Author Archives: OptionProfessor
Author Archives: OptionProfessor
Option Professor Observations & Opinion
December 31, 2019
Happy New Year Everybody!!
This Year/Next Year……WOW..What a year 2019….Stocks started the year coming out of the tank and with no significant earnings and revenue growth managed to post banner returns December saw stocks have their best month since 2010. The Fed cut rates and provided liquidity (QE?) to drive up their balance sheet dramatically. Central banks around the world cut rates and the yield curve inverted (recession precursor) in Jan only to widen out dramatically by year end (classic pre-recession behavior to some analysts). The trade truce and the bottoming out of global markets & PMI’s had the bears running for the hills. The rising tid elifted most every boat even ones with holes in them (CCC debt had it’s best month in Dec since Jan). As we close out the decade; the biggest winners were ETF’s focused on biotechs & techs where many jumped over 400% in the last 10 years. We had changes happening when you look at Jan to Oct and Oct thru Dec where US Stocks saw 40% of its growth in the last 3 months of the year while Income ETF’s saw a dramatic decline after a huge influx in the beginning of 2019. Overall; ETF inflows were up over 7% for the year and up the 2nd most ever as total influx of capital. While US Stocks and International saw growth annually in inflows below average in the 5%+ range; Income ETF’s were 18% and Gold was up over 20%. SPY had its best year since 1997 NOW WHAT?…Good Question….The SPY short Interest has dropped to the lowest level since October 2018 and we all know the SPY itself has soared thru the roof so far peaking on Friday December 27th. The VIX hit its lows in April at 11 and retested that neighborhood in late November. After the Santa Claus rally which tends to bleed into Jan; we must ask ourselves a number of things like:was this a short squeeze year end buybacks by corporations that needed to do year end transactions? Will Earnings, revenues, and guidance support current valuations or expose them? Despite seemingly increased costs in our daily lives; will the enormous printing presses of the Central Banks come to cause inflation to move beyond targets? If the shorts are all blown out and the trade truce is priced in as well as many buybacks done…what will be the catalyst and who will be willing to bid up prices here? Questions? Contact us @ [email protected]
Stock Market Some of the areas that I will be focused on for 2020 are the areas that closed out e year pretty well such as Financials,Health Care,
Large Cap Pharma, Hospitals and many more. Also streaming companies like Apple TV, ViacomCBS, Comcast, Peacock & Disney who some call the king of all content. I will be careful of NFLX as increased competition skyrocketing costs of content creation may cause their valuation questioned much like what has occurred with AMZN in our view. Another cautionary tale could be TSLA at these levels should deliveries disappoint. A number of ETF’s that are interesting to monitor include BBUS, GSLC TTTN KWEB and OGIG for a number of reasons. BUT…in the short term we must consider the decline in short interest combined with the elevated levels of momentum indicators (RSI) should we fail to make new highs as we start the new year…traders with big profits may take a stab at shorting the market should 3250 area hold for the next week or so. The 50 day moving average is in the area of 3125 and the breakout point was about 3030 so if we get a reason to sell (earnings?)….those would be areas of interest for the bulls.
Bond Market In 2019; rates tanked as the Fed switched gears and went from reducing their balance sheet to having it soar back up blaming some liquidity crisis…could be they saw the yield curve inverting (recession) and said let’s flood the short end maturities which will spread out the curve tank money market rates and force people into spending their money on riskier assets to get their returns. If you love asset bubbles; it’s working pretty well plus it has extended the cycle which is one of the longest expansions on record without a recession. Unfortunately Goldilocks is a fairy tale and at some point something may give like the value of the currency or inflation or both. Right now predictions on interest rates run the gamut from a 10 yr Treasury going back up to 2.25% to 2.75% and you have some saying 1.2% or below. One would think that a recession would be necessary to see yields tank to those lows but since ink, paper and digital entries are cheap who knows? The whole world got long Treasuries in a panic in 2019 when yields dropped to 1.4% area on the 10 yr from above 3% and panic moves aren’t always smart ones. These positions have been losing money as yields have risen and should the bond market be hit with an ugly trifecta….Dollar Index breaks 95-94….Oil -and Commodities spike….and Inflation meets and beats the Fed’s target then the potential risk of a redemption run could expose those that have threw caution to the wind in the Junk Bonds (up 16 Sessions in a row & Triple C’s best month since Jan). We’ll see.
We’ve stated that the DXY was in a trading range of about 99 & 95 and we closed out about 96 1/2. Since the peak in October of 99+ we have seen lower highs and lower lows but have still remained in the range while the 50 & 200 day moving averages are both about 97.71. Obviously the longer we stay under those numbers the chance of inverting to the downside increases conversely getting back in the 98’s could avert that possibility. Those betting on Gold-Silver-Energy to a lesser degree are probably thinking we will invert to the downside this year and we will blow out the bottom…..unless things turn around…maybe they have a point. Should we see fiscal stimulus globally & PMI’s, Brexit & trade truces are real…..the odds may just favor what Trump wants.
