December 20th 2019
Opinions & Observations
This Week/Next Week….We added almost 75 handles to the S&P 500 this week not to mention big plus moves on the Nasdaq, Russell, Transports and other stock indices as well. The news has been encouraging (except impeachment) as wages took a jump and anything the consumer gets in his pocket the market assumes they will spend. After a lackluster 2019 in earnings and revenue the market apparently believes those numbers will climb in 2020 and that valuations can remain relatively high as interest rates rising much will not be problematic. How much of any good news we will see in 2020 is being discounted now.. Who Knows?….but clearly this is a rising tide lifting all boats (even boats with holes in them like CCC debt) so my best take is to let the market run to where it will run and when the numbers fail to make new highs on a daily and weekly basis….reassess. Next Week appears relatively quiet for news we anticipate and holiday shortened trading….be aware…Happy Holidays!! Questions? [email protected]
Do you get the idea that this Dow wants to get to 30,000 sooner rather than later? Certainly the constant upswing we have seen makes one feel that way. The VIX registered its recent lows in late November while the indices have continued to rally. I have not seen the RSI numbers and wonder out loud if the RSI and other momentum indicators are making new highs with the market or if we have a divergence. Lately; bad mouthing the market has been like badmouthing Santa Claus and very expensive lesson that has been learned…don’t fight the tape…we have been in uncharted territory now for awhile but I think it’s important to note the S&P 500 has moved over 270 points above its 200 day moving average while Apple has moved almost 70 bucks or 30%+ above its 200 day moving average….what does that mean?…maybe nothing or maybe at some point we could be reminded that the trees don’t grow to the sky and the higher something gets does not necessarily mean it is getting less risky price and value wise….so as stated before maybe let prices run and when they stop on a daily or weekly basis and you get a point to defend-consider hedges Questions? [email protected]
Yields have been rising a bit on treasuries this week but still below 2% a waterline for me along with 2.8% the highs of 2019. The big move we see lately is the spreads between high yield corporates and treasuries really tightening up (remember high yield is also called junk for a reason and treasuries are backed by our government who can print money) so that is a sign that people are stretching for yield and dismissing the underlying risks of the issuer to some extent. The alarming dynamic in CCC rated (below investment grade) debt that has been rallying big time and so to say it is risk on in high yield is an understatement….. Should a disruptive event occur sending this crowd scurrying to the sell window….well we’ll see how the liquidity holds up. Forecasts for next year appear to run the gamut from yields on 10 yr Treasuries rising a bit to a significant decline on weakness. It seems some believe that relatively short term corporates and intermediate term munis are worth a look.
The dollar rebounded a bit this week and ends up with a 97 handle. As stated here many times the trading range is 99+ and 95 and the market has vacillated between the 2 points most of the year. The 50 day moving averages is about 97.80 and the 200 day moving averages are about 97.68 so if we can sustain above those numbers the the dollar could surprise on the upside while if we take out 95 and the averages cross and turn lower than inflation, higher metals and commodities could be in the cards.
Gold still meandering between our initial support zone at 1450 area and 1500 while Silver & Copper fared better specially Copper which seems to be benefiting from the believe that China’s worldwide initiatives will require increased consumption of Copper. It seems some of the miners have either rallied in the last month (FCX) or are holding their 200 day moving averages (GDX, GDXJ) As we move into the new year something could happen to instigate a break one way or another….bulls & bears…who will win?
Clearly the Bean Oil has had an easier time breaking thru resistance zones and matriculating to the upside in the last few months while the Soybeans had taken out some technical resistance at 9 bucks but has had difficulties surpassing 950 and of course 10. Reports have shown the farmers have received their get well soon money from the government but many suspect that the money has been used to pay down debt & rainy day reserves. Also Phase One China purchases are somewhat known. It may take progress reports and weather realities to ignite prices further and that is in the offing…we’re watching…but prices appear mixed.
REMEMBER There is a substantial risk of loss in options and short term trading and it is not right for everyone. Consult your brokerage firm, broker and advisor to discuss your suitability. Past performance i not necessarily indicative of future results. Use Risk Capital.