Author Archives: Jim Kenney
Author Archives: Jim Kenney
March 18 2023 Option Professor Opinions & Observations
This last week we got a lot of information to process. After 40 years of doing this; we have seen our fair share of shocks. From the banking system to inflation to the war to Dictator Governments aligning; OUCH
There are three areas that lack transparency and all 3 have the potential to get very ugly OR be contained. The first we know is Venture Capitalism. The second is general Private Equity. #3 is Commercial Real Estate
Our opinion is the shock of Silicon Valley bank ACTUALLY served many masters. First all those VC heavy hitters who made scores on Roku and all the rest have gotten whacked with the tanking in many of their deals. They want to get their money out but know SVB doesn’t have the LIQUIDITY. Who does? Well; if a “run on the bank” story gets out; the stock collapses and we get the NEWS stirring PANIC, The Fed & other banks will give us the LIQUIDITY to get our money back….sweet deal for them. The second on that potentially benefits is the Federal Reserve who DESPERATELY wants inflation to go & as well as DEMAND. The result last week was a MAD DASH to money market as historically HITS GDP ergo growth/earnings.
Odds for hard landing has increased for the next 6 months; maybe gets INFLATION down & LABOR down.
OUR VIEW that Growth over Value since December continues to be a brilliant call. Gold held $1810 & took out $1960. The 10 yr Treasury we said would decline to 3.4% area. S&P would stop at 4200 & 4080 Crude Oil FAILED to get above the 83 area and has tanked to 65 area which is a very key support zone
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February 26 2023 Option Professor Opinions & Observations
For a number of years we have tried to shore with you our views on the markets. In 2020; we spoke of a LOW in interest rates ($17 billion in NEGATIVE yielding debt) that could and would not last coupled with a MAJOR low in Energy and other markets. In 2021; we spoke of a OVERBOUGHT stock market that would REVERT to the mean especially after the Fed commenced their hiking campaign which goes on to this day. We’ve been in these markets for 40 yrs so this is not our first rodeo and we have no axe to bear. In 2022 we spoke of then the oil prices trying 2X to break the 2008 high and FAILED losing from 130 to 70. We cited about 4 rallies in stocks that were bound to fail at resistance points basis OUR declining M/A’s. In late 2022; we cited the Presidential cycle ( Oct of 2nd yr to April 3rd year) that has a tremendous history
We informed readers of the BUSINESS CYCLE of Inflation the Fed Hikes (ABOVE CPI) and SLOWDOWN. Talking heads keep speaking of recession which will not come until Fed Funds are ABOVE CPI and the jobs markets starts shedding jobs. We are still in the midst of PHASE 2; be patient PHASE 3 will be coming later
We spoke to investors who wanted solid return and a stable principal and spoke of rolling SHORT TERM T-Bills to go where the Fed wants you (out of spec and into safety) and cool it “only live once” spending. In 2023; we spoke of OIL having to clear 83-92 to get on the horse and Gold +1975 & Silver +25 as well. We recently spoke of RESISTANCE at S&P 4208 (our indicators) which so far has been the “Bounce” top. WE have S&P Resistance at 4080-4208 and support at 3900-3875. Inflation and Spending are too strong
How long will PHASE 2 (Fed hiking last)? What are potential DOWNSIDE targets when the PHASE 3 starts? Is this CHATGPT short term hype? Will Global markets stay firm? What EARNINGS/P-E might we see in’23? Are stocks totally MISPRICED & are bonds about to FALL off a cliff or would locking in yields be smart?
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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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February 12 2023
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OK We told readers & customers that SPX 4208 was RESISTANCE based on a moving average on our 20 yr chart AND a RSI divergence suggesting EXHAUSTION & that alone was worth hearing what we say. To state the obvious; TUESDAY we get the CPI and if it comes it soft then we could get right back on the horse. For us that means SPX ABOVE 4115-4120 then 4180-4208. Will that happen? Are you caught long?
Some problems that the stock market faces right now are Hikes & Euphoria & Froth….pause or rally killer?
