Author Archives: OptionProfessor
Author Archives: OptionProfessor
We’re working on the OptionProfessor Market Update for this weekend. What topics would you like me to cover in this issue?
Please post them in the comments below.
-The Option Professor
• Bonus: Is Your Portfolio $500k+ (read this)
We’re working on the OptionProfessor Market Update for this weekend, what topics would you like me to cover in this issue?
Please post them in the comments below.
-The Option Professor
February 21, 2020
OPINIONS & OBSERVATIONS
Last week/Next Week….Well..the increase in the Virus numbers got the attention of both the stock and bond markets and the economic numbers are throwing cold water on the bulls yet the price action so far has been fairly muted. What’s going on?..well our view is that there is a run to USA denominated assets and Gold which is weird but occurring none the less. The US Dollar made a run at the magic 100 number before turning down and Gold broke 1600 and made a run at 1650 the ounce. Bond yields (30 yr Treasuries) declined to their lowest yields on record at about 1.90% breaking the 2% level. The market has dismissed the “Iceberg” as merely a Q1 issue and had continued to buy stocks as the situation is transitory. Now we hear 50% of all China’s factory workers are not working and there has been a 92% drop in cars sales in China this month. Combine that with USA PMI’s coming out weakest since 2013 (services sector) and you can see why we broke short term support around 3375 on S&P and the DJTA and Russell both headed south. We said the 3400 area could prove the exhaustion point and so far that looks to be the case ass the divergence between the advance decline line & RSI to the new highs may turn out to be a signal. For bears; it would be helpful to see a break under 3320 and 3300 needed to suggest deeper declines. If we fail to take out 3400 S&P next week and heaven forbid in March….then the Virus and a slow global growth story sans Virus could send the VIX above 20-25 and usher in a move to 3050.
We’re watching GBTC, SILJ, TLT, IBI, ABBV, XHB construction and home builders with rates low and housing starts and permits on the rise..(millennial home buyers) and the closing of the gap between tech and overbought sectors to more the value & cyclical.
Next week…this weekend we have the G20 in Saudi-land…Mon German Biz confidence(low) Tues US Consumer confidence Thurs
GDP & Durable goods and the big one Friday China’s PMI (expect 47.4 manufacturing/50 non)…trust the #’s…who knows??
Questions contact us at [email protected]
As we said 3400 area could be exhaustion area but 33320-3300 is short term support and unless taken out the bigger drop not possible. Also the VIX which last week had a 13 handle and was bullish…we said a 16-20 handle is cautionary (we got it Friday) and 20 25 likely accompany a more severe drop. Transports and Russell no where near the 2018 highs and the advance decline line and RSI to some suggest negative divergence. we also told you 4 of the big five (MSFT AAPL FB AMZN) failed to make new highs which was a good tell because they all got whacked this week. The ratio between oil and stocks has never been greater than since the dot com bust which is also alarming and could suggest a moderation in tech and better action from value and cyclical in the month to come. Truth is..we don’t know how big this virus is and the effects on a slow GDP world…V shape or U or L shaped..we don’t know.
Big story this week as yields drop on treasuries to RECORD LOWS as the whole world wants in to higher US yields and the US Dollar…sometimes stampedes are cattle going to their slaughter and sometimes it’s smart people taking cover..time will tell.
Spreads between risk bonds and safe bonds in about 350 and the yield curve is flattening again. Somebody’s very wrong here as one is saying the party’s rocking and the other is saying a slowdown is coming which normally would hurt junk & corporates.
If you’re long duration (TLT) you’re buying dinner this weekend:):)..how low can we go…well our view has been we’re in a new 10 yr Treasury range of 1.40% to 1.80%…if we get bad numbers and the markets reevaluate the lag time on demand the 1.40% could get taken out wherein if this really is done by end of March then the snap back in yields is going to turn the stampede into fools.
Broke above the 99.50 ceiling but did not maintain it. we said last week the 100 round number is key as if we clear that hurdle a melt up on the dollar is not off the table and maybe the catalyst will be general distrust or European Asian and world currencies
This week saw record lows in the currency of Brazil and drops in the Mexican & Chilean currencies….Euro-Yen?? Stay Tuned
Can’t get out of it’s own way…the rally toward 55 did an about face to the 52’s as aagin the world is awash in oil and with many millions of consumers in China on hold the inventories build. As we said last week..if the Saudis can’t garner support for a cut then the 50 level and below is not safe…some pretty smart people are touting a strong demand and price rebound in the 2nd half of 2020 so keep your eye out for turns in the oil and energy sectors as they are way out of favor and price accordingly.
OK last week said this week was crunch time for the metals and they sure did answer the bell with Gold shooting up to 1650 area and Silver back above 18…we brought to your attentions things we have on our radar like GDX GDXJ and SIL SILJ and they all had a good week….now let’s see if we back and fill or if we blow out the highs…weird to see strong dollar strong gold..maybe not so?
Copper has rebounded but until the virus effect are quantified it still is in tough territory…watch FCX for signs of a turn
Same story stuck under resistance but it looks like more subsidy money coming to farmars …what elsse..it’s an election year
Planting & growing seasons ahead will unlock some answers stay tuned….
