Author Archives: OptionProfessor
Author Archives: OptionProfessor
Option Professor Weekly Market Update
December 6, 2019
THIS WEEK/NEXT WEEK
Stocks zoomed back up late this week as the Unemployment Report caught many by surprise with a jump of 266K jobs
versus an expectation of about 180K & a low ADP number mid-week. As of this writing mid-day Friday; the S&P 500, Nasdaq,
and Dow have been pressing their all time highs while the RUT has made new 52 wk high as banks & biotech have been roaring.
Important to note that the RUT is still well below its all time high around 1750 & the Transports (DJTA) has not only not made new 52 wk highs but is about 1,000 pts off it’s all time high. The VIX zoomed to about 18 this week during the sharp pullback
earlier this week and has now filled in most of its gaps. If President Trump feels he’s playing with “house money” and wants to
be viewed as a tough negotiator….we may see tariffs on Dec 15….stocks pullback to fill in some gaps maybe toward the breakout point of 3030 basis the S&P…..and he may play the trade deal card closer to spring so he gets the biggest bang before elections.
How much LIQUIDITY is being thrown at these markets to keep them going…try this…..$60 Billion a month by the FED claiming it’s not QE at the front end to keep money market rates low encouraging speculation to get your required yields……then you have the ECB putting in $22 Billion to keep those interest rates negative and a plodding economy going….followed by corporations buying their own stocks back (hey how about rolling that money into increased wages & benefits for the employees who actually do the work?)…this I’ve heard is about $5 Billion a day!….with a possible rush into year end and finally there has been $189 Billion and if prices keep going and sentiment remains hot…it’s possible that a chunk of that money will return to the buy side.
With stocks like AAPL trading 30% above its 200 day moving average and sentiment and short term technical readings running hot….Does it make sense to know the uses & risks of how Covered Calls, Collars, and Married Puts work to protect values?
Next Week we’ll have to see if this run is sustainable and until we stop making new highs daily/weekly basis…..be patient.
Contact us @ [email protected] with questions.
What a week!..we saw the TLT (proxy for 20 yr Treasuries) explode to 142 area earlier in the week as the market dropped quickly
on negative trade talks…..then fall apart as the stocks rebound and the jobs report got traders reversing their positions…both trades highlight the ILIQUIDITY of the financial markets should eventss turn and the algo and the public all want the same trade done with not a whole lot of volume on the other side of the trade. Specifically…should an event cause sharp selling in BBB’s
(the lowest level and most crowded rating on investment grade corporates)…I’m not so sure it would not be a mess if the re-balancing that funds who are required to purchase investment grade only be forced to sell bonds that dip below. Many states have very underfunded pensions and if Europe picks up nest year as some suspect with La Garde at the helm…things could get dicey…..now if the Central Banks plan on just printing to meet every crisis…you wonder if the US Dollar & inflation will react.
Base case..10 yr Treasury gets above 2.25-2.5%—bulls in trouble…..under 1.5%…maybe a zero handle on the 10yr is in the cards
Contact [email protected]
The Dollar rolled over a bit to the downside this week with a bit of a snap back today after the jobs report showed 3.5% unemployment (best since 1969) and 266K jobs added which shocked many but reallyy isn’t there always a jump with seasonal hiring and consumers spending and WMT TGT and the like doing very well?….if Europe gets some stimulus package out of LaGarde & Germany and Brexit gets resolved & Japan benefits from increased business plus OPEC cuts help energy rich Aussies
& Canada….then one might think 2020 could be the year of the trading range breaking to the downside..under 94-95…be careful.
As we said previously the oil stocks in some case have been catching a bid (BP.CVX,SLB ect) and now we know why as OPEC met this week and cuts appear to be on their way…plus the ARAMCO deal is coming and may be attractive to some investors as they remain the #1 oil producer and have plans to pay out 75 Billion in dividends barely..conversely some do not like the control that the Saudis retain as far as regulation & the valuation appears to be the richest in the industry….plus why now are they selling??
Short term players who bought price strength in the metals have gotten stung when after 7 years of basically down prices we broke out and had a big run to the 1580 area starting about mid year. As we said; the metals were very overbought technically and running into resistance in the lows of 2012 at about 1580 so probabilities favored a pullback & consolidation which is exactly what has happened. Now…if you believe that all this paper debt, deficits, printing of money will end badly over time then you would still consider yourself a bull…then pullbacks to support areas would be buying opportunities….we identified 3 areas in our opinion 1450-1400-1350 (original technical breakout point)….if we are to see deflation/strong dollar/recession then the bull case may not materialize…if the Fed wants and thinks it can get its inflation target and the administartions wants a lower dollar for
trade benefits (40% of S&P earnings come from overseas)…and the low term moving averages continue up./bullish story remains.
We await the Phase I deal which is supposed to shower us with buy orders and access to the Chinese markets…..so far that has been like Waiting for Godot…..prices jumped above our first resistance area of $9 but failed twice this year at the $950 neighborhood with the $10 resistance looming above. Since it sometimes seems we are in some orchestrated movie….maybe
we will see a trade deal this spring and if the weather doesn’t cooperate during the planting season and growing season next year maybe that is the time frame for possible fireworks although one might anticipate that scenario should prices start escalating as we approach that time frame….at any rate so far we remain in our yearly range.
