Recorded at 12PM ET on Friday, February 22nd, 2019.
Recorded at 12PM ET on Friday, February 22nd, 2019.
Recorded 11:30AM ET on Friday, February 15th, 2019:
Good afternoon, good day, everyone. This is Jim Kenney with the update for OptionProfessor.com, for February 15th, 2019. As always I do remind everybody that past performance is not indicative of future results, and that short term trading, option trading, does involve substantial risk. So you should discuss the appropriateness with your clearing firm, your financial advisor, and your good common sense before you enter into anything.
With regards to myself, again I’m Jim Kenney, and I am a graduate of Boston College. And for those of you who haven’t tuned in yet, I’ve been in the investment arena here for decades educating people, thousands and thousands of people nationwide on the uses and risks of option trading. Using options for hedging purposes, for cash flow purposes, and also for limited risk speculation purposes. So again, I’ve been doing this for quite a long time and I’m gonna share my views and my opinions on a wide variety of things here today.
Again, we have seen the market take off to another high on this move. As I brought to your attention last week, the 2750 area was around where the 200 day average is, so there could be some resistance there possibly. But the Elliot wave people, I don’t know if I brought this to your attention last week or during the week through another broadcast, we’re saying that when we got above 2725 this week it opened the door to going towards 2800, even as high as 2940 on this run. So there is some legs to this market right now, again, there’s a lot of talk that the trade deal is just about ready to get going here in the next two weeks. And then of course people are bidding it up in advance of that. And then of course you’ve got the government settling their budget situation, and of course the emergency order that was announced here today.
So there is some things happening in the news that have been supportive. The earnings, while not being that robust, have not been that bad across the board. And so there has been a bid brought back into the market. Again, when the selling of December hit, every Tom, Dick, and Harry, basically got wiped out of their sell orders, and now in the month of January into February the re-instituting of purchasing, and re-balancing portfolios has come into a very little seller environment, and that’s, again, causing the order in-balance that continues here today. Let’s take a look quickly here at what the current markets are. You can see right now on my screen 336 and 25 on the NASDAQ, and the Dow Jones, let’s take a look at the S&P and see if we can get anything out of that, okay. Again, we have the 200 day average around the 2740 area, and again, getting above 2725 this week was a buy signal, particularly for the Elliot wavers who are to the upside there, thinking that the first wave we may either still be in the first wave, or it could be a situation where that dip down to to 2670, could’ve been the pullback, now we’re into the third wave to the upside.
At any rate, taking the [inaudible 00:03:14], that once it did break above that 2720 that I mentioned, it has been a bit up market, and it does seem like it wants to go toward that 2800 area at a minimum. And you see right there on the screen, you broke above 2720 this week, and then bam, you got 50 points to the upside in the last few days. So that number was a pretty accurate number as far as if we get above that number it could go. Also, there was a gap there between 2720 and 2730. Once that got filled, that became support on the pullback, and you can see the pullback right there, and then back up. So again, the question is is was the advance A move up to 2740, and is that all you’re going to get on the B move down at 2680? And then are we now on the C move that takes us anywhere to 2800 to 2940? Only time will tell, but again, there does seem to be a tail wind to the market right now.
Again, let’s take a look at a longer graph, that’s the last 10 days. I’m gonna give you an analysis here going back say to the last three years and give you a little bit longer term perspective here. Okay? Again, the reason you have to be somewhat concerned about the market still is that it’s had three chances tiered in and failed, right? Right there. And now it’s having the fourth chance right now. So if we can’t get above 2800, again, that would indicate that it could roll over from that level. That’s the next resistance level 2800, which is about 35 points from where are now.
Now, with regards to get us above that area, 2940 some people are using as a target, and again, that’s the all time high. 2940. So if we get through 2800, you could be looking at 2940, the all time high, and again, if it goes up to that all time high and cannot surpass it, that’s where some resistance could come in as well. So that’s what you look like right now as far as the SMP’s concerned. And again, with the talk of the deal coming by the end of the month, that could be a situation that creates a little bit of a bud underneath the market.
If they, for whatever reason don’t get anything done and we go up towards 2800 and roll over, that’s when I’d probably be concerned about either locking in some values, or hedging some of the values using the collar strategy or the married put. Again, if you’re not familiar with how to protect your assets against market declines, which obviously I’ll bring the chart back up a little bit so you can see it, people who hedge themselves up around 2900, 2850, 2950 certainly were a lot happier during that big drop to 2350. Again, when you want to protect your stuff is when it’s way up, not when it’s down. So the bottom line is is like any other insurance, you don’t want to buy your insurance after the flood hits, you got to buy your insurance when it’s nice and sunny, and the insurance doesn’t cost very much, and you’re going to be protecting a very sunny day. Now down in the dumps going how do I work that again?
If you have any questions on anything specific, give me an email. [email protected] That’s O-P-T-I-O-N-P-R-O-F-E-S-S-O-R at Gmail.com, and I’ll respond, and if I can help you, great, and if it’s beyond my scope, I’ll let you know that as well.
All right, so anyway, that is the story on the SMP. Broke above the resistance, ran up here to 2775 area right now, looks like it’s going to have some trouble possible at 2800, but if they come out with a China deal and they blow through 2800 going up towards that all time high is certainly not off the table. So keep an eye on that, and that’s total reversible from down here at 2350. Why such a reversal? Again, the feds said they’re going to pause, that took that off the table. The China deal is getting done it looks like. That’s a big advance, and then of course corporate earnings while not outstanding did not fall off a cliff, which is what the market was kind of predicting.
