September 18, 2020 Option Professor Opinions & Observations
Greetings Everybody! Our view remains that we are in a TRADING RANGE of 3500-3100 for now. As we told you for week that the VALUATIONS & PRICES were stretched in the Nasdaq & we directed you toward HEDGING strategies like Covered Write/Collars/Married Puts/Replacement Trades. The stocks that were bid up like AAPL TSLA MSFT AMZN GOOG NFLX ect had great jump in sales during the last 6 months BUT Price to Sales has soared & that we have already adjusted to ZERO interest rates…the comps are getting tougher as you look down the road…..in fact indicators like credit card spending, open table & hotel bookings have rolled over a bit and even housing starts were DOWN 5.1% in August…not panic time but pausing time The economy thru the lens of ISM #’s (56) and new orders index (near 70) give a firmer footing BUT almost 13 MILLION people are still getting $$$$ from Unemployment Benefits. As we have told you; the Russell Value versus the Russell Growth Index took out the 1999 highs….this week Russell Value was UP while growth sold off. As we told you…while we see much better values as TECH-SEMIS -MEGA CAP GROWTH-CONSUMER DISCRETIONARY (we we brought to your attention in March & April) as they approach their 200 day/1 year Moving Averages….we believe that the BARBELL APPROACH we said was the way to go REMAINS…(Growth-Cyclicals-Value)….In MARCH we told you the way we come OUT OF THIS is #1 TECH leads the way as WORK FROM HOME ect creates huge revenues for the likes of AMZN AAPL MSFT NVDA ect and with rates at ZERO VALUATIONS WOULD SOAR.. this is Exactly what happened #2 As we normalize the cyclical & the value names would play a serious game of catch up and the epicenter stocks as well.. OVER the next 3-6 months we believe this will happen. #3. We EXPLAINED that companies could return to PEAK EARNINGS much FASTER than any thought as they would CUT JOBS & NOT REHIRE plus cut back on Real Estate expenses (2 huge costs) again EXACTLY as we are seeing now. We said TANGIBLE ASSETS would be king (real estate-precious metals-businesses). You Should Ask….WHAT IS THE TAIL RISK?….it comes back to the value of the DOLLAR. In March; the Dollar hit about 104 during the crash as people rushed to “safety”…then they discovered the INTEREST RATE ADVANTAGE the USA had went out the window when Powell brought rates to ZERO. This led to a 10%+ DECLINE in the Dollar and BOOM there goes Tech & Metals & Real Estate. Around LABOR DAY; the Dollar stopped going down and Stocks & Gold & Bonds have now stopped appreciating. The Fed is TELLING you they will let INFLATION rise for a sustained time and OUR VIEW is that it is because it will happen as CURRENCY VALUE will be determined by factors #1. MONETARY DEFICITS (USA Money Supply is UP 25% more than 4X the NORMAL) #2 FISCAL DEFICITS (USA Fiscal Cliff looks like Niagra Falls) and #3. TRADE DEFICITS (No matter all the tough talk & tariffs-Ours is HUGE). Airlines & restaurants ect will be smaller…what to do?…they’ll RAISE Prices. In the next 3-6 months….our view is investors will WAKE UP and realize that the 10 yr Treasury yield is a joke & that the 30 year Treasury yield is a farce as the economy rebounds and the DOLLAR hits the skid after this short BOUNCE it’s enjoying. The Fed WANTS this in our view because MONEY VELOCITY is TANKING and you can’t get VELOCITY in a FLAT Interest rate structure (ask Europe & Japan how it’s working). Simply put the BANKS need to get involved to get Velocity going which means they need a SPREAD between short rates & long rates….otherwise it’s no good. Did you notice CORPORATE DEBT issuance has soared even on lousy companies BEFORE the election (CCC paper is outperforming)….maybe their higher Earnings can help them handle it….or the Fed gets a facility & buys.
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Lots to talk about here from Zoom to Snowflake & don’t forget the Apple show (though some apparently did). Zoom sales are up 350%+ in the last year and has 150+Million monthly users.. fantastic numbers…but the valuation is equally fantastic…the risk is will it be sticky when a vaccine comes out and how can they keep the pace & grow from the numbers out of the pandemic. Competition has got to be coming from others looking to create new revenue streams. Snowflake has a great story…the AI of cloud as it allows you to analyze and share data while getting insights…all very good for business. Great customers (146 of the Fortune 500 & counting) Great revenues (+133% in recent months) Great early investors ( Buffett & Brad Gertsner ect) Great Management (Frank Slootman-brought Digital Domain & ServiceNow to market/Partnerships (Salesforce)……so what’s not to like?? Well the price came out at 120 and rose to 319 down to 215 and went home at 240 so a wild ride it has been ass 100-150X Sales is a tough valuation. Other news was on Ford (new plant makes EV’s like the F150)…also Fed EX which is hiring 27%+ more than last year for the holidays and some say they could score big with VACCINE distribution. Berkshire Hathaway BRK.B is liked for some as when we turn the corner Buffett has got the AAPL/best insurer in the land/energy/banks /Japan rebound and a huge cash pile. Also Face book at 240-245 & APPL 85-95 area has bids plus Boeing who got news hammered (1000 cancels on Max) supposedly is near 150-158 support. Industrial names like Emerson Electric & Honeywell are worth a look as well as CPRI & OLN & DAVA. Too much to include here…so its time to go to optionprofessor.com and submit your email to learn about access to more.
We have had the view that the ETF’s on fixed income have been very overbought and would pull back closer to their moving averages and in the last six weeks they have done just that with TLT fading from the 172 to 162 and now have a number of moving averages crossing over. Longer term we see longer term rates rising as the recovery expands and the value of the Dollar resumes it’s secular bear market by year end. We have ETF’s we focus on to get income and ones we would suggest you avoid like the plague…to find out more go to optionprofessor.com and submit your email.
Us Dollar/International Markets
The Dollar rebound continues albeit mildly…if the DXY breaks above 94…look out below on the markets that rose in part due to a weak Dollar. We believe a break ABOVE 120 on the Euro could spell 125 but the Yen & Can$ remain subdued…some believe the AUS $ could make a run at parity if it breaks ABOVE 75-80 over the longer term….we’ll see how that unfolds. On International markets …most were on the defensive China (FXI) Europe (VGK) Asia (VPL) and Emerging Markets (VWO)…following the USA for now.
Crude Oil/Natural Gas
Lat week we told you the Saudis were discounting…this week they’re scolding OPEC…one the better performing sectors this week was energy (VDE) before pulling back…their remains short term DEMAND fears…we stay with our call….30-35 worst case downside and big cyclical appreciation as we get a more expansive recovery in the year ahead….again not enough room here to cover the ETF’s on both Oil & Nat Gas (which pulled back as we told you 2 weeks ago after overbought big up move) so simply go to optionprofessor.com & learn how you can subscribe to our Focus List.
Gold Silver Copper
The precious metals remain range bound with Gold 2100-1900 and Silver 30-24 meandering back and forth…if we break 94-95 on the Dollar Index..what we said for a while is that SEPT-OCT-NOV could be dicey for both Stocks & the Metals…..we saw a print in the 1800’s already during the decline ….can’t rule out a 1600-1700 print in the next period ahead. BUT longer term is a horse of a different color so we have a list of Gold & Silver stocks & ETF’s that we told you about in March April BEFORE they ran….Kinross just paid their first dividend in 7 years…get over to optionprofessor.com & learn about how to get our Focus List in metals. Copper is a Goldman Sachs favorite (Readers know it has been ours for 6 months!)…and our buddy FCX hit 17.50 this week…our bet since 6 bucks.
Soybeans Sugar Coffee
The Soybean trade we told you about for months (remember the reference Waiting for Godot) is staring to accelerate as it looks like China is trying to help Trump get votes in the Farm Belt (along with his Billions in giveaway money) and he’ll call off the dogs a bit. we jumped to 10.43 this week and we brought thiss to your attention in the $8 range…not bad. It’s getting OVERBOUGHT short term but when beans go sometimes they go nutty…we felt a break above 10 could open the door to 10-12 window…RSI’s very hot In the Sugar trade.. we told you that the moving averages came in at 12.30 area and we could accelerate on a break above that area…this week we did and we closed near the highs…a close above 13.20 would be powerful but staying above 12-12.30 bodes well for the future. Coffee was a darling earlier this year as our focus list had us bullish in the 95-110 area BEFORE the move to 137….the break UNDER 130 put a fork in this one ….now our view at 113 is that if 100-110 hold…maybe it get back on the horse…..
Remember There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm/broker/advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
September 11 2020 Option Professor Opinions & Observations
Welcome Back!..We told you in prior updates recently that Sept-Oct Nov could be a time of sizeable re-valuation and a reversion to the mean (50-200 day moving averages) and that is EXACTLY what is happening. Will there be more to go? Well here is our view…..there are 2 ways the market is much more interesting to us. #1 is we go down and values are much much more compelling or #2…they start taking out the monthly highs indicating we’re back on track….otherwise making a decision in a trading range is foolish… and that is exactly what we are in right now…a trading range. Th election is coming up and who knows what story will be bought…the story of “The Greatest Economy in History of the World”….which included a 40% tax cut used for buy backs….news jobs that were lost & didn’t pay much….the America First baloney where we had a $63 Billion dollar deficit with China & an $11 Billion Dollar deficit with Mexico and in 2018 & 2019 the combined trade deficit with china was $764 Billion. No complaints that money hasn’t been EASY from the FED…1/2% T-Bills & 44% of GDP injected by some “creative” moves by Mnuchin & Powell to “comply” with The Fed Act 1913 forbidding the buying of exactly what is being bought by the “facilities”. On the other side you’ve got an alternative to whatever the heck has been going on….Trump’s scorecard has been the stock market so one would assume all measures short of outlawing selling will be done to get a rally pre-election. On the other side…who cares…the Fed calls the shots and if Powell sticks with Buy American Stocks…we should rally after the election. Stats like 52% of young adults live with their parents bodes well for housing. The 5G stampede is coming and NVDA (big data/gaming) Broadcom Qualcom are not bad fishing lakes in the next 2 months….Bill Ackman’s Pershing Sq’s portfoio seem confident in the future (Lowe’s QSR CMG Agilent ADP HHC MDLZ ZTS Freddie & Fannie ect). Nasdaq had it’s worst week since March and the quickest 10% drop (3 days)..they are revaluating things and if you’ve read our updates…it is what you expected…we discussed tactics for protection (Covered call collars married puts replacement trades ect)… ..those all made a lot of sense to many….fearful when others are greedy….
