Stock Market-In the Next 4 Weeks-We Will See Push Come to Shove-Are You Ready! Must Read!
June 4 2022 Option Professor Opinions & Observations
The stock market has been like Milford Sound New Zealand where they say if it’s not raining…it will be:):) After the pre holiday panic; this week we lost some ground….last week we made ground—-WHAT NOW?
PUSH WILL COME TO SHOVE is a possibility as we have nothing but variables ahead-HEAR BOTH SIDES!
The BULL side is that the markets have DISCOUNTED much of the Fed action and VALUATION repricing. The Jobs Report we got will be viewed as the last great one (postings are slower). Inflation will ROLLOVER due to a build in inventories (discounting) and once consumers see discounts on cars, furniture, durable goods, and housing…inflation will back like the lead horses in this years Kentucky Derby:). Labor will ease as more come back and a freeze on hiring and projects occur. A couple of helpful things like a drop in oil and resolution in the War (13 weeks old) wouldn’t hurt either. China coming back online (Starbucks just reopened stores). Positioning is near record lows & bearish sentiment is great & recession fears unfound. Corporate buybacks expected to be $1.2 trillion annualized and rebalancing of stock indexes and ETF portfolios plus EOQ window dressing. The Fed will see fruits of tightening & pivot/pause after Labor Day. WOW…that’s quite a story to compete with…it’s the story of those long stocks & SPX EOY goal 4800-5100.
A pancake always has 2 sides….let’s check out the BEAR side and see what they have to say. Let’s start with INFLATION that’s 8%+ (really…rents-food-gas-car prices-housing-travel & leisure ect up 8%..where?). There is so much demand acceleration (JOBS at best level 50 yrs-INFLATION highest in 40yrs and the LARGEST Fed Balance Sheet EVER by about $4 trillion bucks!). Do you think the Fed can get the inflation rate down WITHOUT the unemployment rate jumping, shrinking the balance sheet (remove liquidity), slowing GDP? There is a structural shortage of oil (despite add by OPEC) and food as well—inflationary! The VALUATION argument is as follows…..higher interest rates/lower valuations…so at 2.30 earnings on SPX at 18X = 4140 (we’re here!)….at 16X = 3680…at 14X = 3220…do get the idea??…What if earnings get CUT and valuations CONTRACT?? What if China’s reopen & the War break badly? Credit Card usage indicates maybe consumers have gone thru their cash and maybe sentiment bearish but have they sold?
There you go 10 lines for each view (whatya expect I’m a Libra:)….so how do you make sense of all this??? OUR VIEW- The MAY LOWS in QQQ (Tech) was 280….must hold 290…..IWM (small caps) LOW was 170 must hold 182….SPX LOW was 3800…must hold 3720…BEST CASE we get that & close ABOVE May’s highs and we continue higher albeit choppy toward resistance at SPX 4450 then 4631 then 4800…..HAPPY DAYS! WORST CASE…the unwinding of the balance sheet and getting DEMAND DESTRUCTION is painful which leads us to a break of SPX 3800 & interest rates spiking & EARNINGS revisions & VALUATION contraction.
We spoke in JANUARY 2022 of these BEST & WORST scenarios.. things change in life–the bulls hope so:)
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