REMEMBER…There is a substantial risk of loss in short term trading and options trading and it is not right for everyone. Consult your brokerage firm broker and advisor to determine your own suitability. Past performance is not necessarily indicative of future results. USE RISK CAPITAL ONLY
February 15 2020
Opinion & Observations
Last Week Next Week…..We saw some indices hit record highs last week but not so much on the big 5 as we saw no new highs in MFT AAPL FB AMZN but did see one in GOOG. Also note; we haven’t made new highs in DJTA (transports) and the Russell (RUT) since 2018….some say the RUT will be a massive catch up trade to the S&P..we’ll see. We did see a bump in the pot stocks last week (Cronos-Tilray-Canopy) and Buffett disclosures saw adds in BIIB, Kroger, GM OXY RH and Suncor & adds in S&P proxies but saw cutbacks in WFC & GS (financials). The semis also made new highs while CSCO got whacked probably concerns about China’s slowdown. Some saw the Virus effects are overblown (Dalio) and others defer to lack of a crystal ball meaning no one can be certain of how this plays out….China’s liquidity binge seems to have helped.
BABA indicates numbers may come down despite PBOC’s flooding the market with liquidity and loans ect. The VIX has a 13 handle which is bullish…a 16-20 handle would be less so…..remember how oil went to 66 right as ARAMCO was trying to peddle $2.5 Trillion of stock and after the deal closed we fell to under $ 50 Crude recently …thinking out loud…after the first of the year money (IRA’s/pensions ect.) gets all in…I wonder if Q2 will start to see a similar fate in stocks?? This week…PMI’s come out Friday…they better be better than Germany’s & China’s!
While no real price evidence yet to base it: we felt as we approach 3400-3600 S&P, we could see more exhaustion but maybe it’s more of a calendar thing as we are in the final months of what typically can be a favorable season for stocks and this time it surely has been. A weekly and or monthly high surrounded by lower highs would generate some type of a formation to trade against along with a VIX reading that’s accelerating not decelerating. Will the belief that the market is way ahead of growth and earnings and the Fed may be approaching a time when adding liquidity will slow or reduce ever resonate? Is Volatility dead or just waiting to pop? Some say there will be a volatile periods ahead with better prices but still holds the longer view of higher prices (3400-38000). Sectors that saw strength in the last week or so were REIT & Utilities while Energy saw a lot of selling and Materials faltered.However one way to adjust risk is to adjust asset allocations. Some say increase bonds & reduce stocks could make sense.
5G Opinion & Observations…….It’s coming and a lot of companies are going to try and benefit while ssome could posssibly falter in its wake. Here’s some on our radar for varying reasons….telephone companies VZ T TMUS NOK ERIC….related telephone AAPL & SSNLF …chip makers-radio frequency (RF) filters-component manufacturers (AKTS, QRVO, QCOM, SWKS, AVGO, INTC,TSM,CSCO….
in addition cloud based gaming (EA, ATVI, ZNGA)…..5G speeds could benefit AMZN, FB, & NFLX……5G gear (KEYS, VIAV, ERIC NOK)…….5G Fiber Optics Technology (GLW, CIEN, ACIA)…Cell Toer Operators..(AMT, CCI, SBAC) and Cloud Computing with the Edge Computing (DELL, NOK)…..so there’s a start and as we get move forward the list will grow and adjust for winners & losers.
Questions-Comments..email [email protected]
Well the issuance of debt has certainly not taken a vacation as investors are now willing to loan the government money for 30 years for 2.06% which is a record low and they are willing to loan money to companies for a low differential to treasuries and in some cases with sketchy balance sheets. Good Move??…only time will tell but if something doesn’t make sense then sometimes it doesn’t last….getting everyone into an arena that’s profitable is easier than getting them out if someone yells out FIRE!!
Some say ride the horse until your statement shows cracks in the Net Value which makes some sense & has worked in stocks & bonds since Q4. 10 Yr Treasury was in a range of 1.6%-2% and now looks like 1.4% and 1.8% could be the new parameters for now.
Our national debt has ballooned from $2 Billion in the 1900’s to $22.72 Trillion by September 2019. More on that in Gold update.
Same story as we have been saying…range of 99.50 -95 and we now are making a run at the upper band where I would monitor it very closely as that 100 mark if exceeded could really be telling us something that not may forecaster have predicted..melt up.
Call it the one eyed man in the valley of the blind…but the Euro-Yen-BP or anywhere else look unappealing until we see GDP turns.
Last week our suspicions were that they broke under 50 stooped out people then would turn it around..exactly what occurred. Watch Marathon Oil, HAL, OXY, COP, SLB, RDS.A, BP and many others that have been discarded and see if you see value there. One big risk is that Russia and maybe others don’t want cuts and if the Saudis go it alone…a break of $50 again is not off the table..
Gold Silver BITCOIN Copper
Our view i that one of the reasons that Gold Silver & Bitcoin have been advancing is concerns that Central Bankers worldwide have gone nuts with DEBT CREATION and may be in the process of debauching currencies throughout the civilized world.
TAKE A LOOK @ The GROWTH of The NATIONAL DEBT $$$$…ball park figures.
In the 1900-1920–$2 to $3 Billion…1920-1930 ( Roarin’ 20’s)—$20 to $25 Billion…1930-1940 ($16 to $28 Billion) …1940-1950’s we hit the gas $42 Billion to $258 Billion (WWII)….1950-1960—$250- to $275 Billion…1960-1970–$286- to $317….1970-1980—$370 to $533 Billion…..1980-1990—$907 B to $1.8 Trillion (Reagonomics & 1987 Crash)….1990-2000—$3.2 Trillion to $5 Trillion…..
..2000-2010–$13.2 Trillion to $18.2 Trillion (2 Crashes Dot Com & Housing-Banks)…and as of September 2019 it is $22.72 Trillion!!
