October 2 2020 Option Professor Opinions & Observations
Hello Everybody….What a Week!!….We had a national embarrassment (the “Debate”)….we had President Trump et el test positive for COVID (reminds me of what my brother Kevin used to say to me “What Did You Expect?)… and we had a jobs report that confirms what we’ve told you for a while…the economy is slowing and so is the rebound pace and the easy wood had been chopped. Comparisons to this pull forward demand we saw is going to be tough and a spike in cases worldwide will not help…..earnings may get people feeling better & so would a stimulus bill…one of the 2 may not happen. From NYC real estate to downgrades by Moody…the turn around has lost steam…add in durable goods report…personal income (spending savings)..manufacturing pull back on top of credit card activity..open table..bookings for hotels and you get the picture…..if we take out SP 3450 (around mid Sept Highs)…we’ll reassess our opinion that the market hit a SHORT term peak and the correction could take us back to the SP 3100-2900 zone…..if we take out the recent lows of 3200 in the next couple of weeks the odds of that scenario coming to pass will exponentially improve as well. So will a stimulus bill & better news on the Virus get us back on the horse… maybe but we’re betting the other way until & if the yield curve steepens.. .the Virus subsides…the stimulus arrives and VALUE take out recent highs. We told you the Sept Oct Nov time frame could be tough and despite the rally which faded Friday…not ready to join the crowded “Pamplona” trade.
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As you know…it is a market of stocks and not a stock market and that was true this week. Mega cap Tech gave up the goose (FB AAPL AMZN MSFT ECT.)…while ZM PTON TDOC did well ass Virus cases spiked BUT we suspect the old story (when the cops raid the brothel everybody goes downtown) will prevail. If we break the QQQ’s….looking for the one-eyed man in the valley of the blind may not be wise. Energy shares got whacked like we’re either going back to the horse and buggy or cruise with the Jetsons…hey guys…stick your head out the window on the freeway..lots of fossil fuel..so when we see Chevron CVX paying 7% plus dividend currently & Royal Dutch Shell RDS.A…we figure blood in the street (not ours) is a good thing. Unusual option activity in DDOG AAPL NVDA & XPEO while stocks like UPS DE BABA DKNG CYRX SONY DIS ROKU were definitely on a radar this week
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The story here is JUNK bond issuance which saw the biggest Sept EVER on record and the 3rd biggest month EVER on Record. Hey.. tight spreads lowest rates EVER and record issuance and if these companies misss on earningss the mosst LEVERAGE ever maybe…how do you think it’s going to end? THe yield on HYG is about 5% and the high in Jan was 88.53…it closed Friday at 83.83…already lost the yield…now it’s trading under the 50 day and could break the 200 day anytime and daily volume off 20% or so…if we are correct on stocks possibly taking a leg down and if we take out 80 HYG investors may be reminded why they call them JUNK Bonds. NYC munis downgraded by Moody’s…the beginning of a stampede with no stimulus?
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US Dollar International Markets
We told you a SHORT term low was in on the Dollar in early Sept and a rally toward 94-98 areas was expected…right on! We also told you the March DECLINE from 104 on DXY also fueled the stock gold silver rally since late March…we also told you the TURN in the Dollar in Sept Upward also sent sstocks gold silver on their REVERSION TO THE MEAN TRADE which it remains in the midst of completing. We told you the Euro was a buy at 110 and a sell at 120 and so far that’s true (closed 117). It may be short term as the FED looks to explode the balance sheet further…but DEFLATION in the Euro zone & Japan is scary as a FLAT YIELD curve does not work as our view is MONEY VELOCITY cannot occur without a steeper yield curve…we don’t have it now but we believe we will in 3-6 mos but Japan & Eurozone do not have a clue. We believe there is a RISK of an ACCELERATING RISK OFF in EM Europe Asia in the weeks ahead especially if COVID comes back strong & the stimulus fight is He on & of course the potential of Election Chaos…hey if the numbers flow the other way…we won’t fight the tape.
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Crude Oil- Natural Gas
Crude Oil tanked this week ass the slowing economic numbers plus the Libya oil flood plus the Virus spike has the bulls on the run & bears controlling the tape…..BUT we believe 30 is worst case pending a collapse of the economy as next year a 40-50-60 print may be in the cards as DEMAND returns and that means oil refineries oils servicing ect may have value here. Natural Gas is a wild ride from 1.75 to 2.75 to 1.75 to 2.92 to close 2.44 OUCH
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Gold Silver Copper
The big story this week was the hit they put on Copper prices as we fell from like 3.07 to 2.83 (17% hit) only to close back at 2.98…..all things considered it hung in there and infrastructure and new home sales & China back in business can’t hurt..our baby FCX since 5 bucks has pulled back..stay above 13.50 & 14 and we say 2021 should be a banner year. The Gold and Silver were in trading ranges with Gold 2100-1900 and Silver 30-24 but those ranges were violated…long term still bull market but lotss of real estate between here and support…core positions hold …extra..WAIT!
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Soybeans Sugar Coffee
As you know we were bullish on Soybeans for months from the 8 to 9 range and felt a close above 10-10.50 could open the door to 10-12 as China demand and other factors could get us going…we went to 1.50 area turned down to sub 10 and closed at 10.20. Now a close ABOVE 10.50 could get our engines going or a close under 9.75 could stock a fork in the Bulls..WATCH The coffee market was one of our favorite this year and for good reason.. below 100 we saw a steal…rally toward 140 now hold the 105-110 area and a second sprint to the upside exists…let the cards come out….Sugar held the pullback support 9 to 10 area then the 11-12 area and busted well ABOVE key averages in the 12.30 neighborhood..we closed at 13.58 so far so good BUT it needs to surpasss 14 to really get trucking and there is a gap near the BREAKOUT POINT at 12.30..retest?? maybe but we are overall BULLISH!
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