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Let’s cut to the chase…big cap growth tech semis covid beneficiaries all have to come back to earth and they are….epicenter & value stocks with its 14-16 P/E’s need to hear one word VACCINE and they will get the jolt they need to take out June Highs and at least go back to yearly highs or beyond…that is a lot of upside and compared to hoping some of the high flyers take out their recent highs…we would bet the former. We’ve said all along that the split trade (TSLA & AAPL) would turn into massive sells once they hit the market EXACTLY what happened….they should have been HEDGED…..now TSLA has gone into the 50 Day M-Average zone (300’s) a much better price than 502!…but it is AAPL that we find the most intriguing as the reality is their growth in top & bottom line in the last 2 yrs has been OK…but the future could be dynamic as 75-80 million I-phones have been ordered and the MARGINS on these could be huge plus Laptops Ipads & wearables which leads us to believe that 80-100 is a steal (a gap in the 90’s/200 day is 83+). There are many stocks we believe should be on an investors shopping list ans some can replace income too as they have dividends of 2.75%-3.75% so if you want to know just email us….plan now execute later is the idea.
Not much here to report as the Fed does it’s thing keeping savers in the dark and encouraging yield starved pensioners to take more risk (value stocks). TLT the proxy for the 20yr Treasury is stuck in a tight range after yields popped a bit..a break above 170 could mean get ready for even lower yields and a break under 160 could signal that someone figured out that a lower dollar inflation and deficit spending is not a good deal for 1% until 2040:):) Junk bonds (HYG) are testing lower prices and one would have to think if the Fed didn’t have a “Facility” to buy them they would be in the toilet. In Preferreds (PFF)…they’re hanging in their with a good distribution and many are linked to banks…so if you believe….Munis have been coming down a bit as job & service cuts have to occur unless while the Fed & Mnuchin are printing money they can find some for the states (the spent plenty on the airlines who are still firing people)….bailout is obvious. The emerging market debt we told you about (VWOB) has done well since March and if the Dollar resumes its downtrend later this year-a positive.
US Dollar/International Markets
Our position has been the US Dollar hit a short term low 90-92 zone and is in a muli-leg rally…closing Friday at 93.27 which means we are looking for the Euro to fade off the 120 rally area (closed 118 area)….IF the Euro breaks the highs then 125 becomes the next target if not 115-116 is ahead…the Yen & the Can$ are comfortably UNDER their M/A’s..& Aus $ stable 72-73 for now Looking at stock markets around the world most are stable but could see some selling Germany Brazil India with Japan (Buffett ?) & Korea showing some boat legs. Same story with ETF’s like VEU VGK VXUS VPL VT & more
Crude Oil Natural Gas
We told you in previous updates we thought a move down in crude oil could be in the cards and we saw a drop from 44-36 area in tha last couple of weeks…the glut of oil trade (contango has front month way lower than the back months) plus the nice guys Saudis cut prices …30-35 should be as low as she goes and sets up nicely for strong demand in 2021…that’s our view so keep an eye out for those high yielding oil/energy stocks. We were bullish on Natural Gas UNDER 2.00 and the breakout above and loved the move to 2.75 but warned that the market was over bought and a break of 2.43 could see prices crack EXACTLY what occurred this week (close 2.25). Our stock we follow LNG has 50-200 day averages at 51-49 and we closed at 49…so if we take out 49 the odds increase for at least a move to 45…hedge?
Gold Silver Copper Platinum
Short Term…we’ve said it looks like the “precious” metals have topped at 2100 Gold 30 Silver and the stocks ass well GDX at 46 and Sil at 53 but with the intervention Fed around the Dollar which has gained steam could reverse and then the metals get the green light….In Fact…when the Dollar turned DOWN from March 102 area and lost 10% is when stocks & metals roared. Now the turn in the Dollar (albeit modest) led to declines of both. Copper is another story as it has mainatined abov 3.00 and by doing so has made our favorite copper stock we told you about all year FCX make new highs this week….both are getting a bit overbough-keep it on a short leash
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Soybeans Sugar Coffee
Let’s see how these exciting Three Amigos did this week….we have been bullish Soybeans since the $8 area and have said that if start closing above 9.50 we could start accelerating to the upside and a close above 10 could set up BIG potentials gains opening up the 10-12 area….well Friday we closed near the highs of 9.98 so get your seat belts on because if we breakout for cause the momentum is building BUT if unable to break thru profit taking and speculative shorts & hedging could be problematic. Sugar has been untrustworthy in some regards as the breakout above 13 should have been a green light for a sustained advance but instead it went back into 11-12 support zone (close 11.93) bothe the 50 day & 200 day MA’ss come in at about 12.30 area so IF we get above there and hold/closes..we’ll like it. Coffee has been great to us ever since we first liked it under 100 nad on the pullback to 110 BUT as we ssaid the market move toward 139 was stretched and a pullback was expected and occurred (MA’s at 114/112) so at least a level of 125 or an acceleration thru 135 work as short term key points,
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm/broker/advisor to determine your own suitability. Past performance is not necessarily indicative of future results Use Risk Capital Only.
September 4, 2020 Option Professor Opinions & Observations
Greetings All!…Last week we said this week would either be a Stampede or a Blow Off Top and who knew we got both in many markets! We told you that the VIX was RISING during the rally…not a good sign…and many other red flags and that you should have your HEDGING tactics at hand (such as covered writes/collars/married puts/replacement calls/trimming ect)….we also invited your emails for more information to take advantage of our decades of experience…those who emailed us were VERY glad they did. S&P price to sales ratio was at a record….46% of all S&P stocks haven’t gained in 2 yrs…ZOOM had a market cap of $130 Billion on 2 or 3 billion of revenues!! The Fed is playing a stupid game (Trump Powell Mnuchin) are private equity leverage guys and could care less about debt…..run it thru the roof…get every company in America hooked on borrowing…try to get the public hooked on borrowing (although the public is not so stupid ass loan demand stinks & money velocity is i the tank)…..hey maybe their plan is if we get asset prices soaring through VALUATION expansion we can all get re-elected on greed…if not our big donors get all their stock losses back and we’ll do business with them when we leave…..44% of GDP in QE this time when in the last crisis in 2008 it was QE 5% of GDP–9X More??……last time it took a number of years to get the S&P 500 back to the highs…this time a few months??…..what’s the rush to blow out the balance sheet & USA Debt? ..Corporations are leveraged to the hilt and some don’t have much equity not a good thing. Unemployment says it’s “down” to 8.4% but still almost 30 million receive some benefits….11 million still out of work..16-25 yr old jobless rate at 20%.. and cuts by airline and other companies are forthcoming. The Fed is saying rates low until inflation zooms back (with money velocity tanking that’s a reach)….so they are encouraging RISKY valuations/borrowing/investing…. some factors in the recent spike & fall was call option activity which went off the charts…in our view similar to 1987 “program trading” as investors (some say Softbank) bought stock and sold call or bought stock to hedge short calls which squeezed Tech in particular and then the last 2 days unwound those positions (sold stock bought back calls) …all very risky activities as liquidity is problematic (we told you last week that if we roll over the SELL volume would DWARF the BUY volume EXACTLY what occurred). Now we have a vaccine on the way Nov 1 or 2 days before the election…we sometimes think we’re watching a suspenseful TV show (Remember Dallas & Who Shot J.R.?)….but this VIRUS is not a TV show & our people are not actors. Our Trade Deficit is Soaring!! So WHAT’S OUR VIEW RIGHT NOW?….well the best case is that we go into a TRADING RANGE and we work off some of the EXCESSES such as distance from the MOVING AVERAGES/VALUATIONS/COMPLACENCY and settle the VIX down after it jumped about 60% this week topping at around 38…it shrank during the drop so as a contrary indicator could mean a further bounce (from Friday’s lows TSLA-AAPL-PTON-AMD rallied 7% to 13% but S&P & Nasdaq sold off a bit into the close. WE suspect and brought to your attention that sideline investors ($5 Trillion) may be more comfortable in Banks/Health Care/Industrials/Materials…..Value-Dividend payers than speculating about Work From Home/Cloud/5G/Semis that may have to catch up with their valuations…which could take time…..expect a rocky road… consider selling cash puts on VIX spikes like this week on stocks you want to own (big put option selling activity on AAPL & MSFT this week)….but as we told you for a while..SEPT-OCT-NOV….is a potentially VOLATILE time and may not be for the faint of heart….having HEDGES on that puts parameters on your equity seems reasonable….we expect rotations & reversions to the mean…..LT..The Fed says Unlimited QE & no return on mmkt….T.I.N.A lives
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Well it had to happen at some point..the stuff that had been running since March that we brought to your attention back then ..Tech-Mega Cap Growth Semis & Consumer Discretionary (VGT MGK SMH VCR) had to come back to earth at some point and this week they did this week…S&P 500 came back to it’s former highs at 3390 (actually traded thru it) and if Nasdaq is to do the same we have at least a further 10% drop ahead…the Fed has obscured the real value of many markets with their “intervention”…from Treasuries 180-1 P/E…Investment Grade 50-1 to reputable stocks (AAPL 40-1 LULU 86-1) so anything is possible….we could go back to the highs or a little beyond or test the 50 day on the S&P around 3080 or the 200 day around 2900 so our base case is wide trading range and heightened volatility. Some like money center banks & regionals (VFH & KRE)….a diversified basket of dividend paying stocks (MGV VYM SCHD)….while sectors like REITS Industrials-Small-Mid Cap Value-Materials gain some traction (VNQ_VIS VAW VBR VOE). Our understanding is Quatum Scape is coming to market in Q4 with Bill Gates & VW involved & Michael Jordan (who knows a thing or two about gambling) hooks up with DKNG….Buffett sold another 1/2 of his stake in WFC and may dump the rest (stock rose Friday)…the transports ( FDX UPS UNP) seem to be enjoying big volumes while QCOM & AVGO may be best bets in 5G right now NVDA got hit on overvaluation but on the horizon you’ve got console, cloud, data centers, bitcoin and best yet Sony Play Station is expected to be a rock star when it comes out not to mention business wit EA & Take Two…..Phase 3 Virus trials happening and PFE AZN MNRA are lead dogs…speaking of dogs..Data Dog DDOG hass been hit but some are looking for long term value soon….Biotech is also on the radar as IBB & BIIB are both at junctures as we said epicenter stocks are coming back (CCL just had a cruise to Italy) so Department stores (M KSS JWN) hotels (MAR) Borg Warner had caught a bid…and banks with heavy credit card exposure (C COF) have come back strong….QQQ broke a long term uptrend so we will see if that portends further corrective price action…if you’re long term bullish…selling cash puts on volatility spikes or sell puts/buy calls if you think we are near a turn are strategies to price out….ass we said last week…Caveat Emptor Sep thru Nov
The story here is the steepening of the yield curve despite the drop in stocks which could mean the drop in stocks is over soon or it could mean that the forecast is for economic boom to hit when we get the vaccine. It could also mean that the Fed iss losing control of the long end of yields. Some belive EM bonds offer good value and if you believe in the banks the preferred are worth a look. High Yield bonds lost some ground this week but truthfully; like we told yo last week…the debt market prices are extended and a reversion to the mean started last week. More QE in Sept…well if Powell is doing a reelection troll then expect it & maybe a stimulus package to boot.. .CHina’s talking about selling bonds which also add uncertainty…the 3-5 year duration appears anchored and as we told yyou for many months…limited/short term duration corporates & munis not a bad place to park…long term bonds on the other hand seem like a suckers bet..low yields Mortgages got better news on performance and rates down to 2.85%….low.
