Option Professor-Can the Fed Get to 2% Inflation with China Reopen & Our Labor Market? Read It.

February 4 2023 Option Professor Opinions & Observations

What a week! We had a Fed Hike, The Big 3 (AAPL AMZN GOOGL) report disappointing earnings, and an employment report so shocking that you could drive a truck through the reality versus the estimates:):)

First; the Fed hiked 25 basis points which was the smallest jump in recent meetings. Powell read from a script that said that they are committed to fighting inflation, ongoing rate increases, job far from done. Bravo! He then went off script and there was the rub. To us; he sounded like a broker (his former job) trying to get sideline money into the market with his comments about disinflation, potential rate cuts. The one comment that was a jaw dropper was no ease in financial conditions since the December meeting. Time to check his drink. We have seen stocks explode, yields & the Dollar tank & full employment (3.4%)

This is a HARD ECONOMY TO CALL at this point. Why? The LABOR market had a JOLTS report showing a ratio of 1.9 to 1 avails to seekers. We had 500,000+ new jobs created AND Nov & December revised UP! Wages are still rising. Manufacturing jobs on the rise and March/April seasonally strong. ISM SERVICES numbers JUMP up to 55+ from 49! Business activity was 60+ and New Orders UP 15%! Consumer spending is 70% of economic growth so DEMAND could surprise.. RISK is that one day companies wake up and discover business has slowed and they don’t need so many people and cuts happen fast & furious

The next wild card is the China reopen which could have a boost on CONSUMPTION which could turn inflationary. Next Fri.; China announces CPI & PPI which could shock-delivered in that balloon over MT:) Seriously; the demand for energy, industrial metals, services could soar especially with Lunar Holiday.

SHORT COVERING & FOMO has accounted for much of the rally we have seen. For those who get Our QUICK ALERT; we spoke of SPX 4208 resistance and we told others of a RSI DIVERGENCE which led to a great short term turn. If we break SPX 4208; the next levels we see is SPX 4310 to 4400. A move of 20% off the Oct lows takes us to the highs we saw this week and a 25% move is in the SPX 4350-4400 range. The VIX has been LOW & STABLE which we told you attracts big money. If VIX is ABOVE 21-25/tune changes?

IMPORTANT! The Presidential Cycle we mentioned can go until April so we respect that fact. HOWEVER; there have been large gains in the last 90 days and we know ways of PROTECTING those values and more.

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The Option Professor

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Jim Kenney

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