May 29, 2020 Option Professor Opinions & Observations
Welcome Back Everybody!…Well we broke thru 3000 this week and tested the breakout point Friday & closed higher..not bad. Many investors (not our readers) are confused at WHY??….Is it because Unemployment is low? Is it because consumer spending is robust? Is it because Earnings are great & guidance great? How about GDP & LEI? AGAIN..as we said #1 Restart was way quicker than expected #2 Consumer bounce back believed more robust #3 Monetary Stimulus was fast & beyond imagination. HOWEVER..the biggest reason is what we brought to your attention 2 months ago! THE BIG REASON is when the FED manipulates the short term interest rates to ZERO; investors MUST invest even if they have no great reason nor understanding of the VALUE of what they’re buying. Do you remember the movie “An Officer & A Gentleman”..if not..stream it. Anyhow one scene has Lou Gossett hosing down Richard Gere & making him do drills so he will quit the Navy. At one point; Gossett screams at Gere…Why Don’t You Just Quit…to which Gere screams at Gossett “Beacuse I Have Nowhere Else to Go”..that’s Stocks. This week we saw more than 2 million more souls file for Unemployment as the Good News was that about 4 million didn’t renew (of course there will be some going back to work as we re-open..we contend many will not be). Personal Income jumped this week by 10.5% because the CARES Program cared so much they ended up paying people more than going back to work. Consumer spending was not so lucky as it dropped 13.5% (maybe the FED can actually spend money for consumers and Amazon deliver the goods??) Demand destruction has been palpable but as we said the Income hit has been made up by CARES/Unemployment. Spain just passed Basic Income for all…since we’ve followed Europe & Japan into fiat heaven..maybe that’ll be our answer to income inequality. China & Trump are at it again…the rhetoric is inflammatory & China will return serve this week. China did not kidnap companies or “rip us off” because Walmart & Nike & Apple and many many more voluntarily moved the supply chains over there to get CHEAP labor and make BIG Profits…now we are supposed to take our tax dollars to lure these same companies back through incentives & tax breaks? The BIG RISK to our view that the SPX could fill the gap around 3300 and stay above the 1 yr 2 yr 3 yr MA’s (2996-2887 & 2794) is IF Trump turns the Covid 19 crisis into a domestic & International political football which freezes up the consumer & IF talk becomes action resulting in a breakdown of supply chains & international commerce. China’s time horizon is decades & Trump’s time horizon is November. The Fed’s still in there; but so is short term investor exuberance…learn how to hedge….if we dip…watch the M/A’s.
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This week we saw some give back in some retail names like TJX, ROST, KSS M & JWN while the big guys COST WMT AMZN plus TGT (8 bucks away from all time highs) had constructive moves. Other rebounders like Oil, Banks, Hotels, Restaurants also seemed to lose some gas this week. Our high beta group MGK VGT SMH VCR seemed to regain popularity by the end of the week as the Russell & Transports-Value lost some luster. Defense was on display as Utilities (VPU) saw money directed their way as investors feel the bills will be paid & the yields are juicy. Some believe there is value in the Russell 2000 (VTWG) and also in infrastructure globally (AMY CCI ECT) as since the printing presses are running wild ..why not throw in some jobs. We’ve got a lot on our radar…let us know if you’d like to hear more This week..watch BABA & be careful if we close under SP 2995 or 2880.
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The Fed’s buying various areas of the markets & some believe the Junk market (HYG VWEAX) is worth a look as well as Intermediate term (VCIT) and the bid reamins on Munis (VWLUX) as bridge financing to states & cities ect seems probable. Short term debt (VUSFX VFSUX) still holds some allure but the RISK seems to be at the longer/extended terms as while there was no inflation after 2008….this stimulus is GLOBAL & 35-45% of GDP & the Dollar had a LOUSY week. So if you want to lend for 30 yrs @ 1+%-Feel Free!
Lots to Learn……send us an email @ option [email protected]
US Dollar BITCOIN
As we just said…the Dollar sold over this week…started at about 100 and had a 97 handle at one point only to close at 98.29. The Japanese Yen still traded ABOVE its 50 day MA (107.81 vs 107.78)& UNDER its 200 day M/A’s (108.34) so the jury is still out on that one…but it’s close. HOWEVER The Euro is another story as it had a great week as it closed @ 1.11 which is ABOVE both the 50 day & 200 day M/A’s but they remained inverted down so In Sum…we need a bit more price proof to reassure us that a turn is here. The commodity currencies (CA$ AU$) have maintained their advance so far while Bitcoin hovers around plus/minus 10,000 closing at 9470..stay tuned.
Those of you keeping track know that we said months ago that oil supplies would be L shaped (low rig counts-closed Frackers-OPEC cuts) and Demand may be V shaped due cheap prices and summer demand. This would lead us to 25-40 bucks a barrel this year and possibly 40-55 next year which so far has played out to script. OXY cut its dividend 7 the stock was taken to the wood shed and led the oil indexes to fade as well…they’ve all had a big run so a pause to refresh & a pullback seems in order..not quite the bargains.
Gold Silver Copper
While Gold is still overbought basis long term M/A’s…Gold got back on the bicycle this week and is starting top look like it wants to blow out 1800 and accelerate…this week is big….if it turns down then our thought of Summer doldrums could still play out….if not maybe add some more (GDX GDXJ ect). Silver is potentially a superstar if we ever clear 19-21 & if industrial use kicks in (SIL SILJ PAAS). Copper is banging away at that 2.50 price line & could accelerate again if China’s demand kicks in better. These are hard assets in a world of exploding money supplies–go figure
We saw the play Waiting for Godot and now we’re watching the show Waiting for Soybeans as we remain in the 880-820 range for another week. Sugar price are very interesting to us as we are holding the 9-10 levels & if we clear 1130-1150 an acceleration to the upside would not surprise us.
REMEMBER: There is a substantial risk of loss in short term trading and options trading and it is not suitable for everyone. Consult your brokerage firm, your broker, advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
May 22, 2020 Option Professor Opinion and Observations
Good Day Everybody…we are at a major junction and the big question remains…Do we BREAK ABOVE S&P 3000 or we get TURNED AWAY? If you have read our views on the market you know that are base case has been that the market was earlier this year OVERVALUED (3400 SP) and once it broke 3250/3000 that the market could accelerate to the downside due to illiquid investments (ETF’s) being sold en masse. The collapse was followed by our view that a REBOUND rally REVERTING up either 38.2% (2840) 50% (2790) or 61.8%/200 day M/A (2975-3000) was a good probability. NOW we are here knocking on Level 3 again this week. Why?…because investors are grasping that #1 the Virus fears/REOPENING is happening faster than thought #2 the CONSUMER may come back faster than thought #3 the STIMULUS has been faster & larger than anyone thought. We showed you a higher beta portfolio on our rader MGK VGT SMH VCR which have all snapped back big time. We also explained the beaten down sectors at the epicenter also may play a huge game of catch up which they have. WHY?? …because investors are feeling that if companies don’t hire back & work remotely (half of their expenses will be CUT BIG TIME & Earnings will roar. This all makes perfect sense as long as the S&P STAYS ABOVE the 50% retracement level/3 yr M/A 2790. Three Key 1-2-3 yr M/A’s come in at 2988, 2884 & 2791 all RISING and we CLOSED @ 2955 with a BIG GAP around 2925-2850. The BIG risk to taking out S&P 3000 in the SHORT TERM is the prices have DISCOUNTED much of these views. For EXAMPLE; Rent a Cars Restaurants & Hotels (CAR-MAR_QSR) are up 100% off lows, Materials & Industrials Casinos (VAW VIS LVS) have rallied 30% to 50%, even Airlines (DAL LUV) are up better than 30% PLUS some LEADERS are getting EXTENDED from their 200 day M/A’s like AAPL-MSFT-FB-AMZN about 20% & Semis/Virus stocks like NVDA-ZM-PTON- TDOC 50% to 70%. IN SUM; our opinion is if we hold 2790 we will EVENTUALLY get thru 3000 and a lot more to come as TINA wins again…BUT Trump is saber rattling with China …if that ends up BREAKING BADLY…..be PREPARED for the GAP under us.
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We have shared with you sectors on our radar..the high beta..MGK VGT SMH VCR and also recently the catch up sectors like VIOG (small cap growth)..VOOV (S&P Value)..VOE (Mid Cap) VBR (Small Caps) to name a few on our radar. Gaming stocks like DKNG CHDN PENN have had good runs as has most of the market…so is it time to price out HEDGES like Collars -Covered Calls & Married Puts on situations you thinks may run out of steam or to just protect some gains. Stocks turn before earnings & earnings turn before GDP so we will see if in the short run if stocks have turned enough. We have many sectors & strategies on our radar from Precision Medicine, Robotics, Big Data, Internet of Things (IoT) to Income, Growth & Speculation
The blow off top in TLT 180 continues to hold as DURATION may become a risk that rears its ugly head. With the FED supporting everything from commercial paper to ETF’s on fallen angels we see bids of PFF & HYG which have juicy yields and also IG & short term like VCLT VCIT VFSUX VMBS nad even Munis are improved VWLUX. The reason duration could be problematic is if SUPPLY CHAINS cannot keep up with RESTART demand then prices could pop. We see big cutbacks in oil supply so if DEMAND spikes expect to pay more at the pump..things feel settled…for how long?? Should you have fixed income inquiries….
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Didn’t Elvis have lyrics that said “I’m caught in a trap & I Can’t get out”..well ditto for the US Dollar which is caught between 101 & 99 for 2 months. went home @ 99.79. The Japanese Yen & the Euro still trade under their death crosses so for now …we stick with the buck. On the international scene..they lowered the boom on China stocks as BABA JD TCEHY got sashimied as Trump apparently looking to make China a big part of re-election efforts. We feel this is risky as bringing the supply chains home to workers unfamiliar with the jobs & maybe lacking the desire for the task. To be honest…it looks like you’re getting a chance to get on board…Emerging Markets & Europe look exhausted. Need more info…got questions
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If you followed the updates…we have been spot on in oil….we felt the flood fight between Russia & Saudi would not end well and it certainly didn’t ….followed our view that we would have cutbacks (Rig counts/Shale shutdowns/Opec) which would lead to a L shaped supply picture followed by a V shaped DEMAND with the RESTART. We told you of stocks on our radar COP XOM CVX HAL WPX VLO SLB HES CVR & many more. Our targets for this year was 25-40 which we already saw & potential for 40-55 in 2021 Should you have any questions…simply shoot us an email
Our position on Gold remains constructive as it has been since it broke out at 1350 BUT it is OVERBOUGHT basis its LT M/A’s and the rampant popularity & failure to get above 1800 & the gold stocks still LAGGING give us pause in the SHORT TERM that we could have a SUMMER VACATION for the bulls if it doesn’t get going….LEARN HEDGING…Silver has become a horse of a different color since it broke above 16-16.50 maybe due to the RESTART which has lifted many laggards. Maybe pullback to that region would be good…do not want to see a 15 handle now. Copper got whacked by the China skirmish this week so let’s see find a bid ass well a FCX SCCO.
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Not much to report here as prices are locked in the 860-820 window awaiting some signs on how the planting growing harvest seasons will play out as well as competitors situations like Argentina & Brazil..both countries are a bit of a mess right now…LT Sugar prices may be turning if 9-10 holds.
REMEMBER.. There sis 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.