A retail sales really kind of got whacked though, so you got to keep an eye on that. Retail sales this week came out and this is the worst level in a long time. Now that’s backward looking. Retail sales was for the forth quarter, so obviously people are thinking in Q1 here, those numbers are going to bounce back. But the December numbers were lousy to a large, large degree. So again, the consumer is 2/3 or more of economic growth if they stop buying things, that’s not a good thing.
There are some other markets that I’ve been watching. They’re all rebounding. So again, we’re getting confirmation here, transportation average yesterday was up while the market was down. That was a little tip that maybe that whole bag should’ve been bought. One of the best analysis that I heard after 50 is that gentleman who I know was saying buy every dip until we get back to the 200 day average, which obviously was genius because every single dip we saw between the 2350 and where we are today certainly was a buying opportunity. Right now again, a lot of these markets have just gone through, or right near their 200 day average. Let me tell you the two things that I watched here. [inaudible 00:08:07], which obviously goods and services being moved and people. Being moved around is very important. See the 200 day average? 10,558. Where are we now? 10,556. So we’re right on the number. If they can get through this area here, then you could be looking at some good higher levels, but again, this is the neighborhood.
It looks to me that if it can get above here, 11,000 is going to be your 2800 on the SMP. So your 2800 on the SMP, your 11,000 on the transports, these are the neighborhoods that could be resistant. You got to monitor these very good. Again, the 50 day moving average is under the 200 day average in these instruments, which means there’s still a negative cross there. That’s something to respect even though we’re having such a very robust rally here in Q1. Let’s take a look at the Russel, because they were another leader on the downside and the upside in recent time. 1567, good move in the Russel today. Where is it at on the 200 day average? Let’s take a look. 200 day average on the Russel is at 1587. So we’re not even taking out the 200 day average on the Russel yet. So again, and the enthusiasm is extremely high.
So let’s take a look here at the Russel again and get an idea where that might, because I think 1600 is the number on the Russel. Yeah, 1600 where it broke down from, that’s the number on the Russel where even if we get it right there where it broke down [inaudible 00:09:32] a high point there, got a high point there, that would be a neighborhood where [inaudible 00:09:37] keep in mind on the constructive. But again, we’re barely through the 200 day average on the SMP 500. We’re at the 200 day average on the transports, and we’re under the 200 day average still on the Russel, so let’s compare that to the VIX and get an idea of what’s happening. Because again, my view on the VIX is that when it is above 15 to 20, okay? The market could be stable, it’s higher.
But once it goes above 20 and [inaudible 00:10:06], you’re looking at a dangerous area on the VIX. So again, right now the VIX is right at that 15 mark, and you see there’s highs there on the VIX, and highs there a little bit, and now there’s lows. So we’re getting a very big advance, but I haven’t seen it break that 15 mark yet. Again, if I wanted to get and remain bullish, two things in my view have to happen. The VIX has to start trading between 10 and 15, and we need to sustain moves above the 200 day average. I suspect that’s not going to happen, but again, you don’t fight the tape in this business, and if in fact I does happen, you have to change your tune, but I think this neighborhood between here and 2800, and this neighborhood on the VIX right around 15 is a neighborhood that may see some selling come in unless there’s real stimulative news coming out.
Now the other thing is is the US dollar is picking up steam. Let me show you that too. Trying to give you a reason, a theme on what’s going on. The theme is basically that people don’t get too negative because they were overly negative on China and the fed and everything else in December, and the liquidity in December stunk because most people are trying to lock in gains, not put on now positions in December. Now in January they want to put on new positions. So the market makers actually played it great. They dumped it in December when they knew there wouldn’t be much buying, and they had everybody who wanted to do their year end selling do it into the abyss. That’s pretty sharp on their part. Then they know in January and February, everyone wants to reinvest their money for the new year, plus all that retirement money, pension plan money, IRA money comes in, so they raise the offer to the roof in January and February, and obviously all to buying comes in at the higher levels.
Pretty ingenious on the market makers point of view, but there’s the problem now. You are looking at earnings that are supposed to be pretty muted in quarters two, three this year. Maybe in Q4 they pick up. Earnings drives the market, and multiples drives the markets. People don’t want to pay a high multiple like they used to. So again, the US dollar, 40% of the SMP earnings come from overseas. That US dollar going from 95 back towards 97, 98 is not good for the earnings picture, for these multinationals. So again, that’s another thing that maybe has not been factored in is how the strong US dollar may negatively affect earnings. We’ll have to see. I thought that it looked like it might break, but I did say clearly that we needed to break under 95 and then 94 for us to really say that the dollar has rolled over. And rather than rolling over, they caught everybody short down here, and now they’re killing those shorts by rallying the market. So I’m sure there’s more than a little bit of short covering in this rally in the dollar. Because look at that, lower high, lower high, lower high, lower high, but not a lower low here. That was your tip that maybe it was going to go the other way.
Our yield advantage, meaning how much we pay in interest versus what overseas does. A lot of overseas, they pay negative interest. That means you loan the guy money, and not only do you not get interest, but they don’t even give you your whole principal back. Does that sounds crazy? It sounds crazy. So we’re at 2% money markets, and 3% 30 year, and two and 5/8 on the ten year, and that’s going to attract money from areas of the world, and that’s going to create the dollar strength, which is what it’s not. Now again as I’ve told you, we’ve had a very big run, and that VIX is something that you have to be very careful of, but also interest rate.
Now I’m a believer, because retail sales are down in December, and the economy is going pretty good as far as jobs, that companies are going to raise prices in Q1 here, and they’ll be reflected in numbers that come out on Q2, and if that happens, then the bond market may go the other way. Everyone in the world is saying there’s no inflation, when everyone in the world is telling me something, I know that that is a little bit lopsided and that means that most people are leaning that way. Just like when people were saying the fed is going to hike three more times up here at three … this is the ten year treasury note. Interest, 3.25, area, right? Everybody is telling us there that the fed is going to hike three times this year, maybe four. Now that’s a very pop, and everyone is short the bond market, short the bond market because they’re long thinking the yield is going to rise.