REMEMBER There is substantial risk of loss in options & short term trading and it is not suitable foe everyone. Consult with your brokerage firm-advisor-broker to discuss your own suitability. Past performance is not necessarily indicative of future results
Use Risk Capital.
November 29 2019
OPINION & OBSERVATIONS
THIS WEEK/NEXT WEEK
As I expected this week; most markets were remaining in their trading range while me & my sons explored Oahu & Maui:):)
Noticeable exception were the major indices which continued up a slow moving path to yet more new highs and even the
the low moving RUT made a 52 week high but remains well below it all time high of about 1750 set in summer 2018. While the top of our sell zone @ 3100 has been taken out by about 50 point and as we said last week it could extend to a Fibonacci number around 3200. With the VIX hitting under 11.50 this week, valuations high, Dec 15th tariffs potential; it seems rather obvious it could be a reasonable time to look at writing calls (in/out/or at the money), Collars or donating a bit of profit to put insurance.
Stocks that got hit this week were connected to the Opioid liability potential (McKeon-Teva) or the failure of a China buying spree that is supposed to come out of Phase One. It appears that money that has made it way to the farmer had been directed toward paying down debt (lot of bankruptcies) and rainy day reserves but not to new equipment ergo Deere got whacked. Banking stocks and biotechs have fared well lately helping push that Russell to new high ground however most stock indices did turn lower Friday while the Tranports (DJTA) moved away from 11K and the VIX jumped 7%……so as we said until the S&P stops making new highs on a daily and or weekly basis….traders lack a actualized price to trade against or defend from the sell side.
NEXT WEEK….we have manufacturing data both here and abroad, trade balance, LaGarde speaks & Friday Jobs – closer to Dec 15.
What can you do with a market that keep pitting out new all time highs on a Daily/Weekly/Monthly basis? Well of course there are countless thing one can do including but not limited to…enjoy the appreciation of your assets/ look at asset allocation and consider re-balancing, consider hedging or protecting ones gains/value, or hope that earnings will increase/rate stay low or drop/a trade deal open up revenue streams (40% of many companies revenue come from overseas)/the US Dollar decline helping multi-nationals/the inflation number remain subdued/Unemployment remains low & cap ex-business investment/PMI’s move up. While that seems like a lot to ask for we sometimes feel that is exactly what the market is now pricing in for 2020…too rosy??
The issuance of debt both here and Europe/Asia continues to explode…will it pop if retails slows (Dollar Tree/Kohls/Macy) or the Auto business or if any general slowing cause a reexamination of the covenants & collateral on this debt and an event cause the proverbial shot heard around the world. What I see i a greed for yield as the FED has essentially gone QE again and if the markets or the economy burps they are ready with the printing presses…since the admin ha a history in real estate; asset bubbles and dirt cheap rates with leverage exploding on the consumer side is music to their ears…..WOW….possible aftermath could get very wild.
If we take out 1.40% on 10 yr Treasuries who knows how low you go…above 2.25% then a ton of bulls will have explaining to do.
To get to the point..base case remain 99-95 trading range on DXY it’ rebounded for a 98 handle…listen to LaGarde and watch Germany’s number this week….maybe the case will improve if he instigate stimulus, PMI’s recover & Johnson can get on with it (Brexit)…..one would think that late cycle deficits that could choke a race horse would be favorable to the other guy’ currency.
Things could get interesting soon a OPEC i meeting and Saudi i the one with excess capacity & an ARAMCO deal coming to the ever shrinking oil market but oil have have rolled over and oil price had a lousy week..range 60-50 remain..stay patient
OK we aid the market broke out @ 1350 and got way overdone @ 1580 o the idea wa if you till believe there i plenty of runway ahead we focused on 3 re-entry point 1450-1400-1350…..well we hit the first one and many of the mining fund held their 200 day moving averages…..are we out of the wood yet….early to tell….but goal of a weaker dollar & more inflation/debt feeds the story also a guess that a digital alternative may favor metals.
Backsliding in the last month a the waiting game is stopping the bull from pressing bets as we tried to take out 950 and now we are trading under the 50 day & 200 day moving averages. Of course; news could change things on a dime before Dec 15 tariffs .Deere’s gloomy ..farmers are more concerned with debt reduction & rainy day fund than come line bets on new farm equipment
QUESTIONS???…email u/contact us at [email protected]
There is a substantial risk of loss in option and short term trading and it i not suitable for everyone. Consult your broker and brokerage firm to discuss your own suitability. Past performance is not necessarily indicative of future results.
