Stocks-Nowhere to Run-Nowhere to Hide? Not So-Take a Look at Our Views-Read On!
February 19 2022 Option Professor Opinions & Observations
We will get into our views on positioning to whether the storm of 2022 later in this briefing but first we’ll review things.
We spoke last week that SPX 4600 area was a short term TOP area an a break of SPX 4450-4400 could accelerate selling to the downside-BOTH were correct assessments. This week we got more news re-affirming the obvious that inflation on BOTH the consumer level AND the wholesale level is very high and with the constant feeding of shelter and wage inflation…it may take awhile to recede. On top of all that; we had a full moon on Wednesday:):). We spoke last year of the RISKS in 2022 and the concept of using options as a HEDGE to protect portfolio AND to go to sectors that may fare better in a changing monetary policy environment. The FED increased the MONEY SUPPLY by 35% after the 2020 drop and increased the BALANCE SHEET toward $9 Trillion+. Do you think withdrawing that accommodation will not lead to VOLATILITY and REPRICING of stocks and their VALUATIONS? We don’t CREATE trends; we FOLLOW them. When an investor’s stocks drop on a weekly and monthly basis and they take no action….the results are what they are. Friday was options expiration and Ukraine invasion looks near and the inflation numbers are scary with RATES so LOW. THIS WEEK we have retail earnings from the like of HD LOW TJX M FL Etsy EBAY also COIN MRNA DISH but last week we got NVDA CROX DAVA SBLK KEYS….many had great reports while others outlooks dimmed (ROKU SHOP)…but most had one thing in common….they got hit. Could we rally into the EOM?? Sure if the selling is exhausted (hold last weeks lows) and the algos want to run it the other way to help account values before monthly statements go out in a week.
We told you in 2022; a likely minor REVERSION to the MEAN would be SPX 4400 which has been EXCEEDED It opens the door to FULL REVERSION to LT 24 SMA & 36 SMA’s which are at SPX 3850-3550 areas. Bulls need +4400 to +4550 Some Cycles (20 yr & 40yr) indicate a MAJOR bottom in commodities in March 2020 & MAJOR decline in 2022 stocks.
If you’re the type of investor who doesn’t mind wild gyrations on the majority of the capital….good luck to you….those of you seeking more stability….here you go….with fixed income a Short Term Treasury Ladder has made the most sense for a while wherein you stagger maturities in the highest credit available & for those willing to add risk look to floating rate diversification. For stock investors; companies with good free cash flow (dividend payers)& consumer staples have been best of breed. With Slow Draw McGraw (Powell) hesitant on normalizing rates; some flows have gone into Gold lately as a hedge. Our view that a relationship of near zero interest rates to 7% to 10% inflation has been a Gold ally.
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