US Dollar/International Markets
The Dollar Index hit a 52 week low on Tues at 91.75 but turned around by weeks end to close at almost 93 after having pierced that level. In contrast..the Euro tried to break 120 and failed to sustain it so we went home at 1.18 area…another potential REVERSION TO THE MEAN trade as the 50 day MA is 1.16 area and the 200 day is 1.11 area (just above the 110 area we told you was bullish)…we got a bounce in the Japanese Yen but still under resistance while the Canadian $ remains weak and the Aus $ remains firm….in worldwide stocks (VEU VXUS) not going anywhere and Brazil (EWz) faded off its advance last week….Japan (EWJ) slipped as well…China slide down (FXI) despite good manufacturing news…and in Europe France Spain Germany all gave it back (EWT EWG EWQ)…emerging markets and their debt realtively stable (VWO VWOB)…stay tuned…volatility ahead
Crude Oil/Natural Gas
OK..we told you we were suspicious of Crude prices in the 40’s short term and that paranoia was deemed warranted this week ass we got a nice $5 dollar drop from 44-39….the catalyst was oil rigs counts rose and even a Hurricane couldn’t slow down the refineries but did shut down more than 80% of off shore production in the Gulf of Mexico…longer term into next year we are still constructive on the oil supply / demand dynamic. Natural Gas is a market we have told you about when it broke above 2.00 and has since continued up toward 2.75 (great move) but this week settled at 2.57 so it is extended and could have a pullback but seems like it may want to make a run at the 52 week high at 2.91…a break of 2.43 (weekly low) would hurt. On the stock side..the majors (XOM CVX COP) all got hit and need a good 3% to 10% rise to get going while LNG is at 52 with 50-200 day MA’s around 5o
Gold Silver Platinum Copper Bitcoin
A full slate of Dollar/Inflation Hedges here for you..we told you last week we are in trading ranges which often happens after parabolic moves (like stocks) Gold 2100-1900 Silver 30-24 Platinum 1100-800 and we remain in them albeit testing the lower boundaries. GDX GDXJ SIL SILJ are all on the defensive and we hope to be able to load up before years end at discounted prices to be set up for an advance next year….we’ll see how the cards come out….Copper got above 3.00 and sso far has maintaine it depite housing stocks taking a bit of a hit and lumber prices tanking from 934 to 781 before rebounding to 875…wild ride….Bitcoin has been volatile from around 13 grand to 10 grand and closing at 10600…look into GBTC for exposure.
Soybeans Sugar Coffee
OK!! Last week we told you are patience paid off in Beans ass the broke 9.50 and ran to 9.67…so this week we maintained and added a few cents…now the hard part 10.00…can we do it..we’ll see but so fat the move out of the 8 range has been welcome….now the patience for Sugar has NOT been rewarded as the fade off 13 has taken us under 12.50 (not good) and truthfully the land of milk & honey is on the other side of 13 so something feels wrong here unless we can regain upside momentum. Coffee ass we told you was a buy under 100 and then again on a pullback to 110…this week we saw a RUN up to the highs of 135..a real winner and while we are extended…right now no evidence of a turn down-let it ride on a short leash
REMEMBER… There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm/broker/advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only
August 28, 2020 Option Professor Opinions & Observations
Greetings!….What a week…between the New Record Highs in the S&P 500 & the Nasdaq…..we had a major Fed announcement….a major Japanese Leader resign….a Cat 4 Hurricane…..the RNC deal….a 100+ year member of the Dow got booted…..protests & tragedy in Wisconsin….another million out of work.. So how was your week???. As we said months ago; late August could be pivotal as if we could keep the VIX between 20-25…big money may commit more $$$$ as relative stability has returned which is EXACTLY what we saw in the last 2 weeks. Important to note that the VIX stayed above 1996-2000 which saw a stock boom & Dot Com bust. Now we expect the end of this year and beginning of next year to be strong BUT our CONCERNS are in the NEXT 90 days. The jobs market stinks as 30 million collect benefits & we hover in a ball park 10% jobless….big companies (Coke) and profitable companies (Salesforce) and distressed companies (Airlines) are all handing out the pink slips…so the right sizing of companies that we told you about months ago involves cutting staff-so earnings rise. What will this do to consumer spending…..the Fed keeps printing (money supply is UP 30% while money velocity TANKS. We’ve pulled forward a ton of demand that is bound to cool off and the election is going to be a mess. Valuations or re valuation of companies had been the big driver (e.g. AAPL was 20X P/E now nearing 40X LULU was 56X now 86X and many more)……this is how short term bubbles form….call volumes have exploded and the skews suggest possible nervousness ahead…..IPO’s have exploded….Buffett still sits on his wallet….SO WHAT”S THE CALL?….well our view is Do Not Fight The Tape BUT the Time Zone ahead (Sept-Oct-Nov) AND the fever pitch of the rally AND the distance between stock prices & the moving averages (reversion to the mean) AND long term Treasury yields RISING AND the VIX trading 21+ AND VALUATIONS discounting a very ROSY picture….means that you MUST monitor prices and have defensive tactics at the ready (Covered Calls Writes -Collars-Married Puts-Replacement Trades-Trimming ect)….because if we roll over for CAUSE….the volume coming OUT will dwarf volume coming IN Caveat Emptor….
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Where to start…..many companies either made all time highs or 52 weeks highs or just had a great week……some that had our attention was the streaming wars companies (ROKU)…epicenter stocks (cruise lines- airlines restaurants-hotels-casinos)….Covid winners (Dick’s PTON ZM) and WDAY CRM CMG AMZN & cloud computing WCLD & MSFT……next week we’ll see how AAPL & TSLA trade post split…buy the rumor sell the fact..we’ll see…also smaller company (OSW) in Health & Wellness on cruises rose. With the boycotts in pro sports and rumors of less games in other sports ahead..they hit DKNG & PENN but longer term some say a 1.5 billion dollar market may look like 12 Billion over 5 years so keep an eye out there. Some are suggesting that a hedge on the QQQ may be worth a look as a Nov 275-250 debit put spread was at 6 and if a trader owned the Q’s and sold a covered call in Oct at 131 the 5 bucks received would pay for a good size of the debit BUT you must be clear on the real and opportunity risks of the strategy and other factors so consult your own advisor & brokerage firm.
Fed boss Powell came out with his let the inflation run hot before reacting to it spiel which allows him to keep printing & financing ballooning deficits ass far as the eye can see. Will the Dollar fail & will Gold ect zoom and will we look like Japan (1990-Present & 1933-1948 which employed this cheap zero interest scheme and where markets net go nowhere…time will tell..you tell us who will buy Trillions of Dollars of negative yielding debt…plus other Consumer/Mortgage/Corporate/Junk/Sovereign DEBT if EITHER the Dollar hits the skids or if INFLATION comes back…have you been to the store…buy a car or a house or pay bills lately….seems like we got inflation already…. ..the FED used 5% of GDP after 2008 GFC and now is at 44% of GDP..crazy.. for now short-intermediate tax frees have done fine but most of the debt market is EXTENDED & a reversion to the mean (moving averages) started
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US Dollar/International Markets
The Dollar lost it’s steam a bit this week as Fed talk of printing ad infinitum scared the bounce crowd and put the Euro back in the forefront as the Dollar pressed 52 week lows and Euro 52 week highs…..if we break 88-90 DXY it will open the door for 85 area which is the highs of 2012 & 2013….will the Fed defend the Dollar?…hey they just bought Junk Bonds so why not….but if yields creep up to .85%-1%+ that could be enough to stabilize it. If the Euro can take out 120…125 could be the target (highs of 2018)…..but a failure to do so..a moderate pullback towards 115 is not yet off the table. The Japanese Yen got news this week with Abe resigning for health reasons and we saw the Yen went into the tank toward 105…we never trusted the Yen since it failed in the 110-112 area…the Canadian $$ still looks weak as well but the Aus$$ has picked up steam as we told you 50 above 200 day MA Mexico is bracing for worst recession in a 100 years yet their stock market EWW hangs in there…..Brazil EWZ was up almost 5% Friday..watch for a turn…Europe is hanging in there EWU EWG EWQ but will stall lead to fall? .India INDA has had a big run so has BABA & Emerging Markets VWO. The world will probably follow the US so Sept-Oct Nov still is a 90 day close call
Crude Oil/Natural Gas
Hurricane Laura and her predecessor did not kill the refineries and or supplies were ample ass prices well behaved…we heard SLB was the play and it rose 4% on Friday….people are sour on oil sstocks but our view is they pay good dividends and will ultimately benefit from the reality that supplies have tightened (frackers rig counts OPEC) and the demand ahead will push prices substantially higher…everybody (PE) left now we come in. Natural Gas was a favorite of ours when it broke 2.00 and while it dipped Friday after a long run we saw LNG (53) has the 50 and 200 day MA at 50.