So what’ going on?….New Cars New Homes Buybacks Vacations Dining Education Health Care Welfare.On BORROWED MONEY?
Do we PRINT AD INFINITUM? What are the Consequences to Stocks-Bonds-Value of Currency? We don’t know but to be UNCONCERNED & COMPLACENT which is truly a worldwide epidemic may be the most dangerous epidemic of modern times.
Keep an eye on these three as we are approaching crunch time in our view. If you buy into that Central banks have essentially
printed us into oblivion Gold and Silver is the place to be with part of a portfolio….then play the break above 1600 and GDX above 30……some say Silver: if a bull market accelerates, has more potential than the Gold…SIL above 34….for us to increase exposure resistance would be good to take out first and don’t forget the Juniors too (GDXJ & SILJ). If you feel China will turn around and the sell off in copper is over then FCX worth a look and ABX has been speaking about increasing their exposure as well
Same story Soybeans holding 850 but unable to clear 950 and sustain…more subsidies may be on the way…ands don’t take your eye off the ball because the planting season & summer season could be a catalyst for volatility. Coffee rolled up/Sugar rolled down.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker advisor, to discuss your own suitability. Past performance is not necessarily indicative of future results.
Use Risk Capital Only.
February 8, 2020
OBSERVATIONS & OPINIONS
Last Week/This Week……We had a great job report on Friday? Yes; the top number beat and earnings were up about 3% or
so but they took out over 500,000 jobs from last years total and the amount of jobs created in the last 3 yrs (6+mill) is less than during a 3 year period with Obama (8+mill). Jobs are popping in construction & health care but retail (consumer) and manufacturing faded. Sectors such as building materials, health care, biotech, pharma, medical equipment and therapeutics have seen a lot of action lately. The baby boomer are in their health care years and if what they did to the price of college education
(their kids) and real estate (their homes/second homes) during their prime buying years; placing a bet on rising health care doesn’t seem like the biggest stretch out their. Also; don’t discount the re-fi boom that continues to as even the guys with harp loans may lower their payment creating more spendable income. The loss in retail jobs may have more to do with the cahnge in buying habits to more online than to any cracks in the always spending always leveraged consumer….we’ll keep an eye on that (70% of growth).
Next week; let’s see how the virus develops (BABA holds 200? TECHYY holds 48?) as some estimate 70% of the suppy chain comes out of China and growth rates cut to 4 1/2% which has been unheard of in China. So watch out Mondayy for China PPI & CPI plus Tues. Powell & La Garde speak while Wed. OPEC monthly oil report and Thurs we get USA CPI & Japan PPI with Friday we get USA
retail sales and China sends us a Valentine with a 50% tariff cut on 75 billion of goods…Don’t forget your own Valentine:):):)
Any questions on what we’re watching or feedback on any questions you have contact us at [email protected]
Last week we told you that we are operating with the idea that S&P 3340-3400 is our new sell zone looking for exhaustion and a pullback toward the breakout point of 3030 ball park is potentially forthcoming. Why? the reasons are ranging from valuations
way ahead of earnings and growth which can be hard to maintain and this virus and it;’s effect on China’s growth is unknown.
Some of the big 5 (MSFT GOOG FB AMZN AAPL) seem to have stalled and if next week the others roll over the odds will jump.
We have a world awash in liquidity which underpins stocks but the inflows into S&P ETF’s appear to be double the norm which doesn’t seem to occur at the lows and TSLA may have benefited from a 14 Billion dollar inflow due to positioning in the Russell 1000 so the both the inflow and re-balancing may be transitory leaving the prices to fall under their own weight once moderated.
The moving averages are still pointing up and our economy is viewed as liquid and strong by the world & the Fed expected easy.
With all this and more; the evidence still is pointing up however some very respected men say wise to adjust allocations that would book some profits and reduce the size of your exposure from 3-5 years ago may be prudent. Time will tell….off to 3600-4100 S&P?
Some say the liquidity around the world (88 Central Bank Cuts 2019) is off the charts and the risk of defaults from recession is off the table so riding high yield and emerging markets (who could get a currency kick as well) is the way to go until something changes despite spreads being so tight. Weekly supplies of investment grade topped estimates this week and junk bond offerings are off to their busiest numbers in a decade. Even Louis Vitton in Europe issued bonds some of which have negative yields. Yeah
it seems like madness out there as no belief that a slowdown nor inflation have a chance to rear their ugly heads in the foreseeable future. We don’t see the 10yr Treasury much under 1.40% nor above 1.80-2.0% in the immediate future but if you own bonds and either growth or inflation spikes you will be hurt & wonder why you were willing to lend your money out for so long for so little.
TLT as we said above 142 suggests lower yields and that is exactly what we’ve seen…beware or virus wind down & up econ #’s.
Traders are plowing into the dollar in the last 2 weeks after a selloff stopped at 96.50…we are now in the high 98’s.
Yield advantage, the Phase One deal and positive GDP versus Italy & France down…Germany & Spain about flat and the Asia markets in a turmoil plus Brexit still a work in progress…not hard to understand the flight to the buck….however our base case is and has been a range of 99.50-95 which coincidentally held up for over a year….so we are getting closer to the upper parameter.
China demand falling off a cliff…Saudi look like they’ll have to bear the brunt of cuts as Russia is cool with producing as long a we remain above 40. Darkest before dawn??…that’s the big question isn’t it. I’ve seen some European ETF’s like to have Royal Dutch RDS.A as one of the top holdings so with yields at 6+% and price at or near 52 week lows around 50…it could be time to start keeping an eye on for turn up signs if any. The crack temporarily under 50 was either a way to run stops and we turn up from here or the sign of more to follow on the downside….right now I have a weak lean toward the former with a very short leash.