So when yields go up, bonds go down. So they’re all short the bond market. Very crowded trade, and when trades get crowded like Apple at 225, like Amazon at 2,000, they go the other way because you run out of participants on that side of the market, and then all those participants want to get out, and they want to get out into a no … in a liquid situation. So you had everybody short the bond market, and then all of a sudden they talk about pausing and look what happens. Bam, you go all the way down to 255 from 325 in how long? A little over a month, right? A month, seven weeks, right? Bam. Now, everybody down here is telling me the fed is not going to hike all year long, and they’re telling me that there’s no inflation, and blah-blah-blah, okay? Well as you can see after that low, we bounce back and it’s consolidated.
If this thing gets above two-eight, these yields are going higher, and I would imagine that little gap at 3% will get hit. What would make yields pop back up? Well I’m telling you the fed has told you they are watching the inflationary numbers and they don’t see anything happening there. But if they do because companies increase prices in Q1 to make up for the slower retail sales, then you are going to see them, and I go to the store, and you guys all go to the store, and you can see that the prices that I’m paying for food and clothing, et cetera, have gone up, and there is some pricing power even at places like Walmart, okay?
So what are you looking at? I think it’s possible that you could get an inflationary number that they’re not prepared for sometime here in 2019, which would send these yields back up, and if the DOW goes up to 2900, or the SMP up to 2900, and the inflationary news come out, then the fed is not going to stay on hold, and everybody who said the fed’s gone when they put this position on, is going to have to reverse their course, and of course that may also be good for things such as the gold shares. Now one of the things holding back the gold shares right now is the strong dollar. If we saw inflation come back a bit, that is a possible situation where the dollar could weaken a bit. Now again, I’ve been very constructive on the gold miners, and I’ve been showing it to you for a long time. Down here at what? 17, 18? That was the low, then we had higher lows, then we had higher lows, then we had higher lows. So this thing has been up trending here since last September.
Actually it’s had a very big run, and it’s possible it could pull back, particularly if the dollar remains so strong. And that gap right down here? It may get filled because it’s an over blocked condition. But I like the moving averages here, and let’s just take a look at where they are, because this is very under invested as people’s portfolio [inaudible 00:17:05] concerned. And there you go, 2060 in the 200 days, and 2048, they’ve crossed, that’s a good thing. The volume has been picking up on a 50 day basis, so the gold as part of a portfolio may not be a terrible thing long term. If we get the inflationary numbers that I’m guessing it could happen, and if the dollar comes off this 98 area and starts going the other way.
One stock that bought another company is Freeport McMoRan, and Freeport McMoRan is something that I’m watching very closely, and I’ll show you why. They just bought Gold Corps, which makes them I think one of the leaders if not the leader in gold production, and again they just raised the stamp, that’s inflation, that’s a little side of inflation again, and [inaudible 00:17:50] stamp going up from the 60s and the [inaudible 00:17:52] and the 90s and the 2000s showing you that obviously that’s price inflation. Very easy for people to understand. Now this is going back to 2001. This is Freeport McMoRan. As you can see, big run up to 60, then a collapse during the crash of 08. Big run up back to 60 on the rebound, and then a slow steady decline as the dollar got strong, and as inflation came out of the system, okay?
Now you’ve had a run up to 20 and a pullback to 10. This ten area to me is very interesting. And if you can get, now see this volume very high? That looks like capitulation to me. Meaning everybody dumped it. Look at that volume? Where it normally is and where the volume here. That looks like a dump to me. So I’m very much watching this company here, the PE ratio is 7.91, that looks like a pretty reasonably priced thing, and let’s look under the hood here and see if there’s any short interest.
Short interest is sometimes a sign that if the market turns, these people will cover their shorts, and let’s see if anything’s [inaudible 00:18:53], .27, not too much. But as you can see, this ten area is very interesting, and if you can get above 15 and above 20, this thing could be a fairly important stock over the next longer term, because again, they just bought Gold Corps and it creates quite a situation there. So there could be some value.
Let’s do around the horn here and take a look at what a lot of people are looking at. First of all they’re saying get back into the financials. Financials haven’t been a big friend to anybody, let’s take a look at what they’re doing now. The spider on the financials starting to move up, looks like it’s trying to turn up, looks like 22 could’ve been a bottom, and then now it’s trying to make its way up. Still having trouble at above 27, and certainly trouble at 29. So there you go, still in an overall down trend, but it looks like the momentum is turning up. They tell me that the banks will do well looking forward. Again, only time will tell.
The next thing people are looking at is healthcare, and the reason they’re looking at healthcare is, and I’ll show you an ETF on that. They’re looking at healthcare because of the demographics of our nation. When you’re above 65 you needs a lot of healthcare. When you’re above 75 you need really a lot of healthcare. Demographics are working here in the US. So there are people who are very constructive on this as well. This is the Vanguard financials. Again, similar to the other one is definitely turning back up a bit.
Let me get into the healthcare one real quick, and that is VHT, and I’ll put that up, and you can see how that’s going. You know United Healthcare and the drug companies, [Viser 00:20:26], [Merc 00:20:26], and all those kind of guys. Johnson and Johnson. As you can see, it’s not been a big place to be, so financials, and then you’ve got your healthcare, and then two other sectors that seem to be kind of distant places to park money. The other one being the area of industrials. That’s on a vanguard, and it’s VIS. If you noticed Boeing has done extremely well lately, and so has this industrial sector. So there you go, let me show you that, there you go again. Bottomed out at 110, majority at 140.