May 16, 2020 Option Professor OPINION & OBSERVATIONS
Hey everyone…another exciting week for stocks as we saw S&P go thru the 2800 level (every Tom Dick & Harry had their stops there) and drop to the 2766 area only to close back above 2850. THE BIG QUESTION???…Did we peak @ S&P 2975 area below our LEVEL 3 resistance area (1yr & 200 day M/A plus 61.8% of 3393-2174 decline)? We say NOT CONFIRMED YET….Why? Simply because the 3 yr moving average @ S&P 2790 has not seen a close UNDER that level & all 3 moving averages (1yr 2yr 3yr) have not crossed to the downside & essentially are still pointing UP. So the EVIDENCE we see still suggests that this is looking like 2016/2018 where the market resumed its UPTREND within months rather than the years it took in 2001-2008.
HOWEVER…We recognize comments from Tepper-Druckenmiller & Buffet about VALUATIONS & PREDICTABILITY…we recognize the risks are that company earnings could lag as about 50% of workers earning less than $40k are jobless..almost 40 million total…we see retail sales dropped 16+%..the most on record…about 50% of all companies can give NO forward guidance & many companies are suspending dividends & forget about buybacks…landlords (many small guys) are getting stiffed on rent/mortgages which trickles down to revenues for the states (NJ said state revenues DOWN 60%). Governments & People & Corporations are taking on HUGE debt to BRIDGE themselves…always a risky proposition. IF IF IF we squash the VIRUS fear & Companies have a VIGOROUS RETURN to EARNINGS due to LOWER levels of COSTS due to less employees & real estate….& we clear SP 3000…BE Bullish…Be Very Bullish. The next few months are key for PRICE & TIME….SP 2800-2500 will turn these KEY MOVING AVERAGES down & set the stage for a drawn out recovery (Powell’s Fears)……S&P 2750-3000 will support the Big Year End Rally theory of 3200-3400 & new highs next year & SHOCK many who will be left wondering how we can have HUGE Unemployment & Rising Stocks.
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NEXT WEEK is a big week for earnings on retailers such as TJX WMT TGT and many more plus NVDA & DE. This week saw big moves down & up in FAANG stocks spec names like DKNG (on our radar also CHDN & PENN). Trump & Co. think it’s a good time to escalate tensions with China as they mess around with Huawei & talk about bringing our supply chains “home.” China responded against QCOM & Trump launched new restrictions on China investments in USA start ups & Telecom Infrastructure. Foxconn’s profits plunged almost 90% due to Covid-19 which may be bad news for AAPL. SMH sold off pretty good on the news & we’re watching this fluid situation as if Mega Cap Tech & Semis head for the hills..maybe we should too. VIRUS stocks (ZM PTON DOCU IBB) had decent moves this week …but these EXTENDED Sectors may be candidates for collars ect to PROTECT your Equity against Declines while allowing for more Upside. Also: some are considering out of the moneyy cash put writing on stocks they like at lowe levels and hedging upside using the premiums to buy call spreads. Too much to cover here…Questions—email us at [email protected] We follow sectors & ETF’s in our work…some of the ones in various stages of uptrends are VOO MGK VGT SMH VHT VCR VONE VOX VTI VDC VIG…while others have had rebounds of varying degrees but have NOT regained their longer term moving averages.. VPU VNX VAW VYM VDE VIS VFH Plus Value & Small Caps…some believe without Banks & Industrials participating..it is tough to sustain a bull run….many in the laggard sectors are trading below book value but in this environment….tough to figure value..use Cape Ratios?
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Run for Cover!!…there’s an AVALANCHE of debt issuance hitting the markets ($1 Trillion Corporates & $3 Trillion Govt). The FED started buying ETF’s this week and of course Boeing getting $25 Billion sold in their condition some say was confirmation that the lows are in. Powell & Fauci have something in common…they have to deliver reality with the dose of hope. Powell said this week that the recovery may take a long time as it will be of little solace to the majority of Americans if the FED/Administration are Successful at REINFLATING asset prices at the Expense of the Unemployed. WARNING…Duration may have significant risk to it as INFLATION would be a killer to low yielding long term Bonds….if they bring SUPPLY CHAINS back..does the costs of Tech rise?….is FOOD Inflation here to stay & with all the cuts in oil cap expenditures/rig closures spell HIGHER fuel costs? C’mon we’re going after a $4 Trillion dollar fiscal deficit & & a $10 Trillion Fed Balance Sheet & Paul Tudor Jones is HEDGING with BitCoin….this game of market crash—Rates @ Zero—-TINA—force Grandma into risk is crazy. Trump wants NEGATIVE INTEREST RATES ass a “present” to the people…who’s he kidding…he wants the public to get in on the Govt scheme of unlimited borrowing with little interest (cost of service actually down) to boost real estate & financial assets/spending. Remember Atlantic City-Big Debt/Lagging Revenue=Busted! Thankfully; Powell wants no part of negative rates (yet) as he sees that once you get into that hole….you can’t get out…Europe & Japan are drowning. Our radar VUSFX VFSUX VMBS VCIT VCLT PFF..watching high yield HYG VWEAX….Follow the Fed but carefully.
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Seems like the Dollar has turned into the Hong Kong Dollar (used to be fixed at 7.7 to 1) as we remain in and around the 100 number for weeks. The $$$$ range is tightening between 101 & 99 approx…..we closed at 100.36. The Japanese Yen & Euro have failed to surpass their 50 & 200 day moving averages so for now the path of least resistance for Yen & Euro are lower while a solid move thru 101 could ignite a dollar rally. The Aus $ & Can $ have held their 20% bounces as oil & Gold have improved…maybe more if commodities rally Internationally; On our radar BABA JD TCEHY BIDU but Emerging Markets & Europe still look dead in the water.
Well as we’ve said…capital exp cuts/oil & gas rig counts (record lows) plus Fracking Operations going from 1158 to 92..throw in Saudi/OPEC cuts and our base case of L shaped supplies with V shaped demand makes 25 to 40 range by year end & 40 to 55 range for 2021 look better by the day. CVX XOM WPX COP SLB OXY (debt?) VLO MPC ect all on the radar.
Gold Silver Copper
Well we added exposure to the Gold stocks this week as it appears to be breaking out to the upside on GDX GDXJ SIL SILJ plus spot Silver breaking ABOVE 16-16.50. Having said that; these are add ons and the risks remain that the Gold is OVERBOUGHT over its long term moving averages & bullishness (coins $135+ over spot) is concerning…so we don’t fight the tape..but a break even stop on the extra positions is kind of our thinking. A strong dollar & CPI readings that are declining not normally Gold’s cup o tea Copper backed off the 2.40 area which caused SCCO & FCX to fade..CHINA??
Still no real action to report as window is tightening between 860 & 820 & now we must see if the planting-growing-harvest seasons will deliver news and or if China’s bid ever shows up…until then we monitor prices in the thought that under the right circumstances volatility will create risk & opportunity….we also have Sugar prices on our radar..for now..no legs yet.
REMEMBER There is a substantial risk in short term trading & 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.
May 9, 2020 Option Professor Opinions & Observations
Ok…Who’s Confused??…Put your hands down & I’ll share with you our opinions & observations on what the heck is going on out there. We’ve told you about some reasons in past updates & will discuss potential tactics that we are considering right now. It comes down to OPERATIONAL LEVERAGE & RETURNING TO PEAK EARNINGS. Let’s start with the Unemployment Report which was the worst on record. Up to 34 Million that we know of out of work….we got PPD/SBA Rescue Programs with money going out people who don’t need it & people that are Deceased plus companies like Shake Shak (they gave it back others won’t). Two guys Ken Langone & Bernie Marcus were on TV saying it’s a travesty that they get Social Security checks when they made so much money off the system with (Home Depot) & the money could be directed elsewhere. A Continuing Chaotic Disaster.
The 3 main reasons behind the rally (after $5Trill to $12 Trill Stimulus & Fed Socializing markets) are #1. Rebalancing as Stocks were Discounted to Bonds #2 Reversion Rally back toward the 200 day Moving Averages #3 Belief that Operating Leverage will return companies to peak earning faster than expected & TINA (there is no alternative) is irresistible allure to $5 Trillion in money markets and Global money that has been sitting in Death Valley (a.K.A Europe/Asia/Emerging Markets). When the market were in the midst of wholesale selling in stocks & buying of Treasuries in March..the FED stepped in and stabilized the Credit Markets first…Why?..because if you went to cash a check & the system was frozen or money markets broke the buck…real panic would have set in. So FUNDS in allocation models had to sell Bonds & Buy stocks to return to their percentages (e.g 60-40/80-20 ect). Selling volume was exhaustive so we snapped back 400 SP points quickly. After a 1200 point drop..we told you the moving averages were way above the market so with the FED involved…odds were great for a snap back to either 2640 (38.2%) 2790 (50%) or 2950-3020 (61.8%- 3yr M/A/200 Day M/A). We are at the TOP of those 3 levels & some sectors (examples include Tech-Healthcare-Consumer Discretionary-Communications) have already risen above. AS WE TOLD YOU-in 2001 & 2008-the 1-2-3 yr SP M/A’s inverted to the DOWNSIDE and it took years to turn them back UP….in 2016 & 2018; those averages were BREACHED but never CROSSED & in MONTHS we resumed UPTRENDS…I am sure the Admin-Treasury-Fed are well aware of this & explains the PANIC to print money in the Trillions & the FED either THREATENS to buy things & send money out in a very CHAOTIC fashion. Desperate to avoid ASSET PRICES languishing thru the election..they said what the heck..let’s BLOW OUT the fiscal DEFICIT & National DEBT and REINFLATE ASSETS (like what happened after the tax cut-buy back financing)…..Get that S&P back above the 3 yr M/A (2790) so investors can feel OK again….if it doesn’t work…we’re gone after the election..we’ll leave a pile of manure for the next guy…..if it works…reelected & maybe 4000 SP. Now let’s talk about #3 which is the IMPORTANT ENGINE of the scheme. It’s NOT PRETTY but if it WORKS…the rich will get richer. Here ya go….the return to PEAK EARNINGS (like after the 2008 Crash) can happen thru Operational Leverage…it’s SIMPLE….you have less REVENUES so how do you return to profitability??…..you CUT COSTS…..the WORK FROM HOME has exposed inefficiencies in business as to how TECHNOLOGY can replace people (cloud) & all this real estate expenditures can be consolidated (zoom) So: if you have less labor costs & real estate costs your lower revenues are profitable & if revenues jump over time…you do the MATH. Sound familiar??…Business did the same things with their supply chains when overseas cheap labor/no factories led everybody over to CHINA….no buildings no employees no RUST BELT ect….China didn’t KIDNAP our companies…they went there to MAKE MONEY at American worker expense. Look at BIG 5 TECH firms & see how many people in the USA they employ & how much USA real estate they use in relation to the $5-6 Trillion market cap…..a joke….FINALLY…the dirty little SECRET…..most of the unemployed either NEVER FINISHED high school or only finished high school. As such; 2 things have come out….they weren’t MAKING any money (only a 10% hit to Income) which the FED can make up with printing BUT worse yet if this scheme works out as it has in the past….these people are NOT all coming back to work. So you could see HIGH unemployment but a RISING stock market due to VIGOROUS EARNINGS RECOVERY based on cost cuts. FINALLY..the Fed has played this game BEFORE after 2008….get money market rates (cash) down to ZERO & FORCE PEOPLE to take risk if they have any hope of any return on capital & it TRANSFERS some of the BAILOUT to investors & PRIVATE EQUITY & OFF the FED who is so far off the ACT of 1913 it’s RIDICULOUS….TINA’s back with a vengeance. It is BULLISH the FED can LEVERAGE their balance sheet to INFINITY & the SCHEME to INFLATE ASSET prices is working so long as we STAY ABOVE the SP 2790 area. WHAT’S THE RISK? The RESTART is SLOW…..The VIRUS explodes….the DISPARITY in WEALTH spells trouble AFTER unemployment runs OUT….INFLATION pops…and if (when?) we see China & or Russia ACT UP
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We just went over why we continue to see higher prices…..sector ETF’s like MGK VHY VCR VHT SMH have all been mentioned here and all have been doing just fine surpassing their 200 day moving averages. NOW the question is will they hold water or simply see the PACE of advance moderate. If you’re BULLISH you hope for the ladder as investors by these areas REGARDLESS of valuation models. One of the RISKS is the cutting of BUSINESS & CAP EX spending that many firms are announcing and the pace of the restart….even Cloud/Cyber Security ect. need capital outlays. If you subscribe to a RETURN TO PEAK EARNINGS via cost cuts…then your OUT OF Favor sectors (virus epicenter) with low P/E’s and still OVERSOLD basis their 200 day moving averages could be worth a look as many are trading BELOW Book Value…Retail, Restaurants, Banks, Hotels, Travel-Leisure Oil. Mega-Tech, FANG, Health Care clearly has led ; but if this rally is to broaden and the effects will be muted due to FED/Fiscal stimulus, then the catch up trade could be ok. Some Banks & Mortgage Processors may have a bumpy road ahead but some have low P/E’s & are priced below book & can take some heat due to good cash positions. Regionals (KRE)…Large (C & BAC) & processors (ESNT, RDN MTG) are on our radar. For the REST OF THE MARKET…..Option prices have been ELEVATED for some time….which means pricing out COVERED CALLS for some downside protection & pricing out fully paid cash SELLING PUTS on stocks you like at lower prices is worthwhile strategies to investigate for suitable investors. Remember Buffet sold $6.5 Billion in April/$137B in Cash….and while still bullish Long Term on America…valuations & this experiment has a range of possibilities
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ISSUANCE is the buzzword this week as $37B came to market & BA & other troubled companies continue to raise funds via the markets much to the DELIGHT of the FED. The line was drawn this week as UAL had to pull the $2+ Bill offering as investors apparently are not that DESPERATE for yield. Fed to buy some HYG next week we hear & we noticed many fund that were trading at a PREMIUM have sold off to flat as the FED said they would not buy over NAV. China exports to the USA up 2.2% while Imports -11% suggesting FRONT RUNNING Tariffs again & poor demand. Treasury offering $3 Trillion..over 10% of National Debt…off the charts. Some sayy CAVEAT EMPTOR to those buying DURATION as the Fed has little control past 10 yrs..we agree & focus on VUSFX VFSUX VMBS VCIT when hunting.