OPTION PROFESSOR WEEKLY MARKET UPDATE
NOVEMBER 15, 2019
OPINION & OBSERVATIONS
THIS WEEK/NEXT WEEK
More new highs in most stock indices this week as the belief that worldwide economies have turned and a trade deal is imminent dominated the landscape. Also; one can not discount the concept of a market feeding on itself with investors not fully invested chasing prices and those shorting are getting blown out. Obviously the veracity of these views will be tested in the weeks to come as more data is released on the economy and a China deal will either occur or fade as past deals have. We want movement on IP & Ag purchases & opening up their markets while China wants tariff rollbacks & termination….lots of real estate between those 2 positions. What we do know is that valuations are running hot while treasury yields have risen more than 30% and the planet is issuing more debt than ever seen before (US budget OCT deficit 134 Billion). Sure this means plenty of liquidity out there but it also means that if a contraction or inflation increase occurs…things could get messy & it appears no one is preparing for that outcome. Next week IF the stock indices fail to exceed this weeks highs….aggressive traders could have a point to trade against from sell side
Can’t fight the Fed and can’t fight the tape but we can’t totally disregard warning signals like the lack of new highs in the Russell and Dow Transports plus valuation concerns illustrated by the relationship between the Wilshire 500 and GDP @ levels not seen since the Dot Com bubble. Some stocks such as Apple AAPL have been trading more than 30% Over it’s 200 day moving average while being described by some commentators as “bulletproof” and as having “Sky’s the limit” upside. Maybe everyone is right or maybe we are getting ahead of our skis. I do know that in a month additional tariffs are scheduled (Dec 15) and if they go into effect & the “deal goes south the world may look different going into Christmas. Until we stop making new highs…early for bears
As we said Treasuries yields dropped way to far @ 1.4% as the race to negative yields was premature. PMI’s and other economic data has stabilized and some believe has bottomed out ergo yield have backed up over 30% in a vicious snap back leaving duration bulls (longer term debt) watching their gains and values fly the coop. Last week we told you 135 area on TLT was a key support area and we tested that area this week….if we turn up from here & get a market correction then the move to 2% on the 10 yr may be over although some see a 2.25% 10 year yield in Q1 if the economic numbers sustain a turn….lots a debt out there…collateral?
After a snap back rally last week off a precipitous decline off the 99.50 level; we saw a bit of a roll over in the dollar this week. Our base view remains that the US Dollar is a ball park range of 99 to 95 and this week it had a 97 handle on it. The admin has said a weak dollar would be helpful to trade and the Oct budget deficit was $134 Billion so at that pace they may get their wish.
While our base case remains that oil is in a trading range of 60-50 our suspicions that the Saudi ARAMCO deal (1.2-2.2 $Trillion) may engineer a rally to increase the appetite for that offering coupled with that some moving averages turning up and some oil related stocks have caught a bid in recent weeks…..next 6 weeks could be critical.
Our base case remains that the breakout occurred when we took out 1350 and screamed to 1580 where prices got way overbought (20%+ above 200 day moving average) but those excesses are being worked off. We entered pullback support @ 1400 to 1450 and await to see if prices overshoot to the breakout area of 1350-1400..if so it would be a gift if you believe the case for accelerating prices down the road is still intact (Tudor Jones had a longer term target of 1700)
Where are the Chinese buy orders??…well the rumors have made the 8 dollar level a trade able low this year and even got prices thru initial resistance of 9 bucks a bushel…now if we are to have substantial upside prices need to take out 950 & 10 and sustain it …if we get a China deal it is presupposed a AG purchase plan is to be included.
REMEMBER There is a substantial risk of loss in options & short term trading and is not suitable for everyone. Consult your brokerage firms and advisors to determine your suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
Consumer Stocks Stall/Stock Market Rollover This Week?
November 9 2019 OPINION & OBSERVATIONS
THIS WEEK/NEXT WEEK
The big 3 Stock Market Indices all hit all time highs this week (S&P-Nas-Dow) with the Transports & Russell still lagging behind albeit moving higher as well. In fact; the proverbial train left the station in the Transports at the start of Oct as railroads like UNP has gone from 150 to 180 in 6 weeks. My point is that we have come screaming up in the last 6 weeks in a lot of markets discounting as Jaimie Dimon said a “pretty rosy” outcome of many of the challenges on the horizon. Money managers are sitting on all their gains and with year end bonuses at risk should we sell off I would think hedging or locking in gains at the first smell of smoke may be in the cards. Our base case has been that hedging the S&P stocks into 2950-3100 made sense and we are at the upper limits of that zone. While Transports & Russell have improved and VIX is under 14-15; my instincts tell me that it may be like when the DXY was breaking a bit above the top of our range (99) and then sold off sharply. If not 3300-3600 S&P is possible spike. Next week-retail sales plus earnings from Cisco, CBS, Walmart, Nvidia, AMAT, Tencent-JD.com, plus inflation #’s (CPI_PPI), Fed guys.
Prices stretching short term tech indicators (RSI), valuations (yields have risen), and lower volumes this week. The consumer is 2/3 of economic growth and basis debt, visa activity, employment numbers; they certainly have been carrying the load left behind but the failures of cap ex and business investment. Of course with a who knows what’s next trade policy being made up as we go it is understandable that CEO’s would be hesitant to make too many moves without a better understanding of what’s on the horizon. Some say CBS, VIAB, CSCO, JWN, M are ones to monitor this week while caution to ROST & TJX if trade deal struck anytime soon. Bottom line is there are reports that one of the great investors of all time (Warren Buffett) is sitting on a Record Amount of Cash ( estimate 122 Bill)and that one his measures of valuation of overall stock price is the ratio between Wilshire 5000 Index and GDP which suggests that valuations are at levels not seen since the internet bubble of 2000 and without a new theme to fuel the elevated valuations. Unending QE and new tricks could come on stream to sustain things but the buy back money and tax cuts interest rate cuts and now trade deals with questionable ability to enforce may not be enough. So with Buffett info and valuations favoring caution should we consider locking in or hedge/protect gains?…contact us at [email protected] to hear more.
