Do You Understand How to Protect Stocks-Both Declines & Upside Surprises? Read On!

March 11 2022 Option Professor Opinions & Observations

Well another week another whipsaw as the SPX started the week ABOVE 4300 the dropped to UNDER 4160 the rallied to 4300 and went home Friday with its tail between its legs at 4200. This is not surprising to us as we have said that 2022 was a REVERSION to the MEAN year which had levels on SPX around 4400 then 3850 then 3600. We are OVERSOLD basis a VIX that almost hit 40 so throw back rallies on any news highlight algos & illiquidity. The BEST place to be since we said STOCKS TOPPED in 2021 and BONDS topped in 2020 would be rolling a SHORT TERM LADDER in Treasuries (0-24 mos) and put stock exposure to ENERGY & METALS….but the financial industry would never be so bold The one thing we brought to readers attention was the GROWTH to VALUE Ratio which TOPPED in December 2021 and since that time relative performance has favored value. If we get a dovish Fed statement & ceasefire…growth may spike We have INDICATORS on our SHORT TERM (1 month) charts that when they turn; we will respect that but so far no sale.

Inflation is global as Italy is looking at 40% and Brazil 10%+ as examples. Can the Fed stop STRUCTURAL INFLATION with 1/4 point hikes? We may rally after the Fed , End of the Quarter (Q1) book squaring, and frontrunning earnings in April; but getting ABOVE both SPX 4400 and 4600 RESISTENCE may take a lot of things breaking very well; we’re ready!

Here’s your questions….Will the consumer (70% of economic growth) keep spending? Will the Fed get to 1% Fed Funds by June (3 months+)? Will Q1 earnings stay strong? Will valuations tighten further? Is the SPX 4100 low AND the VIX 39 high the end of it OR is there a CAPITUALTION to SPX 3600-3800 with the VIX spike thru 40/put call ratios spike?

Yellen’s talking about persistent inflation and if the Fed does basic math; interest rates could move more than is priced in and growth could be slower than forecast. The most POPULAR theme is that the 2nd half of the year is the land of milk & honey as we re-open, supply chains loosen, Russia’s resolved, oil comes to market, inflation slows-sounds good Since there are more accounts trading stocks than ever; most people wish to believe this dream of joy turns into reality.

We SEE our LONG TERM CHARTS & INDICATORS on SPX are still UNDER the current market prices and are RISING which is BULLISH albeit the support from those indicators are as much as 10% to 15% UNDER current SPX prices. We believe COMMODITIES will TOP in 2022 and we monitor the GOLDMAN SACHS COMMODITY INDEX high points from 2008 to see if we TEST or slightly EXCEED and then turn down as additional supplies of oil, grains & metals materialize. People thought it crazy when we said in March 2020 that we may never see those RATES again much like 40 years earlier the sharps said we’d never see a 16% long term Treasury YIELDS again. When people said VALUATIONS in 2001 were off the charts UNSUSTAINABLE; they were scorned like those who said in 2021 (20 yrs later) it was BUBBLE REDUX

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Stock Market-Will Stocks Turn Up Into EOM & Earnings Season? Must Read!

March 5 2022 Option Professor Opinions & Observations

The big question to investors who are getting tired of looking at their statements declining in values and to traders who are shorting the market is “Will we get a Big Turn as we head into the end of March frontrunning April earnings season?” Of course the answer is unknown but we’ll share our views on what has been working and what we would need to see to embrace this oversold rally talk that is quite prevalent ( mostly held by perma-bulls & Zig Ziegler crowd)

The areas that we have focused on are sectors where the moving averages and relative strength indicators have been in a positive mode (up trending) for many months such as Energy, Precious & Industrial Metals-Commodities. The Defense & Cyber Stocks turned. Sectors that have struggled has been Tech-Growth and to a lesser extent Value-Div.

Th economic numbers on jobs, earnings, consumer spending seem to be strong which is great but fears include high inflation, geopolitical news. and the Fed being so far behind the inflation to interest rate plus possible slower GDP #’s.