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US Dollar/International Markets
Well…Dollar Index is around the 100 mark still (99.76) so again we say the the Japanese Yen & Euro are sitting just under their 50 & 200 day moving averages and the are inverted to the DOWNSIDE so that is the path of least resistance for the YEN while the Euro is hanging on for dear life at about 110. Hey we got yield advantages (albeit smaller) and the restart has instigated optimism….Canadian $$ & Aus$$ improving in tune with oil improving..may be a proxy for an oil trade?…slice it anyway you like…so far the Dollar is stable to strong and if 35 mill jobless is ok..What kills it?? AS far as International markets (Europe/Asia/Emerging)…..they all look dead and haven’t really done anything on a 1-3-5 yr basis so tread caefully.
In the last 2 weeks they have called off the dogs in oil…can you trust it up 20=% for the week 60+% for the month? Another expiration ahead and a break under 20 could spell relapse. Stocks on our radar brought to your attention XOM CVX VLO MPC HES COP PSX OXY WPX HAL ect & gas guys like LNG have has good runs so in the short term covered calls collars & married put could be worth a look if the legs go out, LONGER TERM….as we have said the SUPPLIES may be L shaped (shale/rig counts disappear/OPEC) with DEMAND returning V shaped (cheap gas-America travels) so we stick with 25-35+ year end & potential of 40-55 in 2021 we get cooking as hoped.
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Gold Silver Copper BITCOIN
The Gold prices were pretty sideways this week with Silver getting back to a 15 handle while Copper is pressing toward the 2.50 neighborhood. The BIG NEWS this week was the story of Paul Tudor Jones (one of our favorites & runs the JUST fund) who said he was going into Bitcoin as a HEDGE 7 viewd it as Gold in the 1970’s (early years/just off Gold Standard/beginning of leveraging USA exploding Money Supply). You obviously can buy BITCOIN futures (if you are suitable) but not for the faint of heart as the 52 week range has been about 14 Grand to 4 Grand now at 10 Grand…if you drove like that on the freeway…you’d get a DUI:):)…on our radar GBTC. Gold/GDX flirting with legitimate breakouts so we hold core positions from much LOWER levels..so far no add….2-3 yr M/A’s way under the market suggests overbought and would rather buy dips in a BULL market…Silver rebound & stocks up is nice but still fall Short of resistance while China back to business helped Copper prices & our buddies FCX & SCCO
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It’s getting warmer…and the prices are heating up as well as we went up almost 25 cents a bushel this week albeit we fell a bit on the close. Our gut (without much price evidence) was that $8 Beans could go 9-10+ this summer if China buying & supply/yield disruption would give us the juice needed to get the trifecta of spec/fund buying with farmers lifting hedges & squeeze on whatever shorts could be squeezed. the price areas of 8.60 to 8.80 the 9.0 to 9.50 could really tip the scales for the bulls…nice week…need more…coffee prices turned up a bit (SBUX opens??)..otherwise not much.
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 ,
May 2, 2020 Option Professor OPINION & OBSERVATIONS
The Wild Ride continues and it should be of no surprise to our readers as we’ve said many times that when the VIX is above 30 (last 10 weeks) you must EXPECT volatility. For newcomers; let’s review our opinion on stocks since Jan 1. Our view was that the move toward 3400 S&P was on very shaky ground (VIX was low (complacency), the advance decline line (market breadth) failed to confirm new highs as well as the failure of the Transports & Russell to failure to make new highs. Additionally GDP #’s, revenues & earnings coming out of 2019 were not great & a turn wasn’t expected until late this year & the S&P was about 3-400 points above 200 day M/A….This where you consider HEDGING (Collars-Covered Calls-Married Puts & Stock Calls Replacement Trades). If you don’t know what these mean…you can simply…EMAIL us @ [email protected] Once we broke 3200 then the 200 day then the 50 day M/A and the VIX jumped thru 20….the fallout picked up steam..we warned you of ETF’s masquerading as liquid investments was going to cause a liquidity vacuum when passive investors all want out which explains the speed & size of the drop. The FED had to come in as the BID as no broker or dealer was going to buy into that sell volume. When the VIX BREAKS 80 March 16-20…you know the FED is coming..and they did…there to give liquidity & relief to the system….not to stimulate…the Fed Act 1913 has them buying Treasuries now they are into Mortgages, Commercial Paper, Munis, Corporate & Junk Bonds & IG ETF’s…it is TEMPORARILY EXPEDIENT NOT a L.T. GROWTH STRATEGY. After the drop; we indicated how oversold we were and; along with Quant guys like Kolanovic & others, believed the rebalancing of portfolios could give us a rebound rally. We gave you 3 levels where the rebound could take us (#1 2640-38.2% of the drop…..#2 2790-50% retrace…..#3 2930-2975 3020 61.8%/1yr M/A & 200 day M/A). We had a record DECLINE in March & a RECORD rise in April. On Friday…we failed at LEVEL 3…this where we are. WHAT’S NEXT???…we use many things in our analysis…one of which are MOVING AVERAGES as they are based on TIME & PRICE not predictions. We have a 20 yr S&P chart with the 1 yr, 2yr and 3yr moving averages…they come in at 2978…2878…2789….we closed about 2830 after spending only ONE month under the 3 yr M/A……and the averages have NOT CROSSED ….we see this is as VERY GOOD….BUT the Jury is still OUT….Why??….because in ’08 & ’01 the Averages CROSSED DOWN & it took YEARS to cross back up BUT in 2016 & 2018 the averages were BREACHED but never crossed and it was mere MONTHS before the uptrend RESUMED. So IF we can stay ABOVE these averages and proceed to get above LEVEL 3….then BE BULLISH….. HOWEVER….IF May thru Sept keep us UNDER the averages & the 1 yr & 2 yr averages CROSS DOWN UNDER the 3 yr averages and ALL 3 averages POINT DOWN….you may get your year end/Jan Effect rallies BUT they may come from lower levels and the timeline of economic recovery will be extended. Keep it simple stupid (KISS)….30 Million+ Unemployed…3.8 million borrowers in forbearance (no pay up to a year)…GDP -4.8% Consumer spending -7.5%..Business spending -10.5% BEFORE May 1….The big five this week (AAPL AMZN MSFT FB GOOG) basically see deterioration occurring and Apple not forecasting or guiding in Q2 while Buffet’s BRK.b lost over $50 Billion (worst ever) and said they cannot reliably predict when business activity will normalize or how these events will alter future consumption patterns of the consumer and businesses. So if sharp guys like these DON’T KNOW how the Restart & Return to NORMALCY plays out….WHO DOES?….For those of you sitting on the edge of your chairs to see what Buffet did during the March CRASH with all that $128 Billion CASH he has been holding..ANSWER…not much..now @ $137 Billion!
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Record rise in prices month in April…mostly compared to other post CRASH period (1987/1930’s). From housing to retail to oil to banks to travel/ hotels/ rental car/cruises all had their bounce this week catching up to the rally in tech & semis. As we said last week…the stocks still way under their 200 day averages could play catch up and we outlined the sectors..exactly what happened. BUT…now we see Q1 business spending DOWN 10.5% and Cloud revenue to MSFT not bad @ +59% but AWS below forecast @ +33%. Well if we DROPPED 10.5% in Q1….what do you think business spending will be in Q2…up?? Therein explains the rollover in tech & semis which are not priced for revenue cutbacks. These sectors were some of the only ones that did NOT take out he Dec 2018 lows and if the DO THAT…you have the recipe for giving back this rally and worse if the unwind is greater than anticipated. The BIG FIVE are $5.1 Trillion market cap and if Mega Cap sells off…unlikely Transports-Airlines/ Energy/Financials/Materials/Value/ Industrials/ Comm/ Consumer Discretionary/ Health Care (largest number of unemployed after restaurants) can support this market. The 5G-infrastructure , Semis, Cloud Computing/Edge, Cyber Security trends need companies to INVEST and Q1 they indicated they are pulling back….To us…this dynamic is NOT BULLISH. The high beta portfolio that treated us so well after the crash is in jeopardy of rolling over and the laggards that rallied may lose their legs as well. HOWEVER…follow the 1-2-3yr averages and if we maintain S&P 2775 or better & climb above Level 3 then a RISING TIDE may lift all boats. QUESTIONS…Will elective surgeries return?…SYK MEDT BSX…Will unsold clothing get bought by discounters? TJX ROST Will RIG CUTS & renewed demand help small Texas banks? TCBI IBTX CFI..Will reliable dividend plays work? CSCO INTC PFE, JPM JNJ VZ KO ect. Will air travel return? JBLU
AAL UAL DAL LUV Will gasoline usage jump? CVX MPC HES ect Can the banks make money with this yield curve ect? BAC WFC JPM C..Is the Bio tech boom over & What about Health Care? AMGN BIIB IBB or UNH CI HUM Is Gold going to make new highs? GDX GDXJ….Lots of questions…Lots of Risk We have many stocks & sectors on our radar such as Ai, Robotics, Precision Medicine, Big Data, Block Chain, IoT, Europe Asia Emerging Markets and more as well as Hedging Tactics Protecting Values Against Market Drops.