As we said the 135 level on TLT was and is key as yields accelerated higher this week toward 2% on the Treasury. Europe is dumping RECORD amounts of debt on the market ( up 13%+ over last year and EXCEEDED the RECORD 1.27 trillion issued in 2017. Next week one firm is offering 28 billion in corporates and spreads between corporates & treasuries are very tight meaning you are not getting paid a lot to take on the additional risk. Rates in Europe are a joke & the leveraged loan market is showing cracks while the re-fi market could heat up as well with mortgage rates dropping. REITS & Utilities have sold off because of the rise in yields…IF YOU FEEL…that the move 135 TLT & 2% yield on the 10 yrs is about over…then those 2 defensive sectors could offer a discounted value at this time. Our view is that it would make sense if it were accompanied by a sell off in stocks by late this week.
Well the yields rising sharply this week on US Treasuries certainly sent the dollar bears running back into their caves this week. Our base case remains that the range of ballpark 99-95 which coincides with the 52 week range continues but news that China is starting to embrace block chain technology and Bitcoin and exchanges to provide liquidity should cause one to pause about the future of the US Dollar as the standard for international settlements. The ECB head made a compelling argument in Jackson Hole about digital currency so the future of the almighty dollar with a 24 trillion dollar national debt may no longer be certain.
As we said this ARAMCO IPO is a big deal but a wild one as valuations range from 1,2 trillion to 2.2 trillion..a wide disparity. But we felt a bounce in oil stocks could happen and it did ass XOM, RDS.A, BP among others got a lift. Big dividend payers but if we can’t start closing above 60-65 crude then the dead cat bounce may be just that. Base case still range 60-50 until proven otherwise.
As stated the base case remains breakout was 1350 and short term blow off to 1520-1580 zone which coincided with resistance from former lows of 2012. Expected a retracement & consolidation toward 1450-1475 worst case 1350-1400 which we are getting. This week we took out last month’s lows…..remember the general philosophy of trading a longer term uptrend is to buy the dips. We have broken the 50 day moving average and are pointing toward the 200 day but it remains intact. The fundamentals of the admin wanting a lower dollar for trade and the FED wanting higher inflation we believe keeps the bull story alive. Ditto Silver.
Well it looks like President Trump wants to sign the China Deal while riding a tractor in blue jeans in a Iowa grain field:):):)..whether that comes to pass is probably not as important as China BUYING like the President said they would. Base case remains that the yearly lows around 8 could be a low for awhile if we can clear the price resistance at 9-950 & 10 on a closing basis. So far only 9.
Contact us at [email protected] with any explanations/opinions you need.
REMEMBER There is a substantial risk of loss in options & short term trading and it is not suitable for everyone. Please consult your broker and brokerage firm about your suitability. Past performance is not necessarily indicative of future results.
November 2, 2019 OPINIONS & OBSERVATIONS
LAST WEEK/THIS WEEK
Big Up-move last week as the jobs report was much stronger than expected and corporate earnings from the larger big name companies went well. Still; we have not made new highs in the Transports & Russell & the volume in many cases is unconvincing.As note; the VIX did get under 14-15 in the last couple of weeks which I said was a positive but now the we ware reaching the upper levels of our base case it is important that the 12 handle it now reads is also an area where previous declines have commenced. As stated; not a great idea to stand in front of momentum but we are getting technically extended, shorts have been blown out, sentiment is running hot (I hear Apple is “bulletproof & the sky’s the limit” from commentators), China Phase none is somewhat discounted, Fed’s on pause, call premiums are getting juicy so being on guard to this rally taking a break seems reasonable. This Week we have as usual a lot to chew on MONDAY PMI’s for China & Europe TUES/FRIDAY Trade Balance for USA & CHINA WED German Factory orders and Fed speakers throughout the week. Until & if we see corporate earning & employment changes (due to company margins squeezed) money flows into Bonds & Stocks but in the horizon one would have to admit there is a possibility of both seeing changes. Base case remains S&P 2950-3100 as a Sell Zone until & if we see more confirming data
As stated above; the momentum is strong to the upside and the VIX at present levels is bullish. A break of 2970 S&P would startchanging the short term conversation and it may be reasonable to wait for a weekly high price to be surrounded by lower weekly highs to get some point to trade against in case a parabolic stampede of sideline money and speculators descend on the market.Learn about uses and risks of hedging tactics to protect gains or reduce cash risk before yyou may want to implement them.
Big Question? Has the bond market discounted any possibility that growth & inflation may be much higher next year than currently anticipated?? If Not and we see the 10 yr Treasury get past 2% yield the field may have to change course creating an order imbalance that could be notable. Right now the mantra is slow growth & no inflation…well last year at this time wasn’t the mantra the Fed is hiking and will hike throughout 2019….had that one work out?..The entire planet rushed into bonds not out as yields dropped over 50% in a short period of time so we must a least hear the other side of the story not matter the conviction.Leveraged Loans looking a bit dodgy while junk bonds stable so far…lot of Eurpean issues rushing to the market …why??