Copper went into the tank right before the virus as if China’s economy contracts (the China government is injecting capital to stabilize it) the copper market is in trouble (off about 15% from the highs in a month). As we said last week…this was a big week for Gold & Silver and they kind of faded with GDX under 28 close on Friday. As we said; a close above 30 GDX & 1600 spot Gold would get me from feeling it’s losing its legs to we got our second wind. Same opinion this week…Fed & Liquidity underpin prices.
As we said last week so far the Phase I hasn’t produced anything and now with the virus you can forget big AG buys right away.
So it’s Round Three for farmer bailouts who supposedly are using the money to pay down debts & hoard some capital rather than invest in equipment ect. (CAT or DE) Soybeans unable so far to clear 950-10 bucks so wait and see. Always wonder why public funds to finance farmers and Boeing Banks ect. ect is not socialism but helping out poor folks would make us Venezuela??
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm , broker and advisor to determine your own suitability. Past performance is not indicative of future results.
Use Risk Capital Only.
January 31, 2020 — Observations & Opinions
Last Week/Next Week…..Well we said there were cracks in the armor last week and this week we got full on acceleration to the downside. When the virus hit a week ago; I heard Tudor Jones said to take all risk off for 2 weeks to see where this thing oi going.
So far; that view has been brilliant and heeded by some as there has been a stampede into treasuries and ship jumping out of junk bonds(spreads blew out 70 pts some say on its way to 425-450)) to Investment Grade. There were big winners and big losers in the earnings parade we saw this week and we saw personnel changes at some big firms (IBM switched to a man familiar with cloud
business and hybrid cloud plus maybe he can leap frog IBM to the next game in town which is edge computing while accelerating a ROI on their investment in Red Hat. Winners included AMZN MSFT AAPL MLDZ KO HSY WDC TSLA MO although some gave back most all their initial gains. The Losers include stocks directly affected by the virus SBUX Airlines Travel Leisure, CVX XOM HON CAT AMGN BIIB BA(halted production of their popular aircraft and their debt was downgraded close to junk by Moody’s). You know…there was a slowdown already in place prior to the virus basis the Q4 numbers for growth, consumer spending and business spending. We now have a risk of the yyield curve inverting again and the FED says that after April their asset purchases and liquidity injection (they say NOT QE while markets screamed that it was) may fade but the feeling is the FED will be there is we drop but not impede the upside if we advance. Internationally, the dollar has been firm so selling in EEM nad FEZ has gone on as Asia’s debt issuance froze this week and while UK left the EU no big changes until the end of 2020. Italy & France saw their economies contract while Spain and Germany were slightly above water. If we can get the Nikkei above 24000; the upside could catch people sleeping.
NO REST FOR THE WICKED…Next Week we start off Monday with the re-opening of China’s market (ouch!) and manufacturing data and ISM numbers. Just when it looked like global PMI’s were stabilizing or turning we get this epidemic. Tues State of the Union (Turnaround Tuesday?) Wed. US Trade Balance (Tariffs Still Mostly On) & Eurozone-China Composite PMI Thurs Fed’s Kaplan talks (sounded sobering last time I listened) & ECB’s LaGarde who’s still figuring out her new job.Friday-Payrolls & China Trade Data
Contact us at [email protected] with any questions or thoughts
We saw 3340-3400 S&P as an area of potential short term exhaustion and that it has been what has played out. There was a ton of flashing warning technical signals and the economic numbers have not been great. Our view (and the Transport & RUT maybe tipping us off) is that a test around the 50 day (3200) and 200 day moving averages (3030 area) might be in the cards. Another tip was money flows out of risk on ETF’s and traders were liquidating while allocators were buying. Something started to spook traders last week. Again with all the longer term moving averages moving higher The indices such as the S&P & QQQ are dominated by 5 stocks MSFT GOOG AAPL FB and these are the stocks that kept us afloat. The cloud/AI, advertising and the huge amount of subscribers to prime (150 Million) are the engines. When MSFT & AMZN announced they got a bang of about 10-14% afterwards as well as INTC & IBM. Stocks BABA & WYNN could stabilize when the smoke clears and an ETF called EMQQ has about 50% China the India Brazil & Africa exposure in tech, internet commerce and communications. A Billion people in India till do not have a smart phone is what I’m told so the room for growth in these countries seems reasonable. For sophisticated high net worth traders; I was looking at GOOG announcing earnings Monday so a weekly 1400 put sold for 25 and a 1470 call bought at 25 would contract you to buy stock at 1400 and have the right to buy at 1470 (close 1434). If we shoot up after earnings anything like MSFT & AAPL or AMZN you could potentially cassh in your calls, if it stay between the two strikes it could be an offset and if it tanks you are liable to be a purchaser of 100 shares (per contract) at 1400 or $140 grand…clearly not for everyone but interesting.
Rush to treasuries occurred this week as Q4 data and the unknown longer term effects of the virus had investors seeking safety and for Asians & Europeans some actual yield. However; there are those who believe a 1.35 to 1.60 range may begin on the 10 yr.
treasury but my guess is the ceiling could be 1.80 and 1.40 if we settle down. Later in the year spreads may widen and if we turn these numbers around 2-2.50% is not off the table. You see an inversion and economic/earnings numbers plummet then the Fed will be called into action and they may do something to the short end where they have much better control. Watch for Junk problems as the oil market sometimes dominate high yields and the virus, demand and supplies-stockpiles make a lot of companies vulnerable to default as no free cash flow and sub 66 prices are a killer. ARAMCO sold their shares into a rising market (as we suspected) and now that they are sold the bottom is coming out a bit on prices.