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The FED started out injecting $75 Billion a day!! but for the week ahead the number is $8 Billion so that’s quite a pullback. As we said the Fed..ECB & Bank of Japan met this week and our “Open Bar” analogy seems pretty close. The “We’re Here to Support Without Limits ” mantra remains with the only questions being what effect it will be short term & long term. Well the rush to issue Junk is on ($38 Billion almost 5X more than the previous month). Delays in downgrades and debt covenants being changed to liquidity levels and Europe changing Debt Ratios all sound like life support to us. The Fed is encouraging companies like Boeing (lots of problems) to issue JUNK DEBT (let some other fool lend them money) rather than issue EQUITY (sell shares =dilute stock) is a scheme to do a bail out without the Fed spending money. The scheme includes the belief that the FED will be their for Junk so it’s really not that risky…so they buy them up….also investors plowed INTO Junk ETF’s while LEAVING Municipal Bond ETF’s to the tune of $1.3 Billion. New York, Houston Illinois Dayton and pretty much everywhere are broke and that’s the next shoe to drop. Mortgages & many questionable companies debt have been bid up FRONT-RUNNING the Fed’s announced commitments…if you want to play Santa..people expect gifts. Some say there is value in the Securitized Debt area…albeit with risk. The Big News to us was the idea floating that Trump was thinking of absconding with the $Trillion that China holds in treasuries (5% of our national debt). WOW…that can’t make the other countries ($6 Trill) or the public ($18 Trill) feel to good. We said running up RECORD Deficits & Debt with employees that are temporary & risk takers (Trump-Mnuchin_Powell-Kudlow) could result in a slow growth & low valuation long term like Japan & Europe. We still have a need for income and Treasuries rival money in your mattress. There are a number of income producing avenues on our radar.
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US Dollar/International Markets
The Dollar Index started to slip this week under 100 level and closed with a 98 handle which was close to the low of the week and a new low for the last 30 days. Our Readers know…..We’ve been watching the Yen & the Euro for a possible turn as the 50 day & 200 day M/A/’s are converging and the market prices have been just below. So let’s see where we are…..the Yen closed at 106.93 and the averages are at 107.92 & 108.28 so NO SALE there and they’re inverted to the DOWNSIDE…the Euro was a bit better closing almost at 1.11 up 1%+ on Friday…with the averages at 1.09 & 1.10….. there is an attempt at a turn but needs more TIME & PRICE to confirm the turn….if Trump goes with Tariffs or retaliation & we our “Service-Debt-Consumer Driven” economy implodes in May….we could have a catalyst for a Dollar turn….. For Now..the Dollar remains the one eyed man in the valley of the blind. International Markets saw the candles get blown out last week as the GDP showed a drop of 15% in Imports..not good for China & Japan who without us buying are troubled….car sales stink…not good news for Deutschland. We follow a number of international ETF’s on our radar for regional exposure.
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Another one of the big bouncers we brought to your attention weeks ago with CVX HAL XOM COP OXY SLB HES PSX WPX ECT all zooming off their lows as Rig counts collapse and demand is expected to be robust as lower gas prices historically has brought out the mooch in all of us. There was a rollover at week’s end and we may give back as the June contract expires and volatility raises its head. Cutbacks, furloughs, job cuts, defaults, bankruptcies doesn’t sound like a recipe for a bull market BUT our view is that supplies will get worked off (L shaped) & Demand will increase over time as lower prices and mobility could move price toward 25-35 by year end & up substantially by 2021…as we said if DEMAND stays in then abyss…all bets off…PBR & the DEBT of WPX & OXY (reports May 5-Buffet & Ichan Involved) are areas of interest but need a better hold of outcomes.
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Well…GDX GDXJ are still flirting with the highs but $ 1800 Gold still yet to be seen. Replacement trades wherein one replaces some or all of their position with limited risk bullish option positions are being considered by some to try to reduce cash risk but has specific pros & cons & not right for everyone. Good News for Gold is that the Dollar is potentially at a turning point and retaliation tactics floated by Trump against China is unnerving. Gold Prices trading above the 1-2-3 yr moving averages all pointing up. NOTSO Good News…..failure to take out 1800-1900 highs…$135 OVER spot on Gold Coins…LAGGING Gold miners vs. last time up here…and OVERBOUGHT versus the 2 & 3 yr moving averages….end of the calendar year beginning of the new year sometimes BEST for Gold..maybe a Summer of Discontent?? We have been right on with the Silver as he failed at 16.50 200 day M/A resistance and now has traded with a 14 handle. Watch SSIL SILJ PAAS ect Copper still in the 2.00 to 2.50 range as restarts worldwide still in jeopardy BUT if we get going in China & US New Construction…Watch for FCX & SCCO
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Grains still can’t seem to muster a rally with sturdy legs but the levels of $8 Beans $3 corn and $5 Wheat & 10 Sugar have held so far so if Summer can bring increased DEMAND along with supply chain shifts (weather/yield) then maybe something might give…deflation vibe in ags has been sticky. Some say the future could be brighter in commodities…so far not so.
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,
OPTION PROFESSOR APRIL 25, 2020 OPINION & OBSERVATIONS
OK…We had our Crash & Our Fed Injection Obscuring Real Values & our TINA (there is no alternative)…..for those of you unfamiliar with the racetrack….a SUPERFECTA Winner is when all 4 horses you pick in order come in…THIS WEEK..we have 4 very important events occurring starting with the S&P 500….moving thru toward EARNINGS….ending with Q1 results from Buffett’s BRK.A….the cherry on top are 3 Major Central Banks (Japan-Fed-Eurozone) announce monetary policy. LAST WEEK..we had UNEMPLOYMENT jumped to 27 MILLION unemployed. We also saw SERVICES PMI’s at 27!…anything under 50 is CONTRACTION… common words are now DELINQUENCIES & FORBEARANCE…4 MAJOR banks have 18+BILLION set aside for loan LOSSES….some Companies have skipped LOC’s and gone right to issuing JUNK BONDS which have sold like hotcakes we assume because managers need to hit their 5%-7% Targets plus the mantra circulating that a 2nd half REBOUND & a Fed PUT is CERTAINTY. CEO’s posted Earnings this week/most suspended GUIDANCE-NO VISIBILITY. NOW…Looking FORWARD to the 4 EVENTS—#1 S&P 500 MOVING AVERAGES are a VERY Important Part of the work we do…..we are FOCUSED today on the 1 year/2 Year/3 Year numbers….we believe TIME & PRICE can smooth out aberrations and help IDENTIFY Trends….they are factual ALBEIT in a HISTORICAL perspective. We have a 20 Year Historical Chart (available to you via [email protected]) that show all 3 averages since 2000. Only during the DotCom Crash of 2001-02 & the Great Recession of 2008-09 did all 3 Averages CROSS & head lower. During 2016 & 20118 they were all BREACHED but NEVER Crossed…..ALSO in 2001 & 2008; it was 2-3 YEARS est. until they crossed back UP…in 2016 & 2018 it was only a couple of MONTHS before getting back ABOVE the averages and resuming the UPTREND. Where are we at RIGHT NOW?….the NUMBERS are about 2965 and 2870 and 2775. This THURSDAY is EOM for April…..our view is that IF S&P 500 can close above 2775 and stay ABOVE it in the months to come…then a case can be made that the FED FLOOD of liquidity WORKED AGAIN….if NOT and these MOVING AVERAGES INVERT to the downside then these sharp rallies will be no more than REVERSION rallies that roll over. OK..let’s go to #2…THE BIG FIVE EARNINGS-FB AMZN GOOG AAPL MSFT-ALL coming out this week for ONLY 3rd TIME in collective histories. The CONCENTRATION of 5 companies in the INDEX has ONE parallel in 2000’s when CSCO-GE-MSFT-XOM-INTC had slightly higher dominance (interesting to note XOM has essentially gone full circle & GE lost 90%). The Fab 5 have a market cap of $5.1 Trillion or about the value of all ex-US stocks & more than the bottom 350 stocks in S&P 500. What could KEEP YOU UP @ night? Well….is it impossible that AD Spending….CLOUD & Enterprise Software spending & 5G-I-phones-Services spending could be REDUCED? Could MARGINS be PINCHED & Costs RISE? If so; these Stocks are MIS-PRICED. These are GREAT companies with GREAT ideas They NEED CONSUMERS. In 2015 & 2018 the aftermath of these guys all announcing the same week was NOT so ROSY so CAVEAT EMPTOR. Other sectors announcing this week are Health Care–Ci HUM PFE ABBV ….Energy–XOM CVX PSX COP Comm.– T Charter, Comcast Restaurants YUM MCD SBUX ….Brands Kellogg’s PEP Colgate Addidas Kraft Heinz…Industrials HON BA IP CAT GE URI..Transports UPS…Tech TWTR TSLA QCOM…..#3….We believe this is the BIG ONE…..BRK.B which reports EARNINGS late this week & 13-D filings May 15th. What could we LEARN?….Well…earnings will tell us more about the $128 Billion they had in cash….did they spend it in March? On May 15 we will learn positioning as of March 31 which includes the CRASH in PRICES……and therein may be the TRUTH….We saw an interview with Charlie Munger which may reveal their thinking in that he essentially indicated we have just been thru a TYPHOON & it would be nice to come out the other side with a comfortable amount of LIQUIDITY. If CEO’s have no Confidence in EARNINGS VISIBILITY…..the the second part of P/E….the EARNINGS Part is hard to quantify…..which Means a CHEAP PRICE but you Don’t Know What VALUE you are getting…..that would mean a Heavy Emphasis on GAMBLING and that has NOT been their forte….Buffett’s got a lot of one liners like When it Rains Gold Bring a Bucket Not a Thimble….but the one we like is Be Greedy when Others are Fearful & Fearful When Others are Greedy…well A Reminder that he does NOT say Be GREEDY when Others are being STUPID! IF the Earnings & 13-D show Cash Remains HIGH… we’ll take it as plowing into stocks because PRICES CHEAP without P/E VALUATION is GAMBLING. The final event #4…is Central Bankers meet and will come out with plans for recovery…..let’s face it…it’s an open bar with monetary policy….Japan & Europe buy everything in sight and now the US is onboard with only stocks off the table…but since stocks are only one level lower than Junk Bonds in the capital structure we would not bet that they are off the table. The trick is set up a program with Treasury (Mnuchin will go for anything) to comply with legal restrictions and call it BAIL OUT UNDERACHIEVING TRADERS (BOUT)….McConnell says don’t bail out states/cities/counties….well either he’s found religion after BLOWING UP the National Debt & Fiscal DEFICITS or he’s playing a game of not being on board to save face with DONORS while knowing Full Well his state of KENTUCKY is fiscally upside down and can’t wait for all that FREE MONEY to fix their financial & pension shortfalls
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As we have said…the upper band of Level 3 RESISTANCE ball park is 2930 & 3030 (61.8% retrace & 200 day) which we tried to approach but the air got thin around 2880-2900. The high beta ETF’s on our radar VGT VCR MGK SMH & VYM all finished the weak strong & the tech ones are ABOVE their 200 day moving averages…..with the huge OUTPERFORM (since 2001)of the Nasdaq to the Dow….we see 2 distinct outcomes…..the rally is for real and we stay above 2775 SP at such time a rotation to undervalued sectors begins or this iss a Reversion Fugazi rally (like 3000 to 3393 SP) and we roll over from Level 3 resistance. Well if you believe scenario 2…you would fade AMZN/AAPL/FB/GOOG/QQQ into whatever big rally into earnings this week or you might look for sectors still TRADING SUBSTANTIALLY UNDER their 200 day moving averages like Financials (WFC C BAC JPM 25-42% under 200 day M/A’s)….Energy (XOM CVX COP SLB PSX all about 25-50% under M/A’s) Industrials (VIS 20% under) Small Caps (IWM almost 20% under) Materials (VAW 14% under) Retail (XRT 17% under) Value (VTV 22% under) Homebuilders (ITB 20% under) are some EXAMPLES. For those NOT on the bandwagon that a 2nd Half recovery is a certainty…this rally toward 3000 SP is a chance to adjust asset allocations. Stocks on the radar this week TCBI ZM INO INTC BYNF PTON IBB Canadian Banks ADC AVGO BAX OXY GDX DIS VIAC NFLX TDOC PLUS in the Big Data Robotics IoT AI & Precison Medicine. Also; HSIC XRAY GILD KMB CMG EEM EWZ ULTA & Boston Scientific to boot.