Base case remains prices are stuck in a range of 50-60…now 56+…stocks like RDS.A 7 BP have had good jumps and XOM looked good last week…with ARAMCO coming we don’t want to get too bearish on crude here but careful if we fail at 60 or take out 53-54
Base case remains the same that the DXY is range bound ballpark 99-95 and there was a good selling opportunity about a month ago near the high of the range. Now we are about 97 smack in the middle…50 dayy M/A is 98.35/200 day 97.45 so be careful.If the admin wants a weak dollar for trade comp then I would watch the downside using previous weekly highs as a barometer
As stated; the markets in metals got way overbought tech wise and has been going thru a correction…is the correction over??Maybe but I would use the October lows as a line in the sand and if broken look to reenter at more advantageous prices.Hey..the Fed wants inflation…the Admin wants a weaker dollar..isn’t that what the metals like to hear??
Been keeping an eye on this all year…have said the move toward 8 was a trade able low and resistance was 9-950-10 areas.China’s supposed to be a big buyer while I notice farmer bankruptcies have spiked. Moving averages (50 & 200 day) at 901-891which hopefully will hold and moves above 950-10 could get the ball rolling in a grander fashion
There is substantial risk of loss in options & short term trading and it is not suitable for everyone. Consult your broker and brokerage firm to discuss your suitability. Past Performance not necessarily indicative of future results.
OCTOBER 25, 2019
OPTION PROFESSOR WEEKLY MARKET UPDATE
OPINION & OBSERVATIONS
THIS WEEK/NEXT WEEK
Big week for earnings this week as about 20% of S&P 500 stocks reported. Some had very good numbers (INTC) while some missed the mark (AMZN) (MMM) but on top of last week bank earnings the quarter has been not too shabby so far. Being someone who recognized the market is in a uptrend; I remain trouble by the lack of volume (SPDR about 40% below it’s 20 day moving average), the tightest trading range since 2017, and the failure (so far) for the Transports & Russell to make new highs among other things.. Encouraging signs include the VIX this week getting under 14 and closing with a 12 handle and the fact railroads (UNP), airlines (UAL) and the delivery guys (FDX) (UPS) were firming up. Also; you have Brexit, FED cut & China trade as potential short term tailwinds. The lack of volume/DJTA-RUT under highs keeps the base case as 2950-3100 as a SELL zone. NEXT WEEK..we have Monday-China industrial profits, Tues USA pending home sales & consumer confidence, Wed. FED decision & USA GDP, China PMI, Thurs. BOJ decision-Lagarde takes over ECB-Brexit deadline Fri-Jobs Data/Clarida speaks-hold on to your hats!
The market went up and touched on all time highs this week and the path of least resistance appears up. However; many companies have yet to report….FED cut expected….Jobs data expected weak…and the volume has been dodgy…plus lots of international news to be had so while it’s not wise to step in front of a moving car…..pockets of skinny volume suggests a possible binary outcome….volume comes pouring in and we blow out the highs with a potential for a 10% run or this rally lacks conviction and a roll over as earnings/jobs report/FED remarks next week get investors to run for cover..S&P 150+ above 200 day M/A.. Stay Tuned!
Is the worst over as far as economic numbers and growth and will trade deals & Brexit get done? If so the 1.4% 10 yr Treasury may be the low for the year as positioning is still very much leaning toward lower rates and surprises that instigate re-positioning may cause order imbalances. Few expect the 10 yr to surpass a 2% handle so if that happens for cause the scoreboard could lite up European countries like Italy & Greece continue to issue shorter term paper at negative yields despite dodgy fiscal situations while Argentina is talking 20% haircuts that could look like 40% or extended duration to incomprehensible dates. Leveraged Loans are showing cracks as one issuer this week had to pay 12.5% to get done….hunger for yield can be risky due to leverage and covenants Right now there seems to be a fear that if you sell a bond it may be difficult to get back in due to demand & the hunt for yield. When’s the lat time people were desperate for anything & got a good deal? Fed Wed/Data due..watch TLT & the 135 level for clues
Defined trading range on DXY about 99-95…tested the top end and rolled over…now 97.81 after hitting about 97. If we cut rates and LaGarde gets fiscal stimulus to catch on in Europe combined with a Brexit deal…lots of ifs…then the dollar could retrace further after the bounce is over..98.42 area is 50 day moving average and 96 area is the 200 day M/A…vol hits this week??
Base case is sustained prices above 60 and below 50 needed to get a hold on longer term direction…..but as stated the oil stocks like RDS.A< BP, KMI have held their ground and ARAMCO the Saudi deal may need higher prices to sweeten up the demand.
Base case remains that the breakout above 1350 led us up quickly to the 1520-1580 neighborhood which corresponded to lows since years ago. The technical overbought conditions are being worked off and the rally off last weeks lows refreshed prices. If the Oct lows can hold…it is possible Nov & Dec could see better levels as sometimes the end of the calendar year and the beginning of the new year has been a sweet spot for the metals.
Ass stated the Chinese have to eat so getting them to buy food is not a stretch…so as stated a trade able low off the mid year lows made sense…now’s the hard part..we got over resistance @ 9 but so far have failed to exceed 950 or 10..50/200 day M/A 870-880.
Any questions or should you want to talk…simply email [email protected]
REMEMBER…There is substantial risk of loss in options and short term trading and it is not right for everyone. Please consult your brokerage firm and broker – advisor to determine your suitability. Past performance is not necessarily indicative of future results.
