March 20, 2020 OPINION & OBSERVATIONS
Well..the Good News is we are week closer to getting to finding a turning point! We are going to give you a review and a preview of what we see right now in stocks, bonds, dollar, gold, crude oil ect.. No need to go over the obvious with you…but if you want me to describe what has happened in two words it would be “Redemption Run”. While we all have seen the hoarding of toilet paper and pasta; we look only to the stock and bond market to see what they are doing with their portfolios..they are hoarding cash! Hey this redemption run was warned by us months ago (albeit not with this unfettered speed) but these ETF’s being sold as proxies for sectors with underlying non-liquid assets and the public piling trillions of $$$ in for 11 years was not going to end well…and it hasn’t. REVIEW We felt the rally above 3050 S&P was suspect as no GDP & earnings growth occurred by rather a stretch in valuations….if it doesn’t make sense it won’t last. Now the consumer is 70% of economic growth and he was spending a lot and working in a service economy. Companies took their tax cut and spent it on buybacks to “manage balance sheets”. The next move was to go after the debt market by offering yield hungry investors low yielding bonds & badly collateralized loans. This leveraged their companies (60 billion for some 45 Bill $$ for airlines). What did they do with the proceeds?..you guessed it…they bought more of their own stock. This artificially bid up stocks to a level that when the first interruption came the stock and bond markets have fallen like dominos. Why not….most people and companies cannot handle a one month interruption in their cash flows and rather then getting ahead of this in Jan..we’re looking for masks in March. We have seen unreal order imbalances (sells) in Bonds & Stocks because 11 years of people plowing in (particularly the post tax cut overvaluation run) has no buyers on the other side. Margin calls, forced liquidations and a stampede to cash. It’s a liquidity crisis we discussed in these updates for a long time before social distancing became the norm. The Fed is trying to be the bid in everything right now and that smells like 2008…although in 2008 it was homeowners and the banks in the mud…this time every hourly & tip earner, 401K, bondholder, travel & leisure & most every citizen is in the mud…so to make a case that the damage has the potential to be more pervasive is not far fetched. It’s an across the board Redemption Run with an unknown destination. We have our best guess-we will share our opinion.
Some various thoughts with an opinion….many dislocations..bank stocks trade behind tangible book value…10 day implied volatility most since 1929-2008 1987 all bad times…revenues collapsing in some sectors like airlines -80%+ and we saw that occur in China ass Adidas said revenues fell 85% YOY…dividends in many cases may be on the chopping block…Transports & Russell have declined to 2016 levels which may mean more to come for S&P….China got back going in 8-10 weeks but the virus was somewhat regionally contained and they have a manufacturing economy while the virus is in 2 very populated areas (California-New York) and we are a service economy needing consumer discretionary purchases to grow….the Dec 2018 2350 level S&P was touted as support but today we closed under that level and futures hit 2260 at the low. Lock downs in NY & CA was not welcome news and quadruple witching today saw 23 million option expire and volume explode…..VIX has hit 85 a few times this week but has faded by late week/maybe drop further next week?.. and must come down if we are to find a low…..some closed end funds and mutual funds are trading well below their NAV which is evidence of the non liquid nature & order imbalances….RECESSION talk…some say the 3 month Treasury vs the 30 yr Treasury is the one to watch for inversion to forecast a recession..well that inverted in June 2019…so some said a recession in 2020 would take place (they look right)…..some say the recession began in Feb 2020 (can we argue?)…..we have heard it will be hard & fast and last about a year. Who knows?…but right now we are in the same ballpark based on what we see…humility & flexibility can go along way in avoiding trouble….LEVELS..we are looking for the 50% correction of the move from 2008 low (S&P 667) to the 2020 highs (about 3400 S&P) which is the 2000-2050 area or a Fibonacci retracement of 61.8% which is about S&P 1700…numbers coming out potentially very ugly (Thurs unemployment estimates average 2-2.5 million-astonishing) and the Q1 & Q2 earnings, PMI’s, GDP numbers more than likely will be cringe worthy. Some quant guys are saying that we should focus on potential positive returns in 2021 and some say remember to be greedy when people are fearful and be fearful when people are greedy. We will be a lot more comfortable when we hear them rollback two words “Social Distancing”…..but here’s some potential things on our shopping list…..growth was the leader before and it may lead us out (5g, Cloud-Edge computing, Cyber Security, consumer discretionary, communications)….dislocations like transports (UPS UNP)…energy (XOM CVX)….usual suspects MSFT AMZN AAPL the Semis, GOOG….discounted brands (GM HD TJX TGT SBUX NKE MCD JPM JNJ V) and many more…..a reversion to the mean could rally to SP 2550 (10 day M/A)…
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We will give our opinion and best guess…Again…not a real surprise here when you consider the lack of liquidity in these instruments for mass liquidations (redemption runs) which is exactly what we spoke of here in these updates for a long time. The Fed is adding enormous liquidity and will have to continue to do so. They are now buying Munis and commercial paper and maybe corporates before long. They want to help money market funds honor the buck and state and local municipalities are looking for block grants and a bid. Now investors who were hungry for yield and save money for a rainy day…well it’s raining. Look around at it all…some closed end funds & mutual funds trading at a discount to NAV….bank debt in the 4-6% range for short intermediate & long maturities…..look at the debt of the dividend aristocrats…if they can raise and pay dividends maybe they can afford their coupons….convertible bonds paying 4%+ and have a stock purchase kicker could be interesting..you gotta do your homework but the yields are getting juicy..in fact the spread between various levels of corporates is now at levels where they have been only 10% of the time historically…..preferred have gotten nailed..maybe some are worth a look..we are entering what has been a value zone as far as yields and price .but…CAVEAT EMPTOR….a value zone is often not a great timing tool….so with this big of a redemption run & the unknown of how long the virus lasts…and how consumer behavior will be affected….the RISK is elevated…so…like stocks or anything else..do your homework…and be aware that volatility could be significant as we are approaching levels last scene in 2011 with the Sovereign debt crisis and we don’t know in 2008 crash levels could still be a possibility…securitized & asset backed debt are of concerns and some say we are trading 80 cents on the dollar and sometimes that number can go to 50-60 cents on the dollar if things turn really south. Spreads seem stretched but who’s to say where stretch ends/defaults begin. During ’08 crash the Fed had 5+% to work with and now they have about none so look for an explosion in the balance sheet as we go from 20% of GDP up toward our pals in Europe & Japan that have huge ratios. TLT still looks like it could have seen a generational top at 180. It may be because the massive Fed liquidity response will surprise people and send yields up as the panic into Treasuries seemed to reek of capitulation.
Well worldwide providing liquidity id on as Abe & La Garde & Merkel-Macron all sound as if there is no limit to what they are prepared to do. Some of the international markets have gone to or surpassed the 2016 levels so if things stabilize they may offer an interesting diversification value. Since 17 Trillion or whatever of negative yielding debt is absurd but real; our thoughts do not revolve around any interest in their debt.
We’ve had a pretty good read on the dollar as our belief has been that we were in a trading range of about 100-95 which lasted for a long time with some bounces therein. We did state that a move above 100 could bring in a dollar stampede (not unlike our thoughts that a move over 145 TLT would bring in a buying stampede to Treasuries) which so far ha occurred. Will it last?…well our yield advantage is certainly on it’s way out the window and our “strongest economy ” ever was built on buybacks on borrowed money & overvaluation. But; the Dollar is the one-eyed man in the valley of the blind.Three lovely places to live with beautiful scenery which recently saw their currencies approach 50 cents are New Zealand, Australia & South Africa. If fiscal comes out of Germany & UK…..keep an eye on the BP & Euro.
Biggest week up and down that pretty much the market has ever seen. Russia won’t be black mailed by Saudis (they usually do the blackmailing) and Saudis yanked their money out of oil when they sold ARAMCO during that phony engineered rally to 66 which collapsed once that money was in their house. NOW….it’s all about market share and what better way than to make your competitors go broke. Russia thinks they can play ball in Saudis league but we believe they can’t. Our understanding is Russia needs 40 bucks or better to make money and Saudi can take it out of the ground at 3 bucks and make money at ARAMCO at 15 bucks pre-dividend. The math doesn’t seem to favor Putin whose country depends on oil for 70% of it’s revenue….so Saudi wants market share and kill the sand business (Canada & the shale business (USA). The idea of pumping thru May seems to coincide with a hopeful summer driving season. Trump may get involved..why wait? Our guess is the big boys XOM & CVX to come out the other side as winners. We look for crude to possibly trade to 15-20 bucks but not last…reversion trade took you to 28-29 (10 day M/A) and now back in the soup on sub 20.