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The Big 3 Central bankers meet this week and if I had one warning it would be that if the Stock Market rally has legs….the Fed in May could temper the printing presses and that is NOT what the yields (Tsunami of DEBT from Govt-Corporations-Public-Soon States) are discounting HOWEVER if they elect to go to YCC (Yield Curve Control) then rates could dive lower and maybe under extremes break the buck in some funds (remember oil last week). Economic numbers (Unemployment-PMI’s-GDP’s- Balance Sheet Damage) are being dismissed as this MOTTO of we are CERTAIN to get a rebound in the 2nd Half could be dangerous IF the restart is low & the Virus return sin the fall. Who knows…we know we have 27 Million+ Unemployed and PMI & GDP numbers tanking…our President is a self proclaimed cheerleader all over the place on restarts & cures (disinfectant injections??)….We have never seen these kind of numbers before with delinquencies & forbearance the norm….Sharp Guys are raising Billions to buy DISTRESSED DEBT so be careful of JUNK & Sovereign JUNK & some commercial mortgages look like a dice roll only a FED hand out will cure….Also McConnell says to hell with the states…let them go bankrupt….reassuring to gray haired muni holders?? Some states like Colorado & Alabama can’t run up debt so it’s a moot point. For those of you who like extra shots of Sherry in your Lobster Bisque…maybe High Yield in OXY WPX & single asset/single borrower in high quality Hotels & Resort. So what are we focused on in the near term until we see CLARITY over TIME… Our focus is relatively short term & relative quality (VUSFX VFSUX VMBS)
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As we have said..the Dollar is the one eyed man in the valley of the blind…as the entire world is running up so much DEBT on top of DEBT with no GDP that who knows what this paper is worth? Volatility has left the building in FX this week as we are basically right around the 100 the price equilibrium of the last 3 months. What is the Yen & Euro doing..both of which have been on the ledge of their converging 50 day & 200 day moving averages? The Yen is 107.46 with the averages BOTH at about 108.32 so we would view a break OVER those levels as NEWSWORTHY while the Euro is priced @ 198.21 with averages around 109.50 & 110.50 so moves above those levels would get us to take notice…the commodity based currencies of Canada & Australia are holding their rebounds but all of this begs the question..What are the waiting for?…Central Banks meet this week & Economic Numbers are rolling out…our guess..that’s exactly what they are waiting to see.
What a difference a week makes after the historical negative pricing on the May expiring contract (minus 40 bucks!). We would not discount another rendezvous with price weakness ass June expires but -40 does sound like capitulation to us…..if DEMAND return which has been true before with excessive low prices then we still have a fair chance at a rebound by year end and a set up for better things in 2021….IF NOT bar the door Katie as defaults & bankruptcies will engulf the US Oil business. Trump says he’ll be helpful, Buffett took OXY stock in lieu of cash for $200 mill payment do & Carl Icahn said he thinks assets look good the risk reward looks OK…add it up and it seems to us as constructive behavior….but they could be wrong. The refineries could have pretty good margins so we focus on those cos.
Gold Silver Copper
Well we got our new highs on GDX (now you DO NOT want it under 30) but now Gold has now twice faded off 1800 and Bank of America is calling for $3,000 and the Gold Coins continue to command HUGE premiums over spot. There is so much room between the 30’s and the former highs near 70 that seeing if we can maintain above 32 and a break of 1800 BEFORE adding to core positions from lower levels seems prudent….in a bull market they say buy PULL BACKS…Silver as we said has 50-200 day moving average resistance in the area of 16-16.50….SILJ has rebounded but not above its 200 day M/A at about 10 so the jury remains out…Copper still meandering between 2.00 and 2.50 nad FCX cut spending & projects to shore up their balance sheet and prepare for making it thru to the other side of this thing. On our radar…GDX GDXJ FSAGX KL KGC NSTG AEM AUY SBSW AGT Pluss PAAS SIL SILJ NEM WPM SCCO and others.
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Well a big story is the meat plants & the jump in Beyond Meat stock (some say if you didn’t like fake meat before you won’t now and 130 area-Feb highs-could conclude a panic run into the stock of the last week and month-lots of short interest….dangerous game…only time will tell)…..Corn & Sugar got pressured during this oil fiasco as ethanol usage /supplies are out of whack or perceived to be…..Coffee has faded away a lot of recent gains ass deflation vibe still running around…for how long? As we said our gut feels that Soybeans could go 9-10-11 under the right circumstances (China-Weather?) but need moves about 8.80/9.30/10 to get that ball rolling and we’ve rolled the other way….Gut is not price evidence…so we wait…..
REMEMBER There is a substantial risk of loss in short term trading & option trading and it is not right for everyone , Please consult your brokerage firm, broker , advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only
April 18, 2020 Option Professor OPINION & OBSERVATIONS
OK everybody we all have seen this movie before do you need are review? Here you go….FIRST we get a market CRASH….usually based on way to much leverage (Dot Com-Real Estate-Corporations)…SECOND.. the FED comes to the “rescue” by printing money (money supply just jumped 15%+) and buying assets (they are so far outside of their boundaries it’s a joke) and driving interest rates to ZERO in money market funds (kill the saver). Now we get the THIRD..which is TINA-the acronym for “There Is No Alternative” Simply put…everybody is forced to buy RISK assets if they want to make any money. Even the FED knows they may have gone too far in the short term inflating asset prices as their DAILY QE was $75 Billion per day in March has now been reduced to $15 Billion per day. After the FED left interest rates at ZERO for a ridiculously long time after ’09 and caused asset prices (S&P 500) to jump about 88% in about 4 years (peak to trough) EVEN they have to know that the returning the S&P back toward the all time highs with 22 + Million UNEMPLOYED, no EARNINGS, negative GDP, soaring DEFICITS ect. has the potential to not end well if the rosy outlook about restarts, therapeutics & vaccines should hit a speed bump. On the S&P 500; we have breached the FIRST resistance zone (2640-38.2% retracement)…the SECOND resistance zone (2790-2850 50%-breakdown point) and are now moving toward the THIRD (2930-3030 areas-61.8% retrace & 200 day M/A). We have seen the biggest DIVERGENCE in the Dow & Nasdaq since Dot Com 2002 as people plow into “safe” tech & semiconductors with huge valuations We understand positioning & rebalancing of 60-40 portfolios that Quant guys like Kolanovic/JP Morgan & Tom Lee Fundstrat talk about on TV. We also believe much of that is being done…..after that volume is executed… Who’s going to buy above S&P 3000?….The BANKS made a KILLING (always PROFIT during panic selloffs) during Q1 when they exploded the BID/ASK spreads in both Stocks & Bonds (since the FED was talking to Larry Fink of Black Rock & others in March about their plans…why didn’t they announce to the PUBLIC DON’T Sell into this distressed market we are going to bail you out?) At any rate….they got plenty of MONEY & SET aside BILLIONS for loan LOSSES ect. How will we do into RESISTANCE zone number Three? We believe SUPPORT zones to be 2850..2700/2640…..2550-2450 & 2200-2000.
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We ended the week with a bang as the market zoomed on restart hopes & an anti viral therapeutic from Gilead (Remdesivir) which had positive but only anecdotal news. The Dow outpaced the Nasdaq by 2+X as the 18 yr highs on the divergence between the indexes closed. Could it be the huge stampede into tech & semis & virus stocks may be losing steam…maybe? We saw a downgrade on AAPL this week as questions about expensive I-phones & revenues out of their services business are being questioned. Also; AMZN ran up to 2460 (all time highs) which put the P/E ratio valuation at OVER 100X earnings & OVER 30% premium to its 200 day Moving Average (1867). We feel that 20-30% over is rich….40-60% overheated….70%-100+% is stupid. Virus beneficiaries like NFLX, ROKU, PTON, looked to have peaked and to a lesser extent ZM (10 million users to 200 million users since Jan WOW!) & TDOC…..many believe both these companies will have long runways but maybe price to valuations have gotten ahead of their skis. Dividend plays (COST & JNJ raised) continue to be centered in banks (JPM C WFC), pharma (MRK BMY PFE) & energy (XOM_CVX) & certain REITS (AMT, BIP, CCI,STOR). However; if we get a phase where cash flows are tight..suspend dividends? The high beta ETF’s on our radar VGT VCR SMH VYM MGK have all had a great run in the last month so between here and 3000–time for a trim? NEW ON OUR RADAR–There was podcast with a Mark Cuban interview where he discussed 3 areas he found interesting for the futurist…#1 AI (artificial intelligence) #2 Robotics #3 Precision Medicine….all have stocks that could participate in the sector…so AI…we’ll look toward the usual suspects (AAPL AMZN MSSFT IBM INTC NVDA CRM)…for Robotics (ZBRA CGNX KIGRY ABB PTC DASTY…for Precison Medicine (NSTG AGIO & ARKG). Additional interesting areas include Big Data, Block Chain, Cryptography & IoT (Internet of Things) which is broken down to consumer which is composed of devices and infrastructure that enhancing our daily lives & industrial which is composed of sensors, robots and equipment that improves efficiency & automates operations of industry such as electric grids & smart factories which may expand to return manufacturing to USA. Big data stocks (YEXT AYX SPLK ESTC TLND CLDR MDB)…Block Chain (IBM BABA)….Crypto (MSFT V NVDA PYPL CME AMD GS SQ) & IoT includes (INTC CSCO IBM QCOM ADI EMR NXPI ROK) & the ever present MSFT AMZN GOOG to a lesser degree. LOTS of RISK here…moderation always the key.