Gold Silver Copper Platinum
Gold liked what Powell said and had a good week up 40 bucks on Friday but remains in the new trading range of 2100 and 1900….Silver 30-24..Platinum 1100-800 with copper showing the legs to break out above 3.00….on the stock side the GDX and SILJ rebounded but still off their highs while 2 stocks in the Copper mkt we told you about FCX & SCCO were superstars this week
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Soybeans Sugar Coffee
Well one of the three amigos had quite a banner week…..the one that hass been Waiting for Godot…well this week Godot actually showed up as Soybeans provided a payday for the patient bulls as prices shot up over 50 cents a bushel and closed near the highs on good buying including China ect Sugar prices were bouncy between 13 and 12.50 but we remain constructive as long as the new range holds (11-13) as we believe demand during the recovery will boost commodities in general. Coffee prices continue to matriculate up the charts trading wonderfully technically..we had a buy under 100 followed by a breakout above 105-110 and pullback to 110 breakout point and now at 126….not the bargain it was….but Bellissimo!
REMEMBER …There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm and broker /advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only
August 21, 2020 Option Professor Opinions & Observations
Good Day Everybody!…..We made new highs in the Nasdaq & the S&P 500 this week so the band plays on…..not on new sheet music but rather the same old song that has played out since March…..TECH and MEGA CAP GROWTH and CONSUMER DISCRETIONARY and SEMIS and HOUSING. These are areas we brought to your attention as we made the turn months ago but have taken on a life of their own….yes some companies numbers have improved but not to this magnitude of this kind of price action. Also; we told you if we could get the VIX down to 20-25 by late Aug…the sideline big money may start to commit as the wild swings risks may have abated. The Big Question about the run up is WHY? Our answer is that it is as usual a combination of things. Never short sell the USA’s consumers willingness to spend money even if they shouldn’t be. Unable to travel or go out to eat or go to a ballgame/theatre/amusement park or even go to Vegas and gamble; they took to the stock market to gamble (record new accounts) ….to e-commerce to buy things….pizza/fast food to dine….and spent on housing ect.. They couldn’t go to the gym (Peleton)..They could see a doctor or sign documents (TDOC-DOCU)…They couldn’t go to the malls (AMZN-UPS)..They were stuck indoors (HD-LEN-ITB)….plus their kids were home (NVDA-ATVI) while their parents needed to do business (ZM) and other business “right sized” by going to the cloud (WCLD MSFT) and communicated with each other (FB 2+Bill monthly users). OK….BUT WHY ARE PRICES FLYING? Our take is because of THREE (3) main things all emanating from the FED & DEBT…..you see the FED & Treasury (Powell & Mnuchin) didn’t let an opportunity to lower rates to ZERO ob money market funds and backstop all debt by either buying it or threatening to do so. This led to the 3 outcomes of #1. T.I.N.A which we told you in March when we saw the plan and it means there is no alternative to stocks and bonds if you want or need to make money (tear gas for savers). #2. Free Cash flow VALUATIONS are screaming because as related to the Treasury alternative (UN-INVESTABLE) so you get P/E ratios into outer space but deemed acceptable to some. #3. Companies can borrow at ABSURD rates for DECADES out in the future and pay almost NOTHING as yields in the 2% area are accessible to many companies and the JUNK (non-investment grade) is VERY low and maybe getting lower (no pay for the risk). These companies can play the same stupid game as before…buy back their own stock….mergers & acquisitions and capital expenditures (probably the last thing on their mind). We told you that OPERATING LEVERAGE includes less employees & real estate would lead to a quicker return to peak earnings and it’s happening. WHAT ARE THE RISKS? In addition to the USA fiscal cliff on SEPT 30th…There are many but let’s talk about a few….In TSLA which is over 2 GRAND a share up 400% THIS YEAR….They’ve got Battery Day on Sept 22 followed by DELIVERIES Oct 1-5 and the RESULTS in late Oct early Nov….could any of those things disappoint?…..AAPL is supposed to have this new phone & 5G capabilities which they said will be delayed…for how long and will the price be acceptable (China sales are slipping big time)? HAS COVID PULLED FORWARD DEMAND? This has to do with the SPIKE in e-commerce, dining choices, housing buys & upgrades. tech buys, interest in tech innovation used up their buying power and will this demand naturally go in to a fade mode? Certainly; the Dow Jones Transports have risen nicely in the last month as UPS & FDX ect have had lots of activity & pricing power but still lie UNDER all time highs while Small Caps (Russell UNDER 1746) and VALUE & MOST S&P 500 stocks still UNDER 52 week highs. It’s either GROWTH or No Growth and SEPT_OCT_NOV we’ll have a clearer picture of UNEMPLOYMENT-EARNINGS-ELECTION all of which have NOT been put into the equation…..Not a bad time to LEARN about COLLARS & MARRIED PUTS…Be Prepared–Will we get a sell off AFTER LABOR DAY followed by a YEAR END RALLY…..let’s see the aftermath of all these splits..stay tuned….
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There were a lot of stocks making record and 52 week highs and clearly the sectors we have mentioned to you months ago still lead (VGT MGK VOOG SMH VCR ITB) have continued to be money maker since we highlighted them in March and in fact using a simple 50 day moving average would have allowed you to ride this wave virtually uninterrupted. The Value stocks (MGV VYM VOE VONV VBR) and the International stocks (VEU VT VGK VPL) have failed to get the octane needed to get on the horse and catch up to their faster sectors. We believe a true bull run that will be sustained will include these so either more time is needed or the Liquidity rally is on borrowed time and investors chasing this rally will have a rude awakening before year end. NEXT WEEK..look for more retail earnings BBY JWN GPS Dollar General and Dollar Store….with tech sale BBY should have good numbers..Other stocks seein action Uber & Lyft who can continue their business while they appeal California’s employment driver status. Some say trading GILD off this week’s lows makes sense…DE had an upside bang while WFC (cutting staff) is a hop skip and a jump from new lows it saw during the crash. RXT helps migrate data to the cloud for AWS & Azure so keep an eye out. Another one that had a lot of option action was OXY which some are betting has an upside surprise in its future. Mostly all the thematic ETF’s (cloud-cyber security-precison medicine-internet of things-robotics) along with tech mega cap growth continue to be where the $$ is..how long?
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Let’s keep it simple…the Fed controls the shorter end of the curve and Treasury yields on 1 yr thru 10 yr maturities are virtually un-investable for income or capital appreciation….they want you to take more risk and finance these companies out of your desperation for yield—-good long term plan??…since when is loaning money to companies for little or no interest with 30 Million people receiving unemployment benefits sound like a good idea?…the people playing this game Trump-Powell-Mnuchin may not be with us for long but these moves will be….everybody likes to see their bonds go up….but if inflation returns and people want out…who takes the other side?..We just saw what happens when everyone wants out..the dealers disappear…in hopes our Fed shows up with their printing press money…. will the currency used to pay back be jeopardized?….will GDP ever justify the debt loads?..The Fed’s balance sheet has about doubled and more to come and is LARGER than the USA annual budget…..this is no exact science and mistakes can be made….looks like the 10yr may trade @ .50% to .85% for the foreseeable future but the 30 yr may fall out of bed if inflation and the dollar break badly…hiding out in munis..short term corporates has worked but corporations ($1.4 Trillion Issues in 2020) can’t print currency and as we have seen in foreign nations that don’t issue debt in their own currency..it can get scary. Is there a reason MODERATION can’t be a policy so rather than dramatic swings UP & DOWN in stocks & bonds (life savings) some stability reigns?…..I hope these temporary employees know their stuff
The US Dollar has gotten whacked in the last 4 months as our YIELD ADVANTAGE had gone out the window & our budget & fiscal situations stink Having said that..we have believed that the DXY is OVERSOLD in the 90-92 range and a counter trend rally may ensue…so far that is EXACTLY what is happening. We were very BULLISH on the Euro at 110 and we got a great run toward 120 at which time we believed are horse was tired and in need of a rest and it would sell off from the 120 area…so far EXACTLY what has occurred……we saw the Canadian $ & Japanese Yen as rolling over unable to hold gains while the run in the Aus $$ is stalled with the price of Gold. So there you are…..our view as of now..we remain flexible as events emerge.
Cruse Oil/Natural Gas
If Crude price get any flatter we’ll change the name to pancakes….we have traded between about 39 and 43 for the last 2 months but if we break under 40-38 we could go after the stops underneath. Longer term…we see 50-60 as the rig counts..frackers..OPEC fundamentals (if sustained) is a solid backdrop to increasing demand (remember only a very small % of cars are electric) that should happen as we get closer to normalization HOWEVER a shock after Labor Day with stock prices could instigate a sell off IF we get back under to 50 day & 200 day MA’s which are both right around 39-40. Natural Gas had a great run which was beneficial to us and LNG also had a run and this week we made a new high for the move in NG but volume is slowing and we are technically overbought short term so the breakout point was 2.00 so trimming/hedging and re-entry on a dip seems reasonable.
Gold Silver Copper Platinum
We told you the Barrick Gold purchase by BRK.B was being overblown as a 1/10th of 1% position in anyone’s portfolio should not set off alarm bells. We got a great SHORT TERM SELL SIGNAL after Gold went from 2100 to 1875 and rebounded to 2025…Our signal said to sell @ 2015 and we saw a drop back toward 1920…an 80 buck drop quick..nice!! From here…respect the 1875-2025 range…we told you at 2100 the 50 day wass in the 1800’s and the 200 day is in the 1600’s…got to the former…..maybe see the latter soon??? Learn how Collars & Married puts are used to protect values and hedge risk. Silver to us was a great buy on the breakout of 19-21 and a good sell at 30 (50% retrace)…so now closes UNDER 24 opens up a potential pullback to the breakout area 20-23 and a break ABOVE 28-30 could open up 35-50….right now we feel reversion to the mean makes more sense…but we’re flexible. Copper is being helped by the HOUSING craze as LUMBER prices have more than doubled as inventories are low and demand soars HOWEVER getting and staying above 3.00 has been elusive and if our scenario is that after Labor Day investors will sober up…then a pullback is the risk…stay tuned. Platinum is 30X rarer than Gold and trading at a quadruple digit discount so if we get ABOVE 1000-1200…is it a horse that will go from canter to gallop??