We have been all over the Gold story since the breakout above 1350 the move the 1580 resistance (2012 lows were resistance) to the holding of support at 1450 to the run to the Tudor Jones target at 1700 to the current pullback fueled by worldwide asset deflation. Wow..so now what? well our view is that when they are done bailing out the worldwide stock & bond markets with currency expansion beyond your wildest dreams that paper currency skepticism & possible inflation (Treasury debt blow off) could bring the bulls back to the market. Reversion rallies have been limited (1560 10 day M/A) and support is 1450-1400 & breakout point 1350. We have blown out speculators leverage players but may have more work to do in the weeks/months ahead….if we break 1300-1200….then deflation won. It was reported an option player bought a spread on June Gold for 10,000 oz looking for 1900 + by expiration..$6.4 mill bet…if 1900+ at exp. = $100 Mill. Good Luck on that one…..Silver really wiped out the longs and is trying to bounce but the business breakdown hurt this industrial metal even more than the Gold. We said the copper had to hold 250 and if not 200-220 you go..where that’s where we’re at…waiting for China to reengage and buy.
Soybeans & others
Commodities on balance beaten down with the economic meltdown…no restaurants open so cattle prices hurt and some California farmers say they are hurting. Corn, Wheat Soybeans all caught a bid this week..as we have stated we felt the planting & growing season may provide some news that could finally get these markets moving above some fairly sturdy resistance.The Vanguard Commodity Strategy Fund has sold off more than 20%+ from it’s highs so read the prospectus if you want to learn more.
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.
March 14 2020 OPINION & OBSERVATIONS
WOW!….last month after seeing the market as overpriced overvalued and over leveraged…we felt a pullback on the S&P toward the 200 day moving about 3000 made sense but always felt that the market cap to GDP ratio was very elevated and maybe explained why Buffett was sitting on so much cash. Well..we now see why. Some realities have reared their ugly heads like the fact that the tax cut that went to corporations was used not for capital expenditures/higher wages/ pay down debt but rather to buy backs of stock creating as a way to redirect attention away from slowing GDP/Revenues/profits and earnings to simply stock prices which everybody loves when they rise….also with the Fed dropping rates so low then forced people further out on the risk spectrum into Bonds (leveraged loans-high yield-junk-emerging markets ect) wherein some companies took those proceeds and bought more of their own stock…that’s a lot of temporary buying. The problem is you need more buying to sustain prices (the public-hedge funds retirement plans ect were all in) at lofty levels not based on fundamental strength but rather some may say creative accounting. When the virus hit China; I was listening to Paul Tudor Jones’s interview in Davos where he said this virus was serious and he would be very concerned to be long stocks. This was followed by China shutting down cities and businesses (supply chains) and announcing a PMI number of 35 (below 50 is contracting) which was followed Japan Q4 GDP contracting by 7+%…bad #’s. The market has gone through many numbers like a knife through butter because liquidity has dried up as no one knows what GDP 3’s will be and earnings so how can you valuate stocks & bonds with any confidence. The Transportation Average and the Russell (DJTA & RUT or IWM) failed to confirm the new highs (topped in 2018) and have now taken out the Dec 2018 levels and approached 2016 levels before rebounding on Friday. On the positive side; it has been reported that insiders bought more stock in the first 2 weeks of March than anytime in 9 yrs and there has been a panic by many into money market funds and the selling volume has been huge. We are very oversold technically and some say the public stops panicking when governments start panicky…well worldwide governments willing to throw cash at this thing has zoomed thru the roof. BUT we needed Central banks not to drop interest rates (European loan demand collapsed) but be the buyer of last resort of bonds and stocks as the corporations who were buying their own stock/the public and institutions were nowhere to be found (liquidity). On the negative side is the unknown and consumer psyche when the flu fades (hopefully) and there we look to China. It took 4-8 weeks after quarantines for people to go back to work and stores to re-open. Adidas CEO was saying Q1 saw an 85% decline in revenues Y/O/Y and that now it has been slow to recover because buying athletic shoes are not first on consumers mind once things reopen. We re hoping that the panic we see in consumer here (going to cash in stocks/buying up all the water & toilet paper they can find/and governments willing to print- lend-forgive “whatever it takes without limit” is a sign that we will stabilize markets & fend off this flu virus and come out the other side by Q3 or Q4. The unknowns of credit downgrades, credit defaults, repricing re-valuating markets that were way overvalued (market cap to GDP) is of greater concern and frankly no one knows the outcome and only a fool would say. The market’s overvaluation leverage complacency liquidity was exposed. Questions..contact us at [email protected]
Where to start?….Europe & Asia were both in a slowdown (recession?) BEFORE we got hit by this virus and GDP in the USA wasn’t looking good. We seem to be in a bit of a lock down worldwide and conventional thinking is that the virus is transitory (gone by summer) and then free credit and stimulus puts us right back on the bicycle with the consumer back at it again…maybe?….certainly many companies we watch are on sale MSFT, AAPL, AMZN, GOOG,JPM, C, WFC, BAC, PRU,BX,GS MS UPS,DIS, SBUX, HD, NVDA,ADM, , UNH, JNJ, AMGN, ABBV,COST, and many many more. Plus; we see many of the dividend aristocrats have been on the chopping block. Finally some of the closed end funds are trading at a substantial discount to NAV due in part to liquidity issues. The sell off (ETF-Index related) has been indiscriminate and therefore stock selection ss very interesting due to some stronger companies were dumped out with the truly troubled ones.Having said that combined with some of the aforementioned points; there is a lot of unknowns and ass the old adage says “when the tides change you see who’s swimming naked” which is very apropos we believe for the current market. So our best guess/hope is as follows…..the VIX is at 57 and hit 77 this week (the highest since the crash)…we don’t believe it will go in a straight line to the 15-20 zone of stable bullishness. But IF things stabilize relatively quickly ; then the idea of a trading range to work off the excess volatility in the VIX makes sense with the ceiling of the top coming in at ballpark 2875-3050 (basically coincides with the 10 & 20 day moving averages) and the floor down at 2300-2400 where the recent and Dec 2018 lows come in….yes that’s big but we’re coming off 77 VIX, a global shutdown, and a consumer panic. The next zone under that is the high low for 2016 which is ballpark 1800-2200 which I am sure the Fed & the administration will fight tooth & nail. Our big worry is that prices of the Dow Transports & the Russell 2000 went into levels not seen since 2016 last week when they were on their lows and the Transports & Russell were good indicators for questioning the Oct-Feb S&P rally so we would be foolish not to give that fact appropriate weight. Indexes in Europe, Asia & Emerging Markets have revisited 2016 as well..
Questions contact us at optionprofessor @gmail.com
Another one of those where do we start?….well let’s start by opining on the lack of liquidity in high yield, leveraged loans, investment grade, munis and treasuries which was astounding. As we said for a very long time; ETF and passive investing works on the way up but if everyone wants out at the same time there may not be much of a bid on the other side. For those of us that thought investors were reaching into the toilet to get yield..those fears came home to roost. HYG traded behind NAV last week and to levels not seen since 2016 which was another ominous sign that triggered big intervention by the FED as spreads on our best credit (Treasuries) blew out. Everything from short-intermediate-long term paper was getting sold and lines of credit by Hilton, Wynn & Boeing certainly didn’t boost confidence. Munis were sold as state solvency was of concern and leveraged loans, asset backed loans, and others lost their bis as spreads exploded. Can you blame them? The ability to determine what’s backing the loans was questioned plus hedging costs for payment risk zoomed. Also CECL was a concern as banks may have to reassess the status of borrowers of existing loans and change the risk level of their outstanding book. The new isssue markets have been kind of frozen here and abroad..another sign of worry. Now it looks like full scale panic by worldwide governments that state they are prepared to give, loan, forgive and whatever else needed to halt the liquidity crisis and while they seem 2-4 weeks late…better late than never….all is on table. Closed end funds are trading at big discounts to their NAV’s but can you trust NAV’s where the bid is questionable? Big week this week Mon China retail sales & G7 meets Tues USA retail sales/industrial production Wed Fed cuts (most say 100 basis points) but if the follow the lead of ECB no cuts more QE ….bridge loans could zoom with cash cut off. So where to look when all is on sale? How about short term & longer term investment grade, high quality munis, preferreds to name 3 right off the bat. Now if we are to stabilize here and the virus is transitory; this bargain hunting in stocks and bonds may be reasonable; however if we’re to revisit 2016 levels like some indexes/bond sectors have done then caveat emptor. The Bond Market was exposed for its liquidity, covenants & leverage risks.
Questions contact us at [email protected]
As we have said for about 2 years; the index has been range bound at about 9950 and 95…we peeked out of both sides temporarily and both times it lead to big changes of direction (100 led to 94.5/and 94.5 led us back toward 99…lots of volatility within a range. Now maintaining above 98 and blowing out 100 could lead us to a Dollar stampede however our yield advantage should be out the window this week and our economics don’t look so rosy now (whose does?). So as we’ve said the Dollar could be the one eyed man in the valley of the blind (yen-slow GDP/VAT tax/236 debt to GDP & the Euro has negative rates and a commissioner not talking savior like (that could change). In fact; our opinion i the Fed balance sheet is about to explode as USA debt to GDP around 20% pales in comparison to Europe 40% and Japan over 100% and this was BEFORE the printing binge we’ll see soon In our view; this is where the Fed will and should come into play…expand the balance sheet/leave some room to cut further when & if loan demand materializes and spend your targeted money where it’s needed…providing a bid in stocks & bonds to calm everyone…makes sense we could see better prices by the end of month before the March statements go out/avoid panic.