So again, there’s money coming into the financials to a certain degree. Money coming into the industrials a lot, and money coming into healthcare, and then the other one that could be a hedge on inflation as well would be your energy, and with regards to energy, an ETF that you could look at, again, I’m showing you one example, there’s millions out there, is the Vanguard. Pays 3% dividend right now in the yield, nothing wrong with that, and certainly again, there’s money coming in. So the banks and the energy have turned, but not really run, and obviously the healthcare and the industrials have definitely had a run. But those are four sectors that have pretty good stories behind them, and again those are four sectors if you’re an investor that you might want to sniff around if you’re looking at sectors that look like they’re doing pretty good.
All right, let’s see what else is going on in the world here with regards to high yield. This is something that looks like it’s gotten ahead of itself again. Goes to take a look at the high yield market. Now this is companies obviously that your balance sheets, and that’s why they are called jump bots. Now they pay a better yield than the regular money market, et cetera because of the risk. 546 is the yield on this HYG. You can see a big volume sell off, and obviously again, when everybody gets out, who’s left? Just buyers, right? Because after you sell out like this, and of course after the fed said they were pausing, and the stock market goes up, these people who are all short, they want to get back in. People who have been on the sideline want to get back in, and there’s no sellers, and there you go, boom, right back to 85.
This neighborhood between 85, 86, because the volume has been so low, you can see the volume here compared to the selling. That could turn into selling if the stock market is not going to get above 2800 and start coming back down, and if you’re looking at a situation where they change the tide and they start looking at these corporate bonds. Now again, last year in December, there was no issuance of high yield, none. Now the stock market rebounds and everybody’s coming back to market. The other thing that’s interesting in the corporate world is the buybacks. We hit record buybacks in 2018 because that’s where the money from the tax savings went. It didn’t go to increasing salaries to any degree, capital spending, no. They went back and bought their own stocks. What does that do? It increase or helps their PE ratios, and of course if your stock goes up and you have stock options you’re gonna have a better chance of exercising them, right?
So there’s a lot of good reasons for management to buyback their own stock, and a lot of it may not be for the good of the whole company. But that’s just an opinion, there’s others out there. But again, this year, we’re even going bigger because they’ve announced I think 120 billion more of buybacks. Now I look back at a chart that Bloomberg put up there, and when these guys are buying back tons of stock, it’s sometimes at the highs of the market. In other words in 2000 before the big drop, they were buying a ton of their stock back. In 2008 area, they were buying a ton of their stock back. Last year and this year? They’re buying a ton of their stock back. Again, so as an indicator, I would consider it to be an indicator that we’re somewhat near a high point in stocks because when these guys start buying a bunch of their stock back historically, it’s going to be a great time to be selling it.
Again, during the big drops we say in subsequent years, they were not buying their stock back. So that’s another indicator to me that it’s not that great. Again, after they get the China deal done, there’s not many more rabbits to come out of the hat of the administration. They already played the card on tax cuts, and now they’re playing the China deal, and then they played the new deal with Mexico and Canada, so I don’t know how many rabbits are left to come out of the hat. In fact the rabbits may start going back in the hat when we start seeing the deficit going through the roof because we’re at 22 trillion on the national debt, it’s up 10% in the last two years. That seemed like an accelerating situation.
I don’t think Mr. Trump has a tremendous amount of respect for debt because he comes from the real estate area where they borrow money hand over first and if things don’t work out, they just default on the loans. Case in point what happened down in Atlantic City where all those loans were made, and all those casinos were made, and when they went in the toilet, he went back to New York and everybody was left holding the bag. I am concerned, and everyone should be concerned that there’s going to be a repeat of that behavior, only this time with a tremendous amount of debt called the national debt. So at any rate, there are other things that could be happening that would change the tune down the road, but right now like I told you, we got above 2720 on the SMP, looks like we’re making a run for 2800. If we get above that, the next run could very easily be to the highs, and that could all come with a by the rumor, sell the fact with the China deal that’s supposed to be coming down the pipe.
Let’s see if there’s anything else I can show you here with regard to agriculture, okay? This is something that many of you may not be watching, but one of the big things to supposedly come out of the China deal is supposed to be them buying our soy beans and natural gas. So here’s the story on the soy beans, and you can see the trading at 920. Now you can also see the low is 850, and hang on a second here so I can jig this thing up real quick, and this is the last thing I got for you. Look at the volume right now. The volume seems to be picking up tremendously. I think if we get above 950 and they strike a deal, it could really get going pretty good. If they have no deal or whatever and it breaks under nine, so this would be a situation on a strategy basis. If you went out a year and looked at the calls above the market and the puts underneath the market, you’d have limited risk on both sides, and you’d be betting on volatility. If that were to be something that works out, that could be very good.
So that would be something to investigate, a strangle position in the soy bean area. Limited risk, but good reward if it got volatile. Okay, I got to wrap up now. Today is the 15th of February and 2019, so this is the show wrapped up right now. Again, contact me very easily. [email protected] Have any questions, comments, you want to talk about anything, again, give me a quick email and we’ll do it. Until next week, I want to wish you all the best of trading, the best of luck, have a great week. This is Jim Kenney signing out, and again, we’ll be back with you next Friday.
Recorded 11AM ET on Friday, February 8th, 2019:
Recorded 10AM ET on Friday, February 1st, 2019:
Recorded on Friday, January 11th, 2019, 10:45AM ET:
Recorded on Friday, December 21st, 12:30PM ET:
Read the full transcript here:
Okay, good day everybody. This is Jim Kenney for the weekly update for OptionProfessor.com, and a quick background on myself: I am a graduate of Boston College, and for those who haven’t been listening, I have been in the investment arena here for decades educating people on the uses and risks of options, doing hundreds of seminars for thousands of people nationwide, and basically today what I’m going to be doing is going over my views, my opinions on what I see out there in a wide variety of markets; hopefully give you some insight and some help on figuring out what is going on.