ROLLOVER has occurred in may areas that were humming including the Dollar, Bond Market & Transports The key starts with YIELDS which we told you REJECTED the 3.35% level on 10 yr & NOW at about 3.75%! The next key is EUPHORIA which best categorizes a OCT-APRIL Presidential Cycle that did not disappoint. Money was stampeding into weaker dollar, lower yields/Fed cuts and soft landing scenarios. China’s reopen and European hope saw money pour in. The next key is FROTH which is when the rally is led by the worst beat up stocks as leaders (the IWM rally had NON profitable companies leading the pace).
EARNINGS have been a mixed bag and some question the 2.30 earnings for SPX and the 18+P/E ratio. There are many who believe that earnings will drop as margins are squeezed typical for inflationary times. Our 120 month moving average is in around SPX 3000/ if we start closing UNDER SPX 3950-rip chord
THIS WEEK watch for Tues CPI, Wed Retail Sales, Industrial Production, Business Inventories with Thurs giving us PPI and Housing Starts & Permits. Friday we get LEI (leading economic indicators)-All Up???
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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?
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REMEMBER All investing involves risk of loss and it is not right for everyone. CONSULT YOUR BROKERAGE FIRM to determine your own suitability and risk tolerance. Past performance is not indicative of future results. Information and opinions provided are for informational purposes only It is NOT advice.
January 29 2023 Option Professor Opinions & Observations
For those of you who missed the QUICK ALERT; there is a Presidential cycle that starts in October of the 2nd year of the presidency and goes to April of the 3rd year (we’re in that right now). During this cycle the market is UP over the October price about every time we looked. Impressive if not belated. We have seen a literal stampede into China, Europe, Pacific Rim/about everything that benefits from a falling dollar.
We’ve seen yields come down, talk of Fed being done, Dollar top/China open , rate cuts sooner than later. WOW! We’re getting drops of 1% in retail sales, PCE still with a 5% handle/CPI with a 6% handle & 3.5% jobless rate (record). The jobs coming out of tech are from the gross over hiring & cap ex cutbacks by cos.
THIS WEEK; we will may get gasoline or water thrown on the fire (Employment Cost Index-Big Tech Earnings-Fed hike & statement, jobs report ect.). No doubt; spending has softened by consumers and corps. and PMI’s and LEI’s are pointing down. How else did you think the inflation numbers could come down? The Fed will stay flexible as this thing could brake EITHER way into a real downturn or people could go back to spending as the Fed is characterized as dovish. Our view is that Fed Funds must get ABOVE the Inflation rate as well as real interest rates (nominal rate minus inflation rate) before Fed stops.
Before the year is out (and there is a lot of year left); we see the word LIQUIDITY & Operating leverage being front and center as QT & lag effects of Fed hikes hit home. Revenue declines & Labor costs (WMT jumped minimum) may pinch operating margins. Do we make it all the way to SPX 4300 area (61.8% retrace of 4810-3491)??? Mob psychology is in full bloom & all those financial wizards have got “some of their money back” which keeps the game going. If EARNINGS don’t get hit by Q2-3; the soft landing wins.
Technical support SPX 4045-3940-3875/QQQ 285-275/IWM 185-180/10 yr Treasury 3.48%-3.37% Let’s see
We’re getting a rally out of the darkness but remember a lot is being discounted and positioning more up At some point selling covered calls, collars, trimming, and marries puts make be appropriate. We Can Help you understand what that means. Does the Fed want monetary conditions to ease? We’ll see soon.
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We’ve told readers of the turns in metals, oil, SPX, Food, EM, China, Europe, The Dollar. How much more?
