOM June (10 weeks away); the Fed drama could fade and open up Q3 & Q4.

One thing we believe is that INVESTORS holding most BONDS & STOCKS have seen their Portfolios DECLINE in Value.

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The Option Professor

Jim Kenney

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