Option Professor-Stocks Peak? SPX 4208 QQQ 314 IWM 200-Rates Up VIX Up-Oil? Gold? Read It

Feb 20 2023 Option Professor Opinions & Observations

What a difference a week can make. We got news on CPI & PPI and retail sales on top of a hot jobs number. It all adds up to DEMAND is stronger that expected and INFLATION is way stickier than expected.

The Fed has been hiking for almost a year to slow things down and bring inflation down and their brakes are hardly doing the job. This likely leads to HIKES and a collision course with RISING savings/inventories.

Of course the people who plowed into BONDS in the last 4 months cite seasonal factors to sleep at night. REMEMBER; rates could FALL dramatically if we see period of SECULAR STAGNATION-but no evidence yet.

The TRUTH is the 10 yr yield is still way UNDER the inflation rate so unless we break to 3%-4% inflation the likelihood yields will be higher pretty good (3.35% is already UP 50 BP’s). How high is UNKNOWN.

We can talk all we want but the TRUTH is the business cycle kind of goes like this: First we get INFLATION (already got it), Second; we get RATE HIKES (still getting them) THIRD; we get an economic SLOWDOWN (which we haven’t gotten yet due to strong labor market, $9 Trillion Dollar Balance Sheet, and Lag Time). The fact that the popularity of NO LANDING is emerging tells us that June to October may be VOLATILE.

We could still get a rally in the S&P toward 4310 area (61.8% retrace of 4810-3491)-needs SPX 4208 break Longer term; it would be silly not to respect the potential of an economic slowdown/earnings combined with a LOWER P/E ratio than the one currently expressed in prices. SPX UNDER 4025-3950 confirms peak.

There is a LOT that will be going on soon and the questions abound. Will STOCKS break ABOVE recent tops? Will BONDS go into the tank again causing more pain for fixed income ($63 trillion of corporate debt comes due between 2023-2025 about 150-200 billion a month)? Will OIL hold the lows (65-72) and see the big Spring-Summer rally? DOLLAR drop over? Will GOLD hold $1800 & take out $1975 to $3K? Finally; will the stampede into Europe, EM, China, High Valuation stocks fizzle out? Yeah; a lot to consider.

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Jim Kenney

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