Gave up some ground this week but still has a 97 handle which puts it smack in the middle of our trading range view of 99-95.
Where you going to go? Bitcoin-Gold?…Japanese yen with that debt to GDP ratio?…the Euro with those economic numbers? or how about the Pond Sterling…with Boris & a new regime (even Harry split:)…..no the yield advantage and the tech & growth advantages are still colored Red White & Blue….of course until & if we blow out 95 – on the downside.
The virus has spooked this market but it was already in the fade mode beforehand. As we said the move to 66 was short lived as well as the oil stocks that advanced. Is all hope lost…well the shares seem to be telling us that (CVX XOM SSLB RDSS.A dividend-buyback talk) and trading under the 50-200 day moving averages does not exude confidence. However we are still above the important 50 level so if you are bullish you have to be telling yourself that it is darkest before dawn.
Gold Silver Copper
Copper being an industrial metal went up to resistance at 3 bucks and turned south. Supply chain disruptions and basic panic not helping so for now monitor at best. Gold & Silver rebounded this week but a relatively firm dollar and no inflation and reitance at 1600 puts traders on edge. GDX seems to be having trouble @ 30 bucks and if we take out 27-28 next week we’d be concerned.
Longer term moving averages are pointing up so no time to be bearish but more consolidation could be in order if we fail at 30.
Well we seem to be not getting the expected result from the trade deal as Argentina (beef) and Brazil (grains) seem to be getting the business due to supplies and currency advantages…some say round 3 of subsidies may be on there way.
As said ..soybeans needs to clear and sustain 950 and 10 to get really excited but it’s headed the wrong way.
There is substantial risk of loss in short term and option trading. It is not right for everyone. Consult your broker advisor and brokerage firm to discuss and determine your own suitability. Past performance is not necessarily indicative of future results
.Use risk capital.
January 24, 2020
Observations & Opinions
Last week/This Week…After making all-time high on Wednesday and retesting them Thursday; both the S&P 500 and the Nasdaq sold off about 1% and ETF’s on SPY & QQQ saw Outflows as a myriad of things that came up not the least of concerns about the new virus spreading out of China. Thankfully; so far it has not reached the level of SARS back in the day but that was also combined with an invasion to Iraq so it is difficult to identify the cause and effect of such disturbing news. Also; some of the earnings did OK but with a very low bar of expectation & comparison. INTC popped on its beat and some say 72-76 may be in its future which follows a pop & fade from IBM wherein we went 10 bucks up and took a fib 6 bucks back…INTC to mimic? Inflows into ETF’s like
ESG’s (ESGU_ESGE) after all the banter in Davos on solutions & Sustainability. Also; inflows into consumer discretionary Gold and
small caps. Dalio says cash is trash so rather try to get a diversified portfolio so that you can try to weather various climates. Van Eck’s ETF’s GOAT & MOAT sounded kind of interesting for those seeking a diversified approach. The big story last week was also
the drop in yields on the Treasuries below some trend lines and the tightness of the 2-10 spread..banks hated it JPM lost 8 bucks.
We looked to 3340-3400 as a possible area of exhaustion of which to consider hedging, sell tactics and allocation changes a some
sharp people think the odds have changed and your stock allocation could be less now than 3-5 years ago….Big week ahead in earnings in many sectors & economic news & Brexit…..so let’s get price evidence and see pattern recognition to establish points.
Obviously the virus instigated a vibe of risk off by the end of the week (biggest drop since Oct) but too early to say short term top is in but with a slew of technical indicators flashing hot for awhile so a little hot coffee was a bit overdue….Dow Transports & RUT sold off to approach their 50 day moving averages and S&P 500 is about 100 points lower (3195)..the 200 day is near the breakout point around 3 grand. China stocks got whacked a bit..for example WYNN & BABA & TCEHY/JD/BIDU lost about 10%+ and bulls may see value. Two concerns was the spike in the VIX at one point Friday up almost 25% in a day hitting almost 16 before settling back & a report from UBS that a survey of wealthy investors showed 94% expect positive returns from stocks this year..a dramatic difference from the reading prior to the Q4 run. Bulls do not want to see a VIX above 18-22 and complacency appears to reign.
Some say AAPL is destined to reach 2 Trillion market cap….SMH has been on fire…TSLA’s been blowing off….and will the FED blow out their balance sheet to new highs or moderate as we approach mid year?…shorts have been blown out….more buybacks at these levels/valuations?….put/call ratios-RSI’s…watch VIX & Treasuries yields & earnings-guidance & 3340…..Earnings this week from DR Horton, 3M, SBUX, PFE, AAPL, MSFT, FB, MCD, BA, KO, UPS, BIIB, AMZN, CVX, CAT, HON TSLA….we should know soon.
OK…the winds of change in Treasuries are blowing…..but a head fake toward lower yields or a recessionary tell? Last week the 10 yr Treasury took at some technical support around 1.75%-1.8% as a risk off vibe had money flowing to safety (utilities rose too).
The proxy for the 20 yr Treasury is TLT and our position has been a break above 142-146 could spell lower rates and some see more FED cuts if the economy slows or stocks roll over. We should know soon whether this is a head fake and the economy and growth will accelerate or if this boom bust cycle is closing in on its end game. A move back above 1.80% would put the higher yields are coming chant back in vogue. As we’ve said the explosion of debt issuance is off the charts and some sectors have some dodgy covenants, leverage, liquidity concerns but for now the world is viewing debt like Alfred E Newman philosophy…What Me Worry?
