OPTION PROFESSOR WEEKLY MARKET UPDATE OPINION & OBSERVATIONS
OCTOBER 4, 2019
THIS WEEK & NEXT WEEK
This week the market saw the VIX jump above 20 and the S&P 500 test the lower 2800 area and pop to 2950 after the unemployment rate dropped to 3.5% and prior months revisions saw more jobs added. Wages were not gang busters (maybe companies should slow down buy backs and pay their people?) but not terrible so it looks like everybody’s got a job and 2/3’s of economic growth (the consumer) is ready to roll. We’ll see. My base case has been and remains that the price range on the S&P 500 between 2950 and 3100 is a SELL zone. The 2 indices that were encouraging me to adjust my base case were the Russell (RUT) & the Transports (DJTA) but both fell out of bed in the last 2 weeks and even with the huge bargain hunter/short covering rally which was Friday…..they could barely manage a 1% gain. Next Week the consumer comes into play with announcements on consumer credit, consumer price index and consumer sentiment all on the docket. The FOMC minutes are Wednesday..fly on wall.
Big snap back late Thurs & Friday however RUT & Transport still lagging badly. Sentiment gauges such as the VIX @17 still elevated and not in the bullish sweet spot under 14. Earnings will be flowing soon enough and we will see how revenues and profits are plus the all important guidance. Semis are back testing the highs as well as AAPL which his hoping their new gadgets and services will reignite the consumer and possibly benefit from an increased valuation on earnings. Speaking of valuations…it’s been hurting the IPO market. companies like NFLX & ROKU and even AMZN which uses to trade at 100+ P/E and now around 70 & testing 1700. Airline shave been whacked big time and the Financials rebounded after losing some of their luster. Big head fake in the energy sector when oil price went back in the tank but strong dividend payers like RDS.A & KMI are hanging in there so far. Defensive names where investors had been hanging out REIT’s & Utilities also caught a bid Friday despite a risk on vibe. Gold shares got back on the bicycle a bit this week although my base case is that the metals in general are consolidating/pulling back to work off excess. Until the RUT & DJTA and the VIX can get and stay under 14…I still feel cautious about October….USA-China talks this week!!
Well can we all be right at the same time?? Yields have been dropping like a stone for the last year across the board. Does that mean the economy is booming? If it is not booming then what the heck are stock market indices doing trading within ear shot of all time highs? Good questions and the answers are forthcoming in the form of earnings, profits, guidance and inflation. I just read Fannie Freddie & FHA have balance sheets near 7 Trillion which is 30% ABOVE the highs of pre crash plus the income to payment ratio is over 50% in many cases. If we ever do see a legitimate slowdown $$Trillions of Junk, negative and low yielding plus now mortgages could have liquidity issues…also if worldwide stimulus packages and trade deals materialize & stick….GDP’s could fly. Treasuries have been the place to be and 1.25% 10 year could be in play if we take out 1.4%…above 2% the tide is changing.
US DOLLAR As I’ve said my base case is the Dollar (DXY) is in ball park range of 99-95…last week we peaked out above the top area but I said let’s wait a week and see…this week the peek turned back but we must be on alert if a panic into the dollar occurs.
CRUDE OIL Last week I reiterated my base case in that unless we can sustain prices above 60 or under 50..the price of oil is stuck. I am quick to point out that the moving averages converging around 54-56 have been breached but the double low around 50 has survived. ARAMCO is preparing for a potential IPO so betting on a crash in Crude with no recent price evidence sustaining sub 50 is off.
GOLD & SILVER My base case here is that we broke out above 1350 and accelerated toward my SELL zone of 1520-1580. We continue to digest the move and saw pullback under 1500 Gold & 17 Silver which I believe could give more bargains ahead. A break above 1600-reassess.
SOYBEANS My base case was that the big sell off earlier this year created some very trade able lows and with the election and a China deal coming in the weeks or months ahead….the long side would be interesting on a break above 9-950-10..well the first level went.
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