Gold-Silver Copper Big year end rally in the metals and the bulls drumbeat getting louder. As we said last year; your breakout was above 1350 Gold and your run to 1580 ran into the 2012 lows and was too fast & furious so a pullback consolidation was the call. As sstated; if we are in a bull market in metals pullbacks are to be bought and we identified 3 areas of price support in 1450-1400 and the breakout point at 1350. Those who took advantage of the pullback enjoyed a nice bounce up ass well as GDX and GDXJ not to mention the SIL as the long term 200 day moving averages have held up pretty well so far. As stated previously; the Fed wants inflation up and the administration wants a weaker dollar for trade…the may both get their wish…we saw a 20% increase last year in ETF flows. Bloomberg Commodity Index seems to have increased interest and Vanguard established VCMDX last year so stay tuned.
Well the China deal was supposed to help the farmers and the soybean and soybean oil markets have been bid up a bit but I read that because of the pork issue over in China the emphasis may have switched to Wheat due to demand issues…let’s monitor that and whether or not some of the softs (Coffee-Sugar ect) can build on some of the advances they saw in 2019. Being aware of the Commitment of Traders reports can sometimes be helpful but like anything not always.
Remember…There is a substantial risk of loss in short term and options trading ans is not right for everyone. Please consult your brokerage firm, your broker and your advisor to discuss your own suitability. Past performance is not necessarily indicative of future results. Use risk capital only.
December 20th 2019
Opinions & Observations
This Week/Next Week….We added almost 75 handles to the S&P 500 this week not to mention big plus moves on the Nasdaq, Russell, Transports and other stock indices as well. The news has been encouraging (except impeachment) as wages took a jump and anything the consumer gets in his pocket the market assumes they will spend. After a lackluster 2019 in earnings and revenue the market apparently believes those numbers will climb in 2020 and that valuations can remain relatively high as interest rates rising much will not be problematic. How much of any good news we will see in 2020 is being discounted now.. Who Knows?….but clearly this is a rising tide lifting all boats (even boats with holes in them like CCC debt) so my best take is to let the market run to where it will run and when the numbers fail to make new highs on a daily and weekly basis….reassess. Next Week appears relatively quiet for news we anticipate and holiday shortened trading….be aware…Happy Holidays!! Questions? [email protected]
Do you get the idea that this Dow wants to get to 30,000 sooner rather than later? Certainly the constant upswing we have seen makes one feel that way. The VIX registered its recent lows in late November while the indices have continued to rally. I have not seen the RSI numbers and wonder out loud if the RSI and other momentum indicators are making new highs with the market or if we have a divergence. Lately; bad mouthing the market has been like badmouthing Santa Claus and very expensive lesson that has been learned…don’t fight the tape…we have been in uncharted territory now for awhile but I think it’s important to note the S&P 500 has moved over 270 points above its 200 day moving average while Apple has moved almost 70 bucks or 30%+ above its 200 day moving average….what does that mean?…maybe nothing or maybe at some point we could be reminded that the trees don’t grow to the sky and the higher something gets does not necessarily mean it is getting less risky price and value wise….so as stated before maybe let prices run and when they stop on a daily or weekly basis and you get a point to defend-consider hedges Questions? [email protected]
Yields have been rising a bit on treasuries this week but still below 2% a waterline for me along with 2.8% the highs of 2019. The big move we see lately is the spreads between high yield corporates and treasuries really tightening up (remember high yield is also called junk for a reason and treasuries are backed by our government who can print money) so that is a sign that people are stretching for yield and dismissing the underlying risks of the issuer to some extent. The alarming dynamic in CCC rated (below investment grade) debt that has been rallying big time and so to say it is risk on in high yield is an understatement….. Should a disruptive event occur sending this crowd scurrying to the sell window….well we’ll see how the liquidity holds up. Forecasts for next year appear to run the gamut from yields on 10 yr Treasuries rising a bit to a significant decline on weakness. It seems some believe that relatively short term corporates and intermediate term munis are worth a look.
The dollar rebounded a bit this week and ends up with a 97 handle. As stated here many times the trading range is 99+ and 95 and the market has vacillated between the 2 points most of the year. The 50 day moving averages is about 97.80 and the 200 day moving averages are about 97.68 so if we can sustain above those numbers the the dollar could surprise on the upside while if we take out 95 and the averages cross and turn lower than inflation, higher metals and commodities could be in the cards.
Gold still meandering between our initial support zone at 1450 area and 1500 while Silver & Copper fared better specially Copper which seems to be benefiting from the believe that China’s worldwide initiatives will require increased consumption of Copper. It seems some of the miners have either rallied in the last month (FCX) or are holding their 200 day moving averages (GDX, GDXJ) As we move into the new year something could happen to instigate a break one way or another….bulls & bears…who will win?
Clearly the Bean Oil has had an easier time breaking thru resistance zones and matriculating to the upside in the last few months while the Soybeans had taken out some technical resistance at 9 bucks but has had difficulties surpassing 950 and of course 10. Reports have shown the farmers have received their get well soon money from the government but many suspect that the money has been used to pay down debt & rainy day reserves. Also Phase One China purchases are somewhat known. It may take progress reports and weather realities to ignite prices further and that is in the offing…we’re watching…but prices appear mixed.