This week durable goods, Fed decision, wholesale inventories, GDP, German inflation, BOE rate decision, PMI’s, Personal Income
and spending (70% of economic growth) should give us and Central Bankers an idea if the market is ahead of earnings & growth.
One thing that the markets have not priced in at all is inflation and Gold had good inflows this week…smart $$$ or sucker bet?
As we’ve said here for longer than I care to admit…our view is that the Dollar is range bound about 99-95 levels. Last week we had a mid range handle at 97 and change…so what is it doing?..Nothing but coiling and coiling….to do what? well…that depends on how the numbers come out…if we see lower interest rates and a slowing or bite your tongue…a recession in the next year or so…….then the 95 could get taken out and even 90 as a post bubble 1999 deal unfold where the DXY went from 120 to 70-80.
If we see GDP take off and all the cards come out proper then a Dollar stampede such as 1997 to 2001 could shock the $$$ bears.
The yield advantage and the growth edge continues to underpin the greenback with no end in sight….yet.
January has been a rough racket for Crude ass the January Effect has been throw the baby out with the bath water as price have come almost 20% off their highs in a matter of weeks. Why?…well lots of reasons among which is our ability to produce so much here in the USA. inventory levels and supplies in storage are huge and of course the Green Mob promoting EV’s & sustainability.
As we said last week when we were 58+…the 50 & 200 day moving averages are ball park 52 & 55 so staying at or above those levels is preferable so as to turn & cross those averages. If we break and sustain prices under 50..you may hear TIMBER! as that could be the energy junk bonds tanking ass these guys cannot afford bankruptcies and defaults as some of these companies cannot meet obligations without higher prices as they do not generate free cash flow. We see APA & COP & VLO still trading above their 200 day moving averages while airline stocks Southwest LUV & Jet Blue JBLU seem to be catching a bid recently. Stay Tuned.
Slower China GDP possibilities & the Virus knocked the stuffing out of copper prices last week as that resistance we spoke of last week at 3 bucks ball park proved too much. It also sent investors in Freeport McMoran FCX hitting the bricks off 10-14% in 10 days.
Gold & Silver were horses of a different color in the past 2 weeks as money flow in the ETF reversed an outflow & had impressive Inflows this past week not unexpectedly basis the underlying price action. The week ahead is important for both markets to sustain and improve on their advances as the dollar remains firm and the FED & Central Banks printing presses (check M3/CB balance sheet explosions) and you’ll understand the renewed interest in Gresham’s Law, French Coin Clipping & the Weimar Republic.
As we stated. the GDX, GDXJ, PAAS, SLV, SIL, SILJ and many other remain and have remained above their 200 day moving averages.
Some respected people in the investment community tout a % in Gold makes sense and we believe participation overall is light.
Soybeans-Oil Grains Softs
Well the China deal showed up and what happened?…Beans/Bean Oil went into the tank losing about 5% from it’s highs.
Again as stated; a bumper crop and a devalued currency down in Brazil is a double whammy that so far has been tough to overcome…let’s see what spring planting and summer growing news can do for the supply demand dynamic but until beans can get above 950 and 10 (2 resistance zones we brought to your attention all last year)..a screaming bull market must wait. Sugar prices have had legs over the last 3 months but last week pulled back. Remember Vanguard ha a Commodity Strategy Fund
VCMDX which so far hasn’t done much but the prospectus would be helpful to increase understanding
REMEMBER..Short term trading and option trading involves substantial risk of loss and is not right for everyone. Consult your brokerage firm, broker and advisor to discuss your suitability. Past performance is not necessarily indicative of future results.
Use risk capital.
Observations & Opinion
How Can You Reel In A Huge Fish?
Last Week/This Week.. The S&P 500 & Nasdaq made all time highs this week while the Dow Transports (DJTA) & the Russell (RUT)
made new 52 week highs despite Q4 numbers disappointing from TGT and some of the banks not doing nearly as well as JPM.
No denying the RUT & DJTA picking up steam but still have not breached the 2018 highs that they made. This market is going nuts on the upside with most all technical indicators reading very hot. As we said since the breakout above 3050-3100; the best bet is to ride it as long ass we continue to make new weekly highs and once that stops then you can entertain hedging or selling tactics with some price action of exhaustion (a high surrounded by lower highs creating a technical point to defend. The trade deal is in, the Fed has supplied liquidity, Q4 earnings are coming in, short interest has tanked, rates have dropped, tax cuts done and we almost hit 3400 S&P, 30K Dow over 9K Nasdaq. Some very smart people think the odds have shifted and you should have less exposure to stock allocation now than you did 3-5 years ago…the direct opposite of most forecasts. Speaking about smart people; The Davos Switzerland meetings of the minds happen this week…let’s have a listen to what risks are out there now that many dismiss.
Let it run has been the mantra from us since the breakout in November as we have not seen many weeks where the markets have not made new weekly highs and certainly we’ve seen continuing monthly highs. Anyone who has gone deep sea fishing for Marlin
and Sailfish know the importance of letting the big fish run itself until exhausted and then it is much easier to reel in so ditto that concept with our current melt up built not on boring things like earnings and fundamentals but rather liquidity and momentum.