As always, I do tell you that it is a situation where past performance is not necessarily indicative of future results, and of course, short term trading and option trading do involve substantial risk of loss, so you’ve got to consult your trading advisor; you’ve got to consult your clearing firm, the guy you’re doing your buys and sells through, and also your good common sense to figure out what, if any, tactics of any type might be suitable for you.
Again, today is the 21st of December, 2018, four days before Christmas, and the markets have been under pressure. If you’ve been listening to my broadcast weekly, I have been bringing that to your attention ever since we started breaking down. I also brought to your attention that a move under 2600 on the S&P. We saw a long time moving average that I use that has been broken a couple of times in the last 10 years: once in 2011, and a couple times around 2015, 2016. In each incident, we went about 200 points underneath the moving average. That’s why I came up with the 2400 neighborhood on the S&P, where this thing could peter out. Keep an eye on that 2400 area; that could be an area where things have gotten back in line.
Abby Joseph Cohen has been speaking, and although she says she is not obviously indicating to buy right now or this month, or whatever, she is indicating that the overvaluation of stocks has been removed in large part, and that the valuations down here are much more reasonable. Of course, reasonable valuations and against fundamentals is very important.
Okay, now let’s take a quick look at what is going on with the indexes, and I’ll work around the investment arena and give you some different views on each thing.
The S&P 500, let’s get the chart up there. I’m sharing it with you now, so please take a look. You can see the S&P 500, the low today is 2434, so again, we are getting into that region around 2400. There is no exact science to it, so it’s neighborhood, not an exact price. But this is certainly a neighborhood between here and 2400, where the market may stabilize. You notice some of the major stocks have gone down significantly. The VIX hit 30 yesterday. That’s a good sign. The higher the VIX goes, the closer we are to capitulation.
Now, with regards to the low on the move down, it was happening today. We made a new low for the year. 52-week low here today, but it did snap up 20 points; it’s at 2455. Again, once this market started breaking under 2900, and once it started breaking under 2800, you could see that it was in a deteriorating fashion. What I suggest to people to investigate when the market is up and might be rolling over: to look at the collar strategy in the options arena, and married puts. Had you done that when we were up at 2900, you would be happier today, and it involves the selling of a call and the buying of a put. If you don’t understand the strategy, I am more than happy to explain it to you. Simply shoot me an email at [email protected] I’ll be more than happy to respond. Give me your contact information; we could even talk over the telephone. I’ll try to give you more clarity on how hedging strategies work.
Believe me, hedging is a very good place to be when the market falls apart like it is now, because your equity is stable, as opposed to tanking. Of course, married puts cost money, so of course if you are wrong and the market rises, you do lose the put premium, but in this environment, those puts have been gold.
Anyway, that is what I’m trying to give you an idea on here, as far as the S&P. This 2400 area, plus or minus a little bit, may very well be an area where stability comes back into the market.
Looking at some of the major stocks, I’ll give you another one here: Apple, which many of you own, as I said, the market was rolling over after it broke under the 220, 210 area. You can see right there, after it broke under 210, it has been in a very significant down move. I thought that it might stop at 190; it did for a day. Once it broke under 190, you got another sell signal, and then I thought it might stop at 180, and then of course, it did stop and ran back above 180, but after it came back under 180, you got another sell signal there. Now we are trying to test that 150, which I told you would be a target if we kept going down.
This 150 area, which is the 52-week low, is right now in play, and you certainly would like to see it stop. But the PE ratio down to 12 is a heck of a lot better than it was at 223 or 230, right? That is where Abby Joseph Cohen is coming in, where the PE ratios are dropping substantially. If Powell is right that the economy is not falling off the bed, that these are going to be cheaper stocks. That’s where the 2400 lows might be, and that is where a little bit of a year-end rally may come from.
Year-end rally is running out of time, but if this market stabilizes this week and gets some kind of reason to move back up, obviously a lot of people have liquidated, and obviously a lot of people are going short. That does create an environment where buyers could come in, and the sellers, if they dry up, you could have an outnumbering order imbalance of buyers against sellers. Obviously, on the way down, it has been an order imbalance of sellers over the buyers, but things don’t go in one direction forever, as you found out when it rolled over in September, October.
Again, it has had a very big move down. $80 off the price. Again, only so much punishment is deserved if one of the reasons is they’re not going to tell you the sales of the iPhone every time. I think they have already punished the stock pretty good, so you want to be bearers, 230 is a good place to get bearers. You want to get bearers down at 150, that might not be phi beta kappa.
Again, some strategies to consider if you are a put trader, if you’re an option trader, selling puts, they are probably pretty fat down here. You can go out of the money, get paid a fat premium. If you get put to stock, you’ve got to buy it. If you don’t get put to stock, you keep the premium. If, in fact, you want to take the premium and buy a call with it, that’s another tactic. If you don’t understand all this stuff, I certainly do, so again, shoot me an email. I’m more than happy to give you some insight on these things.
Okay, let’s look at some of the other indicators that I watched: the transports and the rustle. They led us on the way up; they led us on the way down. Let’s see how they’re doing now. Okay. The transports are very close to their 52-week low. They went to 8949 today, as you can see, and the low is [inaudible 00:07:02]. So far, it hasn’t taken it out, but it’s hanging on by the skin of its teeth. It is currently at 9005.