Normalcy starting to return to prices as a month ago EVERYTHING was trading at a huge DISCOUNT to NAV and the liquidity was “frozen” to the FED buying or saying they would buy and sending prices to a PREMIUM to NAV…both probably made no sense. Some closed end Muni funds were at a 24% Discount to NAV and are now flat while High Yield was at 24% but still at 8% Discount. The FED has got 9 Facilities to spread money around to a variety of problems…there will be NO SHORTAGE of problems for them to finance. the PPD/SBA programs are out of money (did you think people would pass on FREE money?)…but the sharps are already playing the ssystem with companies taking the money & then sending their people off to collect unemployment….and other SOLVENT businesses like MULTI BILLION $$$ HEDGE FUNDS are collecting the money & because they know where to go & how to fill out the forms….jumping ahead of the poor slobs who need the dough…disgusting…..how did this happen…well the real estate promoter, ex-hedge fund guy & his buddy from venture capital/private equity land (Trump-Mnuchin-Powell) did not REQUIRE proof of hardship as their buddies/donors would have a difficult time proving hardships from their homes in the Hamptons. At any rate…hard to believe that all these programs will work “flawlessly” but estimates of 2-12 Trillion supporting this bail out certainly has put downward pressure on short term rates and stabilized debt markets for now. This total collapse of revenues/cash flow/demand followed by the avalanche of DEBT be thrown on top reminds me of that scene in Good Fellas where the mob takes over the restaurant and runs up debts until you can’t borrow another penny & they torch it. You may hear more about YIELD CURVE CONTROL ahead if the FED decides to target a long term interest rate by buying/selling as many bonds as needed to hit that target rate…we did this before to finance the cost of World War II…if they do that yields could drop a lot…..the poster child for this lately has been Japan since 2016…we are facing higher debt needs as the deficit jumps with Social Sec/Health Care/Tax Rev & an aging population & this downturn. Japan’s stock index Nikkei recently traded at the same price it was at almost 30 yrs ago & the GDP to debt is way over 200 & we understand their P/E ratio is about 12…so low rates/low growth/low valuations..not tasty recipe. On our radar for income..relative quality/shorter duration VUSFX VFSUX VMBS and for the more aggressive….maybe short term paper on GM & WPX.
Questions or Speak with Us?..email us at option [email protected]
US Dollar/International Markets
Not much to report this week as the Dollar index closed a shade under 100 while the two currencies that are on the ledge remain on the ledge. Something Has Got to Give at some point. The Japanese Yen closed at 107.57 and the 50 day M/A & the 200 day M/A are both around 108.50 so it need to get on it’s horse if we are to breakout to the upside or maybe it will accelerate to the downside instead. The Euro closed at 108.79 and its 50 day & 200 day M/A’s converge around 110 areas so again it needs to get on its horse to get going. The Can $ Aus $ NZ $ all have rebounded after their collapses but the currencies in Latin America (Brazil/Peso) plus South Africa & Russia seem weak to varying degrees. In the international Markets; we see EEM has rallied since the March collapse…had a decent day Friday but overall seems stalled…ditto for FEZ which is it’s European counterpart. As Reggie Jackson said about his role on the Yankees (he was the straw that stirs the drink)…the same could be said for the S&P versus these indexes.
Lots to look at here….Cash prices remain pressured while the June contract trades above 25 a barrel. Rig counts are supposed to be CUT by 33% not easily restarted while Saudi & Russia they will cut more if necessary. Again; our view is that supplies will be L shaped in the months to come and demand may be V shaped which explains our intermediate term targets of 30-40 and our longer term targets between 50-60 dollars a barrel. We also acknowledge that demand is in the abyss and if it remains there all bets are off..but that is not our base case. We thought XOM & CVX were bargains during the drop and both appear ready to defend their juicy dividends… sometimes you have to look at huge volume and panic selling and say to yourself….is all the news discounted?….is there value? so far so good but a 5% break would make trimming and covered write/collars look interesting. Another big one… SLB arose from the ashes after they announced earnings.
Gold Silver Copper
So far holding a core position from much much lower levels has been our opinion and waiting for a combination of a higher Gold price with GDX sustaining levels above 32 has kept us from adding to exposure. The GOOD news…money/credit deficits are far outpacing GDP and rates are so low that if inflation pops…the Gold could fly…..the BAD news is that gold coins are trading at an OFF THE CHARTS premium/ETF’s are raking in the dough both suggests froth & we are deeply concerned with the lag in gold stocks (last time we hit 1800-GDX was about 70 NOT 29!)….somebody’s wrong here… we’ll watch for now to see who’s right….we told you Silver needed to get above the 50-200 day M/A averages @16-16.50 turn turn & above 19-21 to breakout…so this week it traded with 15 handle so it has failed to so far. If it can get going WPM PAAS SILJ are on our radar. Copper is still plugging along in the 2.00 to 2.50 range and our choice FCX up 20%+ in last 2 weeks.
Good news for the Agricultural community this week as $19 Billion in aid was announced and why not….everybody else is getting paid out. The key observation here that may give us a clue..in the past we saw farmers use the subsidies pay down some debt & save for a rainy day…..rather than buy equipment ect. Is that what America will do with it’s found money?..if so GDP could remain stale. As for Beans…we said our gut says that $8 dollars could go to $9 or $10 or more rather than $7 or $6…but our gut is not price evidence…we wait to see wait planting/growing/weather seasons bring us.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Please consult your brokerage firm, broker advisor to determiner your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
April 10,2020 OPINION & OBSERVATIONS
THIS WEEK..Never a dull moment huh?….This week we saw stock indices have the biggest UPMOVE in DECADES & we had the Fed “Seize the Bond Market” on the same day that 6.6 million souls said they had no job bringing the total to 17 million jobless. It appears Dodd Frank (restrictions-accountability- transparency) has been thrown out the window as banks, the Fed and the Treasury have elected to “make it up as we go along.” LAST WEEK..we told you that if we broke above 2640 we could test the 2790-2850 area (50% retracement & breakdown point) which is exactly what we did. The rally was led by junk (big moves in virus epicenter stocks-hotels-rental cars-restaurants-airlines-oil–cruise lines) which suggests short covering. Remember algos & the like love to press the side that LACKS volume (buying). At 3400 S&P; with the A/D line screaming exhaustion and LEVERAGE + ETF participation at a record levels without increased earnings the stage was set to press the sell side. Now plug in a virus & shelter in place…TIMBER!….we said here many weeks ago that no dealer/market maker is going to buy bonds or stocks but the FED must come in and be the BID…again EXACTLY what has happened……then you get a wiped out market that fell the FASTEST ever that gets way under the long term moving averages (oversold) and the vulnerable LACK of volume short term (selling) so they press it up to get short cover buys…revert toward the mean…exactly what we see now. WHERE DO WE GO NOW?…Our best guess is either toward the 2930-3020 area (61.8% retracement -200 day M/A) or retest breakout point 2640 (we just did) or 2450-2550 area pullback lows. If we blow out 2450; that opens a retest of 2200 or even 2050-1700 worst case. Many still believe (Bill Gates for one) that the Fed does not own a magic wand and the consumer & restart without a vaccine/drug remains murky. Are we worried?…maybe we should be….the world is over leveraged big time and Central Banks are prescribing “unlimited “debt to “solve” the crisis which to any 3rd grader sound stupid. WHO’S IN CHARGE?…we have Mr. Trump who has said that now is the time to slap as much debt (LEVERAGE) as possible on our nation with rates low. Mr Mnuchin is a HEDGE FUND guy who has worked with George Soros-Eddie Lampert (college roommates) also has invested in Trump projects/used offshore accounts. He invested in films like the X-Men franchise & Avatar. He indicated he & the admin want to build wages & get job security for the working man (they missed that boat when the 40% corporate tax cut went to buy backs not WAGES). Mr. Powell came to government as venture capitalist & private equity guy. Why are these guys down in Washington taking these low paying government jobs? There is a lot of long term decisions being made by risk taking speculative guys who may not be around next year. This is the perfect group to run the debt up & create short term asset bubbles followed by more crashes. We just saw it happen to ETF’s recently and maybe next happens to the DEBT MARKET. If we see either Inflation/Growth or Dollar weakness starts a redemption run on trillions & trillions of debt. Dealers must buy into that environment & we just saw they won’t do it. The FED/Treasury is obscuring the real value of debt & equities and doing all they can to get asset values to jump before the election with total disregard for consequences in a “great experiment.” They say they want to take a “snapshot” of the world before March & make everybody “whole” again. Our view is rather than taking public money & making stock & bond market risk takers whole (1% of the population) with bailouts; let them TAKE their losses or hold onto THEIR losses recover…and simply ask every citizen for their 2019 W-2’s and write them a check & refund lost income. These bridge loans will be bridges to nowhere if revenues and cash flows do not recover. RISK..too slow to get the PPP money/companies say better deal to cut staff.
Questions??…email us @ [email protected]
As we said the up move this week was of no surprise as we were way under moving averages and the FED announced their buying binge. The high beta portfolio we are focused on (VGT VCR SMH MGK VYM) still seems to be a reasonable basket to look toward when a legitimate sustained advance materializes (VIX 20-30 range) as the VIX in the 40’s still suggests 3%+ moves up or down may still be in the cards. To say the jury is still out is an understatement as we may see over 20 million claims and GDP drops in the 30%+ neighborhood. Earnings/guidance coming out of SBUX this week was sobering and restaurants & airlines say revenues down as much as 90%. THIS WEEK we get earnings from banks (may be ok as who do you think traded all that stock at the lows & traded that distressed debt which snapped back)….also health care JNJ UNH ABT plus oil SLB and Transports JBH & Kansas City Southern. A taste of what’s happening but not exhaustive. At the end of the day (after the Fed distortion clears) we will have to valuate companies on some metric. We will be looking at the Schiller Cape Ratio which was at 43 now 24 and still suggests relatively overpriced stocks. It takes the price divided by the average earnings over a 10 yr period to smooth them out over o variety of economic periods. Also we will consider book value which is calculated ass the difference between a company’s total assets and total liabilities and it is this metric that some use to conclude many banking stocks are cheap On the international markets… Brazil & Mexico had 20% & 10% Latin American bounces….while in Europe Germany rallied 30% France & UK 20% Italy & Spain 10%……In Asia & Pacific 10% jumps for Taiwan Hong Kong Singapore 20% for China Japan India Korea Australia…could there be a further bounce to come before reality sets in??