As we approach 3400 S&P and then if breached 3700-3800; we will be monitoring the market for signs of a potential turn. We suspect causation may come from earnings and GDP shortfall, a geopolitical event and the FED suggesting that this FED balance sheet spike that traders have been drooling over may slowdown or an explanation of an exit may be forthcoming. Stay Tuned.
On our radar stock wise include UNP, INTC, CMCSA for transports, tech, and streaming plus pharma like LLY & BMY, TEVA. Green investing (Black Rock cited in a recent report-ESG investing) with stocks & debt dealing in sustainability could be worth a look.
After correcting; consumer driven companies like SBUX, MCD, and HD have been catching a bid lately. We saw a sample portfolio using ETF’s like ITOT (US Equities, AGG (US Debt), IEFA (International Equities), IEMG (Emerging Markets), GLD (Gold) to create a diversified approach could possibly have some value. Germany & France +2% & Italy & Hong Kong up 3% to start 2020.
Questions? contact us at [email protected]
The FED obviously wants to steepen the yield curve as they worry that an an inverted yield curve (short term rates higher than long term rates) which we had earlier brings up recession talk and hurts growth as it infers things will be slowing down considerably. The 2 ways they have changed the yield curve has been to buy tons of short term treasuries (reducing their yields) while now moving out the duration curve and selling 20 year Treasuries (bought by pension plans & insurance companies-supplies can weigh on markets and push yields higher). This has created an elevated value on asset prices that the FED (Kaplan-Dallas Fed) says they are aware of and keeping an eye on now. Also; there is a cost to expanding the balance sheet aggressively (Kaplan says NOT QE) and tapering that activity and communicating how balance sheet normalization may occur is something NOT factored into current prices. The risk of debt is being dismissed globally as examples include the run into CCC junk (high yield spreads near 10 yr lows-& some IG deals were sidelined due to earnings), Sovereign Debt (this week Italy $40 billion 30 yr & Spain $53 billion in 10 yr debt) despite bad economic numbers out of the UK (GDP & Inflation Numbers) and Germany (weakest growth in 6 years) sso how good could Italy & Spain be doing especially since Trump sending out “your next ” vibes for German cars & France’s tech digital tax woes.
One area to check out are “Green Bonds” some linked to the issuers to meet certain metrics or face higher yield consequences.
To keep it simple stupid (KISS theory)..we’re focused on TLT the proxy for the 20 yr Treasury…a break above 140-145 would tip the scales to lower yields (some see a 1.20% of less handle) while a move under 135-130 would indicate that all those who panicked into 10 yr Treasuries at 1.40% and looked for yields to go Japan & Euro on us will be very wrong and combined with a FED taper and inflation pick up-Dollar drop could increase volatility which in our view is the biggest bubble ever. Let’s see more cards.
The yield advantage of the USA to Japan & Europe and our economy relatively stronger continues to underpin the dollar.
We have said here for over a year that the range is ball-parked 99 and 95. They did peeked the market above 99 briefly (blow out stops of shorts & get short themselves) only to see a 300 basis point move to 96.50. We now sit with a 97 handle smack in the middle area of the range. What breaks us out? I suspect deficits, inflation and GDP-Earnings disappointments could send us lower
while growth surprises and a FED that backs away from the liquidity explosion could keep us stable to higher. Japan debt to GDP iss a joke and Germany has no current appetite for fiscal stimulus and who knows how Brexit plays out so for now the buck is ok.
Crude popped to 66 area with the Iran skirmish but tanked back to 58 area when things calmed down and inventories rose a bit.
The 50 day and 200 day moving averages are inverted to the downside around 54-56 so the longer we stay above those levels the better for the bulls. Stocks such a s SLB & HAL have pulled back after good runs and some say high yielders like RDS.A, BP, XOM, CVX are worth a look as ARAMCO is alive and well and maybe prices could re-accelerate ass we go into the summer drivin season in the months ahead. CCC debt which has been performing well has lots of energy representation but these companies who issue that debt are very dependent on higher prices to make payment ass they do not generate a lot of free cash flow. Caveat Emptor
Our feeling on Gold has been that last year we broke out above 1350 and ran to 1580 which was the lows of 2012 and also was way way above its 200 day moving averages. So; the idea was pullback to some former resistance zones and burn off some excess fuel (1450-1400-1350). We got between the first 2 levels mentioned and then screamed to 1600 momentarily only to fade back toward a recent resistance zone at 1530. Silver has followed suit while Copper raced toward its resistance area near 3 bucks and 3.50 looks like a challenge as well looking at long term charts. If China picks up and infrastructure get passed in the USA; we would feel a lot better that sustainable moves are in our future. Right Now…the concerns for Gold is OUTFLOWS from the ETF’s this last week plus the dollar is firm and worldwide inflation looks dead and 1600 looks like a hurdle. So GDX, SLV, GDXJ GLD all are still all holding their 200 day moving averages but let’s see if we test 1520 (last months lows)& hold otherwise a cleansing may be in store.
The china deal is signed yet no big burst in prices so why not? Well the pork crisis and the fact the Brazilian currency hass been devalued plus a bumper soybean crop may actually lead China to buy that sstuff from South America and lead more Chinese purchased toward Wheat or other products..we’ll see. Sugar prices have been moving. Vanguard has a Commodity Strategy Fund
(VCDMX). Suitable investors could get a prospectus to determine if they feel the risk and sector makes sense for them
REMEMBER..There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker and advisor to determine what is suitable for you. Past performance is not necessarily indicative of future results, Use Risk Capital Only.