Like I say, when we started taking off earlier this year to the high point (that was in the July/August time frame), it was a leader on the upside. Once it hit 11-5 and started to roll over, then what have you got? You’ve got it underneath 11000; that was the time for the sell signal. That’s the resistance. Came down sharply, rallied back up to 11. Look, couldn’t get above the resistance. See those lows in August? That was your resistance. You see the breakdown in October? That’s your resistance. Couldn’t get above it, went right into the tank.
Obviously, it’s getting into an overdone condition down here possibly, although you would like to see the volume spike up to get a real, real accurate low. There could be one more big flush, because the VIX, and we’ll get into that right now, has not really exploded on the upside. You would like to see that, ideally the VIX explode to the upside to call it a capitulation. Right now the VIX is at 29; you can see it hit 30 yesterday. That’s not really a capitulation, but it is a stretch point. Beautiful would be hitting the 35, 40. Then you [inaudible 00:08:12] real tradable low, and a real, identifiable low. Then of course, getting back above 2600 on the S&P would be quite important.
Lot of you guys own the tech stocks, so let’s take a look at the Nasdaq and see what’s going on. The Nasdaq is [inaudible 00:08:30], a two-week low today. 63, 64 on the Nasdaq. Obviously if it’s stocks that we are trading at high PE multiples have gotten smashed. Of course, a lot of the fluff is coming out of this thing big time. Where do you get your sell signal here? That’s called a double top. Right? Right there is the double top, right above 8000. Once it got underneath that point right there, which is about 78, 7900, that was your sell signal. Again, 7600 was support, so on the way back up, you see it can’t get above 76.
This thing is on the defensive, but if you want to get bearers on the Nasdaq, you get bearers at 8200. You want to get bearers at 6400, God bless you. Again, there could be very large put premiums out there on some of the stocks you might like. If you sell a put, you’re agreeing to buy the stock. Or, if you don’t get put in stock, you get the keep the premium, okay?
The thing is, is what? This is a time to investigate that side of the trade to see if it makes any sense. Again, if you had high PE stocks, they’ve lost their PE ratios, that’s why they are getting whacked more, on a percentage basis, than the other stocks: because the fluff has been taken out. They are normalizing interest rates, so that means they are going to be normalizing PE ratios. That means they are going to be normalizing the returns you generally get in stock. That’s the facts of life. You want to fight the tape? You’re going to lose a lot of money. The bottom line is, where we are right now? Start investigating the puts and see how big the premiums are, if you like the market for a rebound.
Again, you are catching the falling knife right now, so that is a dangerous thing to do, but my mathematics says somewhere around this 2400 S&P, could very well be a low point, so if we could get a nice big spike up in the VIX, and we get down towards 2400, plus or minus a bit, that could be the neighborhood where I would suggest you start looking at the long side, okay?
All right. Now let’s take a look at the bond market. The bond market. Okay. TNX, that is your 10-year note. Still hanging around; you see that tail? That tail might be telling you that the rates are going back up. That tail comes in at around 27.5, right? Now we are about 27-9 on the yield.
Now, how Hal believes the economy is still strong. I believe the economy is still strong. 3.7% unemployment, everyone is running around spending money; that doesn’t sound like a time for a collapse. All you’ve really done in the stock market is you took out the overvaluations and you’re normalizing the PEs, and you’re going to normalize the rate of returns, and we are getting to a stretch point, possibly, on stocks. Again, we’re at a stretch point here. It got very overbought.
The whole world was short the bond market. Why? Because the whole world knew rates were going to go up. When the whole world knows anything, you’ve got to worry about who is on the other side. In other words, when everybody was shorting these bonds, somebody was buying them. Or shorting these notes, right? And the moving averages don’t lie. Moving averages on this particular instrument were way up on the futures in the 122, 124 areas, and the futures went down 117, 119. That’s oversold, and now we’ve come back up, and now we’re not oversold, because we’ve come back down here to the 280, 270 area. Okay?
But the fundamentals are that wages are growing at 3% or better. Fed funds is around 2%. That is not a great relationship, and the prices index, because capacity is going at 60, that is a high number, and the tariffs are going to possibly make these companies raise their prices to offset the tariffs. So I think there is going to be price inflation surprise, and I think there is a wage inflation surprise, and so I am still a believer: rates are going back up. If you’re in fixed income and you’ve been holding bonds, obviously you got whacked very hard, and now they’re giving you some of your money back.
I personally would suggest that you look into keeping your maturities or your duration short: one year, two year, in that window. That is where you get most of the yield. You get 265 on a one-year; you get about 2.5 on a six month. You go out 10 years, you’re only getting 279, so why wouldn’t you keep it short until you have some evidence that rates are really going to go low, and I don’t think that evidence is here yet. So if you are a fixed income person, my belief is not to extend your duration too far just yet. Wait for more evidence that that 325 area on the 10-year is going to hold.
Again, if there is an inflation surprise, which I anticipate, then that would be a situation where these rates would go back up. And the fed is looking for one or two more hikes, possibly, and that is data dependent. What you can’t have happen if you are managing the fed, is you cannot have inflation on wages and prices going higher substantially than your fed funds rate, or else you can have some real problems.
Jake Powell knows that, because he has been in these markets for a long time, and he is not managing interest rates so that stock speculators and real estate speculators can make a lot of money; he’s doing it to have good employment, stable inflation, and a stable currency. That is his job. His job is not to try to get Amazon to 2500. His job is not to get your house to add another 200 grand on it. That’s not his job, and so when you get overvaluations and things normalize, obviously prices can pull back. That’s exactly what’s happening right now, okay?
All right. Now, the US dollar. Let’s take a look. My belief is that it is topping out in the 98 area. You see that 98 area? I think it’s topping out there. I could be wrong, right? But if we get under 96, that is going to be a yellow flag, or that is going to be a red flag. Is it possible that the dollar could roll over big time? Yes, it is. Particularly is he is slow on what? He is slow on raising interest rates, and I am correct that the inflation numbers may kick in.