Questions??? email us @ [email protected]
This is really where the action was this week as Powell & Mnuchin shred the rule book on money & credit & correct allocation of resources. EVERYBODY NEEDS MONEY….from the individuals & small business, money markets, corporate of all investment grades, ETF’s, Munis (states-cities-counties), private equity ect. and it looks our public money will provide it. We got 3 New “FACILITIES” or a nice way of circumventing the Rules of Fed. #1 MUNICIPAL LIQUIDITY FACILITY ……is needed because state, cities, counties have mandates on balance budgets (would be nice if Federal Govt had it) so they have seen revenues from taxes ect. fall off a cliff. So it’s either cut services or the Fed ponies up with short term (24 month) help to bridge the gap. Another bridge to nowhere as these municipalities have unfunded pension liabilities to choke a race horse…so some say they will be slow to re-open economy and then get in line for a bailout while all this free money is floating around and bet the Fed/Treasury in an election year will play ball. #2 PRIMARY-SECONDARY MARKET CORPORATE CREDIT FACILITY….this one really widens the goal posts as now sub investment grade is on the table and who knows where it ends (they just fired Mr. Fine who was supposed to oversee proper allocation & the Fed can leverage what has been authorized. Junk Bonds and ETF”s ect are now in play thru these “funneled” programs Sure there are some parameters but do you trust them at this point? The MARKETS responded like Tom Hanks in Cast Away when he saw a plane….very short got blown out and short term debt on some of the banks went to NEGATIVE yields!. HYG & JNK: 2 high yield etf’s jumped 10%+ and many of the collapsed PIMCO funds came to life (Fed guy Clarida used to work there)…. At last glance; the bid ask spreads remained wide so after the FED sugar high & shorts cover…obscured prices give way to real values. #3 TEMPORARY ASSET BACKED SECURITIES LOAN FACILITY…..Here the FED is now a player in commercial asset backed mortgages, top rated tranches CLO’s, certain CMBS’s (helps insurance companies) and Apollo Global Management made a plea to get assistance & supposedly floating a $500 million offering.(they had extensive loan business with Jared Kushner’s family business…..again a lot of awfully wealthy guys working in low paying govt jobs). FED balance sheet goes from $4 trillion to $ 10 trillion–120 days as we LEVERAGE America/Revenues later? VMBS actually sold off. On our radar VWLUX VWEAX VWOB VCIT VCLT all were bid up on gaps higher.
This is getting very interesting. Our range has been about 100-95 on the DXY and we saw a breakout to 103 followed by a vicious pull back to 98. Now we have a tighter range of 101 and 98 that may not have along lifespan and could help us with the next important direction in the currency markets. The Japanese Yen & the Euro are trading right around where their 50 day & 200 day moving averages converge and with a sustained rally could spell TURNING point for the Dollar….jury still out. The other currencies like the BP A$ C$ still look like dead cat bounces but could join the party if a party is to be thrown at all…is the Fed wanting a weak $$?
Another one we have been all over as oil shares looked very bombed out to us (XOM 30 CVX 50 area) and they ran as oil went up 50% best since 1986. The Trump deal & Russia & Saudis making nice at the OPEC meeting appears to have been a disappointment ass we warned last week the deal seemed flimsy and the principals untrustworthy. The failure of prices to take out 30 area on a retest was a tell and the sugar high was bound to fade as the reality of supplies and the demand decline reared its ugly head. Longer term; Our view is that demand has a potential for a V shaped recovery (must travel in some way) while supplies may be rather L shaped which could make for a move to fill the gap between 35-40 and maybe see in the 50’s in 2021 especially if the B-52 money being dropped globally returns us to a normalized usage level. Monitor the lows/monitor restart.
Gold Silver Copper
The FED giveaway Thursday was met with big buying in the Gold & Silver as NEM which many feel is best in class for the yellow metal has about doubled from it’s 52 week lows and made 52 week highs on Thurs..Gold futures broke above 1700 last week but spot Gold lags under 1700…some say it is because the cash market is not being used as much due to scarcity (coins have historically huge premiums) so traders are using futures. As we said a month or so ago there was a trader who put up about $6 Mill looking for 1900 to make a max of 100 Mill…of course lose it all if it fails…ouch! SSo where we stand is base positions area hold but GDX still not making new high (30-32 area) and spot sub 1700 and old highs 1900 area intact. IF we take out 1900 (8% above futures) then the door to unknown highs could get open BUT if this thing fails up here the exit door will get really crowded. Sure it looks good no question but we’ve seen some hot blazes turn into smoke & ash..we got our core. Silver is entering the tougher zone ass 50/200 day M/A’s are at 16-16.50 areas…so if we jump above them and ever take out 19-21 neighborhood…the upside possible big….lots of paper currency being printed globally….Copper popped 10-15% but we need a recovery & 2.50+.
Soybeans Soy Oil
Some say supply chains could be disrupted & we’ve said the planting & growing season may hold the key to volatility. We have been moving away from the 8.50 level which we see ass constructive and Bean oil prices have risen away from the 25.75 area…still a lot of big resistance above and while our gut feels that under the right circumstances $8 beans could break to 9 or 10 rather than 7 or 8…..our gut is not price evidence…so we will monitor.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to discuss your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
April 4, 2020 (R.I.P. Martin Luther King Jr.) OPINION & OBSERVATIONS
Ok everybody we made it thru another turbulent week of news and price volatility. Everyone has a view of the truth so we will share ours now. First off; the unemployment, economy (GDP), earnings/dividends, balance sheets (consumer, corporate, federal, sovereign, state, local) are in very bad shape. We view the fastest drop in asset prices EVER to attributed to BOTH bad fundamentals and the virus exacerbating the unwind. FUNDAMENTALS-we did not have the “strongest economy in the history of the world” going into this drop. We had a 40% tax cut and an explosion of corporate debt that resulted in corporations getting a windfall of cash which it had never seen. The decision had to be made as to what to do with that cash and rather than spending it on capital expenditures (growing the business) or wages (you know the guys who do all the work)…..the decision was made to go with buying company stock (buybacks) with free cash flow & borrowed money. This was cheered by shareholders & Trump (although now he says he “thought” they would “do the right thing” and was always against buybacks??). Why not? The shareholders (401K’s) were soaring (as Trump says like a “rocket ship”), Trump could refer the DOW everyday as a barometer on well his “policies” were working..lest we forget also that corporate executives (insiders) bonuses & options were rainmakers. During this time earnings & GDP were moving at a pace far slower than stock prices (earnings manipulated because of less stock). Valuations went to the highly elevated levels in the last 6 months ending in Feb.. Unemployment went to 3.5% lowest since 1969 but the jobs paid like it was 1969! This “great” economy also produced Federal Deficits over $1 Trillion dollars in a late cycle expansion (Clinton’s economy in the late ’90’s was way stronger than Trump’s and was producing Federal Budget SURPLUS! The Federal Deficit is estimated at $3.7 Trillion this year and $3 Trillion next year. So we built a rally on buy backs that could not last, tremendous debt. Engineered Earnings (that were flat for 14 months) and low paying service jobs (sounds like a Straw House). Now we have a time out for our nation and the world (but Europe & Asia were already contracting BEFORE the virus). This “strongest economy in the world” now has 10 Million people unemployed (some say as much as 10 million more to come), possibly 15 million defaults on debts ranging from homes, auto, commercial,corporate, municipalities. We have read that 75% of Americans live paycheck to paycheck and consumer spending is about 70% of GDP (the spotlight is now directly shining on income inequality). SO WHAT’S THE PLAN? Well…if you have a debt crisis (cash flows cut/no money to make payments) you obviously want to respond to it by flooding the financial system with more & more debt…….. RIGHT??….Here comes the FED & the CARES Program & Disaster & Paycheck Protection Program & maybe soon the Main Street Lending Program. Now let’s get this straight…..govts, corporations, consumers, municipalities ect. are overloaded with debt and just got a huge “margin call” and rather than REDUCING debt we are tripling down (at least). These are essentially meant to be 2 month bridge loans…Good Idea? or backing a losing trade/throwing good $$ after bad $$?? The Fed balance sheet has ballooned toward $7 Trillion (was 75 Billion a day now cut to 50 Billion) and rates have been cut to zero….so what’s left is they’ve gotten together with Mnuchin/Congress to set up programs so they can funnel money & stay in compliance. Everyone’s in line for the money from consumers (told don’t pay bills for awhile) to corporations (airlines-Ford wants Cash for Clunkers Program) Municipalities (NY Debt downgraded & need $$ to make payments), Commercial/Apartments (want to forego payments & put arrears on the back of the loan)..even the Post Office is saying they’re upside down by June Sounds like system so built on debt (like a drug) is convulsing and a worldwide injection is being made regardless of consequence which like any drug can be effective on masking the underlying issue temporarily. The engineers behind the scenes pushing up money and credit and our national debt (like a rocket) are Trump, Mnuchin, and Powell….all temporary USA employees. In Atlantic City; Trump’s casinos made 4 trips to bankruptcy court, & he put comparatively little of his own money in it shifting debts to the casinos. As he says; he made money while investors & others did not. At the end of the day; HIGH Debts & LAGGING Revenues were insurmountable. Sound Familiar?…….We pray these tactics work and a rebound is in our futures; but our fear is we may end up holding hands singing “Put your make up on & fix your hair up pretty & Meet Me Tonight in Atlantic City”
Our take on the stock market technically is the S&P throw back rally that failed at 2640 area was about Fibonacci 38.2% retracement of the move from about 3400 to 2174. The move from the recent highs (2640 area) to the pullback lows this week (about 2460) is also about 38.2% which creates a short term window. Since the 36% decline we saw from the 3400 to 2174 occurred in such a rapid manner (deleveraging/forced-panic selling-liquidity crisis) …a degree of bad news has been factored in and the quick avalanche of liquidity & stimulus response creates a risk for the bears. Also; when you break that fast 2 things happen right off the bat….the VIX explodes (85) & the moving averages are way way above the market. Two other things can also occur which is the VIX can settle down and the moving averages can catch up to the prices. Sideways choppy action can achieve this objective and also a reversion toward the mean. If we can take out 2650 we would bet a move toward 2790 (50% retracement) or 2850 (breakdown point) with a max out at 2930 area (61.8%/50 day M/A)…. HOWEVER……….. if we take out 2450 & the horrific data and potential snags with the CARES/Disaster-Paycheck Program spooks the market….retests of the lows and acceleration toward 2000-1700 areas (50% -61.8%) could be back on the table. Earnings estimates of 1.75 on S&P to be cut…how much? multiplier? Some say be careful of piling into virus stocks (TDOC & ZM) while the possibility of PTON improving due to backlog of orders (gyms lose luster). We are watching for a high beta portfolio for risk should we come out of this AAPL MSFT AMZN GOOG FB BABA ABT ABBV QCOM NVDA CCI PHM MU AKAM CSCO INTC DIS SWKS CRM CRWD PANW or ETF’s ass VGT & SMH . We have read that spending on Cloud/Cyber Security expected to be a priority and strong while ad spending buy backs dividends not so much.
Questions…email us at [email protected]
Thanks to the Fed the money market accounts appear safe again while the IG, Govt. Mortgages and muni markets have found some footing with the latter still being a big question mark as the Fed can’t buy forever and these state & local bonds (particularly dependent on specific revenues/hospitals) may still be dicey. Hey guys…the system was frozen 2 weeks ago and the world is awash in debt..yes they have called off the dogs..we’re just not so sure the dogs have left the neighborhood. Our feeling is relatively short term duration Govt backed mortgages ( VMBS) may be a reasonable place to hide out while we see how many downgrades & defaults will be coming. Some of the numbers we read are frightening (15%-30%+ default rates) and the employment numbers (Bullard said 10-40%) and GDP falling (15-30%) ass revenues dry up and expenses pile up. Some improvement in the discount of income closed end funds but still trade behind NAV’s and many BBB’s already trading as junk with yields well into double digits expecting downgrades & selling from funds that must maintain investment grade bonds. REBALANCING is a key word in both stocks and bonds (fueled the EOM EOQ rally we saw in S&P) and may be a big factor in Q2 as well. Some say look toward debt issued by utilities, cable, telecom, towers, health care/pharma for value/ banks look juicy but low rates/recession pose a risk. Look for the Fed to be deliberative now to see how their efforts pan out.
