December 18 2020 Option Professor Opinions & Observations
Here’s an Early Happy Holidays Wish to Everyone & a safe, healthy and prosperous time be had by all!!….Well the Fed played Santa this week and should get the Academy Award for their performance…..they answered the question of ..Are asset prices too high?…which was answered by the idea that real interest rates are negative (and may get a lot so) so valuations can get big expand further and maybe sustained……then right when you thought the week was over as you hear the closing bell…they decide to announce that the banks can start doing BUYBACKS (although a more conservative gift would have been to allow them to increase dividends but that would have favored the grunts who actually need dividend income and not the big boys and insiders who want a 5%-10% on their millions of dollars of stock (plus all the value ETF’s still under their 52 week highs so this is a gift to them as well)…..hey they got everything else to rally….and the banks did reserve a ton for losses that have not materialized and the Fed figures the economy will go nuts sometime in 2021…so el bancos will shine. Let’s hope when this stampede out of lock up occurs it doesn’t include a vastly weaker dollar & inflation as money chases way too few goods and services….cause if that happens…yields rise…Gold flies….Stocks revaluate. We think Clark Kent couldn’t see thru the next 6 months as clearly as every talking head on TV about what 2021 will look like. What we do know is that moving averages don’t lie.. people lie.. and the averages are telling us two (2) things very clearly…..#1 that the stock averages in the USA Europe Asia and just about everywhere are in UPTRENDS…and #2 many if not all are in varying stages of overbought basis current prices and their longer term moving averages…..CONCLUSION….the vaccine news is hopeful…volatility is contracting (still not UNDER 20 VIX)….and value stocks (which we started showing you 5 months ago should play a mean game of catch up & pay handsome dividends whilst you watch the movie. Our guess is that the guys on the sell side are well aware that a stampede of buying has already begun and IRA/401K money pours in during January so do you think they’re going to LOWER their asking prices or RAISE them knowing that after that volume is filled (they would be out or short) and a probable scare coming out of a number of possible origins freezes buyers and then could send prices on the 7%-15% correction (3350-3550SP area)? We suggest you use any big rally to prepare for a rainy day…in Feb-May….it may start raining. Do you have any specific questions? email us [email protected]
Tesla was a big story this week as it made a run toward $700 due its exciting inclusion into the S&P 500 (will it be the AOL of this cycle?) and the volume was insane. Having said that…do you think the stock trading OVER 100% above its 200 day moving average might warrant a look at covered calls/collars/married put spreads??..Well we do and will be monitoring this closely at the start of next week…banks should soar Monday on the Fed ok-ing buybacks & cyber security & cloud stocks also rebounded big time. Hey.. 90% of S&P stocks are trading above their 200 day M/A’s …and things like the Buffett indicator of the Wilshire 5000 divided by the GDP is off the charts as well as the Schiller Cape Ratio as well as the S&P 500 valuation relative to sales. RIGHT NOW.. this all seems to mean very little and if the script of negative yields…Fed put…TINA (no alternative) continues unabated we may see this phenomenon live on BUT….if something changes in this script (doesn’t it always?)…..then maybe there’s a reason why FAANG peaked in Sept just like their was a reason why the Transports/Russell peaked in Q4 of 2018 before recently making new highs. We have a group of sectors and ways to play them & asset allocation models.. email us for info.
Here’s the big story now and for 2021…..NEGATIVE YIELDS….it allows Gold to fly & Stocks to valuate at weird levels & causes the Dollar to tank among other things. Now they seem to admit to a 1%+ negative yield but some say that number is headed toward 6% when all said & done…..that’s what is underpinning the reflation trade..we spoke about leveraged loans (secured debt)…preferred (banks)…high yield..and emerging market sovereign debt plus intermediate duration Munis as place to get yield in the last 6 months and that has been spot on for income investor. Also high yielding sectors like banks, industrials, energy and value shares also were brought to yield hungry investors as a way to get respectable yields. We maintain our opinion but caution that an exodus out of fixed income (treasuries) may occur 2021…..we have ways to position this forecast…email us for details.
US Dollar & International Markets
If the Fed wants to tank the Dollar…they’re doing a good job by highlighting negative interest rates in their communications. The Dollar index has the 1- yr MA 95.36 2 -yr MA 95.27 3 -yr MA 95.38 so we closed at 89.95….UNDER all 3 averages and with a bit more time they will invert to the DOWNSIDE and approaches the low seen in Feb 2018 (88.15). The RSI back then was about 36 on the long term chart and today it’s 34. The Dollar just broke its 3 yr MA in July so another year of downside is not off the table but maybe NOT in a straight line. We told you before ABOVE 110 then 120 Euro 70 Aus were buy signals and the Yen above 90 then 95 Canadian 75 then 80 and Pound 130. On the international markets…..VWO (EM) VGK (Europe) VPL VEU (Asia) and INDA EWW EWZ and Eastern Europe all have been good to us…if you have questions on the international markets-email [email protected]
Crude Oil Natural Gas
Kind of a weird week in energy as oil price did well but share prices gave some back which we told you they may due to the run they’re on and stimulus talk breakdowns and the idea that any increased demand will be met with strong supplies as storage is filling up…..still a believer longer term and the yields are still juicy..a secular bull market in commodities has oil in the 50-60’s next year…that would translate into better share prices….Natural Gas was up this week but our centerpiece LNG languished…..there’s a lot of way to play the energy sector…..ask us how…[email protected]
Gold Silver Copper BitCoin
The train is starting to leave the station in Gold & Silver and it’s a few towns ahead in copper & bitcoin. We told you last week that our call that Gold would go toward $1775 and $22 Silver (near 1 yr MA’s) was spot on and we have rallied substantially off those numbers but HURDLES ahead include 1850-1950 Gold and 26-30 Silver…..GDX GDXJ SIL SILJ all joined the party. Copper is making a run toward 3.75-4.00 and FCX & SCCO have been in our wheelhouse all year long. GBTC (bitcoin proxy) also has been our way to get involver with bitcoin since it was sub 10 buck but now is OVER 100% above it long term average o wait for a pullback that may come from here or a bit higher levels but the proliferation of big boy interest from banks to insurance companies bode well ass does the relative scarcity compared to gold & fiat money. Got questions?..email us @ optionprofessor.com
Soybean Sugar Coffee
Well one out of three got their boat leg back this week as Soybeans took out the 12 resistance zone and with all the major moving averages rising and scarcity of supplies and China & other demand looking good 2021 could be exciting but sustaining above 12 the key.. we’ll see….Sugar hasn’t been holding rallies and certainly has not shown any interest in taking out major resistance at 16 so far…if it fade…..whilst coffee held support at 100 which we told you before…ran towards 130 but failed tom take out former highs at 135 but did close above support at 125…..if we are in a secular bull market in commodities in 2021 as many large firms suggest then maybe you figure Coffee should hold either 110 or 100 and matriculate higher over time…..
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