I’m not setting up my whole life that if the inflation numbers don’t kick in, I’m going to be ruined, but I am respecting the idea that wages, when you are at 3.7% unemployment, wages can start getting heavy. With all these tax credits that they’ve got, and all they are doing is buying back their own stock, there is going to be a little bit of a groundswell to share some of that tax saving with the employees. At some point, right?
Also, again, people are going to demand more wage, because why? Because there is going to be a tight labor market, and if you want to keep your employees, you’ve got to pay them. That’s going to happen there, I think, on the wage front, because of the low unemployment, and I think you’re also going to see pass-through on this China tariff thing, because I think Trump is going to be stubborn, and I think China can see we are deteriorating, so what is the rush? Plus, maybe Trump has only got 24 months to go, so why make a deal with somebody who is not going to be there in 24 months? China is thinking in terms of decades, not 24 months.
Having said that, there is vulnerability possibly to the dollar, if we break under 96, then 94. If that in fact happens, then you are going to be looking at the possibility of gold having a much better environment, because gold does thrive when inflation kicks up above the interest rates. If you were there back in the early 80s when it went on that huge run, that was because inflation got way above the interest rate. Again, the GDX if the one that I have been focused on; it bottomed at 17. I have been thinking it might be worthwhile to accumulate between 17 and 20, but I also told you it’s got to clear 21, 25, to become a big investment. You see the 52-week high; if that gets taken out, then it opens the door for a much more substantial ride.
Let’s look at it on a 10-year basis. Changing your chart a number can help you get better perspective. You’re fishing around this thing; it used to be way up above 60 in this last decade. It used to be above 30 not all that long ago. In fact, the last time the stock market had big trouble, which was early 2016, look what this thing did. I think this thing is trying to creep up, and if it gets above the 23, 25 area, 30 looks like it could be in the cards, then outside chance of 40.
For part of a portfolio, it might not be that bad of a deal, because the popularity of this investment is very, very low, which means participation is probably very low, which means there could be a lot more people to come into the party. With Amazon at 2050, with Apple at 225, everyone is at the party, which means the most likely thing is people exiting the party. That is, again, just a little conceptual thing to think mentally. If everybody is into something, again, you could run out of buyers, or if the selling were to start, there is not a lot of liquidity on that side of the market. If people started wanting to buy this thing, and there is a good reason to buy it, who is going to sell it at the lowest price it’s been at in 10 years? Right? Right. Just keep an eye on that. It’s a sector that people aren’t talking about, and I think it is worthwhile to keep an eye on.
Let’s take … People are wondering, where could you have hid out and done okay in the last couple of three months? A couple of them were reach, so let me show you NLY, which is one that I follow called Annaleigh. You can see that in the last two months, where the market was taking … Let me go back and go to the one year graph. Get back to the one year graph so you can see here.
It pays 12% yield, which is a heck of a yield. PE ratio of 3.9, and you can see how it’s been doing in the last few months: it has been hanging in there between 950 and 10, so 994, and it is paying a heck of a yield. If you wanted to look at an ETF, Vangaurd has one. VNQ, and that will give you an idea of how that’s been doing. And this is a diversified read, so you’re looking at 5%, and you’re looking at a market that had come down, but it has been somewhat stable down here around 76. But it has come down. Annaleigh actually has been more stable.
The other one people have been hiding out is in utilities, and let’s see what that’s been doing. That’s been coming off lately, but over the last few months it has been fairly stable. Let’s take a look at that. It’s paying 334 on this particular ETF. There’s many of these. I’m just showing one as an example. As you can see, October, November, December, this thing has been between 120, 125, and it has been paying 334. It’s been pretty stable. So reach and utilities has not been a bad place to hide out during this period and get good income, or cash flow, off of the dividends.
Okay. Let’s look at some other ones out there, because I’m sure you’re into a lot of different things here. Let’s look at your energy. I’m going to look at some ETFs from Vanguard. There you go. In the [inaudible 00:19:31], and again, what makes this interesting to me? I’ll show you in a second.
I believe moving average [inaudible 00:19:37] time, not people’s opinions. People lie. Moving averages [inaudible 00:19:41] At any rate, you’re looking at getting 352 yield, according to the screen here. That’s not too shabby. You’re being priced at 7560, which is the 52-week low. You want to get bearers on energy, 109 is the 52-week high. You want to get bearers at 75, might be a little late. Let’s see how far underneath the moving averages it is, because if it is 20% or more, it’s time to start looking at the long side, in my view.
You’re at almost 100 on the 200 day average. That’s your 200 day moving average. It is inverted, so you’re downtrend, but the volume has been huge in the last 50 days, which means everyone is getting out, and you are now 25% underneath the 200 day average. Not today, while it’s making new 52-week lows, but I would be looking for chart formation: weekly low surrounded by higher weekly lows that would give me an indication that the selling is abating. If I get a significant situation like that, this would start being very interesting. But I would like a chart formation before I stick my head into a buzzsaw, because obviously people are getting out of this thing like somebody yelled out “Fire!” Of course, that is when people have a fire sale, right? Anyway, there is the ETF for the energy.
Next one here is health care. That was the place people were hiding out, but they started to nail that lately as well. Let’s take a look at the health care. You can see that; that was no place to hide out, right? 180 down to … but again, you are getting into a bit of an oversold category, and look at that selling, that volume. Way up there. You are looking at some heavy volume, some very discounted prices, and so again, health care is certainly not a situation where … There is price inflation in health care. There was, I think, a 4.8% annualized health care increase in the last report. That was a significant increase in health care costs, which should go into the drag companies like Pfzier [inaudible 00:21:32], etc., Bristol Meyer Squibb, and should also help United Health Care and other people like that. You’ve got a lot of different people there, and that has been whacked hard, and that would be a neighborhood to also keep an eye on as well.