We respect the 20yr and 40 yr cycles that indicated a TOP in the BOND market (2020) and the STOCK market (2021) and some are calling for a TOP in Commodities in (2022)….that respect has been rewarded and seems so far has merit.

Our levels we find important on QQQ in the short term are +345-355 followed by 365-375 with support at 320 and 280 Our levels we find important on SPX in the short term are 4350-4425 followed by 4500-4550 & support at 3860 & 3613 Our levels we find important on IWM in the short term are 202-207 followed by 217 to 228 & support at 194 and 180

Some of the reasons cited for a TURN are investor sentiment (VIX & Investors Intelligence) but because someone is bearish doesn’t mean they have sold or are shorting in size. The other reason is that EARNINGS will save they day once again and the Fed will be loathe to hike rates BUT if the Atlanta Fed is correct GDP may low toward zero in Q1 and the inflation print this week & Powell’s comments about bringing down inflation (growth?) did not fall on our deaf ears.

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Stock Market- Out of the Woods & The Lows Are In? Not So Fast-Read Our Take!

February 26 2020 Option Professor Opinions & Observations

This week we saw about as much whipsaw action as you’re going to see with a war breaking out and a veiled cyber security threat from a country that could actually pull it off. We saw stocks dive and commodities (grains -gold-oil) have big spikes to the upside only to end the week with fading commodities and stocks having a short covering & algos rally that can come when the VIX hits the high 30’s….because if it breaks 40; you get a melt down and I am sure the plunge protection team is well aware of that…throw month end propping up of brokerage statements so Mom & Pop don’t get sticker shock and sell everything. So why the reversal by weeks end?…our take is word is getting out that some negotiations will take place and dial this thing down (grains dropped sharply Friday as fears of no grains abated). The heat is being turned up from all corners on Putin (Russians- NATO-China-Europe-USA) and the risk reward for this invasion may be turning in a settlements favor…we’ll see…we’ll hope for the sake of those innocent Ukrainian people.

Will this rally stick and have legs? We have inflation running at the HIGHEST level since 1983 and a lot of it is structural now (rents-wages-energy-food supplies ect). The Option Professor has been around for decades so this is not our first rodeo with volatility, inflation, valuation compression and geo political events. We told readers that 2022 was a REVERSION to the MEAN YEAR and the only question was to what degree. The minimal reversion has already been met and exceeded when we broke SPX 4400 which we tested around on Friday after testing SPX 4100 during the panic. A full reversion would be toward the SPX 3800-3550 area. OVERHEAD supply may come in SPX 4400-4500 & 4550-4600. Don’t FIGHT the FED ( removing accommodation) and Don’t FIGHT the TAPE (resistance #’s exceeded turns to support)

GOOD NEWS/BAD NEWS-We have great numbers continuing on consumer spending (70% of economic growth) and earnings by and large have been above estimates with at times foggy guidance. Despite the banter; the Fed has done nothing and even putting 100 points on fed funds by July (Bullard)…they are ridiculously behind the curve (2yr Treasury has discounted 6 hikes already!) By any measure; the Fed is still in a absurd accommodative policy versus the obvious GDP/inflation strong numbers. Do you really think a 2% Fed Funds rate will get inflation back to the Fed’s 2.5% target?? So; something has to give…either the Fed will be RAISING RATES much more OR INFLATION RATES are higher-longer. Stocks are supposed to be good during inflationary times they say BUT if wages are negative versus inflation (personal income is flat); the higher costs can drain reserves and curb consumption….both unwelcome for earnings/margins.

CONCLUSION- The Fed is removing accommodation (stimulus & balance sheet) and if they kick the can down the road (we can’t afford higher rates)….the consequences may also be unaffordable…PCE at 1983 HIGHS!). So we don’t fight the Fed….the tape has turned up but a BOUNCE is not a TREND….it is very important to UNDERSTAND RISK MANAGEMENT

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Stocks-Nowhere to Run-Nowhere to Hide? Not So-Take a Look at Our Views-Read On!