THIS WEEK & NEXT WEEK…Since the run up in APRIL…Our base case
remains that the S&P 500 index in the 2950-3100 area is a a SELL
Zone. As I said the “deal” we have with China so far is not much of a
deal at all as nothing is in writing and China’s growth
is still at 6% versus our 2% growth if we are lucky. They can wait this
thing out and that’s what it appears they are
doing. They say they’re not growing at as
fast a pace as before..well of course not they are a more mature
economy at about 11 trillion. Do you think Amazon was growing faster 5
or 10 years ago than now? The lagging Transports & Russell and VIX
back above 14 non-confirming…so while tempted to adjust
the base….I’ll wait for more proof & see how earnings play out
with CAT & 3M this week.
week..keep an eye on earnings plus Draghi’s swan song Thursday plus
existing home sales Tues. & BOE’s Carney talk on Wed..
STOCK MARKET…Boeing is the big story this week as some messages from pilots that questioned the problematic planes surfaced abs wipe out much of the progress the stock had made. Let’s see how earning come out Oct 23. There are gaps under the market that could get things rolling if industrial earnings spook people this week. The consumer is supposed to be holding us up yet retail sales declined for the first time since February. Since manufacturing and business investment has been weak; the importance of strong consumer numbers cannot be overstated. In recent quarters the spending had outpaced economic growth so a pullback is not too shocking. If the XRT breaks 40; that could be cause for concern as Macy (M), Gap (GPS), and L Brands (L) have been pummeled. While Macy’s trading @ about 80% of book value sounds cheap; stores like Costco,Target, Walmart, Ross ( who could be a sell if a Real China Deal is had) & HD seems to be chugging along so far.Finally 2 sectors that we have been monitoring closely are the Heath Care & Housing Sectors. Health care ETF’s like VHT have 50-200 day moving averages inverted to the upside and these companies still spit out earnings case in point United Health Care UNH but still need to maintain these levels and still remain a headline or 2 from panic potentially arising. We have brought to yoyr attention that about 70% of all 20 year olds still live with their parents which has helped starter home especially take off..stocks like IYYR PHM, LEN, KBH have soared are trading WAY above their 200 day moving averages…so now like we said with Gold up at 1580……protecting some of these gains with collars, married puts or replacement calls may not be a bad call…if you need an explanation about these tactics…feel free to ask. Keep an eye on Europe ..a Brexit deal & a LaGarde could be a recipe for at least a bear market rally.
BOND MARKET Yields were firm this week with the 10 yr Treasury at about 1.75% and Treasuries in the 30 year around 2.25%. We are still high compared to yields worldwide and the FED is expected to cut 1/4 pt at the next meeting..with 3.5% employment & 3k S&P 500?? Draghi turns over the reins to La Garde on Thursday..she’s a politician and hopefully a good one as she tries to coordinate monetary policy throughout a EU with all different fiscal policies. Getting Germany to start fiscal stimulus should be job one. Where do rates go from here….look at TLT…if it breaks 135…odds are yields rise…above 145…watch for a 1.25% handle w/a crisis. Rates are crazy in Japan..Toyota sold 3 year notes at ZERO interest while Chater communicationss sold Junk @ 4.6%/they have 75 Billion or so in debt….our feeling is a debt bubble could lead to many things such as monetization & deflation to name two. GDP shrinkage to 1% could unleash a lot of BBB reevaluations and the CCC & BB & Leverage Loans could be vulnerable.
Watch Out!!…this week we got a taste of what happens when everyone wants to come out of a crowded trade (like long Bonds Long Utilities and Long REITS)….the DXY is about 60% Euro and we saw both it and Pound Sterling take off as Boris may pull something out of his hat. The entire planet was long the Dollar..we told you the top of the trading range was 99 so selling against that neighborhood was the call…now watch for support at the bottom of the range 96-95-94…below that…you may hear Timber!!
Same story sustain levels below 50 or above 60…then you have significant price information…now 53-54…no man’s land. Energy shares trying to hold on…if price breaks..they may follow.
As we said our base case remains…breakout above 1350 went to SELL zone of 1520-1580 and ditto for Silver. As theyy work off their technically overbought conditions (200 day moving averages WAY under prices) look to 1475-1450-1400-1375 levels.
We have said our base case is the selloff earlier this year sset up a tradeable low ith resistance at 9-950-10..we have surpassed the first level and approached the second.. China wants to eat and have some AG issues…between now & year end- huge Vol??.
Lots going on…do you have questions or want to talk…email [email protected]
REMEMBER..There is a substantial risk of loss in option and short term trading and it is not suitable for everyone. Ask your clearing firms and broker about your suitability. Past performance is not necessarily indicative of future results.
October 12, 2019
OPINIONS & OBSERVATIONS
OPTION PROFESSOR WEEKLY MARKET UPDATE
THIS WEEK & NEXT WEEK……Well we got a China Trade deal Friday but at the end of the day was it real or just rehashed
items agreed to months ago. Sharp turn from the USA position coincident to a pretty lousy political news week. China got the
increase in tariffs suspended and they got the grains & pork they desperately need due to swine flu/almost half their supplies cut.
