May 21 2021 Option Professor Inc Opinions & Observations
The Option Professor is a Graduate of Boston College and has Decades of Investment Experience. The Option Professor has Educated Thousands of Investors Worldwide on the Uses & Risks of Investing.
This week was a wild ride but as far as the Dow Nasdaq & S&P 500 is concerned a real yawner on a week over week basis. Last month (April) we ran up to S&P 4200 and saw the HIGHEST readings for 2021 on the RSI. We suggested exploring COVERED CALLS and other portfolio preservation tactics such as collars ect. In May here we made a slight new high but it coincided with a LOWER RSI reading and that my friends is called a DIVERSION. We are losing some of our momentum (e.g. we had 90% of S&P stocks ABOVE their 50 day MA which is down to 60% & Nasdaq is lower). We told you last week that the Treasury 10 yr yield at 1.75% & the 30yr at 2.54% from MARCH may be very KEY levels as data shows if they peaked the market may see a peak 2-4 months afterwards (May or July). We got inflation data CPI core annualizing at 11% & Service PMI today at 70 & Earnings zooming at retailers & housing prices up 16% & we can’t take out the MARCH HIGHS IN YIELDS? The talk is starting about cutting back Fed purchases (120 Billion per month) particularly in mortgages. Stimulus talks are just that talks. Enhance Unemployment is ending. Pent up demand is not never-ending demand. Earnings forecasts for S&P 2022 are 209. The key is will we MAINTAIN a 22 PE ratio or will we COMPRESS VALUATIONS next year. Here’s the math…209 X 22 PE = S&P 4598….209 X 20 = S&P 4100…OK….but what if the TREND of VALUATION COMPRESSION that has already claimed ZM TDOC DOCU PTON COIN SPOT ect were to hit the S&P 500 and we were to normalize/correct to 15 PE or 18 PE? We would then see a big VALUATION shift to 209 X 15 PE or 209 X 18 PE and the S&P could be priced at anywhere between 3135 and 3762….surprise!! In case you haven’t noticed you can take a look at stocks like BABA…the forward PE in Sept 2020 was 31 & now it’s 21. Many stocks in China have come down despite big growth and earnings numbers in part due to huge VALUATION CHANGES. So was S&P 4250 the high point or do we hit 4300-4500 before DISCOUNTING next years comps and post pent up demand and normalization of inflation (supply demand realigns) & GDP reverts to mean? As we said last week; we could get a bang to the upside going into the holiday weekend next week if we can close ABOVE S&P 4180 BUT the time is getting CLOSER to when ASSET ALLOCATION may preserve your portfolio so you could avoid the pitfalls many investors are now feeling with the ARK funds & BitCoin & BABA-first they lost their humility & then lost their money GO TO optionprofessor.com/subscribe and LEARN what OPPORTUNITIES we like & ASSET ALLOCATION ahead of us!
Big stories this week was ATT merger with Discovery which was not welcomed after an initial bang to the upside. Every Tom Dick & Harry sold the stock as the volume was thru the roof as they cut their dividend. Crowded field in streaming plus the TMUS/Sprint merger was a double whammy. Our LT MA’s suggest if we can stay ABOVE 29 and the break 33…this thing could work out as panic selling sometimes isn’t sharp selling. Watch out for VIAC to get courted and MGM is dating AMZN apparently. BitCoin the other big story but we said last week GBTC needed to close ABOVE 45-50 to get back ABOVE MA resistance which failed….BUT we started at 1o went to 58 so a 61.8% move down takes us to 28 which was the LOW and we rallied only to fall back by the end of the week….so let’s see if 22 or 28 is it as Cathie Wood says she sees capitulation & $500,000 down the road despite the PBOC saying forget payments & mining plus Musk now worried about environmental issues (TSLA sales drop 67% MOM…so let’s hope her glasses aren’t fogging up:) The auto were interesting as F was on fire with their EV F150 pick up and FSR teamed up with FOXCONN to build here. Volkswagen may be the deal as their EV biz is bright and their PE is low. OTLY popped on the IPO..we’ll see how sticky. NEXT WEEK earning calendar has retail (JWN BBY COST GAP DICK’S) plus TOL & HP CRM AZO….but the Big Kahuna is when NVDA announces as they are splitting 4-1 on July 20 (July 19 dissemination)….this stock is up 1250% since 5 yrs and double in the last year and amongst other things produce graphics processing units that create images for video games. BUT the stock has been caught in about a 100 dollar trading range for 9 months due in part to some say a high VALUATION. We have an opinion on what potentially we may see going into the split which needs approval on June 3.