February 19 2022 Option Professor Opinions & Observations

We will get into our views on positioning to whether the storm of 2022 later in this briefing but first we’ll review things.

We spoke last week that SPX 4600 area was a short term TOP area an a break of SPX 4450-4400 could accelerate selling to the downside-BOTH were correct assessments. This week we got more news re-affirming the obvious that inflation on BOTH the consumer level AND the wholesale level is very high and with the constant feeding of shelter and wage inflation…it may take awhile to recede. On top of all that; we had a full moon on Wednesday:):). We spoke last year of the RISKS in 2022 and the concept of using options as a HEDGE to protect portfolio AND to go to sectors that may fare better in a changing monetary policy environment. The FED increased the MONEY SUPPLY by 35% after the 2020 drop and increased the BALANCE SHEET toward $9 Trillion+. Do you think withdrawing that accommodation will not lead to VOLATILITY and REPRICING of stocks and their VALUATIONS? We don’t CREATE trends; we FOLLOW them. When an investor’s stocks drop on a weekly and monthly basis and they take no action….the results are what they are. Friday was options expiration and Ukraine invasion looks near and the inflation numbers are scary with RATES so LOW. THIS WEEK we have retail earnings from the like of HD LOW TJX M FL Etsy EBAY also COIN MRNA DISH but last week we got NVDA CROX DAVA SBLK KEYS….many had great reports while others outlooks dimmed (ROKU SHOP)…but most had one thing in common….they got hit. Could we rally into the EOM?? Sure if the selling is exhausted (hold last weeks lows) and the algos want to run it the other way to help account values before monthly statements go out in a week.

We told you in 2022; a likely minor REVERSION to the MEAN would be SPX 4400 which has been EXCEEDED It opens the door to FULL REVERSION to LT 24 SMA & 36 SMA’s which are at SPX 3850-3550 areas. Bulls need +4400 to +4550 Some Cycles (20 yr & 40yr) indicate a MAJOR bottom in commodities in March 2020 & MAJOR decline in 2022 stocks.

If you’re the type of investor who doesn’t mind wild gyrations on the majority of the capital….good luck to you….those of you seeking more stability….here you go….with fixed income a Short Term Treasury Ladder has made the most sense for a while wherein you stagger maturities in the highest credit available & for those willing to add risk look to floating rate diversification. For stock investors; companies with good free cash flow (dividend payers)& consumer staples have been best of breed. With Slow Draw McGraw (Powell) hesitant on normalizing rates; some flows have gone into Gold lately as a hedge. Our view that a relationship of near zero interest rates to 7% to 10% inflation has been a Gold ally.

We have Decades of Knowledge & Experience in the markets and have published 5 PDF Reports to EDUCATE Investors We provide our views on INCOME-GROWTH-OIL GOLD CRYPTO-OVERSEAS MARKETS- Go to optionprofessor.com They INCLUDE a 20 minute Q&A with The Option Professor for a LIMITED TIME ONLY—Get Yours!!

Stock Market Drops-Waiting for Help? Are You Waiting for Godot? Our Take-Read On!