Soybeans Coffee Sugar
Well let’s see how the Three Amigos did this week…starting with Soybeans..they broke out ABOVE 9.00 and ran to 9.20 only to retest the breakout area and close around 9.03-9.04…still stuck UNDER the bigger resistance around 9.50 so let’s see how the cards come out this next week… Sugar prices have been a little psycho lately…we broke out above 9-11 range and ran to 13…backed off to 12.50..blew out the highs and went to 13.25.. then rolled over to close this week at 12.81..see what we mean….so now our belief is that the first range was 9-11 followed by a range of 11-13 and as long as we stay ABOVE 12 we will remain a believer-prices up over time. Lat but not least COFFEE has traded pretty good technically…we felt UNDER 100 was a bargain (it was)…it would break 105-110 and run (it did) and it would retest the breakout area of 105-110 and resume its run (it has)….NOW it’s stuck in a range of 125-110 and so far has a lower high….so we wait and see.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker and advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only,
August 14, 2020 OPTION PROFESSOR OPINIONS & OBSERVATIONS
Greetings!…..Taking a look at the many 13F filings that came out as of June 30th…..we focused on Berkshire Hathaway to get a flavor of what legendary investors are positioning for now that we made All Time Highs in the (NDX) Nasdaq & within earshot on the S&P (the Dow still 1600+pts below a Record) It looks like he reduced much of his banking shares (WFC -27%, JPM -62% BK -11% GS -100%) but in reality he has cumulatively $32 Billion+ in WFC USB and BAC without counting the buying binge in BAC in July which we read as very constructive on financials as we come out of the Covid lock down. With retail sales up 2.7% YOY and the Fed flooding the market with liquidity; one could argue that the banks may have Overcompensated for loan losses & cut costs so their operating leverage thus earnings could shock the street. Everything else for BRK.B appears to be holding on to their core holdings and most noticeable is their HOLDING CASH Equivalents to the tune of way OVER $100 Billion or about 25%-30% of their market cap. They got involved in gas storage this year & made moves in their OXY volatile holdings as well. There was a NEW addition that the press & dodgy coin salesman will seize upon and that is an $563 Million dollar position in Barrick (GOLD). Whether that done by Warren & Charlie or a subordinate is not known to us. GOLD traded between 18-28 during the period. HOWEVER the size of the position by our math is about 1/10 of the BRK.B market cap so we think AAPL is not being threatened ass their top holding nor we would read into it that Buffett’s long held view that Gold pays NO dividend and has NO internal rate of return thus is NOT a place that he would OVERWEIGHT. Other filings we found interesting was David Tepper’s positions in the payment processors PYPL SQ V MA although we favor the ETF IPAY as a one stop shop & Tiger increased positions in ZM & PTON..two darlings of the Covid crisis…Julian Robertson was once quoted that badmouthing NFLX was like badmouthing Santa Claus…on a side note ….we had the chance to play golf at his resort in New Zealand called Cap Kidnapper’s & if the the opportunity presents itself to you…..just go…breathtaking & remarkable. It feels like the markets have climbed to the top of the mountain and maybe lost some momentum….needs another jolt or maybe in Sept/Oct we could be hearing the old BB King song “The Thrill is Gone” as we head into the election……no evidence this week of that….put/calls ratios extreme as well as VIX since the March drop-Don’t fight the Tape…Don’t Go Asleep @ the Wheel …Wilshire 5000 to GDP Ratios is absurd & Buffett’s holding Cash NO Chasing Splits coming out of the woodwork…Time for Prince? Party like It’s 1999.. .Our view remains a barbell approach including Tech Growth Value stocks and the epicenter all based on a continued recovery…Will we test SP 3000-3200 areas or 10,000-9,000 Nasdaq BEFORE the election?…We’ll quote Bernard Baruch…..Buy Straw Hats in the Wintertime….suspicions/no proof.
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Many big stories out there this week including 2500 trucks ordered by Republic Services from Nikola which adds legitimacy to a pre-revenue company to some degree…still NOT our game. Also DKNG got whacked a bit even as gambling on sports is jumping albeit with insufficient events to bet on. BABA got added to the Hong Kong exchange which may get a boost from pension plan interests…they got earnings coming out next week a do many retailers like KSS HD WMT TGT and ones that we really feel have longer term runways like TJX ROST & ULTA as these guys sell DISCOUNT stuff and we believe consumers will have less money to spend and will frequent these companies…you saw what happened to Wayfair & Overstock right? AMC theatres & others are opening theatres Aug 20 with tickets at 50 cents..last time that was the price Mickey Rooney was starring as Andy Hardy….but with Disney going direct to consumers,,they got to move fast. BIDU got hit hard as their investment in QI looks shady as investigators seeing if QI overstated subscribers and other irregularities…Kodak may not get the loan unless they can explain some weird trading…ask P Michelson. We’re still watching 5G players nad infrastructure beneficiaries..stay tuned. Unusual option activity in SPCE LYFT PYPL while some say XRT is tapped.
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Big News here is that yields rose and the negative spread tightened EXACTLY what we told you was happening last week…the .60% spread moving to 1.65% spread that gave Gold a jolt and the Dollar a hit has abated…shorting bonds in the 181+ area was a moneymaker ass yields rose from about .50% to 75% a 50% leap. The Long Bond jumped well above 1.40% a the Fed auction did not go great and the supplies (deficits) are coming non stop like white river rafting. Cut corporate taxes 40%…cut payroll taxes..cut capital gains taxes..you got 10-14 facilities the Fed & LBO Mnuchin set up….money supply is exploding. Junk Bonds had the lowest yields ever this week on an offering and so the question is will the DEBT be deflationary….so far Corporates & Munis stable (GS locked out of NYC deal). Remember the FED is a lender so they help with liquidity not solvency so before long we will see how many they granted liquidity will be solvent.
US Dollar & International Markets
As we told you our belief is that the DXY at 90-92 and the EURO at 119-120 areas could be turning points IF the relative real yield would tighten and it has. Now longer term we remain bearish but over the next 1-3 months it would not surprise us to have a upward adjustment in the Dollar as the Yen Aus$ Can$ all seem to be faltering or stable at best and Covid problems seem to be resurfacing overseas. The ETF’s we follow for China-Asia/South Pacific/Europe/Emerging Markets such ass VEU VPL VGK VWO are all losing some altitude and like VALUE stocks are just UNDER 1-2-3 yr MA”s…with a BOOST they could break out and big winners BUT if they fade off these numbers…it may be a TELL that a more nasty selloff broadly could be ahead after Labor Day. Watch this carefully…it could be a key factor.
Crude Oil & Natural Gas
The market has gone flat trading about 43 to 41.50 so unless we break 40-38 you have to respect the DEMAND & SUPPLY constraints put on by Rig Counts/Fracking/OPEC something we told you about since March Madness. Some oils stocks & ETF’s like VDE have faded a bit but just like the stocks of INTERNATIONAL & VALUE….if they get a BOOST they can be right back on the horse but a fade after August could be a warning so we remain focused. We remain constructive on natural gas as the market in the last 10 days have been a solid winner for the bulls and Friday spiked up. Keep an eye on LNG & others which has doubled off the March lows….momentum strong.
Gold Silver Copper
We saw short term tops in the mining shares (GDX 46) and that led us to be suggesting pricing out covered calls & collars at 2100 Gold & 30 dollar Silver Premiums were rich and hedging made sense…a huge powerful selloff ensued…now we snapped back….next week every salesman for the metals will be touting Buffett’s purchase of Barrick but we quantified that for you above …so don’t go chasing waterfalls. The yields rising this week took an ace out of the metals hand so a wide trading range of 2100-1800 Gold and 30-24 Silver may be in the cards sans a Dollar or Interest Rate big move. Copper prices have faded of $3.00 area as China’s economic numbers are shaky..as we said FCX has to maintain ABOVE 14..this week it failed to do it.
Soybeans Sugar Coffee
WAKE UP!..Things are moving in Ags & Softs this weeks so maybe patience & persistence may pay off as we have been constructive on all three since March. These products are used globally and who knows how supply chains may be affected by Covid. What we do know is Soybeans had a 35 cent move to 9.00 and Sugar broke the 13 resistance and Coffee pulled back to the breakout point at 110 then rallied to 121 & closed around 117–textbook NOW..we need follow through and if we either get it or consolidate…we will be very pleased so that MAYBE we will get the the bang for our buck finally.
REMEMBER —There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
August 7, 2020 Option Professor Opinions & Observations
Welcome Back!…This week we got some confirmation as The Dow Jones Transports & the Russell in the last two weeks have taken off like a rocket ship. DJTA blew out the snap back highs at 10,100 closing at 10,576 and the Russell blew out 1540 closing at 1569…Great Stuff!….now we still haven’t taken out the 52 week highs on both BUT for the purpose of NEXT WEEK.. we are feeling a MOMENTUM JUMP in the lower P/E value ETF’s MGV SPYV VYM VONV VBE VOE could see an acceleration and these guys are way UNDER their Feb highs so a lot of potential real estate to make up…..and don’t forget we are getting about 3% and better to watch the movie unfold. Sure the FB AMZN AAPL MSFT GOOG QCOM…telecom..e-commerce-delivery guys (UPS-FDX) are still in the hunt….but sideline cash-income replacement and the rotation-re-balancing crowd are going to like 14 P/E & 3% yields too! Listen the P/E ratio on the 10 Yr Treasury is about 180-1 & Investment Grade is in the 50-1 P/E neighborhood which is why Growth can command 30-40-1. This market is a Momentum junkie and we are getting Momentum in the last 2 weeks and it feels like this week could ACCELERATE with a bang. The EPICENTER stocks hit by the Virus…banks, energy,hotels/airlines/ casinos/ Life & Health insurers/department stores (email us for our Radar List). Having said all this the proof is in the pudding so we are depending upon Moving Averages & Relative Strength indicators to get confirmations….if the prices don’t hold their water…a short leash will allow for risk control-VITAL. BIGGER PICTURE….there remains a risk that Q3 will see a turning point as the economic numbers are slowing from May/June and monetary stimulus goes so far…if incomes contract/spending contracts…the sugar high recedes. Plus..there has been ZERO hedging going into the election and we will see if the UNWIND reversal we began to see in the Dollar-Gold-Silver bleeds into Stocks by the end of the month after Apple’s 4-1 split. Never A Dull Moment!