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January 21 2023 Option Professor Opinions & Observations
The BULL Story
As the stock market gyrates between SPX 4035 and 3885; many investors are wondering whether we have the all clear sign and last years 2022 LOWS (20 & 40 yr cycles) at SPX 3491 was the low and the VIX being subdued between 18-25 is telling us VOLATILITY is dead so bring in the big buyers; it’s safe! This has certainly been the net case since the October Lows and on steroids GLOBALLY in the month of January ’23 Money flows into stocks are very good to start the year (January Effect) so sellers are far & few between setting the stage for Algos to press the OFFER side. China’s reopen and stimulus to return growth will help Asia & Europe as mobilizing that consumption/demand is considerable. If China growth does return to 6%+; one would assume that commodities & multinationals would rise substantially….discounted a bit? USA consumers seem able to handle rates in this area. This means SLOWDOWN in Growth-No Recession. TECHNICALLY. Friday was Options Expiration Day. DJTA ABOVE 50 & 200 Day MA. SPX ABOVE 4035-Up++
The BEAR Story
China may a number of short term challenges. The Lunar New Year Travel (back to 2019 levels) brings with it COVID. The UNEMPLOYED 18-25 yr old youth remain. Consumers slow to trust property. Trade Demand The Fed will be slowing the pace of rates (Duh…they went from ZERO to 4.25%… not going to 9% right). They know that getting the Fed Funds Rate ABOVE the inflation rate & keeping it there was the 80’s tonic. LABOR markets are still strong and wages have slowed but still rising (margins). There is some Easy Math here Inflation + Rate Hikes = Slower Growth. Should slower growth=lower earnings; the P/E ratios are key What will EARNINGS be in 2023? What will the multiple be? 2.10 X 17 =3570 or 1.80 X 16 =2880….get it? Let’s be honest. The YIELDS & THE DOLLAR have eased substantially. The US & Global Markets were VERY Oversold and have had a REVERSION rally. The 3 MOST CROWDED TRADES are Bonds, The Dollar & now EM/Asia/Europe. We imagine The Fed will REMIND us in 7 Trading days of their RESTRICTIVE POLICY. TECHNICALLY. SPX closes UNDER 3875 & 3800 may confirm BUT +4050 could lead to SPX 4200-4400.
Should I Stay or Should I Go? Well; we see a “Clash” coming between SPX 4035 & 3875. Go with the flow:)
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REMEMBER All investing involves risk an it is not right for everyone. CONSULT YOUR BROKERAGE FIRM to determine your own suitability and risk tolerance. Past performance is not indicative of future results. Information & opinions provided are for informational purposes only. It is NOT advice.
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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January 7 2023 Option Professor Opinions & Observations
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December 17 2022 Option Professor Observations & Opinions
With the Holidays upon us (we’re off to Turks & Caicos); this week we are going to be brief/to the point.
In 2023; we could see the labor market ease and the judgements by the Fed may lead to a more accommodative policy. This would take pressure off multiples and help stocks. China’s reopen could be a nightmare health wise (many people ELECTING to not leave their apartments are infections skyrocket). The consumer may have enough gas in the tank to take us thru Q2. In this case the recession is pushed back maybe to 2024. POPULAR opinion is bad first half great second half (how did you accounts do this year following the mouthpieces you followed??). The Fed can’t forecast exactly/Neither the knuckleheads who tout and charge lots of money and give lousy picks and lose money and tell you to hang in there ect.
The second outcome could be China is OK by summer and they bid up commodities like energy, gold, industrial metals, agriculture. This would be a nightmare for the Fed if China boosted energy & food inflation maybe pushing Fed Funds thru 5%. Also; EARNINGS have not been cut and the way the consumer is spending with credit cards; we will see if operating leverage is hit by costs as revenues may be up but margins pinched. Employers are not too keen to cut people knowing it’s hard to get them (rate is 3.5% and 1.7 to 1 avails to seekers). If earnings go to 2.00 or less on SPX & we get the Fed Funds above 5% then the P/E could get 15…that’s how you get in and around SPX 3000. We’ve had reversion rallies in the Dollar & Yields and if they end and we revert back to higher Dollar & Rates. To us; the markets look like drug addicts seeking cheap money & even the hint/rumor the Fed will give them; the addicts go nuts.
In 2022; We feel we’ve had a good grasp on what sectors to be in & how to roll short term Treasuries. If you chased silly hype artists and dubious forecasts; It’s time to hear us out and include us & our opinions.
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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. It is NOT advice.