Sounds like a broken record….but this is the second punch to the gut (the virus is the other) that served ass the match to light the flame. Well…when the Russians & Saudis want to fight…they really go at it huh? Russia wants to kill the shale producers (probably so does Saudi) and as we told you forb months..after Saudi dumped the 2.5 Trillion in Aramaco when they pushed oil to 66…no need to sustain prices after that …they just got their money out ($2.5 Trill)….but a good time to mess up USA oil and eliminate competition. This was tried in 2016 during the last growth scare and all it did was make the industry more efficient and send everything up. Now you’ve got the majors some of which have huge bank rolls to buy shale guys at pennies on the dollar and consolidate the industry. While there is still a chance for sub 20 levels temporarily; our view is the bigger guys XOM CVX HESS and others may come out of this and could be something to look into at 50% + discounts from highs in some cases…still looking for 47% oil energy share.Market share wars where you both lose tend to get resolved & Trump is supposed adding to the strategic reserves. Lower gas prices..consumer ++
Gold Silver Copper
As we’ve been saying Gold broke into a bull run when it broke above 1350 and Paul Tudor Jones early on quoted a 1700 price target. Well it did all that and then it entered into the Show Me state….meaning we wanted to see GDX get above and maintain 30 (now at 2016 prices) and wanted Silver to get above 19-21 per oz to reinforce the bull as stories like record retail sales of Gold coins started hitting the tape. When deleveraging happens in stocks and bonds occur (big time last week)..some say that’s Deflationary and leads to a strong dollar…double whammy for Gold & Silver (which always lagged evidence the Gold-Silver ratio)….Gold saw it’s biggest drop in a very long time and Silver was no slouch falling at twice the rate of Gold. Now the 1350-1450 area which was support before is a line in the sand and maybe if the Governments can stabilize the equities and debt markets…the conversation will turn from deflation/recession to paper currency madness Copper was trying to hold the 2.50 area as China is trying to stabilize (cases shrinking/normalcy returning) which we believe is imperative for a copper run to higher levels later on…otherwise into the 2-220 soup we may go.
Many ags were under pressure like everything else. We look to the planting and growing seasons and stabilization of financial markets to see if we can get the news needed to overcome resistance at 950-100 area although it seems China may use Wheat as their US crop buy while taking advantage of the currency/economic collapse in Brazil to grab beans at a bargain.
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.
March 7, 2020 OPINION & OBSERVATIONS
Last Week was a continuation of a relatively probable opinion that we’ve had for some time. Let’s recap….when we went on that ridiculous Oct ’19 to Feb ’20 run based on weak GDP, lackluster earnings & revenue growth, massive overvaluation (Market Cap to GDP) and with more technical warning lights flashing like a Christmas tree plus an almost 400 point premium to the 200 day moving average on S&P…we felt the odds were not favorable and the market could see exhaustion going into 3400 ass we felt it had no business breaking above 3100 in the first place. We discussed various ways to reduce risk in portfolios (among them- option strategies like Collars, Married Puts, Covered Calls & asset allocation adjustments-such as if you are 80% Stocks/20% Bonds or the ever popular 55-60% Stocks 45-40% Bonds….one might adjust the weighting as to increase the Bond % while reducing the Stock % but of course consult your brokerage firm/broker, taxman ect to determine your own route to follow as one approach is right for everyone. There is a risk in taking action and sometimes there is a risk of not taking action. We started in Oct 2020 in the S&P 2800-2900 range and so far we have essentially wiped that the ill-deserved rally. Two areas that we harped on that kept us out of the wildly bullish camp were the Dow Transports & Russell 2000 (RUT) both of which failed to take out their 2018 highs and have since rolled over-DJTA big time! The world (Germany Italy France China Japan (VAT tax)) all had flat-down-shrinking growth numbers BEFORE the Virus so imagine what the numbers will be now?? China announced PMI numbers at about 35-….shocking…USA? We said that a VIX 10-15 is bullish…15-20 Neutral…20-25 favors bears above 25-40 usually means the abyss…stubbornly high can mean up 1,000 down 1,000 days like last week. We are here NOW….so let’s opine on GOOD NEWS BAD NEWS……as we go on remember our main feeling is that if the Virus in gone within a few months (summer)…the odds the pullback is a BUYING opportunity increases substantially….but if we must wait 18 months for a vaccine then we are looking at a horse of a different unknown color. Our opinion is that the GOOD news starts with the fact that we’ve had an unprecedented drop (although 6x in history we’ve had a 10% drop) and 3 mos later and 6 mos later the market had good advances. The VIX spike has been the highest since 2008/2011 and we also saw a historic number of 90% DOWN days ((90% of all stocks down) which have coincided with important lows with the exception of 2008. Deleveraging to a great extent has occurred but a decade of passive investing could get unnerved without stabilization soon before those March statements go out. GOOD news is the FED & Central Banks worldwide are on the move and if fiscal or targeted injections of liquidity materialize…more good news. Now we believe this interest rate drop and printing money bonanza at the FED is not totally unwelcome and needed to be done anyway as the Dollar was to strong due to our yield advantage (going going gone) and the deficits are going through the roof and will be financed by substantially lower borrowing costs..good. More GOOD is that the millennial generation is now employed, finance a home for about 1,000 bucks a month fixed ( household creation yeah!), maybe re-fi that student debt or since we’re printing overtime maybe seek forgiveness. USA debt to GDP ratio was at between 100-110…you can expect that to rise hopefully not to the level of Japan (236)! Many Sectors have been hammered (Energy-Airlines-Cruise cos.), some corrected (Financials-Transports-Disney-JP Morgan) but many still sub 20%. Internationally; many country ETF’s are near their Dec 2018 lows so we’ll see how it plays. NOW…we turn to the more worrisome side which of course starts with the premise that the Virus is not transitory (done by summer) and that business comes to a halt not a pause. The Dow Transports have taken out their Dec 2018 lows and since they were a key factor in our avoiding the top it may be a key factor in us getting back in prematurely. The all important Tech Sector has a long way to go if we are to retest that low area and since MAGA (MSFT-AAPL-GOOG-AMZN) are at the top of many index lists….it’s scary. Also valuations returning to their lofty levels is not assured but with interest on Treasuries so low that game could return. Supposedly Buffett values the Market Cap to GDP ratio (Russell 500 to GDP) and that relationship is concerning as it is at the same level as 2000 and 20% higher than 2008. He’s not sitting on a hoard of cash for no reason. If you’re Bullish you better hope with Treasuries so low that our darling T.I.N.A. (there is no alternative is more alluring than the bean counters who actually must calculate how much to participate. One other GOOD thing potentially is the Dividend paying stocks that have current Free Cash Flow Yields above 10% (ability to pay) and whose yield range from 3.5% to above 8%. High Yield spreads are in and around 500 so historically 600-800+ has been an area of interest. Some just like one stop shops like QQQ, SPY, IWM FXI TLT when it’s time. Fed’s worried about system & consumer freeze up…..me too. Contact us at [email protected]
Last week the VIX remained elevated above 30 and spiked and the gyrations were in line with a high VIX….expect more of the same until the VIX settles in at least under 25 which may take time. We like to use market ranges and parameters rather than to play Nostradamus….so here’s our take…the ceiling has been established at S&P 3400 with the low at 2850 and the 50 day M/A @ 3250 area & the 200 day M/A @ about 3050….the rebound high was about 3125 and the lows of late Feb (3200) plus the gap at about 3275-3325 may be addition resistance. Importantly; we see support at the 2850 (about 50% correction of the 2350-3400 move) with slippage taking you to 2750. If that goes a last stop could be 2600 followed by the Dec 2018 lows around 2350. We expect volatility and price swing to remain wild as long as the VIX is unmoored. Should the Tech sector does a major fade on concerns about supply chains, demand- growth or valuation then we believe the odds of following the transports and international markets towards the Dec 2018 levels increase. We still believe the money for no interest & demographics & tax rates & deficits could finance a potential move toward 400O+ in years to come after we come out the other side. Lots of bargains potentially but selective over time is our mantra currently…technical & fundamental damage has been done.Careful….we have some bargains…more to come?
We felt the trend for rates was down of course no one imagined the parabolic speed that rate rates have collapsed. Treasuries look like they are on their way to ZERO but caution TLT (long term Treasury) is way above its 200 day moving average & everyone is on the easy money bandwagon. Felt a little like a blow off last week but the flight to sovereign debt is mammoth & historic…heck they don’t even pay interest or less in some countries..Mad. Right Now…Credit Spreads in the 500’s not really juicy yet and down grades could be on the way for BB & BBB’s…the health care & energy sectors are under the microscope as well as others…the FED is on guard monitoring the system as they remember from 2008 if credit/liquidity freezes-it could be game set match. Leveraged Loans & CCC’s and others are on the risk radar. Again..if business halts..some companies can’t afford the cash flow miss.Some believe in longer dated money center bank debt…we’ll see.