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The big news this week was the USA/China tussle ass WECHAT & TIKTOC have been voted public enemies Numero Uno. Some things we can count on coming out of this pandemic…people will need state of the art telecom communications…they will buy things online (E-Commerce) and they will need these purchases delivered. So in that light VOX or VZ TMUS AMT CCI plus AMZN SHOP XRT IBUY EBIZ & EMQQ (International) with UPS FDX IYT XTN of our featured RADAR LIST longer term. The VIX is very LOW But we told you MONTHS ago that if they could get the VIX down into the 20-25 range by end of August…it could unleash a LOT of buying in Q4 as BIG money doesn’t want to trade side by side with Robin Hood speculators with the VIX going from 20 to 90 to 25 to 40 …..but calmer waters & T.I.N.A wins! Other stocks had news such as DIS DE TGT plus SQ PYPL & processors. Options Activity was seen in Slack & Lyft (pre-earnings) TMUS added a lot of subs and China stocks got hit in what some say is a buying opportunity ass the bark has been much worse than the bite with the administration so look at BABA JD.COM TCEHY BIDU ect…..BUT we want to leave you with thoughts on 2 companies we spoke to you about….FB & GOOG….advertisers may slow down but are not gone forever and these two are must have stocks LT…Hey check out the STAT of the week…we heard this and it just blew us away…3 Billion global internet users…2.6 Billion FB monthly USERS How can this company NOT be able to Monetize that..stock up $50-2 weeks.
The Big News here is that DEBT is exploding at a 4-5 times normal rate and the FED MUST print & buy as they need about $1 Trillion bought to help pay for the stimulus so far ($278 Billion MORE than estimated or 33%+). It’s laughable that anyone in Washington calls themselves a fiscal conservative ass the Deficit was $1 Trillion BEFORE the Virus (greatest economy ever??) and now it’s in the Ozone…..sure the Dems want more money for social & state relief….but we need a LOT & Longer Term support…so do you want to have tons of stimulus bills or just get one big one…that’s the rub as we see it. Anyhow…could we go negative on rates..who knows..but the bet now is that the negative real yield may TIGHTEN (was .60 went to 1.65) and if it does it could be Sayonara (as Brando once said) to the bulls in Euro-Gold_Silver. Short Term Corporates & Munis have been the play but all DEBT stretched. Watch out for mortgages as the agency debt has gone RECORD levels and it seems low/no money down…take money out…with lower incomes is risky.
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US Dollar/International Markets
As we told you in prior updates…we believe the US Dollar will bottom in the 91-92 area and the Euro will top in the 119-120 area temporarily which this week is EXACTLY what has occurred. We turned BULLISH on the Euro around 110 but felt our horse may need a rest…it did. The belief that the negative interest rate differential at 1.65 may be a temporary peak and parabolic spike both favored a bump for the greenback. The Japanese Yen wass hanging on for dear life at 108 and let go of the rope (now 105.106) and the Can$ & Aus$ may fade if the metals fade. Watch Mexico longer term EWW as they may well be the big winner when supply chains get closer to home (they certainly won’t come back to the land of unions & benefits) & VPL VEU VGK (Asia & Europe still haven’t been able to break their ceilings. Lately; the emerging markets better characterized as submerging markets.
Crude Oil/Natural Gas
Inventories declined and the roads are full ass no one is flying and delivery trucks must fulfill all that e-commerce spending…so up she goes….BUT still in the 40’s and we are suspicious short term but fully bullish long term.. check out CVX XOM & VDE for a momentum trade and BP cut their dividend which made them wear a Scarlet Letter (C) but others could follow though CVX seems to rather fall on their sword than cut..XOM @ 8% has got to go. The new kid on the block is Natural Gas which we have been positive on for a month and we were rewarded with a fantastic move to the upside…and may of the stocks have followed suit including our favorite LNG..stay tuned.
Gold Silver Copper & Platinum
We told you that the mining shares (GDX GDXJ SIL SILJ ect) may be telling us that a short term top may be at hand ass they hit our targets and we cashed in some chips. SELLING CALLS against metals positions or COLLARS would have paid handsomely this week (APPLE too) and should always be on the table when markets go parabolic (nice cash flow & down protection). It wasn’t a good Friday for Gold ($40+ bucks off the highs) nor Silver (about $2.50 off the highs)…will it be temporary…until we see that negative rate widen out again which is not what some are expecting near run-stay tuned. Copper…as we told you got turned away at $3.00 and this week accelerated to the downside..our buddy FCX must maintain ABOVE 14 or it’s No Sale. The new kid on the block is Platinum…while it got roughed up Friday with all metals BUT was up over 10% earlier in the week…..the big news is the LT MA”S are crossing upward and suggest a LOT more runway for a metal that is 10X rarer than Gold and used to trade at a substantial premium to Gold & now is at a DISCOUNT of over a GRAND….we hear the same stories about how it’s not used any more..we also heard Silver’s dead-no cameras.
Soybeans Sugar Coffee Cocoa
Well as we said Soybeans are in trouble if they can’t get above 9.00 & 10.00 and this week’s action puts them on life support…not so much so with the other 3 Amigos…..Sugar ssold off the 12.50-13.00 resistance only to hold the 10-11 range and rally back to 13…still hasn’t got thru but if it does…follow the money. Coffee was a friend to us ass we said anything UNDER 100 was a gift and it would spike once it broke 105-110..EXACTLY…that run took it to 128 and of course you got to do the Steve Miller Band trade Take the Money & Run! We backed down to 114 Friday so let’s dust off the buy tickets & get ready to play again possibly….the new kid on this block is Cocoa which this week jumped from 2400 to OVER 2520….good run..let’s see if it continues.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
July 31, 2020 Option Professor Opinions & Observations
Welcome!…Before we start…we have provided you with ideas for Tech & Mega Growth in March & April….we provided you with ideas for Value & Cyclicals in May & June….and we provided you with ideas on Gold-Silver-Copper & Euro in June & July…Not Bad….we ask that you direct all the investors/traders you know to our website @ optionprofessor.com and input their emails & they too will receive our Free Weekly Updates..Thanks!
OK..What’s going on now and more importantly what’s happening next? We saw the Big Tech boys blow out earnings this week…AMZN…over $5 billion profits..revenues soared….AAPL…new all time highs-big expectations on a reload of I-Phone users to go to #12 & 5G capability for data & connectivity. Big sales of I=Pads to the schools and almost $200 Bill cash & a 4 to 1 split. Dow Transports had a big reversal (UPS) late Fri. as did much of the market. On a more sobering front Q2 GDP was -33% & unemployment is up ticking. We told you a long time ago that OPERATING LEVERAGE and RIGHT SIZING COMPANIES was the future 3 months ago and that companies would return to peak earnings much faster (less employees & less real estate).Washington better smell the coffee (Fed extended programs thru year end) as Bernacke Yellen & others said we need LOTS of MANY MONTHS support as LOTS of people can’t go back to jobs that don’t exist. Thirty Million people lost benefits today & maybe the rally at the end is a bet a deal will be reached. Revenue growth at GOOG has been slowing since 2017….USA initial pop in the economy has faded and Japan’s NIKKEI has rolled under some MA”s as they depend of export demand which is waning and the TOPIX Machinery Index looks like it threw in the towel. SP earnings decline worst in 12 yrs.
So…..What’s going to happen NEXT and where is the puck GOING….cause that’s our PREPARATION? No Crystal Balls here….Markets are TRANSITORY. HERE’S OUR VIEW…….YES..we are in a BULL Market….YES..with post Covid no visibility the Tech-Mega Cap Growth-Momentum trade has soared big time…..YES…the P/E ratio on the 10 yr Treasury is 180-1 and Investment Grade is 40-1 so by comparative valuation..creates REAL flows of money from pension plans to hit long term requirement…..stocks are cheap… ..YES…POSITIONING suggests that there is a ton of money that has yet to re-enter due to HIGH VOLATILITY but the VIX has slid under 25….. .HOWEVER… YES…..the Nasdaq Volatility Index (VXN) relationship to the Nasdaq Index (NDX) is extreme and corrects by volatility jumping or the NDX coming down or both….YES…the GROWTH valuation relative to VALUE also at historic spreads…..YES…there is a BINARY crowd-positive event on the horizon (vaccine)….YES…CAUTION is the fiber of this rally BUT rates of MORTALITY in NYC have plummeted. YES….We are looking for the UNWIND
OK So RIGHT NOW…..We are PREPARING for the UNWIND TRADE…which in the Stock Market is a DECELERATION of Tech & Mega Cap Growth and RISE in SECTORS such as Mega-Mid-Small Cap Value and Cyclicals-like Staples-Digital REITS, Transports, Russell, Banks, Energy Materials, Industrials, International, Gaming, Travel-Air & Hospitality…..it also includes GOLD & SILVER which hit our TARGETS (Gold above $2000/Silver 26.27/GDX 46) which have gone up 6 to 8 weeks in a row…a rare occurrence typically followed by 3-6-12 months declines….it also includes the US DOLLAR which we believe won’t get UNDER 91 nor the EURO above 120 (as you know we were BULLISH @ 110) & finally the negative yield curve (1st time since 2012) may correct but the FED is capable of intervening to alter that natural outcome but when we re-open..pent up DEMAND & our credit rating/ currency in jeopardy prevails. In CONCLUSION…more PRICE evidence needed to ENGAGE….BUFFETT added BAC not ZM….just like we liked the ODDS about Silver spiking IF ABOVE 19….We believe REPRICING will occur with a RAPID momentum SELL OFF & VALUE RALLY ….BE PREPARED.
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Wild ride Friday in the last 2 hours as the reality of 30 million workers trying to live on $1600 bucks a month & evictions about to soar may have entered the mind of Washington (like Pelosi said…we spent $Trillions on getting the Stock Market back up with FED BUYING JUNK but no $600 for the grunts?…..How do you go back to a hospitality job?…maybe better news. Some of the big stuff thiss week was in the semis ass TSM & ADM soared when INTC said they got big delays & they took over market share. Eastman Kodak went from about 2 bucks to 60 and closed the week at 21+….they got a loan from the Admin that was ridiculous to their company size…plus volume went into the millions & option contract exploded 100X normal BEFORE the announcement…so we think Inspector Clouseu-Maxwell Smart & Barney Fife should be called in or maybe just Phil Mickelson to sort it out. Big news on airlines as many are taking seats out and using the planes for CARGO as they need to make a buck while the wait for travel to return. CALLS activity this week in Dropbox, TEVA, JD.COM HSBC (earnings out this Monday) also EARNINGS from HLT SONY DIS BP BMY CVS HUM BKNG and Saturday…we hear from Berkshire Hathaway…no games no good for DKNG
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Ok..90% of advanced economies bonds yield less than 1% and our 5 yr & our 10 yr Treasuries closed at RECORD LOWS this week. We have BREAKEVEN yields ABOVE the Nominal yields for the first time since 2012. The aftermath (2013-2014) saw Stocks RISE 40+% and Gold DECLINE 40+% so let’s see how this plays out. The US Dollar has been hit hard/Gold Up. Our view is that in the near term what has been working still seems valid as the Fed says programs go on thru year end…so short term corporates, plus Investment grade, asset back and securitized debt seem to be the preferred. Munis saw a big jump in DEFAULTS but still saw a 20 Billion cash inflows. Overseas money needs a home so that demand with the Fed backstop enough…someone is going to get stuck in all this debt when they UNWIND.