February 12 2020 Option Professor Opinions & Observations

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The stock market had a very bad week this week once investors pulled their collective heads out of the sand and saw proof of what we have told readers for many months….Inflation is NOT transitory and Yield will rise once 1.75% on the 10yr Treasury is exceeded. This week we got evidence of both as INFLATION blew out the doors and yields ROSE as the 2 yr exceeded 1.5% and credit spreads continued to widen. Yields tend to rise slowly at first and the accelerate into a fast pace. Earnings have been great but they are backward looking and valuation pressures come with the territory when interest rates rise. The scariest thing is how far behind the curve the Fed is as we were around the last time inflation was this bad (1980’s) and Volker (Fed) needed to get the long bond to 16% and money markets to 22% to get it under control. Not suggesting that here but 1/2 point raises off zero ain’t gonna cut it and the market knows it. BUT it is important to note the 2yr Treasury jump in yield to 1.50%+ has ALREADY DISCOUNTED 6 hikes already which may mean a more stable environment may emerge as we go into the March Fed meeting. may occur. The SPX hit a very IMPORTANT SUPPORT ZONE Friday at SPX 4400 and the VIX hit 30+ but closed lower. If Monday we take it out but close above (plunge protection team??); that would be very constructive HOWEVER if we close under SPX 4400 and the VIX takes out 35-40 then it may be time to use dental records as the decimation could be significant (we have told you that some Elliott Wave Devotees have said 2022 will be a year of a huge decline and major bottom and some may say the stars are staring to align. IMPORTANT to note the SPX 4200 area and VIX 39 are still intact so if you’re a bull you could hang your hat on that and the old adage “It’s darkest before dawn”. We saw with Facebook(FB) that if the crowd turns on you the downside can be precipitous. The way we blow out SPX 4200 and test long term support at SPD 3800-3500 is that the Fed goes too far, growth slows and the consumer spending falls out of bed…..NOT sure things at all. Do you own enough value & dividends…floating rates….overseas markets like EM & the UK…precious/industrial metals? We have ideas on where to look to hide out while Rome is burning and we are happy to share the ideas with you.

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Stock Market- Wages & Rates Spike & the Market’s Confused-What’s Next? Read it!

February 5 2022 Option Professor Opinions & Observations

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Last week the stock market was shocked and surprised BUT we were not. The reason we are not shocked by the Jobs Report or the market gyrations is that we try to look at things through the PRISM of REALITY. We said last week that inflation is not going away quickly if anything it could accelerate with the CPI number on Thursday. C’mon…EVERYONE is RAISING prices with Amazon bumping the price of PRIME by 20 bucks as recent evidence. The Jobs Report was a no brainer…the stimulus money is GONE….the stock market gains are GONE…so people have to CAPITUALTE and go back to work which means we’re UP 460K+ which also means WAGES yoy are going UP toward double digit numbers! The jump in real estate and rents are also starting to bleed into the inflation numbers and some rents are way ABOVE pre Covid levels. The consensus is that economic growth will slow but if it doesn’t then WAGE + PRICE inflation=TROUBLE. What will consumer spending be like when the weather gets better and the variant scare subsides? Lotsa $$$ out there.

NOW…RATE HIKES COMING & MAYBE FASTER THAN THE MARKET HAS ALREADY PRICED INTO THEIR FORECASTS! Let’s talk about the cost of money and how much you get paid of fixed income. The Fed is so far BEHIND their MANDATE for stable prices that it is a joke (but it was also a joke for them to be BUYING mortgages AFTER real estate prices had gone thru the roof!). The 2 yr Treasury yield is ABOVE 1.30% and that has already more than DOUBLED in a short time. The spread between 2yr and 10yr yields has yield have tight end and if they invert a recession generally follows. The Fed is STILL BUYING in the market as we speak! Do they really think 1/4 point hikes over many months is the remedy to cool things off? We think not…so why wait for March? We feel it’s the direct opposite of QE….in that when things are disastrous (2008 & 2020)….people will agree to ANYTHING to stop the bleeding which means it’s OK to the “helicopter Cash drop” (stimulus-PPP-14 facilities to print money and bail out bad actors). The Fed & Treasury were given the green light to run UP the deficit and EXPLODE the money supply…and cheered for doing so. Since they forgot their basic economic courses from Wharton….they are “shocked” by inflation jump after a 35% jump in money supply?? Why MARCH? Our view is by then the entire planet will see they need to hike and they will be cheered for doing so as most Americans could care less if the SPX is 5500 or 3500..but they do care about prices of GAS & FOOD!