REMEMBER There is a substantial risk of loss in options and short term trading and it is not right for everyone. Consult your brokerage firm, broker and advisor to discuss your suitability. Past performance i not necessarily indicative of future results. Use Risk Capital.
OPTION PROFESSOR WEEKLY MARKET UPDATE
Observations & Opinions
December 14, 2019
Last Week/This Week
Last week we saw the S&P 500 put another 40 handles or so on its price as we continue to feed off 3 basic areas in our view.
These areas include the Trade Deal,Boris Johnson’s landslide and the seasonality which tends to be strong at this time. an additional factor is the corporate buy backs that may be necessary to be completed by year end and sellers feeling this buy volume must come in so why sell at current prices…better to wait and let these guys buy into a no seller environment. Obviously at some point the reality of revenues and earnings versus price must rear its ugly head but there is no evidence of that just yet
This Week….Central banks in Europe & Japan have some announcing to do and we will get more economic data (retail sales missed expectations) and maybe we’ll get more clarity on what kind of a deal has been struck…..if you are long..enjoy the ride and if you want to play it from the sell side it’s important to be patient to wait for the market to stop making daily & weekly new highs.
The big questions ahead of us for 2020 as we continue to see the market drifting higher and higher into uncharted territory is at what point will valuations matter, after a revenue & earnings dud in 2019 will companies make the kind of money to justify the advance, will the trade deal Phase 1 be the only phase before the election, the Fed has driven money market rates down 40% & forcing people swim in riskier waters to get their yield or are they done, will inflation get the boost we hear about but positioning is not prepared for, will Brexit get done in a year as Boris said or more like the China deal a drawn out saga. Finally; the consumer is the engine behind the economy and will they spend take on credit debt (without defaulting) to such a level as to deliver the revenues companies need to deliver the earnings ultimately necessary to sustain the advance….many calling for 3400-3600 S&P.
Currently…our opinion on short term support levels are basis S&P are 3160/3120/3070 whereas a Fib count to about 3200 upside.
Learning about the uses & risks of hedging tactics such as covered call, collars, married puts, replacement calls could be useful.
Questions…email us at [email protected]
With the strength in the equity markets we see yields rise a bit after the trade deal & Brexit optimism but not too crazy and failed to take out 2% on the 10 yr Treasuries. Central banks have cut rates worldwide in 2019 at a record pace and I hear the words like “helicopter money” being used throughout the world……the triple BBB space is so crowded that now triple CCC and leveraged bank loans are now being pursued in the chase for yield. Spreads between junk bonds and treasuries are very tight so the increasing foray into risky waters via ETF’s and poorly collateralized (if any) debt is in our view growing at dangerous levels and if there were ever a redemption run (is it if or when?)..the lack of liquidity will be exposed and could be the catalyst for huge volatility. Our opinion has been the duration play has been made (TLT had a 30+% run this year) and now we monitor TLT prices of above 145 indicates lower rates (some say substantial) and below 135-130 could scare the bulls into selling into a vacuum.
Most call on 10 yr Treasuries yields for 2020 range 1.5%-2%….caveat emptor…..a lot of these guys thought rates would rise in 2019.
Well as we said the British Pound was the place to be as Boris wins big (simple slogan-play on frustrations-sounds familiar??) so the rally from 120 level in Sept to about 135 now really of no surprise as prices rise when optimism replaces despair. If the carrot and the stick approach that we’ve adopted with the cloak & dagger China deal is effectively employed by Boris on Brexit the potential for no one wanting to be short (like our stock market) may lift the Pound Sterling further in 2020. Will the Dollar resolve its year long trading range with a breakout in 2020?? Good question…..if we break 95 look out below…break 88-90….then yell Timber!
Slowly but surely prices have been matriculating to the upside….the Aramco deal went off well last week touching 2 Trillion valuation as that companies makes more money than all our oil companies combined and supposedly plans on distributing 75 Billion in dividends….oil & gas companies have also been creeping higher and is a sector to monitor if prices break above 65.
In 2020 will we see inflation pick up as the Fed desire and the Dollar drop as the administration desires? If so; then the belief here is that the bull market in metals will reignite and the support levels mentioned here of 1450 (already hit) 1400 and 1350 (breakout point) will in hindsight be viewed as excellent reentry points after the selloff consolidation common after an parabolic move to 1580 earlier this year. Silver holding up a bit better than Gold but the bigger winner has been Copper as China needs are global
Contact [email protected]
Back on the bicycle for beans & products as the deal seems to include substantial longer term purchases from China and farmers having not invested their money in equipment (CAT & DE) may be caught with supplies tighter if weather & other factors were to hurt the supply side. Resistance zone s remain at 9 (we already surpassed) 950 and 10…let’s see how we do at those levels but 8 earlier this year still seem like the turning point. Bean oil has had a pretty good year and the moving averages and long term charts tell us that if this environment continues the upside potential may be considerable.
REMEMBER There is a substantial risk of loss in options & short term 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.
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.