It’s Christmastime, and so maybe the federal reserve is actually masquerading as Santa, because what they have done here is given you discounted prices on some very high quality companies. Maybe it is time to take advantage of Santa sometime in the next few weeks, or month, or whatever.
Next one here is going to be consumer discretionary. They were doing great as well. Here is an ETF on that, and I’m sure they have got whacked. Again, the consumer is still very much employed, so this is something to keep an eye on as well. It is down here making new 52-week lows of 143, and be up at 180. I’m sure the moving averages will indicate that you are getting a good 20% underneath the moving average. 144, 167, that gives me what? About 25. 25 divided into 167, I’m at 14, 15% underneath the moving average. Not extended tremendously, but certainly a little bit.
Everyone is talking about Nike today, so let’s give you a little Nike update here. Bouncing around. If you have a specific situation you want to talk about, I’m more than happy to give you my input. Again, you have to make your own decision. You have to make your own choices with your clearing firm, but if you wanted to use my information for informational purposes only, I’m certainly more than happy to help. [email protected]
Nike was up to 7429. It’s already lost a lot of that gain, and of course, Nike’s problem is just like everybody else: the market is in a downtrend. Let’s look where the moving averages are and see what the story is on Nike. The fact that it’s above 70, I think, is very good. If it cannot hold above 70, that is very bad. Here you go. You’re inverted at 72 and 74. Is there a reason why it stopped at 74? How about your 200-day average is right there? This thing starts trading back under 70, I would get the rain coat back out, because it looks like it could go and start raining on you again, but it did have a good earnings report, and the PE ratio is up at 57 now. You want to know the trouble of Nike? The valuation is not cheap. Right? Right. Not only do you have to have the right name, but you have to have the right valuation.
Let’s look at the financials, because everyone is getting bearers on those. Let’s look at City Group. City Group and some of the other ones that are international are getting whacked very hard, but they are getting into a situation where they are getting way off their 52-week highs. Look at the 52-week high. $80 on City Group. Where is it now? 50. Okay? Again, look at volume. They’re coming out huge. I would be looking down here for some type of capitulation where I see a low surrounded by higher lows, and then I might be thinking that the selling might be done.
Obviously the inversion of the yield curve is concerning to people, because why? Because they have to pay out depositors, and they’re lending long. If you’re lending long at less than you’re paying out your depositors, it’s hard to make money, and that’s why the inversion of the yield curve is whacking the banks pretty good.
People were touting these banks; every guy on TV touting and touting and touting, and it just was the worse advice you’d ever find. The thing’s gone from 80 to 50, and some of these people still won’t give up their blankie, meaning they still won’t give up their opinion that the banks are the place to be. I don’t know if they get quotes or not. Looking at that, how could you possibly be telling people that it’s been a great investment? At best you might be able to step in here and find some value at a very discounted level.
The tech sector, Microsoft is one that everybody owns, it seems like. Let’s take a look at some of the big guys and see what’s going on, and then I’ve got to sign off. Microsoft, 99. Where is it as far as CDP ratios? 41. It’s a high PE ratio. It’s a tough racket. We’re normalizing interest rates, which means we are probably going to normalize PEs, which means we are going to normalize the growth in stocks. Again, some of these companies with the high PEs are vulnerable, and this is one of them.
Obviously, we’re getting underneath 100. Can you see that’s not a good place to be? [inaudible 00:25:52] that Microsoft could accelerate to the down side. How can you do something? There are hedging tactics like collars, and hedging tactics like married puts. They have a use, and they have a risk. Don’t even think of using them until you understand the use and risk. If you need help on that, again, you can let me know.
All right. Another one that everybody seems to own is Apple. We already went over that. It’s trying to hit the 150 area. If it blows through that, then you’ve got more downside to come. With regards to Amazon, that was something that I was telling people on this broadcast, that if you are up in the 2050 area and your moving average is at 1500, you are going to roll over, and you better have some hedge on, or else you’re going to lose a lot of money. Can you see we have the double top up there? 2050? Let me get a better screen up for you. Top, you took out 1900, that was it. You’ve got to hedge yourself from time to time.
Again, another thing to consider if you can’t take the heat in the kitchen right now, you think there could be big more to go, you could consider using long term equity options like leads to replace stock positions. That gives you a position while we’re down here, and it also gives you limited risk when you go to bed. That could be very comforting to certain people. Again, long term equity options, replacing stock positions to reduce cash risk, is a consideration to some. If you don’t understand what I say, [email protected]
Again, for those of you who come regularly, it is good to talk to you. I wish you a merry Christmas and a happy new year, and also I encourage you to let friends and associates know that the podcast is available, and so that they can take advantage of it. Again, we went over quite a bit here today. Again, we will be off next week and will be coming back right after the first of the year.
Again, for stocks, look for the 24 area, plus or minus a little bit, to be an area where it could have a capitulation. Again, once it does, look for a low surrounded by higher lows to give you an indication that the selling has abated. Right now, we’re making new 52-week lows in many things, so it’s too early to make that statement, but we are getting very far away from the moving averages, and historically that has told me that we should be looking for a place to enter, not exit, and not for a bull market, but for a very substantial bounce.
Okay? All right. It’s very good to be with you again. I’m Jim Kenny, and again, this is the weekly update for the optionprofessor.com. Good holiday to everyone, and again, we’ll be back with you right after the first of the year. Be safe and enjoy your holiday time.
Recorded on Friday, December 14th, 11:30AM ET:
Recorded on Friday, December 7th, 11:30AM ET: