Update #65: October 18th 2019 OPINION & OBSERVATIONS
THIS WEEK & NEXT WEEK…Since the run up in APRIL…Our base case
remains that the S&P 500 index in the 2950-3100 area is a a SELL
Zone. As I said the “deal” we have with China so far is not much of a
deal at all as nothing is in writing and China’s growth
is still at 6% versus our 2% growth if we are lucky. They can wait this
thing out and that’s what it appears they are
doing. They say they’re not growing at as
fast a pace as before..well of course not they are a more mature
economy at about 11 trillion. Do you think Amazon was growing faster 5
or 10 years ago than now? The lagging Transports & Russell and VIX
back above 14 non-confirming…so while tempted to adjust
the base….I’ll wait for more proof & see how earnings play out
with CAT & 3M this week.
Next
week..keep an eye on earnings plus Draghi’s swan song Thursday plus
existing home sales Tues. & BOE’s Carney talk on Wed..
STOCK
MARKET…Boeing is the big story this week as some messages from pilots
that questioned the problematic planes surfaced abs wipe out much of
the progress
the stock had made. Let’s see how earning come out Oct 23. There are
gaps under the market that could get things rolling if industrial
earnings spook people this week. The consumer is supposed to be holding
us up yet retail sales declined for the first time
since February. Since manufacturing and business investment has been
weak; the importance of strong consumer numbers cannot be overstated. In
recent quarters the spending had outpaced economic growth so a pullback
is not too shocking. If the XRT breaks 40;
that could be cause for concern as Macy (M), Gap (GPS), and L Brands
(L) have been pummeled. While Macy’s trading @ about 80% of book value
sounds cheap; stores like Costco,Target, Walmart, Ross ( who could be a
sell if a Real China Deal is had) & HD seems
to be chugging along so far.Finally 2 sectors that we have been
monitoring closely are the Heath Care & Housing Sectors. Health care
ETF’s like VHT have 50-200 day moving averages inverted to the upside
and these companies still spit out earnings case in point
United Health Care UNH but still need to maintain these levels and
still remain a headline or 2 from panic potentially arising. We have
brought to yoyr attention that about 70% of all 20 year olds still live
with their parents which has helped starter home
especially take off..stocks like IYYR PHM, LEN, KBH have soared are
trading WAY above their 200 day moving averages…so now like we said
with Gold up at 1580……protecting some of these gains with collars,
married puts or replacement calls may not be a
bad call…if you need an explanation about these tactics…feel free
to ask.
Keep an eye on Europe ..a Brexit deal & a LaGarde could be a recipe for at least a bear market rally.
BOND MARKET
Yields
were firm this week with the 10 yr Treasury at about 1.75% and
Treasuries in the 30 year around 2.25%. We are still high compared to
yields worldwide and
the FED is expected to cut 1/4 pt at the next meeting..with 3.5%
employment & 3k S&P 500??
Draghi
turns over the reins to La Garde on Thursday..she’s a politician and
hopefully a good one as she tries to coordinate monetary policy
throughout a EU with
all different fiscal policies. Getting Germany to start fiscal stimulus
should be job one.
Where
do rates go from here….look at TLT…if it breaks 135…odds are
yields rise…above 145…watch for a 1.25% handle w/a crisis.
Rates
are crazy in Japan..Toyota sold 3 year notes at ZERO interest while
Chater communicationss sold Junk @ 4.6%/they have 75 Billion or so in
debt….our feeling
is a debt bubble could lead to many things such as monetization &
deflation to name two.
GDP shrinkage to 1% could unleash a lot of BBB reevaluations and the CCC & BB & Leverage Loans could be vulnerable.
US DOLLAR
Watch
Out!!…this week we got a taste of what happens when everyone wants to
come out of a crowded trade (like long Bonds Long Utilities and Long
REITS)….the
DXY is about 60% Euro and we saw both it and Pound Sterling take off as
Boris may pull something out of his hat. The entire planet was long the
Dollar..we told you the top of the trading range was 99 so selling
against that neighborhood was the call…now
watch for support at the bottom of the range 96-95-94…below
that…you may hear Timber!!
CRUDE OIL
Same story sustain levels below 50 or above 60…then you have significant price information…now 53-54…no man’s land.
Energy shares trying to hold on…if price breaks..they may follow.
GOLD SILVER
As
we said our base case remains…breakout above 1350 went to SELL zone
of 1520-1580 and ditto for Silver. As theyy work off their technically
overbought conditions
(200 day moving averages WAY under prices) look to 1475-1450-1400-1375
levels.
SOYBEANS
We
have said our base case is the selloff earlier this year sset up a
tradeable low ith resistance at 9-950-10..we have surpassed
the first level and approached the second.. China wants to eat and have some AG issues…between now & year end- huge Vol??.
Lots going on…do you have questions or want to talk…email [email protected]
REMEMBER..There
is a substantial risk of loss in option and short term trading and it
is not suitable for everyone. Ask your clearing firms and broker about
your
suitability. Past performance is not necessarily indicative of future
results.