We’ve said for some time that the dollar is range bound between 995-95 where it has resided for some time..not buoyed by our “great” economy & growth but rather our yield advantage over other countries (Japan -China-Europe)..well that went out the window last week and the Dollar hit the skids..now putting it in perspective it just reversed a false upside breakout and put us near the lower part of the range at 96 but it’s downsside momentum is palpable and should we break 94-95 like a knife thru butter…then the door opens for 88-90. The Fed wants more inflation & growth & the admin wants a lower dollar/rates to compete..well you got it! Again all currencies look nutty with the Debt to GDP ratios very dodgy.
As we told you after ARAMCO sold all that stock the need to keep prices elevated went away and so did 60+ crude oil. Now OPEC can’t get cuts (Saudis acting as if they want to cut-they got paid on ARAMCO why do they care?).Russssia gets hurt under 40 they say..we’ll see..now if we hold 40 and reverse…are XOM,SLB,COP,CVX, HAL, BP, RDS.A good values or will they follow the oil companies who may default on debt due to low free cash flows? Stay Tuned it could get wild in the next 90 days.
Gold Silver Copper
We are a bit torn as Gold had a great week but Silver & the mining shares not so much…we have been all over the Gold since the break above 1350 rally to 1580 pullback to 1450 and subsequent rally to the Tudor Jones target of 1700…but since then not so much progress….so if we fail to get going a pull back could occur as the popularity of be bullish is out of the bag…Gold-Silver ratio spiked which historically did wonders for Silver historically…it could outpace Gold’s prices if historyy repeatss itself. Copper is hanging on for dear life at 2.50 area..stay tuned the metals could be ready for changes as nearby Vol of Gold options versus the back months is huge.
Most grains & softs still meandering and we feel the planting and growing season ahead may hold the key for future ability to break resistance or fail.
REMEMBER there is a substantial risk of loss in short tern trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability. Past performance iss not necessarily indicative of future results. USE RISK CAPITAL ONLY
February 29, 2020 Review & Forecast OPINIONS & OBSERVATIONS
We are going to review our opinions this week and provide you with current views, Ok..last week the bottom fell out of the stock market and we closed out the week with a huge volume flush out…spike to 50 on the VIX and reversal on the close…..obviously the bulls are hoping 2850 will hold and reparations will begin which is possible but in this time frame where so many companies have lost faith in their ability to predict EARNINGS…valuating companies has become guesswork at best. Certainly P/E ratios that were excessive have been coming off but are S&P P/E ratios correcting from 19 to 17 sufficient? What will 2020 Growth & Earnings be? As I write this China was announced at a horrific 35.7..the worst in history. Next week Mon. USA PMI & ISM numbers Tues Fed speaks/USA Auto Sales Wed USA Service Sector #’s Thurs OPEC meets/USA Factory Orders more speaking from more Fed guys and Friday we get the US Payrolls (Jobs)
Any Question?? Contact Us at [email protected]
When we broke above the 3050 area we targeted the area around 3400 S&P as a possible exhaustion area based on number of factors including the failure of the advance decline line to make a new high, the valuations being way ahead of earnings and growth, complacency in the VIX, RSI’s extended, prices of index & key stocks trading so far above their 200 day moving averages (overbought), the Transports & Russell failing to take out their 2018 highs, the dismissive attitude of supply chain interruption & the Virus, the lack of interest from readers to inquire about the uses & risks of hedging (collars-married puts-covered call) and much more. So now we look for support technically and Central Bank intervention to help guide us thru this Katrina like event. Our opinion is we have no idea how this will play out but hope it is just a Q! & Q2 tragedy. We have ranges we hope will hold and they are 2850…then 2700-2600…then the lows of Q4 of 2018 2350. If you believe that extremely low interest rates will bring TINA back…will encourage consumer spending (a new generation of household creators)….a refinance boom and lower gas prices (more cash for consumers to spend)..more Federal spending (stimulative deficits)….5G …the cloud-edge computing still coming….then a buy plan to phase into the decline or wait until we see an S&P monthly low surrounded by higher lows to enter could make a lot of sense…..VIX (fear gage) hit 50 last week which historically has been a stretch point (during the crash times it hit 90)….on our radar is VYM & SCHD which provides diversification and dividend income and of course discounted high flyers MSFT AAPL GOOG AMZN and the semiconductors & the health care sectors could be worth a look. Energy is so out of favor and dividend yields are so juicy…iss XLE, XOM, COP, HAL,SLB, CVX, worth a look? Remember Baruch & the “Buy Your Straw Hats in the Wintertime”
OK…the phrase here is how low can you go..think about it…we’re at the point where we should have Federal Budget Surpluses but we’re running huge budget DEFICITS….so how can we finance them…how about we get rates toward zero….the Fed may cut but I’d bet they know they need to inject liquidity (balance sheet expansion right now)……the last time we had a panic into Treasuries the yield went to 1.4% and snapped back to 2%…..when we get clarity or a break in the action…one view is you will be left with easy access to consumer loans…pent up demand…a supply chain that could cause scarcity & higher prices….a huge snap back in growth and rates near zero on 2-10 year paper….if all these profits that huge amounts of bond players are sitting on want to actualize (sell)…who’s going to buy (maybe the Fed?)…we are now seeing what happens ( in stocks) when a hugely populated bulls party ends with the scream of FIRE! Liquidity is an issue as ORDER IMBALANCES expose inefficiencies in the financial system. If you’re in enjoy the ride and the yields you locked in but we said the trend is UP on TLT for a long while now but the 200 day average is in area 138 and we trade 155….a move between say here to 165 could be a time to fade.
We’ve been talking trading range here for more than a year and recently we peeked out above 9950 DXY…but 100 is the real Wall….and the about face from that area reinforces that belief…..if we close above 100 the risk of a melt up exist (98 area now)…otherwise our opinion is Fed printing & huge budget deficits..Admin desire for weaker dollar..makes south bound logical. Yen Pound Euro ect…..all paper currencies look a bit questionable currently.
OPEC meets this week and as we warned you after the big guys (Saudis) ran the prices to 66 bucks a barrel so they could sell the ARAMCO deal prices could slide back down and a break under 50 could send us sliding if OPEC can’t get uniformity in reducing supply (also said Jan gets a lot of pension buying in stocks & maybe stocks will do like oil after all those monies are in) So Now…let’s see if 40 bucks can hold and if the Saudis can get cooperation on cuts…the oil stocks have gotten so far under their 200 day moving averages & their yields have gotten so high that either they are becoming a Good Buy or they will become a Bye-Bye….electric cars coming…gas is here.Watch RDS.A BP XOM CVX SLB HAL VLO KDI and many more for clues
Gold Silver Copper
We have been all over Gold since it broke 1350 and we told you of Tudor Jones forecast of 1700 per oz…after the move to 1600 we told you of overbought conditions and a possible pull back to 1450-1400 area and a renewed move to the target 1700…we told you of GDX above 17 and 22 and resistance around 30….so now we are pulling back the short term excesses in both Gold & Silver (weaker because of industrial demand stumble)…..what now…we test support 1550-1575 then 1500-1450 and long term averages point to 1375-1400 worst case if we are to remain bullish…if you believe higher prices are ahead because of easy credit..huge deficit spending and a Fed who dreams of inflation & an administration who craves a weaker dollar and worldwide insanity on monetary policy..the obviously you’d see bargains on the dips and plan accordingly.
Grains & other
Here comes more subsidies (not socialism of course because it comes with votes)…and the demand side is on it’s ear…watch for planting & growing news to increase volatility…..tough times sometimes don’t last forever
REMEMBER There is a substantial risk of loss in option trading and short term 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.
February 21, 2020
OPINIONS & OBSERVATIONS
Last week/Next Week….Well..the increase in the Virus numbers got the attention of both the stock and bond markets and the economic numbers are throwing cold water on the bulls yet the price action so far has been fairly muted. What’s going on?..well our view is that there is a run to USA denominated assets and Gold which is weird but occurring none the less. The US Dollar made a run at the magic 100 number before turning down and Gold broke 1600 and made a run at 1650 the ounce. Bond yields (30 yr Treasuries) declined to their lowest yields on record at about 1.90% breaking the 2% level. The market has dismissed the “Iceberg” as merely a Q1 issue and had continued to buy stocks as the situation is transitory. Now we hear 50% of all China’s factory workers are not working and there has been a 92% drop in cars sales in China this month. Combine that with USA PMI’s coming out weakest since 2013 (services sector) and you can see why we broke short term support around 3375 on S&P and the DJTA and Russell both headed south. We said the 3400 area could prove the exhaustion point and so far that looks to be the case ass the divergence between the advance decline line & RSI to the new highs may turn out to be a signal. For bears; it would be helpful to see a break under 3320 and 3300 needed to suggest deeper declines. If we fail to take out 3400 S&P next week and heaven forbid in March….then the Virus and a slow global growth story sans Virus could send the VIX above 20-25 and usher in a move to 3050.
We’re watching GBTC, SILJ, TLT, IBI, ABBV, XHB construction and home builders with rates low and housing starts and permits on the rise..(millennial home buyers) and the closing of the gap between tech and overbought sectors to more the value & cyclical.
Next week…this weekend we have the G20 in Saudi-land…Mon German Biz confidence(low) Tues US Consumer confidence Thurs
GDP & Durable goods and the big one Friday China’s PMI (expect 47.4 manufacturing/50 non)…trust the #’s…who knows??
Questions contact us at [email protected]
As we said 3400 area could be exhaustion area but 33320-3300 is short term support and unless taken out the bigger drop not possible. Also the VIX which last week had a 13 handle and was bullish…we said a 16-20 handle is cautionary (we got it Friday) and 20 25 likely accompany a more severe drop. Transports and Russell no where near the 2018 highs and the advance decline line and RSI to some suggest negative divergence. we also told you 4 of the big five (MSFT AAPL FB AMZN) failed to make new highs which was a good tell because they all got whacked this week. The ratio between oil and stocks has never been greater than since the dot com bust which is also alarming and could suggest a moderation in tech and better action from value and cyclical in the month to come. Truth is..we don’t know how big this virus is and the effects on a slow GDP world…V shape or U or L shaped..we don’t know.
Big story this week as yields drop on treasuries to RECORD LOWS as the whole world wants in to higher US yields and the US Dollar…sometimes stampedes are cattle going to their slaughter and sometimes it’s smart people taking cover..time will tell.
Spreads between risk bonds and safe bonds in about 350 and the yield curve is flattening again. Somebody’s very wrong here as one is saying the party’s rocking and the other is saying a slowdown is coming which normally would hurt junk & corporates.
If you’re long duration (TLT) you’re buying dinner this weekend:):)..how low can we go…well our view has been we’re in a new 10 yr Treasury range of 1.40% to 1.80%…if we get bad numbers and the markets reevaluate the lag time on demand the 1.40% could get taken out wherein if this really is done by end of March then the snap back in yields is going to turn the stampede into fools.
Broke above the 99.50 ceiling but did not maintain it. we said last week the 100 round number is key as if we clear that hurdle a melt up on the dollar is not off the table and maybe the catalyst will be general distrust or European Asian and world currencies
This week saw record lows in the currency of Brazil and drops in the Mexican & Chilean currencies….Euro-Yen?? Stay Tuned
Can’t get out of it’s own way…the rally toward 55 did an about face to the 52’s as aagin the world is awash in oil and with many millions of consumers in China on hold the inventories build. As we said last week..if the Saudis can’t garner support for a cut then the 50 level and below is not safe…some pretty smart people are touting a strong demand and price rebound in the 2nd half of 2020 so keep your eye out for turns in the oil and energy sectors as they are way out of favor and price accordingly.
OK last week said this week was crunch time for the metals and they sure did answer the bell with Gold shooting up to 1650 area and Silver back above 18…we brought to your attentions things we have on our radar like GDX GDXJ and SIL SILJ and they all had a good week….now let’s see if we back and fill or if we blow out the highs…weird to see strong dollar strong gold..maybe not so?
Copper has rebounded but until the virus effect are quantified it still is in tough territory…watch FCX for signs of a turn
Same story stuck under resistance but it looks like more subsidy money coming to farmars …what elsse..it’s an election year
Planting & growing seasons ahead will unlock some answers stay tuned….
REMEMBER…There is a substantial risk of loss in short term trading and options trading and it is not right for everyone. Consult your brokerage firm broker and advisor to determine your own suitability. Past performance is not necessarily indicative of future results. USE RISK CAPITAL ONLY
February 15 2020
Opinion & Observations
Last Week Next Week…..We saw some indices hit record highs last week but not so much on the big 5 as we saw no new highs in MFT AAPL FB AMZN but did see one in GOOG. Also note; we haven’t made new highs in DJTA (transports) and the Russell (RUT) since 2018….some say the RUT will be a massive catch up trade to the S&P..we’ll see. We did see a bump in the pot stocks last week (Cronos-Tilray-Canopy) and Buffett disclosures saw adds in BIIB, Kroger, GM OXY RH and Suncor & adds in S&P proxies but saw cutbacks in WFC & GS (financials). The semis also made new highs while CSCO got whacked probably concerns about China’s slowdown. Some saw the Virus effects are overblown (Dalio) and others defer to lack of a crystal ball meaning no one can be certain of how this plays out….China’s liquidity binge seems to have helped.
BABA indicates numbers may come down despite PBOC’s flooding the market with liquidity and loans ect. The VIX has a 13 handle which is bullish…a 16-20 handle would be less so…..remember how oil went to 66 right as ARAMCO was trying to peddle $2.5 Trillion of stock and after the deal closed we fell to under $ 50 Crude recently …thinking out loud…after the first of the year money (IRA’s/pensions ect.) gets all in…I wonder if Q2 will start to see a similar fate in stocks?? This week…PMI’s come out Friday…they better be better than Germany’s & China’s!
While no real price evidence yet to base it: we felt as we approach 3400-3600 S&P, we could see more exhaustion but maybe it’s more of a calendar thing as we are in the final months of what typically can be a favorable season for stocks and this time it surely has been. A weekly and or monthly high surrounded by lower highs would generate some type of a formation to trade against along with a VIX reading that’s accelerating not decelerating. Will the belief that the market is way ahead of growth and earnings and the Fed may be approaching a time when adding liquidity will slow or reduce ever resonate? Is Volatility dead or just waiting to pop? Some say there will be a volatile periods ahead with better prices but still holds the longer view of higher prices (3400-38000). Sectors that saw strength in the last week or so were REIT & Utilities while Energy saw a lot of selling and Materials faltered.However one way to adjust risk is to adjust asset allocations. Some say increase bonds & reduce stocks could make sense.
5G Opinion & Observations…….It’s coming and a lot of companies are going to try and benefit while ssome could posssibly falter in its wake. Here’s some on our radar for varying reasons….telephone companies VZ T TMUS NOK ERIC….related telephone AAPL & SSNLF …chip makers-radio frequency (RF) filters-component manufacturers (AKTS, QRVO, QCOM, SWKS, AVGO, INTC,TSM,CSCO….
in addition cloud based gaming (EA, ATVI, ZNGA)…..5G speeds could benefit AMZN, FB, & NFLX……5G gear (KEYS, VIAV, ERIC NOK)…….5G Fiber Optics Technology (GLW, CIEN, ACIA)…Cell Toer Operators..(AMT, CCI, SBAC) and Cloud Computing with the Edge Computing (DELL, NOK)…..so there’s a start and as we get move forward the list will grow and adjust for winners & losers.
Questions-Comments..email [email protected]
Well the issuance of debt has certainly not taken a vacation as investors are now willing to loan the government money for 30 years for 2.06% which is a record low and they are willing to loan money to companies for a low differential to treasuries and in some cases with sketchy balance sheets. Good Move??…only time will tell but if something doesn’t make sense then sometimes it doesn’t last….getting everyone into an arena that’s profitable is easier than getting them out if someone yells out FIRE!!
Some say ride the horse until your statement shows cracks in the Net Value which makes some sense & has worked in stocks & bonds since Q4. 10 Yr Treasury was in a range of 1.6%-2% and now looks like 1.4% and 1.8% could be the new parameters for now.
Our national debt has ballooned from $2 Billion in the 1900’s to $22.72 Trillion by September 2019. More on that in Gold update.
Same story as we have been saying…range of 99.50 -95 and we now are making a run at the upper band where I would monitor it very closely as that 100 mark if exceeded could really be telling us something that not may forecaster have predicted..melt up.
Call it the one eyed man in the valley of the blind…but the Euro-Yen-BP or anywhere else look unappealing until we see GDP turns.
Last week our suspicions were that they broke under 50 stooped out people then would turn it around..exactly what occurred. Watch Marathon Oil, HAL, OXY, COP, SLB, RDS.A, BP and many others that have been discarded and see if you see value there. One big risk is that Russia and maybe others don’t want cuts and if the Saudis go it alone…a break of $50 again is not off the table..
Gold Silver BITCOIN Copper
Our view i that one of the reasons that Gold Silver & Bitcoin have been advancing is concerns that Central Bankers worldwide have gone nuts with DEBT CREATION and may be in the process of debauching currencies throughout the civilized world.
TAKE A LOOK @ The GROWTH of The NATIONAL DEBT $$$$…ball park figures.
In the 1900-1920–$2 to $3 Billion…1920-1930 ( Roarin’ 20’s)—$20 to $25 Billion…1930-1940 ($16 to $28 Billion) …1940-1950’s we hit the gas $42 Billion to $258 Billion (WWII)….1950-1960—$250- to $275 Billion…1960-1970–$286- to $317….1970-1980—$370 to $533 Billion…..1980-1990—$907 B to $1.8 Trillion (Reagonomics & 1987 Crash)….1990-2000—$3.2 Trillion to $5 Trillion…..
..2000-2010–$13.2 Trillion to $18.2 Trillion (2 Crashes Dot Com & Housing-Banks)…and as of September 2019 it is $22.72 Trillion!!
So what’ going on?….New Cars New Homes Buybacks Vacations Dining Education Health Care Welfare.On BORROWED MONEY?
Do we PRINT AD INFINITUM? What are the Consequences to Stocks-Bonds-Value of Currency? We don’t know but to be UNCONCERNED & COMPLACENT which is truly a worldwide epidemic may be the most dangerous epidemic of modern times.
Keep an eye on these three as we are approaching crunch time in our view. If you buy into that Central banks have essentially
printed us into oblivion Gold and Silver is the place to be with part of a portfolio….then play the break above 1600 and GDX above 30……some say Silver: if a bull market accelerates, has more potential than the Gold…SIL above 34….for us to increase exposure resistance would be good to take out first and don’t forget the Juniors too (GDXJ & SILJ). If you feel China will turn around and the sell off in copper is over then FCX worth a look and ABX has been speaking about increasing their exposure as well
Same story Soybeans holding 850 but unable to clear 950 and sustain…more subsidies may be on the way…ands don’t take your eye off the ball because the planting season & summer season could be a catalyst for volatility. Coffee rolled up/Sugar rolled down.
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker advisor, to discuss your own suitability. Past performance is not necessarily indicative of future results.
Use Risk Capital Only.
February 8, 2020
OBSERVATIONS & OPINIONS
Last Week/This Week……We had a great job report on Friday? Yes; the top number beat and earnings were up about 3% or
so but they took out over 500,000 jobs from last years total and the amount of jobs created in the last 3 yrs (6+mill) is less than during a 3 year period with Obama (8+mill). Jobs are popping in construction & health care but retail (consumer) and manufacturing faded. Sectors such as building materials, health care, biotech, pharma, medical equipment and therapeutics have seen a lot of action lately. The baby boomer are in their health care years and if what they did to the price of college education
(their kids) and real estate (their homes/second homes) during their prime buying years; placing a bet on rising health care doesn’t seem like the biggest stretch out their. Also; don’t discount the re-fi boom that continues to as even the guys with harp loans may lower their payment creating more spendable income. The loss in retail jobs may have more to do with the cahnge in buying habits to more online than to any cracks in the always spending always leveraged consumer….we’ll keep an eye on that (70% of growth).
Next week; let’s see how the virus develops (BABA holds 200? TECHYY holds 48?) as some estimate 70% of the suppy chain comes out of China and growth rates cut to 4 1/2% which has been unheard of in China. So watch out Mondayy for China PPI & CPI plus Tues. Powell & La Garde speak while Wed. OPEC monthly oil report and Thurs we get USA CPI & Japan PPI with Friday we get USA
retail sales and China sends us a Valentine with a 50% tariff cut on 75 billion of goods…Don’t forget your own Valentine:):):)
Any questions on what we’re watching or feedback on any questions you have contact us at [email protected]
Last week we told you that we are operating with the idea that S&P 3340-3400 is our new sell zone looking for exhaustion and a pullback toward the breakout point of 3030 ball park is potentially forthcoming. Why? the reasons are ranging from valuations
way ahead of earnings and growth which can be hard to maintain and this virus and it;’s effect on China’s growth is unknown.
Some of the big 5 (MSFT GOOG FB AMZN AAPL) seem to have stalled and if next week the others roll over the odds will jump.
We have a world awash in liquidity which underpins stocks but the inflows into S&P ETF’s appear to be double the norm which doesn’t seem to occur at the lows and TSLA may have benefited from a 14 Billion dollar inflow due to positioning in the Russell 1000 so the both the inflow and re-balancing may be transitory leaving the prices to fall under their own weight once moderated.
The moving averages are still pointing up and our economy is viewed as liquid and strong by the world & the Fed expected easy.
With all this and more; the evidence still is pointing up however some very respected men say wise to adjust allocations that would book some profits and reduce the size of your exposure from 3-5 years ago may be prudent. Time will tell….off to 3600-4100 S&P?
Some say the liquidity around the world (88 Central Bank Cuts 2019) is off the charts and the risk of defaults from recession is off the table so riding high yield and emerging markets (who could get a currency kick as well) is the way to go until something changes despite spreads being so tight. Weekly supplies of investment grade topped estimates this week and junk bond offerings are off to their busiest numbers in a decade. Even Louis Vitton in Europe issued bonds some of which have negative yields. Yeah
it seems like madness out there as no belief that a slowdown nor inflation have a chance to rear their ugly heads in the foreseeable future. We don’t see the 10yr Treasury much under 1.40% nor above 1.80-2.0% in the immediate future but if you own bonds and either growth or inflation spikes you will be hurt & wonder why you were willing to lend your money out for so long for so little.
TLT as we said above 142 suggests lower yields and that is exactly what we’ve seen…beware or virus wind down & up econ #’s.
Traders are plowing into the dollar in the last 2 weeks after a selloff stopped at 96.50…we are now in the high 98’s.
Yield advantage, the Phase One deal and positive GDP versus Italy & France down…Germany & Spain about flat and the Asia markets in a turmoil plus Brexit still a work in progress…not hard to understand the flight to the buck….however our base case is and has been a range of 99.50-95 which coincidentally held up for over a year….so we are getting closer to the upper parameter.
China demand falling off a cliff…Saudi look like they’ll have to bear the brunt of cuts as Russia is cool with producing as long a we remain above 40. Darkest before dawn??…that’s the big question isn’t it. I’ve seen some European ETF’s like to have Royal Dutch RDS.A as one of the top holdings so with yields at 6+% and price at or near 52 week lows around 50…it could be time to start keeping an eye on for turn up signs if any. The crack temporarily under 50 was either a way to run stops and we turn up from here or the sign of more to follow on the downside….right now I have a weak lean toward the former with a very short leash.
Copper went into the tank right before the virus as if China’s economy contracts (the China government is injecting capital to stabilize it) the copper market is in trouble (off about 15% from the highs in a month). As we said last week…this was a big week for Gold & Silver and they kind of faded with GDX under 28 close on Friday. As we said; a close above 30 GDX & 1600 spot Gold would get me from feeling it’s losing its legs to we got our second wind. Same opinion this week…Fed & Liquidity underpin prices.
As we said last week so far the Phase I hasn’t produced anything and now with the virus you can forget big AG buys right away.
So it’s Round Three for farmer bailouts who supposedly are using the money to pay down debts & hoard some capital rather than invest in equipment ect. (CAT or DE) Soybeans unable so far to clear 950-10 bucks so wait and see. Always wonder why public funds to finance farmers and Boeing Banks ect. ect is not socialism but helping out poor folks would make us Venezuela??
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm , broker and advisor to determine your own suitability. Past performance is not indicative of future results.
Use Risk Capital Only.
January 31, 2020 — Observations & Opinions
Last Week/Next Week…..Well we said there were cracks in the armor last week and this week we got full on acceleration to the downside. When the virus hit a week ago; I heard Tudor Jones said to take all risk off for 2 weeks to see where this thing oi going.
So far; that view has been brilliant and heeded by some as there has been a stampede into treasuries and ship jumping out of junk bonds(spreads blew out 70 pts some say on its way to 425-450)) to Investment Grade. There were big winners and big losers in the earnings parade we saw this week and we saw personnel changes at some big firms (IBM switched to a man familiar with cloud
business and hybrid cloud plus maybe he can leap frog IBM to the next game in town which is edge computing while accelerating a ROI on their investment in Red Hat. Winners included AMZN MSFT AAPL MLDZ KO HSY WDC TSLA MO although some gave back most all their initial gains. The Losers include stocks directly affected by the virus SBUX Airlines Travel Leisure, CVX XOM HON CAT AMGN BIIB BA(halted production of their popular aircraft and their debt was downgraded close to junk by Moody’s). You know…there was a slowdown already in place prior to the virus basis the Q4 numbers for growth, consumer spending and business spending. We now have a risk of the yyield curve inverting again and the FED says that after April their asset purchases and liquidity injection (they say NOT QE while markets screamed that it was) may fade but the feeling is the FED will be there is we drop but not impede the upside if we advance. Internationally, the dollar has been firm so selling in EEM nad FEZ has gone on as Asia’s debt issuance froze this week and while UK left the EU no big changes until the end of 2020. Italy & France saw their economies contract while Spain and Germany were slightly above water. If we can get the Nikkei above 24000; the upside could catch people sleeping.