US Dollar/International Markets
The EURO has been our horse since 110 but up here at 118-120 it looks like our horse may need a breather…a long way in a short time and Germany looks like they are out of steam. The Aus $ still hanging in there while the Can$ and Japanese Yen are lost some altitude…a big week for the Yen as they need us to buy from them ass their internal economy/demographics have no growth power & their stocks are on the ropes. EWJ may be a short if our S&P doesn’t take out 3300 soon…all the International ETF’s we follow like VEU VGK VPL VXUS were right up against the 1-2-3 yr MA’s..turned back There is a lot of UPSIDE if they can breakout but prices need more juice.
We’re still in the 40’s but barely & the energy stocks had a lousy week as some companies announced terrible earnings (loss) reports and the XOM dividend (8%) is being debated by some as insecure..a little ridiculous in a world of negative rates. Our view has been suspicious of 40 Crude and a break under 38 would be a negative BUT next year and beyond…prices in the 50’s & beyond and some great values as our economy reopens-DEMAND may pause to refresh but don’t see R.I.P & Frackers/Rig Counts OPEC support
Gold Silver Copper
Last week we said a parabolic move Above $2000 Gold (possible squeeze on deliverable supplies) and $26 Silver may very well happen and it did. You know the story..we been singing this for months BUT what about now. Well it could just keep going but SHORT TERM we have seen 6 to 8 weeks UP and history says that is followed by DECLINES most of the time…the LT MA’s are WELL UNDER current prices and some pros like Gartman are on file saying the run up & sentiment feels like a crowded trade that needs a break PLUS our Target on GDX was 46 area and we hit it and backed off…..unless we run next week…better prices Sept-Nov..prices now..volatile & big bid ask spreads Copper saw big buyer in June out of China but this month as we told you last week is a dud…we couldn’t take out $3 and FCX failed at 14…powder dry
Soybeans, Sugar, Coffee
We’re not farmers or operate a silo but we have been following Soybean prices and have been BULLISH since $8 but not that much to show for it. If we clear 9.05 and the 9.50 and 10.00 we may have been patient for good reasons but if we take out 8.60/8.40 unfortunately you can stick a fork in it Sugar lost steam between 12-13 last month but HELD s support we last mentioned at 10-11 and now it’s right back in our face at 12.64 this week so now same question different time…Can we blow out 13 and accelerate? Momentum clearly has turned up and coming out of a recession some commodities can have good runs…so we remain faithful. Our new buddy Coffee which gave us GREAT up moves in July continue to ACCELERATE as we said a move ABOVE 105-110 could see a spike EXACTLY what occurred.
Shoot us an email if you have any questions on anything in the Updates.
REMEMBER There is a substantial; risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
July 24 2020 OPTION PROFESSOR OPINIONS & OBSERVATIONS
Good Day Everybody!…We had the winds of change hit this week as we double topped around the 10,850 area on Nasdaq. For those of you who contact us during the week; we were happy to tell you about the historic spread between volatility (VNX) and the Index (NDX)…..this was a great tell as this excessive spread is USUALLY resolved with a volatility spike and a DECLINE in the Index…EXACTLY what happened. Since almost half the index is made up of AAPL MSFT AMZN GOOG FB…no need to ask how those stocks did. Other things we noticed was the Jobless claims JUMPED which is exactly what we said would happen as the easy job gains are done (17-20 MIllion remain jobless and that’s not counting the airlines & PPP expiring). July 24 saw the Evictions moratorium run out which can’t be good and next week we could see reduced benefits (bye bye $600)…Sept 30 we end airline payroll supports & student loans must be paid (lawsuits galore on tuition). The value trade held up well in comparisons as the growth vs value differential is about 30% but shrinking in the last 2 weeks. The Big Five are up about 35% while the median stock is -19%..the 495 other stocks in SP -5% so if we lose the momentum trade and the VNX-NDX truly contracts…the decline toward SP 300-3100 not off the table in the month of AUGUST. Causation??….any delay or diminishing of the stimulus…Summers-Yellen-Bernacke all say that MORE is needed and not for weeks but many many months and note that lower earners tend to big spenders in the economy. The recovery is losing certainty and Ackman was using the word cautious near term….who wouldn’t if the Virus…China tensions and more responses like INTC (-16%) occur next week from AAPL AMZN & FB……like Pelosi said..the FED has done a good job bailing out the Stock Market….mayb now it’s time to help the other 99% of our citizens(the Banks have made a killing in the crash/rebound/getting their junk-corp-muni- bonds that they themselves refused to buy got refunded with OUR money and in refis plus all the big donors got their stock values refunded). You want to hear some GOOD NEWS? The Bullish consensus in some survey say only 26% Bulls & 46% Bears which for CONTRARIANS means that participation is not high….if you add the sideline cash ($5Trill) and hedge fund & other POSITIONING…some Quants believe the next 7% move in the market will be to the UPSIDE and see the value trade as short lived until a true corner is turned with the Virus. We say this is a NEWS rich time…follow the money.
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TSLA went in the toilet after earnings as while we are no experts on TSLA …here’s what we figured….at 1600-1800 the stocks was more than 250% above its 200 day moving average….they sold less cars (revenue drop YOY)…the earnings estimate was .03 and it came in 2.18…..also this was the last nail to qualify for inclusion into the S&P…but mostly what stood out was how much money they make off selling Regulatory Credits to car companies (F GM ect) who can not meet standards or make insufficient amounts of electric cars so they can be in compliance ($594 Mill in 2019). The Regulatory Credits are estimated to go up 80% per yr..this is revenue source with ZERO expense…an they’re expanding to Austin looking to sell 500K cars this year (YTD 180K sold)..good luck with that and with Musk’s Folly. In other sectors…the banks, oil, industrials, staples, mega-mid-small cap value/high dividend payers all seem to hang in there but if w test 3100-3000 in August..we doubt they will be immune. Last week; We said the markets across the board were about 10% above their 50 day moving averages and that may be an area to dust off the buy tickets…..by Thurs of this week better news could come out if not look to about Aug 7th for someone in Washington to scream Uncle. HEDGING is an interesting topic…we suggested investors consider selling out of the money calls BEFORE earnings come out and buy PUTS with the proceeds thus collaring their positions….for tose of you with FRACTIONAL tech shares in the big ones you could look at QQQ puts (400 shares/4 puts) to hedge 100 grand of tech…but ALWAYS consult your brokerage firm for help with suitability ect. Another roatation to keep an eye on is out of stretched areas like Cloud and into some semis that specialize in 5G & EV’s…wild ride for new issue JAMF as it was as low as about 35 bucks ran up to 51 then back toward 39. Unusual options activityy in ZM LRCX FEYE DKNG…let’ss see how they pan out next week. FINAL NOTE….while we like MSFT & others…we are targeting FB & GOOG during this drop for the following reasons…..we can use conventional metrics when valuating them…their multiples are not nosebleed…we have faith in the recovery so we believe ad spend will return big time….and best of all..when you own these stocks you get a lot of extra FREEBIES….like Instagram..What’s App…and about 50+ Google companies on the cutting edge…….these guys got great balance sheets…so when the dust settles…..
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Yield continue to drop as the market has been taken hostage by Central Banks worldwide and they will decide whatever they want yields to be. We have negative real yields in both the 5 yr & 10 year Treasury markets so if you want to know why the US Dollar has dropped/Gold up…look no further. The issuance of DEBT is 4X normal and no way could it be bought without the Fed check book…OUR money to bid up DEBT that benefits all the way OVERLEVERAGED businesses & investors who should have been forced to have some losses…for heaven’s sake…there’s a risk when you loan money. Here’s our view….we’re looking at a Junk default rate of 10% or put another way 90% will not default and if you combine it with all the Investment grade bonds the overall percentage may drop to 1-2% default…..under that scenario one might find value in high yield to diversify from the extreme low yielding remainder……if we get risk off stocks in August…Treasuryy yields could drop lower BUT the traditional 60-40 stock portfolio may not work in the years ahead as the Bond % may act more like a stable money market account doing little to offset the risk of a stock drop which may mean a 80-20 or 90-10 will be the standard & adding risk is the new norm.
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US Dollar/International Markets
The US Dollar accelerated to the downside and our vcall on the EURO has been spot on since we turned BULLISH @ 110….it has been our currency of choice and it did not disappoint….hitting 52 week HIGHS @ 1.1659 and closely within shouting distance. Obviously; the FED has engineered this by collapsing YIELDS & loaning money to every stumble bum who knocks on their door. Europe had a monumental monetary agreement this week that put gasoline on the flame with a 750 Billion deal ( Recovery Fund) and if they follow it up with FISCAL coordination…..the EURO could fly along with their Bonds & Stocks. We have a Golden Cross on Aus$ as they benefit from the Metals run while Can$ & more importantly the Japanese Yen are in a struggle to hold sea level. We told you International Markets (EWJ VEU VPL VGK VXUS ect) were all close to a breakout…this week turned away…I guess the USA is like what Reggie Jackson said about himself “the Straw that Stirs the Drink”….you have to wonder if Billy Martin were alive if he would use his old line that he used to describe Reggie & Steinbrenner on Trump & Roger Stone….One’s a Born Liar & the Other is a Convicted Liar.
We have been suspicious of oil in the 40’s as we thought it would rest after its run but DEMAND has been good and even with a build in inventories this week price remain comfortably above 40 bucks. HOWEVER; there was a gap on the charts around 43 which has been filled so if we BREAK under 38 this week it could be a weak August as RSI has NOT confirmed the new short term high…stays above 38 and then 43…follow the money…the ETF VDE & the usual suspects are trying to get back to the June highs…if they can we could see a heckuva catch up trade…and get a juicy yield to boot.