Having been in these markets for many decades: we see the market behaving as it should….companies with duration earnings are whacked while free cash flow machines are rewarded (unless you tell the world your competition (TicToc) is problematic and you are spending a ton on an unknown revenue source (metaverse) and daily user growth is gone. This is FB’s story. We gave KEY PRICE POINTS on the SPX last week in the UPDATES and reiterated them this week….so we will repeat……4610…4561…4488……..UNDERNEATH…..they are 4402…..3866…3575…numbers based on TIME & PRICE.

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Stock Market- Are the Lows In @ SPX 4200 and VIX 39 or New Lows to Come? Read It!

January 22 2022

Well we have had quite the roller coaster in the markets due to offsetting penalties. On the one hand the Fed MUST raise rates and curtail growth BUT the operating leverage and the bullet proof companies have beat on EARNINGS! Economic numbers have been a bit all over the place with inflation numbers at 4o YEAR highs while retail sales, durable goods, and consumer spending suggest weakness. Q4 GDP blew out the ceiling and that is with a Variant suppressant. Let’s get real here….the inflation numbers are not going away anytime soon and Powell pretty much said if they don’t they will tighten conditions and maybe a lot because we are at full employment and they are going to serve a NEW MASTER. Since 2008; the Fed has served 2 OLD MASTERS..the economy and the stock market/asset values. They have done a great job has they teargassed everybody out of money markets (safe investments) and got everybody buying bonds (junk-corp-munis-foreign-mortgages) regardless of the yield (negative real yields). They also go everyone thinking the 25-35-50 or NO P/E’s were also a good deal. Our mantra is that things that don’t make sense don’t last! We are here. Who’s the NEW MASTERS…the 40% of America who can’t come up with a Grand for unforeseen expenses and the middle class who’s wage gains are negative PLUS both groups whacked by inflation & BOTH GROUPS VOTE!

We have seen the VIX hit 30-40 about 5 or 6 times in the last 1 1/2 years and within weeks it was back down so we will see if Fridays close is the start of that resolution. With Oil having run up; the likelihood of a strong inflation print for January is very high as rents, wages and other sticky inflationary force did not abate PLUS supply chain issues remain. Everyone who has seen their accounts decline in value are “hoping” that this is like every other correction and in short order they get their values back up. Maybe? The old adage of Don’t Fight the Fed and Don’t Fight the Tape may be apropos. If Oil doesn’t back off and wages keep rising and rents remain tight and store prices remain high and we come out of lock ups with $2 trillion of excess household worth off a GDP print of 6.9%….will the Fed tighten..of course! The saving grace is the Dollar is strong and Japan and Europe offer ZERO fixed income returns so the USA is the one eyed man in the valley of the blind..translation..while Fed’s balance sheet runs off…Asians & Europeans are the new bid.

We have told reader that when SPX broke 4700-4650-4550 and the VIX broke above 23 that an acceleration to the downside may commence. The oversold condition SPX 4200 and spike in the VIX to 39 allows for quite a bit of oscillation which we saw this week. In fact; being a LIQUIDITY PROVIDER has been the best strategy as those who sold substantial rallies (no sellers) and bought substantial declines (no buyers) especially in the futures market made $$$$$. If the best of earnings (except NVDA) are already out then further upside (if it happens) may be met with selling at SPX 4480/4550/4625. We said last year that 2022 may be a REVERSION TO THE MEAN YEAR as Growth slows and Rates rise. We already broke LEVEL ONE SPX 4335 (we closed ABOVE it Friday)….now the question is do we close UNDER SPX 4335 and take out SPX 4200 and open the door to LEVEL TWO SPX 3800 and LEVEL THREE SPX 3500? If not; SPX 4200 was it

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Stock Market-Reversion to Mean is Well Underway-Now What to Expect? Must Read