NO REST FOR THE WICKED…Next Week we start off Monday with the re-opening of China’s market (ouch!) and manufacturing data and ISM numbers. Just when it looked like global PMI’s were stabilizing or turning we get this epidemic. Tues State of the Union (Turnaround Tuesday?) Wed. US Trade Balance (Tariffs Still Mostly On) & Eurozone-China Composite PMI Thurs Fed’s Kaplan talks (sounded sobering last time I listened) & ECB’s LaGarde who’s still figuring out her new job.Friday-Payrolls & China Trade Data
Contact us at [email protected] with any questions or thoughts
We saw 3340-3400 S&P as an area of potential short term exhaustion and that it has been what has played out. There was a ton of flashing warning technical signals and the economic numbers have not been great. Our view (and the Transport & RUT maybe tipping us off) is that a test around the 50 day (3200) and 200 day moving averages (3030 area) might be in the cards. Another tip was money flows out of risk on ETF’s and traders were liquidating while allocators were buying. Something started to spook traders last week. Again with all the longer term moving averages moving higher The indices such as the S&P & QQQ are dominated by 5 stocks MSFT GOOG AAPL FB and these are the stocks that kept us afloat. The cloud/AI, advertising and the huge amount of subscribers to prime (150 Million) are the engines. When MSFT & AMZN announced they got a bang of about 10-14% afterwards as well as INTC & IBM. Stocks BABA & WYNN could stabilize when the smoke clears and an ETF called EMQQ has about 50% China the India Brazil & Africa exposure in tech, internet commerce and communications. A Billion people in India till do not have a smart phone is what I’m told so the room for growth in these countries seems reasonable. For sophisticated high net worth traders; I was looking at GOOG announcing earnings Monday so a weekly 1400 put sold for 25 and a 1470 call bought at 25 would contract you to buy stock at 1400 and have the right to buy at 1470 (close 1434). If we shoot up after earnings anything like MSFT & AAPL or AMZN you could potentially cassh in your calls, if it stay between the two strikes it could be an offset and if it tanks you are liable to be a purchaser of 100 shares (per contract) at 1400 or $140 grand…clearly not for everyone but interesting.
Rush to treasuries occurred this week as Q4 data and the unknown longer term effects of the virus had investors seeking safety and for Asians & Europeans some actual yield. However; there are those who believe a 1.35 to 1.60 range may begin on the 10 yr.
treasury but my guess is the ceiling could be 1.80 and 1.40 if we settle down. Later in the year spreads may widen and if we turn these numbers around 2-2.50% is not off the table. You see an inversion and economic/earnings numbers plummet then the Fed will be called into action and they may do something to the short end where they have much better control. Watch for Junk problems as the oil market sometimes dominate high yields and the virus, demand and supplies-stockpiles make a lot of companies vulnerable to default as no free cash flow and sub 66 prices are a killer. ARAMCO sold their shares into a rising market (as we suspected) and now that they are sold the bottom is coming out a bit on prices.
Gave up some ground this week but still has a 97 handle which puts it smack in the middle of our trading range view of 99-95.
Where you going to go? Bitcoin-Gold?…Japanese yen with that debt to GDP ratio?…the Euro with those economic numbers? or how about the Pond Sterling…with Boris & a new regime (even Harry split:)…..no the yield advantage and the tech & growth advantages are still colored Red White & Blue….of course until & if we blow out 95 – on the downside.
The virus has spooked this market but it was already in the fade mode beforehand. As we said the move to 66 was short lived as well as the oil stocks that advanced. Is all hope lost…well the shares seem to be telling us that (CVX XOM SSLB RDSS.A dividend-buyback talk) and trading under the 50-200 day moving averages does not exude confidence. However we are still above the important 50 level so if you are bullish you have to be telling yourself that it is darkest before dawn.
Gold Silver Copper
Copper being an industrial metal went up to resistance at 3 bucks and turned south. Supply chain disruptions and basic panic not helping so for now monitor at best. Gold & Silver rebounded this week but a relatively firm dollar and no inflation and reitance at 1600 puts traders on edge. GDX seems to be having trouble @ 30 bucks and if we take out 27-28 next week we’d be concerned.
Longer term moving averages are pointing up so no time to be bearish but more consolidation could be in order if we fail at 30.
Well we seem to be not getting the expected result from the trade deal as Argentina (beef) and Brazil (grains) seem to be getting the business due to supplies and currency advantages…some say round 3 of subsidies may be on there way.
As said ..soybeans needs to clear and sustain 950 and 10 to get really excited but it’s headed the wrong way.
There is substantial risk of loss in short term and option trading. It is not right for everyone. Consult your broker advisor and brokerage firm to discuss and determine your own suitability. Past performance is not necessarily indicative of future results
.Use risk capital.
January 24, 2020
Observations & Opinions
Last week/This Week…After making all-time high on Wednesday and retesting them Thursday; both the S&P 500 and the Nasdaq sold off about 1% and ETF’s on SPY & QQQ saw Outflows as a myriad of things that came up not the least of concerns about the new virus spreading out of China. Thankfully; so far it has not reached the level of SARS back in the day but that was also combined with an invasion to Iraq so it is difficult to identify the cause and effect of such disturbing news. Also; some of the earnings did OK but with a very low bar of expectation & comparison. INTC popped on its beat and some say 72-76 may be in its future which follows a pop & fade from IBM wherein we went 10 bucks up and took a fib 6 bucks back…INTC to mimic? Inflows into ETF’s like
ESG’s (ESGU_ESGE) after all the banter in Davos on solutions & Sustainability. Also; inflows into consumer discretionary Gold and
small caps. Dalio says cash is trash so rather try to get a diversified portfolio so that you can try to weather various climates. Van Eck’s ETF’s GOAT & MOAT sounded kind of interesting for those seeking a diversified approach. The big story last week was also
the drop in yields on the Treasuries below some trend lines and the tightness of the 2-10 spread..banks hated it JPM lost 8 bucks.
We looked to 3340-3400 as a possible area of exhaustion of which to consider hedging, sell tactics and allocation changes a some
sharp people think the odds have changed and your stock allocation could be less now than 3-5 years ago….Big week ahead in earnings in many sectors & economic news & Brexit…..so let’s get price evidence and see pattern recognition to establish points.
Obviously the virus instigated a vibe of risk off by the end of the week (biggest drop since Oct) but too early to say short term top is in but with a slew of technical indicators flashing hot for awhile so a little hot coffee was a bit overdue….Dow Transports & RUT sold off to approach their 50 day moving averages and S&P 500 is about 100 points lower (3195)..the 200 day is near the breakout point around 3 grand. China stocks got whacked a bit..for example WYNN & BABA & TCEHY/JD/BIDU lost about 10%+ and bulls may see value. Two concerns was the spike in the VIX at one point Friday up almost 25% in a day hitting almost 16 before settling back & a report from UBS that a survey of wealthy investors showed 94% expect positive returns from stocks this year..a dramatic difference from the reading prior to the Q4 run. Bulls do not want to see a VIX above 18-22 and complacency appears to reign.
Some say AAPL is destined to reach 2 Trillion market cap….SMH has been on fire…TSLA’s been blowing off….and will the FED blow out their balance sheet to new highs or moderate as we approach mid year?…shorts have been blown out….more buybacks at these levels/valuations?….put/call ratios-RSI’s…watch VIX & Treasuries yields & earnings-guidance & 3340…..Earnings this week from DR Horton, 3M, SBUX, PFE, AAPL, MSFT, FB, MCD, BA, KO, UPS, BIIB, AMZN, CVX, CAT, HON TSLA….we should know soon.
OK…the winds of change in Treasuries are blowing…..but a head fake toward lower yields or a recessionary tell? Last week the 10 yr Treasury took at some technical support around 1.75%-1.8% as a risk off vibe had money flowing to safety (utilities rose too).
The proxy for the 20 yr Treasury is TLT and our position has been a break above 142-146 could spell lower rates and some see more FED cuts if the economy slows or stocks roll over. We should know soon whether this is a head fake and the economy and growth will accelerate or if this boom bust cycle is closing in on its end game. A move back above 1.80% would put the higher yields are coming chant back in vogue. As we’ve said the explosion of debt issuance is off the charts and some sectors have some dodgy covenants, leverage, liquidity concerns but for now the world is viewing debt like Alfred E Newman philosophy…What Me Worry?
This week durable goods, Fed decision, wholesale inventories, GDP, German inflation, BOE rate decision, PMI’s, Personal Income
and spending (70% of economic growth) should give us and Central Bankers an idea if the market is ahead of earnings & growth.
One thing that the markets have not priced in at all is inflation and Gold had good inflows this week…smart $$$ or sucker bet?
As we’ve said here for longer than I care to admit…our view is that the Dollar is range bound about 99-95 levels. Last week we had a mid range handle at 97 and change…so what is it doing?..Nothing but coiling and coiling….to do what? well…that depends on how the numbers come out…if we see lower interest rates and a slowing or bite your tongue…a recession in the next year or so…….then the 95 could get taken out and even 90 as a post bubble 1999 deal unfold where the DXY went from 120 to 70-80.
If we see GDP take off and all the cards come out proper then a Dollar stampede such as 1997 to 2001 could shock the $$$ bears.
The yield advantage and the growth edge continues to underpin the greenback with no end in sight….yet.
January has been a rough racket for Crude ass the January Effect has been throw the baby out with the bath water as price have come almost 20% off their highs in a matter of weeks. Why?…well lots of reasons among which is our ability to produce so much here in the USA. inventory levels and supplies in storage are huge and of course the Green Mob promoting EV’s & sustainability.