January 10, 2020
Opinion & Observations
Welcome to 2020 and the new decade ahead……where are the potential big trends and will last decade’s winners be this decade’s winners…..history tells us that is not always the case. In the first 10 days of 2020; many stocks and stock indices ripped upward.
People tell me the fundamentals don’t matter and it’s a New World Order but decades of experience tells me otherwise.
In the decade ahead “the cloud” and “AI” are projected to be the huge growth stories so I will be looking into that genre of stocks.
This Week/Next Week…we saw jobs grew at 145K vs 165K estimate..wages slowed and total jobs created in 2019 was the lowest since 2011….more upward pressure and new highs all around….don’t fight the tape & don’t fight the FED….so the tape has been soaring and the FED has injected $400-$500 Billion into the system since summer with more expected on the way. All over the world Central Banks have been expanding their balance sheet like no tomorrow (in 2008 Central Bank balance sheets totaled $3 Trillion and now exceeds $16 Trillion) with buying your own securities and corporate securities common worldwide.
NEXT WEEK..we get bank earnings..China Deal signed…talk from US & Japan Central Bankers..China GDP..US Ind Prod./Retail Sales
CONTACT US [email protected]
…..Badmouthing the stock market is like badmouthing Santa Claus….it has been silly. However; our opinion is that if your in a an airplane or a Porche going at a blazing speed and it seems everything is OK…it’s probably not a bad idea to keep an eye on the gauges on the dashboard. With that in mind; let’s look at the gauges on the stock market. Relative Strength Indicators are running hot…the % of SP stocks above the 200 day moving average is 82% (high reading)…put/call ratio is at a low reading & the VIX has a 12 handle (complacency),,,short interest in SPY (S&P ETF) collapsed in the last 3 months (short covering) and stands at a historically low level…money flows into leveraged long funds jumping big time…earnings last year were flat (even Apple which is now over 40% above its 200 day moving average…over $1.3 Trillion market cap) and Buffett supposedly sitting on a ton of cash.
Valuations are in the 18-20 times forward earnings neighborhood which is historically high (2007 was 16)…so what’s to do??
Our opinion has been since the break above 3050 is to wait for a formation (the higher it goes maybe the bigger & sharper the drop)….maybe a weekly high on the S&P 500 with lower weekly highs surrounding it (not seen since the breakout Nov 1)may be something to trade against or consider option hedges-married puts and-or collars (learn all uses & risks-subsequent alternatives.
TJ Maxx & Ross have done well buying discounted merchandise for resale while FB has withstood a lot of heat…SBUX & HD are trying to turn…BABA, BIDU, JD>COM, TCEHY, KWEB, BILI, IQ, and TCOM all China stocks that have picked up interest…lots of all time highs MSFT, LAM, ADBE, ROST, and CHTR while newcomers like DDOG, CRWD, LYFT, UBER, and SNAP trying to gain footing. The laggards since DOW 28,000 include Walgreens, Boeing, HD, DOW, RUT, DJTA,and CHV while AMZN hass picked up but competition and valuation are now being whispered. DANGERS include earnings/GDP misses-inflation-FED stops liquidity high.
Yields on 10 year Treasuries appear stuck between 1.5% and 2% (some say this year is 2% across-GDP-Inflation-10 yr Yield)
Central Banks worldwide are cutting rates and injecting liquidity so every bum on then block can sell debt and caution has been thrown out the window (CCC junk debt has soared in the last 2 months and some touting it as the place to be…yikes!). The thirst for yield is creating strange bedfellows (income investors & bonds with bad covenants). European & Emerging market debt is flooding the market and for now there are plenty of takers but these instruments have lousy liquidity in times of stress so fear 2 words “redemption run”. Spreads are tight and the Fed is loose..we watch TLT proxy for 20 yr Treasuries…above 142..rates could fade big time (slow economy more Fed cuts) and below 135-130 maybe we overheat-inflation up and a rate rise to 2.5% +
Brexit happens and commodities (Gold-Oil) roll then the possibility of the Ausssie/Canadian as well as the Pound Sterling & Euro could rebound after years of demise pushing the dollar through that support 94=95…not yet as it is still in the middle or range.
Balance sheet going back or exceeding all time highs plus fiscal deficits exploding late cycle could be the recipe in 2020. We’ll see.
the debt of the oil industry is back in favor despite no free cash flow and the dependence on higher prices to make their futures reasonable. Juicy yields area magnet to income hungry investors and if oil can trade 65-80 then all’s well that ends well however if we slip to 40-60 watch the default meter. Most oil stocks had a run but are pulling back & we’re monitoring some cheap ones now.
We broke under 60 crude this week on huge volume so a snap off 58 on lighter volume may play out (50 day M/A 53/200 day 55)
GOLD & SILVER
Our view has been that Gold broke out above 1350 last year and overdid itself at 1580 (lows of 2012) so the call was pullback consolidation (we saw 1450 area)…we broke out above 1525-1550 and rushed above 1600 and now it’s important to holds the breakout point…let’s see and remember if you believe it is a bull market..you buy dips…GDX is still holding above 200 day M/A
Well China is coming to sign the long awaited deal and the beans/bean oil had seen advances in the weeks leading up to this but beans have had trouble breaking and holding above the 950 area so we will see if this can be a catalyst or a buy the rumor sell the fact event…watch other things like the Bloomberg Commodity Index to keep up on the sector
REMEMBER…There is a substantial risk of loss in short term trading and options trading and it is not right for everyone. Ask you brokerage firm and broker about your own suitability. Past performance is not necessarily indicative of future results
Use Risk Capital Only.