January 22 2022 Option Professor Opinions & Observations

This Week…We will be brief and to the point…Some of the things we spoke of for the last 6 months are coming to fruition which essentially has to do with long term charts and long term moving averages. We referred to the break of SPX 4700-4650 areas as potential confirmations that a test of longer term moving averages was on (5yr-20yr charts). We have suggested investors be ready with hedging tactics (collars-married puts-replacement trades) and those that elected to use them are happier with this weeks action. We spoke of the 12-24-36 month SMA’s on our 5yrs charts at SPX 4650-4560-4475 which have all been taken out. We spoke of the VIX taking out 23 as a sign of acceleration to the downside which also happened this week as the VIX closed at 28.85 with a high reading of 29.79. The QQQ’s & IWM has been even weaker and may suggest more to come for SPX. Our 20 year graphs have 12-24-36 SMA’s coming in at SPX 4335-3796-3524 so over time the correction as potential to be quite a bit deeper. The numbers on QQQ are 357-309 and 270 with IWM coming in at 220-188-177 so you can see that those markets have already reverted more to the mean which may or may not be indicative. The Transports numbers are 259-221-210 (IYT)—watch QQQ 357 & IYT 259. Energy/Nat Gas may back off short term but have structural shortages. International Markets-Dividends-Value held up. The Fed has 2 tools in the Fed Funds Rate & Balance Sheet run off with no experience with the size of this unwinding. Last cycle they took years to taper (2013-2015-2017) now if it’s quicker and open ended the landing will be rougher.

NEXT WEEK- OVER 100+ S&P companies report (AAPL_MSFT) & Fed’s Powell talking and Econ Numbers-Help on Way?

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Stock Market-Why Do Investors Follow the Option Professor–Accuracy!! Must Read!

January 15 2022 – Option Professor – Opinions & Observation

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This week we got a big test of the support zones we told you about (SPX 4560-4580 area) and we held and was well off those levels at the close. The VIX which we told you was way too low at 14-16 spiked to close to 24 only to fall back but so far has not made a new high. The main problems are the inflation rates (7%+)…..omicron (cancelled flights & port issues) and retail sales going into the tank (-1.9% & -8&+ online & -&% dept stores) while consumer confidence wanes having said that many of the positions have been doing absolutely fine in the Option Professor Model Portfolio!

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Stocks Hit-10yr spike-Fed Tightens BUT Q4 Earnings Coming Soon!! Ideas Now? Read It

January 8 2022 Option Professor Opinions & Observations

Welcome to the New Year Everybody:):):)….We got a blast this week from the 10yr Treasury up 25 basis points!! in a week and the Fed not only tightening but also talk of running off the $9 Trillion dollar balance sheet….not exactly what long term earnings duration (tech) wanted to hear. We were way ahead of the game because we spoke to readers of energy, dividend payers, banks, industrial metals and travel and leisure ect. BEFORE they became apparent this week. While we told investors that every time AAPL has broken a trillion mark (1-2 now 3 trillion) it has been followed by a pullback and this time was no different as it dropped off 183. We have spoke about the overvaluation of stocks for a while and spoke of a Fibonacci high point above SPX 4800…all now seem prophetic. Our support in SPX is at 4655 then 4550 then 4450 (a trendline that has been good since June 2020). Are they throwing out the baby (Semis & Tech) out with the bathwater?? Maybe …we have earnings starting next week and Taiwan Semi is on deck and if they blow it out of the park…we may be singing a different tune as some believe that a short term respite from higher yields may be dead ahead and sentiment has turned extremely bearish on companies that have enormous free cash flow huge profit margins and moats around their business. REMEMBER…as we enter earnings season corporations are sitting on $7 trillion in cash and if they don’t sit on it they could spend it on capital expenditures (mergers & acquisitions) or return of capital (dividends & buybacks) or credit (senior loans). This looks good for Energy, Banks, Dividend Growers & Payers plus ETF’s specializing in Senior Loans (short duration/high yields). We’ve been at this for Decades so we are already positioned for higher rates and have dry powder ready for Semis & Tech. Many opportunities…where are they??

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