While Bitcoin rallied as much as 70% off it’s recent lows; the Dollar Index has also rallied off its recent pullback settling above that 100 level. The badly hit Can $, Aus$ bounced a bit and may be helped by an oil price rise if it is sustainable. The economic news out of both countries stink but that is par for the course. There had been tremendous hoarding of dollars that hit a pause but the risk to the BP, EU, JY after there rallies have stalled is that both Europe & Japan were essentially in recession BEFORE the virus. Now they’re throwing tremendous debt on top of a shaky foundation. Brazil & Russian currencies (Brazil look like another new currency may be in the cards) are discounted. US Dollar remains the one eyed man-valley of the blind. Above 105…we could accelerate…otherwise range of 100-95 remains.
This week they called the dogs off the oil prices…or did they?? Trump tweeted about talks with two fighters (Russia & Saudis) and they agreed to go to neutral corners (OPEC meeting). Crude price jumped about 50% from the lows (best time since 1986) and 50 day/200 day M/A’s are about 39 & 51. Like stocks; when you throw a ball off the Empire State Building you get a bounce. We feel that could get you as far as 40 (50 day) to fill in the gap but because they’re storing oil in every boat from the Queen Mary to the SS Minow….a range of 20-35 may be best case as moving averages catch up with the prices. That’s not bad news for the bigs (XOM-CVX-COP-PSX) but maybe too late for shale & the OXY’s of the world (although their debt went from yielding 35% to “only” 18%). Hey if flying loses it’s luster then maybe demand for gasoline will spike..with these supplies we could drive to the moon. Is 10-20 off the table?? Maybe for now..need to see more cards.
The Tsunami of debt being thrown at the contraction (margin call) is beyond the imagination. The Big Question…will this be DEFLATIONARY or INFLATIONARY??..Well here’s our take…when you come out of these drops a couple of things tend to happen…a jump in GDP & a jump in inflation. If that’s the case then we would take out 1700 and open up the new high potential and beyond with the long term moving averages which are under the prices and rising continuing to to their thing HOWEVER we still are concerned with the failure to take out 1700 and the GDX failing to get above 30 and sustain the value. Why so concerned?? Because the road to big money goes thru those 2 towns and we are not certain we have not reached the point where DEBT is oppressive to GDP & Inflation…is it combustible?? So core positions continue to make sense and the retail popularity is a turnoff but the big level is 1450 pull back low…1700 highs…go with the flow. Silver is a different animal to Gold (witness Gold-Silver Ratio). It’s recent fall was 36% and so far hasn’t recovered half the drop. Miners like SILJ/PAAS got battered during the decline and 50-200 day M/A’s hover around 16-16.50 presently. A move thru that area coupled with Gold taking out 1700 would be very constructive and if we ever see a move over 19-21 we will be happy to don our Lone Ranger garb & shout hi yo Silver away…until then be cool. Copper is battered by economic decline & China slow to get back on the horse. Holding 2 bucks and getting above 2.50 needed as part of the repair phase and if you are a low term believer..FCX available in the 6 bucks range
Questions? email us at [email protected]
Soybeans Soybean Oil ect
Most ag prices appear to be either range bound or declining based on the economic downturn and the strong dollar. The sector seems to be waiting for what we are waiting for which is news coming out of the planting and growing season soon upon us and how we come out of this recession-like situation….without something to help us break thru resistance the path to big upside not currently there…like all of us…we welcome summer and fall
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
March 27, 2020 OPINION & OBSERVATIONS
OK…not hurting for news this week huh?….we just had the biggest 3 day rally since 1931 & the best weekly rally since 1938 (all after the Great Depression) and we had the biggest jobless claim number ever (by over 4X) and we had the biggest QE (ridiculously bigger than ’08) and the biggest Congressional relief package (bail out) ever again by a ridiculous multiplier. Let’s put our common sense hats on here and guess why such a big bounce back? Well in about 1 month the S&P fell about 35% and took with it the financial system. We saw forced liquidations, huge volume, panic selling, a stampede into bank deposits & money markets ($400-$500 Billion), credit markets freezing and the fastest pace ever drop into bear territory (19 days). Now this week the Fed goes nuts with QE and Congress goes with $2 Trillion…plus they can leverage part of that (as much as 10 to 1)…we are ridiculously oversold so of course you are going to see a rip to the upside on short covering, algos & book squaring into a no seller scenario. Friday we got a reality check as the market snap back ended after we got about an 39.1% (Fibanocci) throwback toward 2650 area. A possible rally for the last 2 days of March (Mon/Tues) could coincide with EOM re-balancing as 60-40 stock portfolios got out of whack and so adding stock at the end of Q1 here is possible unless it was primarily done this week. We stated many times as long as the VIX is elevated (still in the 60’s) expect wild swings/wide ranges. As we get into the first 2 weeks of April we will tear the band aid off this bad situation and get a peek as to how bad is the resulting wound. Earnings, PMI’s, Jobs Data will be coming shortly and while 3.3 million unemployed in the first report some believe was “discounted” it was accompanied with the over the top Fed & Congress action. When we started this decline @ 3400 S&P the valuation was way more than in 2007…and if you take the market cap-GDP ratio measurement….we may still have a lot of re-valuation to do. Some Fed guys look for a quick return back while others see a longer run. We got a shot in the arm last week but shots wear off/leaves recovery values. The world has gone nuts printing money issuing debt credits or whatever you want to call it. We are not certain if this is Christmas in March or Global Desperation and maybe desperation doesn’t end well. At the end of the day Stocks & Bonds have valuations….how do you valuate? .Lots of things hitting the fan in April and we will glean more information of which to answer questions such as Virus status, PMI’s, Earnings, Credit Markets, Govt programs, Return to Work projections, Consumers & more. While some say 90% of major stocks may have seen lows..not our Kool-Aid.
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Let’s start with some perceived positives….insiders (corporate executives) have been buying up a storm….do they believe in their companies or is there an ulterior motive? Some names Dell, Oracle, EQC, Alliance Data & CIT and many others. Cash has been ripped out of the stock market and landed in bank deposits & money market ($400-500 Billion). This can be a positive if it comes back in but we don’t know how old these investors are and have their risk appetites may have changed…this is the 3rd crash in 18 yrs (’02, ’08,’20) and for some it could be getting a bit old (Patriot Act/then QE/Now Unlimited QE). But the Fed game of kill the saver-force risk taking is ON! Banks supposedly have good payout ratios for their dividends and their debt was wobbly until the Fed came into IG and now near back to normal. The bank’s P/E ratios are 1/2 of utilities which are also getting lots of bids.With the market selling off some say it’s time to re-balance your asset allocation (add stocks) if you believe in the longer term (3-5 yrs out). Consider high quality brand names, 5G, Cloud-Edge comp cyber security. Digital transformation like MSFT & CRM–AI like GOOG–Uber LYFT could see many more drivers with the unemployed….be careful…VIX is very high still. & we just had a house of cards crumble…early to say lows are in & one scenario we discussed is a wide trading range of 2850-3000 top 1800-2100 low and swing around there until moving averages settle in with new prices & the VIX settless down to a reasonable 15-25 range…it all takes TIME!
Well this one was falling apart before the Lone Ranger showed up (the Fed). Remember that Bonds trades thru dealers and if a house is on fire the dealers are NOT going to throw their check book into the blaze…..they wait for the Fed to become the bid (let them torch their money it’s only stuff they created out of thin air anyway). Short example of what happened as commercial paper, treasuries, corporate IG, munis, mortgages, etf’s and much more needed someone with cash and reckless abandon to step in front of the tsunami of liquidation and redemption runs which we spoke of many many months ago ass a possible resolution the ridiculous continued QE the Fed policy makers kept us on long after the ’08 crisis. They created the asset bubble cheered by the administration (30,000 DOW) got stuck with it’s consequence…now the Fed adds trillions of dollars of debt on top of a debt crisis commandeered by temporary employees leaving a lasting legacy for future generations. Is there a risk to helicopter money (more like B52 money), extending credit to broke business, telling banks CECL (loans) suspended , using leverage on money set aside for relief…we’ll see. Munis had it’s biggest rally since ’82 and IG corporate got a bid…let’s see if HY & asset backed-securitized debt plus so much other debt not supported plays out. We hear some say value is in Sovereign emerging market debt and watch for downgrades and especially in the crowded BBB space. Energy, travel, cruise ship, car rental, hotels remain out of favor…stay tuned. In short…the Fed seems to be buying IG, Munis, ETF, Treasuries..MMKT.
Our view was that the range for the Dollar was about 100 to 95 and it stayed in their for a long time. We felt a break above 100 could see a pop to the upside and we saw just that to 103. Now we have a 98 handle because the Fed & Treasury & Congress have decided to allocate credit at such a enormous level & the Budget Deficit is exploding to such a degree that the dollar is being faded again. Looking to the BP, Euro, Yen has begun to lure investors away the dollar…struggling currencies CD AD & other oil and commodity based currencies could have a better 2nd half if things turn. The whole world is printing and we’ll be watching to see the future of fiat currency evolve in front of our eyes….could we ever see another Weimar? The dollar hit 120 during the Dot Com boom and if we blow out 105…look out. If this over the top extension of credit to anyone who can walk & chew gum ends badly then 90 & 80 is not absurd….follow money flows…be careful
Our view is that he Saudis said they will pump thru May and they weren’t kidding. USA was supposed to talk and Russia was supposed to scream uncle but neither has occurred. According to reports the Saudis are ok at 15 per barrel pre dividend with ARAMCO & 3 bucks out of the ground so that 15-20 in the first half of the year appears in the cards…2nd half may be a horse of a different color which is why we like XOM & CVX (who sounds like they’ll honor dividend) will come out as relative winners & worth a look. Canada sand guys (SU) & our shale guys are in big trouble as well as debt laden firms…could be a batch of defaults coming down the pike. Watch other big guyss like RDS.A & BP, COP and others & the debt of OXY for clues.
Gold Silver Copper
OK looked at quite a few charts and came to the conclusion it’s getting to be High Noon for the Gold. If we can clear 1700 a fast move toward 2000 or so if backed by a good fundamental..why? well the whole world seems to be making a joke out of paper money as even questionable countries are coming out with relief packages in the billions. The one – two and three year moving averages look ok and the move to down to 1450 appears to be a garden variety pull back. HOWEVER…..the GDX has failed to sustain above 30 and we failed to take out 1900 so far so 1700 is a lower high. Also retail investors are buying up gold coins at the fastest pace on record in some cases. So if we slide under that 1450 area an acceleration to the downside not unlike we just saw in stocks could occur as Deflation from asset liquidation and a strong dollar could shock the gold bulls…Stay Tuned. Silver & Copper are industrial metals and have been caught in the slide.Clearing 15 Silver & 225 Copper would be helpful but downtrends.
Soybeans & others
Still waiting to see if Soybeans & other ags (believe they get money out of relief deal) will get news and be able to push thru resistance …need 950-10 to get beans in a place where they could accelerate….the season dead ahead.Brazil is such a mess…maybe USA not able to compete on price. Vanguard has a Commodity Strategy Fund VCMDX get a prospectus and learn more…bad return so far this year (like most)….a diversification??
REMEMBER There is a substantial risk of loss in short term and option trading and it is not right for everyone. Consult your brokerage firm broker, advisor to discuss your own suitability. Past performance is not necessarily indicative of future results Use Risk Capital Only.