Option Professor-Stocks Declare-Let’s Throw Caution to the Wind-Good or Bad Idea? Read It

January 15 2023 Option Professor Opinions & Observations

Bad mouthing the Stock Market since October has been like Badmouthing Santa Claus:):). On SPX; our first buy signal came at 3700, then at 3850 and the next hurdles are at 4050 and 4150. The whole board internationally has gone thru the roof basically on the belief the Fed is close to the end of hiking/pause, we will have a soft landing, China reopen will lift all boats, and the labor market will trump the yield curve.

What could make it continue & what could kill the rally.??

The CPI came out in line but party hats were distributed due to an easing (not a drop) in wage growth. The inverted yield curve has a 100% forecasting history (although Campbell Harvey, the Godfather of the inversion theory is allowing for the possibility that “this time it’s different” due to strong labor and a self correcting mechanism as corporations and consumers pull back their spending. The Employment Cost Index comes out in 2 weeks and is considered the gold standard of gauging the labor market. The Fed is not satisfied with a 6.5% Inflation rate (the REAL INTEREST RATE is still VERY Negative). Obviously; basic math tells you we’re closer to a pause than last year BUT rate cuts may only occur with a GROWTH SCARE in the 2nd half of 2023. That’s not bullish. How’s that happen? How about the fact that PMI’s are tanking or Lag Effects of the Fed Hikes or Housing Falling Off the Cliff created by 2.75% mortgages? Earnings season has begun and the banks made good money but hid it a bit by INCREASING LOAN LOSS reserves. Wells Fargo said to the effect that NEW Mortgage business LIMITED primarily to existing customers which does not breed confidence. Positioning is obviously changing and the VIX at 18 hit a 52 WEEK low and in the zone of LOW reading in the topping year of 2021. SUPPORT SPX 3950 to 3875. CAVEAT EMPTOR Time

Remember; Not a good idea to Fight the Fed nor to Fight the Tape. The tape has been strong and yields have been dropping and if the 10 yr closes UNDER 3.4% then hello 3%. The VIX shows that fear has left the building as 2023 forecasts were negative and the Algos pressed the weak side (no sellers). The economic data has shown signs of rollover and should they accelerate then off we go. EARNING & GUIDANCE will lead the way in the weeks ahead (this week we get some variety with Financials, Transport, Staples, Industrial Metals, and Energy represented). Banks are talking BUYBACKS so if the Fed said get ready for pain (that’s pain?). So far (as usual); 2023 forecasts wrong (maybe It’s UP 1st Half SLIP 2nd Half?) Is El FED done? PREMATURE. Real Interest Rates & Nominal Interest Rate ABOVE Inflation Rate=End Game If Inflation Rate capitulates to the 3% neighborhood….they could be done….hold it until something breaks

Look at this Asset Mix INSTEAD of 60%/40% NOW? Stocks 25% Bonds 40% Cash 20% Alternatives 15%??? What SECTORS may make the most sense for 2023. Time to Throw Caution to the Wind or Fade It into Fed meeting be that at SPX 4000-4150-4400?? INSTEAD of Just Pricey Chat Rooms, Newsletters, Courses…

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The Option Professor/optionprofessor.com

REMEMBER All investing involves risk of loss and it is not right for everyone. CONSULT YOUR BROKERAGE FIRM to determine your own risk tolerance and suitability. Past performance is not indicative of future results. Information and opinions are provided for informational purposes only. It is NOT advice.

Jim Kenney

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