Supposedly IP & currency agreements (Renminbi) & access for our financial firms are included by reality is nothing is in writing and no enforcement procedures are in place that I have read. Behind the hype; it may mean less damage to business but no greater certainty so cap ex & manufacturing may remain dodgy. China is still labeled a currency manipulator & Huawaei is still on the black list. China needed food and they got it while Trump needed everybody’s 401k to spike to offset the impeachment & Rudy talk.
Next Week…the rubber starts hitting the road (earnings) when the Banks report, retil sales come out & China GDP is announced.
As I saw the markets zoom later in the week; I told a buddy remember somebody is SELLING a lot of stock into all this buy volume
and by next week we will have a better idea if this was reactionary short covering in oversold indices (Transports & Russell) plus momentum players (AAPL) that will fade out or if we can sustain these prices above 3000 S&P 500. My base case has been for a long time that S&P 2950 to 3100 is a sell zone and so far that has not been bad. While I recognize this big rally this week; I do not see new highs in the RUT & DJTA nor a sustained VIX under 14 and until I do I remain unfazed by current events.
Big move up in yields this week though overall trends remain for lower rates. Crack in the leveraged loans market and some high yield exists but the duration boys got whacked this week. Greece now issues negative yielding bonds..has the world gone mad?
Remember the explosion of all this crazy debt would be frightful if we saw a pick up in economic growth and inflation and a weaker dollar which are the current objectives of central banks and the administration. Fed supposed to cut at month’s end then pause.
Big vol Pound Sterling this week but the base case has been trading range area 99-95..saw a peek thru the top now submerged.
A bit of a pop at week’s end but base case remains until sustained moves above 60 under 50 we are trapped but it does seem that the bulls have more enthusiasm lately…..RDS>A & KMI hanging in there
GOLD & SILVER
Base case remains..big breakout above 1350 gave us quick 200+ dollar rally into resistance zone (our sell zone has been 1520-1580)
Dips to 1475-1450-1400-1375 should be all she wrote if bull run is for real.
This is the one I’ve been pulling your coat about since the big sell off earlier this year…..Trump wants farmers votes/China’s got to eat/resistance at 9…950…10 dollars a bushel and we took out level one…if the China deal is a fraud then back down we may go.
You have many questions on the markets & how to protect your portfolio….share them with us at [email protected]
Remember..There is a substantial risk of loss in options and short term trading and it is not right for everyone. Consult your clearing firms and brokers to discuss suitability. Past performance is not necessarily indicative of future results.
OPTION PROFESSOR WEEKLY MARKET UPDATE OPINION & OBSERVATIONS
OCTOBER 4, 2019
THIS WEEK & NEXT WEEK
This week the market saw the VIX jump above 20 and the S&P 500 test the lower 2800 area and pop to 2950 after the unemployment rate dropped to 3.5% and prior months revisions saw more jobs added. Wages were not gang busters (maybe companies should slow down buy backs and pay their people?) but not terrible so it looks like everybody’s got a job and 2/3’s of economic growth (the consumer) is ready to roll. We’ll see. My base case has been and remains that the price range on the S&P 500 between 2950 and 3100 is a SELL zone. The 2 indices that were encouraging me to adjust my base case were the Russell (RUT) & the Transports (DJTA) but both fell out of bed in the last 2 weeks and even with the huge bargain hunter/short covering rally which was Friday…..they could barely manage a 1% gain. Next Week the consumer comes into play with announcements on consumer credit, consumer price index and consumer sentiment all on the docket. The FOMC minutes are Wednesday..fly on wall.
Big snap back late Thurs & Friday however RUT & Transport still lagging badly. Sentiment gauges such as the VIX @17 still elevated and not in the bullish sweet spot under 14. Earnings will be flowing soon enough and we will see how revenues and profits are plus the all important guidance. Semis are back testing the highs as well as AAPL which his hoping their new gadgets and services will reignite the consumer and possibly benefit from an increased valuation on earnings. Speaking of valuations…it’s been hurting the IPO market. companies like NFLX & ROKU and even AMZN which uses to trade at 100+ P/E and now around 70 & testing 1700. Airline shave been whacked big time and the Financials rebounded after losing some of their luster. Big head fake in the energy sector when oil price went back in the tank but strong dividend payers like RDS.A & KMI are hanging in there so far. Defensive names where investors had been hanging out REIT’s & Utilities also caught a bid Friday despite a risk on vibe. Gold shares got back on the bicycle a bit this week although my base case is that the metals in general are consolidating/pulling back to work off excess. Until the RUT & DJTA and the VIX can get and stay under 14…I still feel cautious about October….USA-China talks this week!!
Well can we all be right at the same time?? Yields have been dropping like a stone for the last year across the board. Does that mean the economy is booming? If it is not booming then what the heck are stock market indices doing trading within ear shot of all time highs? Good questions and the answers are forthcoming in the form of earnings, profits, guidance and inflation. I just read Fannie Freddie & FHA have balance sheets near 7 Trillion which is 30% ABOVE the highs of pre crash plus the income to payment ratio is over 50% in many cases. If we ever do see a legitimate slowdown $$Trillions of Junk, negative and low yielding plus now mortgages could have liquidity issues…also if worldwide stimulus packages and trade deals materialize & stick….GDP’s could fly. Treasuries have been the place to be and 1.25% 10 year could be in play if we take out 1.4%…above 2% the tide is changing.