Go to optionprofessor.com/subscribe and LEARN our OPINIONS & OBSERVATIONS on stocks & sectors each week!
The Fed is starting to sound as if some tapering of purchases will be the first step at leaving the emergency funding phase we are in now. TLT above 133 still tells us that transitory is still the best bet on inflation and growth. Despite growth that leads to higher revenues & earnings; the MARCH highs in Treasury yields remain intact. The entire planet is screaming higher rates are coming and they may but we won’t buy their story until we take out the March lows which seemed to overshoot the recalibration of rates vs the economy as evidenced by the rally against strong econ data. The Fed’s got to get off the short end of the yield curve which has plenty of liquidity and keep powder dry for the long end. Each week..we SHARE our thought on where to get DIVIDEND INCOME plus Tax Free High Yield Preferred and Loans Go to optionprofessor.com/subscribe and get updated weekly on specifics about INCOME OPPORTUNITIES!
US Dollar-International Markets
Our view on the Dollar is that the rebound ended with the break UNDER 91.75 on DXY and a break ABOVE 120 & 135 on the Euro & BP. Our deficits and negative real yields are a double whammy. Now we need to see if we hold the 88-90 support on DXY or do we accelerate to the downside the the 2nd half of 2021. If Gold & Energy hold their water the Canadian $ & AUS $ should fend well while Japan’s consumer internally seems spotty. Fiat currency beta digital this week for sure. We like Europe and Emerging Markets but the latter is still way behind on vaccines and the former needs to get their act together for the summer vacationers. We believe they will an steps are moving to ease travel. Retail sales in the UK were up 9%..expect more of the same in the Eurozone. We SHARE ideas on how to participate China & EM still a work in progress but a bargain..go to optionprofessor.com/subscribe & LEARN what we see.
Crude Oil Natural Gas
Crude hit the skids this week but did rebound a bit by the end of the week. We still believe the future is bright for energy stocks but volatility is the name of the game. Some say 80 in the future months ahead so we stay focused. Our SUBSCRIBERS know we have been all over this for OVER a year. Iranian oil is a wild card but not enough to alter our longer term view. We told SUBSCRIBERS that LNF was turning at 70 (now 83) and Nat gas at 2.50 (now 2.90)..not bad! Go to optionprofessor.com/subscribe and LEARN how we think the E&P Refiners and Integrated names will fare
Gold Silver Platinum Copper Crypto
The original store of Value Gold had a great week and since we called the up move off $1675 it’s been rewarding. Silver ABOVE 27 and Gold $1775 suggests that after a possible consolidation a move up in Q3-4 should see acceleration. Negative real yields and inflation and money supply explosion should set the fire. Supplies of platinum couldbe tight when auto factories come on line in summer. We warned people that Copper near 5.00 was getting rich so we dipped. We have been on this since 2.50 Copper and 10 bucks FCX so we are careful up here in the friendly skies. Hosuing was spotty on starts and existing home sales plus the ITB has rolled over a bit. The BitCoin Ethereum trade got whacked but we said OUT of GBTC UNDER 50 and ETHE Under 35 was the place to be and we stick to that while it stabilizes. Go to optionprofessor.com/subscribe & LEARN where we see the OPPORTUNITIES in metals & Crypto looking forward!
Soybeans Sugar Coffee
All three bull markets all three overbought and consolidating while the squeeze is either resolved or continues. We told you the weather can change the crop report could throw water on things and the mills could increase production. BACKWARDATION is now a common language but may be temporary and that’s the rub on the bull call. It is a mess with these three from a supply demand perspective but like copper…we liked beans at 8 not 18 coffee at 100 not so much at 160 and Sugar at 12 not 18…we share ideas on ETF’s you can use to play and some have had really nice runs Go to optionprofessor.com/subscribe LEARN how we see OPPORTUNITIES in the markets unfolding ahead of us!
REMEMBER There is a substantial risk of loss in short term trading and option trading and it is nor 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. Opinions & Observations provided for informational purposes only.