As we said last week when we were 58+…the 50 & 200 day moving averages are ball park 52 & 55 so staying at or above those levels is preferable so as to turn & cross those averages. If we break and sustain prices under 50..you may hear TIMBER! as that could be the energy junk bonds tanking ass these guys cannot afford bankruptcies and defaults as some of these companies cannot meet obligations without higher prices as they do not generate free cash flow. We see APA & COP & VLO still trading above their 200 day moving averages while airline stocks Southwest LUV & Jet Blue JBLU seem to be catching a bid recently. Stay Tuned.
Slower China GDP possibilities & the Virus knocked the stuffing out of copper prices last week as that resistance we spoke of last week at 3 bucks ball park proved too much. It also sent investors in Freeport McMoran FCX hitting the bricks off 10-14% in 10 days.
Gold & Silver were horses of a different color in the past 2 weeks as money flow in the ETF reversed an outflow & had impressive Inflows this past week not unexpectedly basis the underlying price action. The week ahead is important for both markets to sustain and improve on their advances as the dollar remains firm and the FED & Central Banks printing presses (check M3/CB balance sheet explosions) and you’ll understand the renewed interest in Gresham’s Law, French Coin Clipping & the Weimar Republic.
As we stated. the GDX, GDXJ, PAAS, SLV, SIL, SILJ and many other remain and have remained above their 200 day moving averages.
Some respected people in the investment community tout a % in Gold makes sense and we believe participation overall is light.
Soybeans-Oil Grains Softs
Well the China deal showed up and what happened?…Beans/Bean Oil went into the tank losing about 5% from it’s highs.
Again as stated; a bumper crop and a devalued currency down in Brazil is a double whammy that so far has been tough to overcome…let’s see what spring planting and summer growing news can do for the supply demand dynamic but until beans can get above 950 and 10 (2 resistance zones we brought to your attention all last year)..a screaming bull market must wait. Sugar prices have had legs over the last 3 months but last week pulled back. Remember Vanguard ha a Commodity Strategy Fund
VCMDX which so far hasn’t done much but the prospectus would be helpful to increase understanding
REMEMBER..Short term trading and option trading involves substantial risk of loss and is not right for everyone. Consult your brokerage firm, broker and advisor to discuss your suitability. Past performance is not necessarily indicative of future results.
Use risk capital.
Observations & Opinion
How Can You Reel In A Huge Fish?
Last Week/This Week.. The S&P 500 & Nasdaq made all time highs this week while the Dow Transports (DJTA) & the Russell (RUT)
made new 52 week highs despite Q4 numbers disappointing from TGT and some of the banks not doing nearly as well as JPM.
No denying the RUT & DJTA picking up steam but still have not breached the 2018 highs that they made. This market is going nuts on the upside with most all technical indicators reading very hot. As we said since the breakout above 3050-3100; the best bet is to ride it as long ass we continue to make new weekly highs and once that stops then you can entertain hedging or selling tactics with some price action of exhaustion (a high surrounded by lower highs creating a technical point to defend. The trade deal is in, the Fed has supplied liquidity, Q4 earnings are coming in, short interest has tanked, rates have dropped, tax cuts done and we almost hit 3400 S&P, 30K Dow over 9K Nasdaq. Some very smart people think the odds have shifted and you should have less exposure to stock allocation now than you did 3-5 years ago…the direct opposite of most forecasts. Speaking about smart people; The Davos Switzerland meetings of the minds happen this week…let’s have a listen to what risks are out there now that many dismiss.
Let it run has been the mantra from us since the breakout in November as we have not seen many weeks where the markets have not made new weekly highs and certainly we’ve seen continuing monthly highs. Anyone who has gone deep sea fishing for Marlin
and Sailfish know the importance of letting the big fish run itself until exhausted and then it is much easier to reel in so ditto that concept with our current melt up built not on boring things like earnings and fundamentals but rather liquidity and momentum.
As we approach 3400 S&P and then if breached 3700-3800; we will be monitoring the market for signs of a potential turn. We suspect causation may come from earnings and GDP shortfall, a geopolitical event and the FED suggesting that this FED balance sheet spike that traders have been drooling over may slowdown or an explanation of an exit may be forthcoming. Stay Tuned.
On our radar stock wise include UNP, INTC, CMCSA for transports, tech, and streaming plus pharma like LLY & BMY, TEVA. Green investing (Black Rock cited in a recent report-ESG investing) with stocks & debt dealing in sustainability could be worth a look.
After correcting; consumer driven companies like SBUX, MCD, and HD have been catching a bid lately. We saw a sample portfolio using ETF’s like ITOT (US Equities, AGG (US Debt), IEFA (International Equities), IEMG (Emerging Markets), GLD (Gold) to create a diversified approach could possibly have some value. Germany & France +2% & Italy & Hong Kong up 3% to start 2020.
Questions? contact us at [email protected]
The FED obviously wants to steepen the yield curve as they worry that an an inverted yield curve (short term rates higher than long term rates) which we had earlier brings up recession talk and hurts growth as it infers things will be slowing down considerably. The 2 ways they have changed the yield curve has been to buy tons of short term treasuries (reducing their yields) while now moving out the duration curve and selling 20 year Treasuries (bought by pension plans & insurance companies-supplies can weigh on markets and push yields higher). This has created an elevated value on asset prices that the FED (Kaplan-Dallas Fed) says they are aware of and keeping an eye on now. Also; there is a cost to expanding the balance sheet aggressively (Kaplan says NOT QE) and tapering that activity and communicating how balance sheet normalization may occur is something NOT factored into current prices. The risk of debt is being dismissed globally as examples include the run into CCC junk (high yield spreads near 10 yr lows-& some IG deals were sidelined due to earnings), Sovereign Debt (this week Italy $40 billion 30 yr & Spain $53 billion in 10 yr debt) despite bad economic numbers out of the UK (GDP & Inflation Numbers) and Germany (weakest growth in 6 years) sso how good could Italy & Spain be doing especially since Trump sending out “your next ” vibes for German cars & France’s tech digital tax woes.
One area to check out are “Green Bonds” some linked to the issuers to meet certain metrics or face higher yield consequences.
To keep it simple stupid (KISS theory)..we’re focused on TLT the proxy for the 20 yr Treasury…a break above 140-145 would tip the scales to lower yields (some see a 1.20% of less handle) while a move under 135-130 would indicate that all those who panicked into 10 yr Treasuries at 1.40% and looked for yields to go Japan & Euro on us will be very wrong and combined with a FED taper and inflation pick up-Dollar drop could increase volatility which in our view is the biggest bubble ever. Let’s see more cards.
The yield advantage of the USA to Japan & Europe and our economy relatively stronger continues to underpin the dollar.
We have said here for over a year that the range is ball-parked 99 and 95. They did peeked the market above 99 briefly (blow out stops of shorts & get short themselves) only to see a 300 basis point move to 96.50. We now sit with a 97 handle smack in the middle area of the range. What breaks us out? I suspect deficits, inflation and GDP-Earnings disappointments could send us lower
while growth surprises and a FED that backs away from the liquidity explosion could keep us stable to higher. Japan debt to GDP iss a joke and Germany has no current appetite for fiscal stimulus and who knows how Brexit plays out so for now the buck is ok.
Crude popped to 66 area with the Iran skirmish but tanked back to 58 area when things calmed down and inventories rose a bit.
The 50 day and 200 day moving averages are inverted to the downside around 54-56 so the longer we stay above those levels the better for the bulls. Stocks such a s SLB & HAL have pulled back after good runs and some say high yielders like RDS.A, BP, XOM, CVX are worth a look as ARAMCO is alive and well and maybe prices could re-accelerate ass we go into the summer drivin season in the months ahead. CCC debt which has been performing well has lots of energy representation but these companies who issue that debt are very dependent on higher prices to make payment ass they do not generate a lot of free cash flow. Caveat Emptor
Our feeling on Gold has been that last year we broke out above 1350 and ran to 1580 which was the lows of 2012 and also was way way above its 200 day moving averages. So; the idea was pullback to some former resistance zones and burn off some excess fuel (1450-1400-1350). We got between the first 2 levels mentioned and then screamed to 1600 momentarily only to fade back toward a recent resistance zone at 1530. Silver has followed suit while Copper raced toward its resistance area near 3 bucks and 3.50 looks like a challenge as well looking at long term charts. If China picks up and infrastructure get passed in the USA; we would feel a lot better that sustainable moves are in our future. Right Now…the concerns for Gold is OUTFLOWS from the ETF’s this last week plus the dollar is firm and worldwide inflation looks dead and 1600 looks like a hurdle. So GDX, SLV, GDXJ GLD all are still all holding their 200 day moving averages but let’s see if we test 1520 (last months lows)& hold otherwise a cleansing may be in store.
The china deal is signed yet no big burst in prices so why not? Well the pork crisis and the fact the Brazilian currency hass been devalued plus a bumper soybean crop may actually lead China to buy that sstuff from South America and lead more Chinese purchased toward Wheat or other products..we’ll see. Sugar prices have been moving. Vanguard has a Commodity Strategy Fund
(VCDMX). Suitable investors could get a prospectus to determine if they feel the risk and sector makes sense for them
REMEMBER..There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker and advisor to determine what is suitable for you. Past performance is not necessarily indicative of future results, Use Risk Capital Only.