June 25 2020 Option Professor Opinions & Observations
We sent 2 QUICK ALERTS out this week…the first said we needed to close above SPX 3711 (LT Chart 36 SMA) AND we needed to clear SPX 3815 (A Spike Was On!) both were sage insight into market moves. For anyone who has been LISTENING…we told readers that BONDS PEAKED in 2020 and STOCKS PEAKED in 2021 and this year we expected COMMODITIES PEAK in 2022…so everyone who plowed with the grains, fertilizers & energy have been whacked. Use your common sense; that far away from averages=reversion!
This week we got a substantial move on yields (they dropped 13%)….we got a substantial drop in many commodities (some grains back to pre Covid!) & Consumer Confidence dialed back inflation expectations. If you’re oversold (SPX at 3600); this is the tonic you’ve been waiting for and the biggest movers were tech and high valued growth/innovators(the most beaten down). The opinion now is the Fed will hike .75% in July & .50% in Sept and assess….they will see the numbers rolling over and become less hawkish. Of course all the promoters of this theory are talking heads that are long and need to tell clients they are not idiots who should’ve told them to go to cash & roll shorter term T-Bills in January but failed to do so!
The data calendar is kind of light for a few weeks and we have a long holiday which sometimes sees rallies (Memorial Day) but rest assured CPI & PPI & Earnings are coming and many are hopeful that the inflation numbers will improve & sales, margins & costs risks to earnings will be avoided-upside surprise? The BANKS come out first and we will see if Net Interest Income could jump 15%-20% this year, if the losses they carry on mortgages that lost value (rates rose-bonds drop), if the loss of refi’s is being offset by commercial loans & credit card usage-BIG RISK..have we overcompensated the risk of recession losses
Being the Option Professor; we would be remiss to not mention the VIX which in the last 2 weeks had a double top at 35 and went home near 27. The bulls say we will trade 20-25 on the VIX during the 2nd half of 2022 and the market will prance back toward all time highs. The bears say that by the end of July; the VIX will be spiking and don’t take the idea of a 40 handle off the board. Realistically; we must ask if the inflation numbers will fall out of bed (gas, food, rents ect) and will rising equities fit into anything akin to UNCONDITIONAL commitment to turn 10% inflation into 2%? DEMAND DESTRUCTION is no duck walk!
We do have a number of tailwinds currently like End of Quarter/Month Window Dressing (can’t tell clients you’re all cash)….Q2 Earnings.. some Buy Backs… some Insider Buying…Russell reshuffle…& short covering CAVEAT EMPTOR-Our Work show SUBSTANTIAL RESISTANCE basis SPX at 4100-4250 and 4450..respect it!
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