Stock Market Drops-Waiting for Help? Are You Waiting for Godot? Our Take-Read On!
February 12 2020 Option Professor Opinions & Observations
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The stock market had a very bad week this week once investors pulled their collective heads out of the sand and saw proof of what we have told readers for many months….Inflation is NOT transitory and Yield will rise once 1.75% on the 10yr Treasury is exceeded. This week we got evidence of both as INFLATION blew out the doors and yields ROSE as the 2 yr exceeded 1.5% and credit spreads continued to widen. Yields tend to rise slowly at first and the accelerate into a fast pace. Earnings have been great but they are backward looking and valuation pressures come with the territory when interest rates rise. The scariest thing is how far behind the curve the Fed is as we were around the last time inflation was this bad (1980’s) and Volker (Fed) needed to get the long bond to 16% and money markets to 22% to get it under control. Not suggesting that here but 1/2 point raises off zero ain’t gonna cut it and the market knows it. BUT it is important to note the 2yr Treasury jump in yield to 1.50%+ has ALREADY DISCOUNTED 6 hikes already which may mean a more stable environment may emerge as we go into the March Fed meeting. may occur. The SPX hit a very IMPORTANT SUPPORT ZONE Friday at SPX 4400 and the VIX hit 30+ but closed lower. If Monday we take it out but close above (plunge protection team??); that would be very constructive HOWEVER if we close under SPX 4400 and the VIX takes out 35-40 then it may be time to use dental records as the decimation could be significant (we have told you that some Elliott Wave Devotees have said 2022 will be a year of a huge decline and major bottom and some may say the stars are staring to align. IMPORTANT to note the SPX 4200 area and VIX 39 are still intact so if you’re a bull you could hang your hat on that and the old adage “It’s darkest before dawn”. We saw with Facebook(FB) that if the crowd turns on you the downside can be precipitous. The way we blow out SPX 4200 and test long term support at SPD 3800-3500 is that the Fed goes too far, growth slows and the consumer spending falls out of bed…..NOT sure things at all. Do you own enough value & dividends…floating rates….overseas markets like EM & the UK…precious/industrial metals? We have ideas on where to look to hide out while Rome is burning and we are happy to share the ideas with you.
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