Gold Silver Copper
We’re not always right..Who is??….but we NAILED the Silver market and readers who took notice must be VERY happy now as Silver went positive between 16-17 and ACCELERATED when it broke 19…EXACTLY as we did describe in prior updates. Gold broke 1900 the ounce …one is up 23% and the other 80%…not too shabby. Well as Elton John once sang…Where to Now St Peter?…..we see 2 probable outcomes…on Silver we have a high @ about 23.70 surrounded by lower highs….and a short term RSI & the distance from the Moving Averages at a Stretch point…it either holds those highs 7 corrects or it goes parabolic toward 26. On the Gold..a similar story in that we have a high of 1905 and a RSI stretched or unconfirmed and a healthy distance from the Moving Averages….so pullback or parabolic to 2 grand area. The Mining shares GDX GDXJ SIL SILJ lost some steam but regained their footing on Fri….we did some trimming near last weeks highs but are willing to reenter if we see what we like…the GLOBAL MONETARY BASE is exploding and we have negative yields & a declining currency..Enough Said. Copper prices didn’t like the air at $3 bucks nor the saber rattling between the USA & China which took our buddy FCX down a bit with it. USA cos. Construction & big plans from China still should backstop prices …let’s see.
Soybeans Sugar Coffee
Soybeans are sneaking their way up toward 9 bucks but so far can’t knock that door down…we need to take out 950 and 10 to open up the door to substantial upside not unlike Silver had to bust 19….will Soybeans do it? They will need some fundamental news (crop progress/weather/China buys) to generate that commercial & fund manager interest. Sugar went into the fade mode off the 12-13 area but has held the 10-11 area..so stay tuned. Coffee is coming off a lower area and we told you anything under 100 was a gift in our view…had another good week..spike above 110?? Many commodities have had a good time of it hisstorically in the years after a recession so we see metals & oil are off and running……others to follow??
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm ,broker, advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
July 17, 2020 Option Professor Opinions & Observations
Greetings Everybody! Another week of change in leadership for stocks as Value & Cyclical stocks OUTPERFORMED this week particularly in Materials, Transportation stocks & the Russell also known ass the LAGGARDS. The banks announced their earnings this week and on balanced were well received HOWEVER…their Q1 profits came off making money off the CRASH & Q2 profits came from the FED bidding up all their lousy securities…. TRANSLATION…..these two profit centers may not be REPEATABLE ergo a ton of money has been set aside for inevitable loan losses by business & consumers who can not sell JUNK bonds in the public market to raise capital to bridge their circumstances. Deposits were strong (B of A +21%) but PPP is depleted and the extra $600 UI rolls off next Sunday with the effect being 25+ million don’t get about 15+Billion per week and GDP could get dinged by 2.8% and this week claims were at 1.3 Million. Speaking of B of A; they did a survey of fund mangers and the mood was 72% bullish while the VIX is hovering in the area of 25…lowest we’ve seen since the crash……earnings next week & Mnuchin will be begging for more money while Trump tries to attach a payroll tax cut to the deal (budget deficit was a $Trillion+ BEFORE the crash….now an absolute joke). We’ll see if they do better than the EU who met on Friday and were miles apart on a $2 Trillion plus Recovery Fund. NFLX disappointed and traded almost 100 bucks off its recent highs….WED after the close MSFT announces and with a stock bid up like that the numbers better be good (trades 10% off highs). Most of the high flyers (AMZN ZM PTON TSLA TDOC DOCU ect) look like they may have had a short term blow off peak…….with nosebleed P/E ratios….the VALUE stocks got bid up in the last few weeks (ROTATION)…why not??…..the sequence has been tech/growth/stay at home stocks/disruptors/free cash flow won big and if the economy is on a return to regular activity coming (vaccine)…then the laggards could go back to their highs too…..maybe 20-40% higher then today. One investor was saying that rotating out of P/E’s in the 30-50-100+ area to single digit P/E’s was a no brainer…..even if it took time patient money can also be smart money….again not a lot of Buffet buying in TSLA @ $1800, Cloud computing has lost some steam with AMZN & ADBE which could be a tell for the sector……would a trading range at this point be a shocker? Moody’s list of financially troubled companies hit 414 at the end of June which was 42% HIGHER than after GFC in 2008. Delta was burning $100 million a day in March…now ONLY $ 27 Million…how ‘d that happen….job cuts and less routes….across the board…that’s how earnings will return to PEAK levels…no employees & no rents and revenue ultimately rising. Our view is and has been since the LOWS of MARCH the barbell approach…. tech-large cap growth-consumer discretionary combined with materials, industrials, energy, and financials. It’s been the right call so we stay with it. STAY TUNED…next week may be a DOOZY…earnings/stimulus/breakout?????
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As we said the LEADER BOARD saw some movements as stocks like CAT, JBHT, UNP, RUT, IYT VHT IBB all had strong bids while AZN is expecting news on MONDAY on the trials for their vaccine & MRNA was also bid up big time. This may be bad news for smaller bio techs as it looks like big pharma has a distinct edge in this race on a number of levels. Other ETF’s that had a good week was VALUE like VAW (best of breed) VIS while energy (China says they’re selling out of their stockpiles & OPEC is talking about easing supply restrictions)and Financials as well as maybe the reality of Jamie Dimon’s comment about a “Murky” future visibility & the loan loss provisions sobered up the bulls….and the transitory source of the profits. The DEFENSE contractors did well RTX GD LMT MLM ect so with all the rhetoric with China and an election coming..her’es hoping in addition to blowing up the DEFICIT to get asset prices to rise…..we don’t have a military situation as Barr Pompeo & Trump seem to be getting pre-election anxious. On alighter note…FORD is coming out with the BRONCO again…..first since 1996….word on the street OJ will be getting one for Al Cowlings:):) In the HOUSING sector; ITB & Lumber Liquidators (LL) was the play this week Other areas this week was cyber security FEYE HACK with the Twitter breach and Robin Hood says 40+K accounts involved with TSLA…..spec seems rampant & VIX near lows tells us either we take out 3250 or beware of a MSFT miss……we’ve not seen 3 consecutive down days in 91 sessions.
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The amount of DEBT worldwide is really off the charts. The IG debt issuance has been skyrocketing in part because the FED is viewed as as quasi underwriter and the search for yield has allowed sub prime companies to return to the debt market……the former FDIC Prez was saying some of these companies will not make it or will not grow into their debt liability…. the banking system will ultimately find these problems at their doorstep. Some say TREASURIES will move toward ZERO rates while GOLD marches to INFINITY…we think that’s a bit of a reach BUT we see potential VALUE in looking at TIPS as the rates on the long end may rise due to INFLATION (more dollars chasing fewer goods) while the short end drops (steepening yield curve) which also INFLATES asset prices ass it FORCES everyone on the the RISK dance floor….heaven forbid we save money in a risk free account. The Fed meets on July 29th…we should know a lot more about stimulus packages, more lending programs & other FED shenanigans. We’ll see if JUNK (HYG) Preferred (PFF) & Lev Loans (FFRHX) can clear hurdles. Short term corporates & tax frees are where we have parked mostly now.
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US Dollar/International Markets
It’s getting exciting in this neck of the woods…..the popular story has been the Dollar was in a SECULAR bear market and we were looking for more EVIDENCE that proved that case. This week we got a move to a 95 handle on DXY but closed above 96….we told you last week that the 3 yr MA was 95.50 and we were hesitant to get bearish at the bottom of the range (101-95)……HOWEVER…we have been BULLISH on the EURO since 110…and said the AUS $ had turned but the Can$ & Japanese Yen seemed stalled. The Euro has majority weight in the DXY and if we break ABOVE 115 EURO & Break DXY UNDER 95.5…then the scales would lean toward Dollar demise. Let’s see how this EU meeting goes over the weekend & the Fed Meeting July 29th to get clarity. We have some yield advantage & all Central Banks imploding. On the international front…as warned , China’s run had a pullback but BABA held 240 but the 270 seemed to reek of exhaustion..target was 300. All other regions of EUROPE/JAPAN/PACIFIC SO KOREA EM close to breakout.
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We have been suspicious of oil in the 40’s near term and reports that OPEC (Russia-Saudis ect) may relax supply restraints & China loaded up on oil at the lows and now may be dumping underscores our concerns HOWEVER there is a summer driving season among us and DEMAND could outstrip supplies but the oil stocks price blow off in JUNE still holds……longer term we remain bullish but maybe the oil market has gotten a bit complacent. Should we take out this month’s highs….we would go with the flow of $$$$.
Gold Silver Copper
Gold has made new highs this month but the follow thru so far not so great. The mining shares GDX & others are pressing 52 week highs but have a weaker RSI than before (short covering/volume exhaustion) & still are way UNDER levels of yesteryear. Impressive holding of the 1800 level has us still interested in ADDING but by EOM we should know a lot more. IF we see a Closing ABOVE 1820/1830…you can’t fight the tape. Big Support $1624. Silver had a great pop this week and as we told you when the Silver Gold Ratio is in the 100 neighborhood and the 1-2-3 yr MA’s are rising in the 16-18 areas so a jump ABOVE 20-22 could lead to ACCELERATION…SIL SILJ have been kind to us. Copper prices benefited the last month from Chile & Peru not coming back on line as fast as expected & China’s stock market resurgence. We have cleared the 1-2-3 yr MA’s so the next level is 3 bucks and if we do the OUTLOOK is good…FCX & SCCO we identified months ago.
Soybeans Sugar Coffee
Soybeans had a pull back and are mounting an assault of the 9.00-10.00 resistance zone…maybe a combination of weather & China buying could push us thru….time will tell…Sugar has been losing its legs since it was turned back at the resistance zone between 12-13….as long as we hold 10-11..we feel that later in the year it could resume an advance from historically low levels….Coffee is the new kid on the block….we think anything UNDER 100 is value and Friday we got a bang out of that area…still could get bouncy..IF we clear 105-110..sometimes it spikes..keep an eye on it.
REMEMBER …There is a substantial risk of loss in short term trading and options trading and it is not right for everyone. Consult your brokerage firm, broker and advisor to determine your own suitability. Past performance is not necessarily indicative of future results . Use Risk Capital Only.