US DOLLAR As I’ve said my base case is the Dollar (DXY) is in ball park range of 99-95…last week we peaked out above the top area but I said let’s wait a week and see…this week the peek turned back but we must be on alert if a panic into the dollar occurs.
CRUDE OIL Last week I reiterated my base case in that unless we can sustain prices above 60 or under 50..the price of oil is stuck. I am quick to point out that the moving averages converging around 54-56 have been breached but the double low around 50 has survived. ARAMCO is preparing for a potential IPO so betting on a crash in Crude with no recent price evidence sustaining sub 50 is off.
GOLD & SILVER My base case here is that we broke out above 1350 and accelerated toward my SELL zone of 1520-1580. We continue to digest the move and saw pullback under 1500 Gold & 17 Silver which I believe could give more bargains ahead. A break above 1600-reassess.
SOYBEANS My base case was that the big sell off earlier this year created some very trade able lows and with the election and a China deal coming in the weeks or months ahead….the long side would be interesting on a break above 9-950-10..well the first level went.
You probably have a lot of questions on the markets & using options to protect values…email us at [email protected]
REMEMBER-There is substantial risk of loss in options and short term trading and it is not right for everyone. Consult your clearing firm, broker, advisor to determine suitability. Use risk capital. Past performance is not necessarily indicative of future results.
OPTION PROFESSOR WEEKLY MARKET UPDATE OPINION & OBSERVATIONS
September 28 2019
THIS WEEK & NEXT WEEK…The week started OK then went into the tank a bit as worldwide PMI’s, disappointment in
the results of MU and talk of closing down access to Chinese firm due in part to accounting conformity was troubling.
Two indices that were starting to encourage me to alter my base case turned down substantially namely Transports & Russell.
Next week starting Sunday night; we get China’s PMI & Japan’s industrial production…followed on Tuesday with USA manufacturing & construction data plus PMI’s for India, Brazil, and Russia. Thursday; we’ll get USA factory orders and the big
kahuna is Friday with the USA Jobs report & Fed Chairman Powell speaking. Obviously increased volatility is a risk here.
With trade wars escalating before the Oct 10th meeting; would you do a ton of capital expenditures & manufacturing??
STOCK MARKET..My base case remains that the 2950 to 3100 is a sell zone and the rollover in the Transports (DJTA) & the
Russell (RUT) plus the VIX looking uncomfortable at any reading under 14 creates confidence in the base case. With Q3 earnings coming up; one might ask if it makes any sense to consider collars and married put to protect values on stocks that have run up like COST, HD,DG, C, WFC, TGT ect. as we approach these reports. I read that about 60-70% of all people in their 20’s still live at home for a variety of reasons…..maybe the home builders (DHI, PHM,LEN) with entry level prices and low interest rates have been telling us those numbers may be changing with 3 1/2% unemployment & the natural feeling of wanting your own place. AMZN has lost some altitude in the last couple of months and is testing the 1700 area which may be a change in valuation as we’ve seen P/E slip.
The markets want a trade deal and with the political events of the last week…Mr.Trump could soften his position by Oct 10th as
some analyst are revising growth targets for 2020 to between 1% and 1.8% continuing the year over year declines.
BOND MARKET…My base case has been that the 10 yr Treasury got overdone when the yield dropped to about 1.4% and a snap back toward 2% was possible to correct the imbalance which we almost got to in the last 2 weeks. Now; we are back to rates fading lower and with PMI’s fading & the jobs report this Friday, volatility may be back in fashion. I have told you about the debt explosion in negative & low yielding & junk bonds. We have more evidence of that this week as Italy issued 10 yr debt at the lowest yield ever, Junk bonds issue 29 billion which was the busiest month in 2019 and High Grade issues saw 150 billion last week from 124 issuers up about 60% from last September. In addition; Treasury offerings are increasing substantially to boot. While granting some is being used to refinance old debt; it is concerning that some say growth may slow substantially next year which puts earning forecasts in play as well as leverage and covenants. Any redemption run on sovereign or corporate debt is troubling.
US DOLLAR…same story different week..range bound 99-95 ball park on DXY….peeking out above 99 this week..let’s see next week
CRUDE OIL….big run above 60 after the attack on Saudi oil fields..then dump back to wipe out those speculators….now into support 54-56 where a number of moving averages converge and then the double low support at 50 area…my take is that when it maintains values above 60 or under 50….then you will have more evidence to make a definitive answer on the direction of c-oil.
GOLD SILVER COPPER…my base case on Gold remains that we broke out above 1350 and had a quick run into a 1520-1580 sell zone (former lows of 2012 & 2013) and well above the longer term moving averages (potentially overbought). We have seen dip under 1500 but not to the 1450-1400-1375 areas. Silver seems to following suit while Copper needs to overtake resistance of 2.80 & 3.00 to show legs. Will the September lows hold for the metals…we could get volatile this week…above 1600..adjust base case.
Longer term…if the administration want the dollar down (it’s rising)..Fed want inflation up….deficits soaring….positive for metals?
SOYBEANS…still keeping on eye out for China buying and other fundamentals but technical resistance between 9 -95- 10 remains
Should you have any questions please email us @ [email protected]
REMEMBER There is a substantial risk of loss in options and short term trading and it is not right for everyone, Please consult your
broker/advisor and clearing firm to determine suitability. Use risk capital. Past performance is not necessarily indicative of future results.