Update 98: Stock Market-Hit the Gas or Pull Rip Chord-Read On
June 19, 2020 Option Professor Opinions & Observations
Well…Do you like old Westerns like High Noon? You could be on the verge of seeing the Stock Market version soon. In the last TEN DAYS we SHARED with you two (2) very valuable observations. #1 This is where we were approaching SP 3250 and our support zones and said that our SUPPORT ZONES were down at 2975 (ball park 61.8% retracement 3400-2175 & former tops of 2017 2018) and 2790-2800 (the 50% retracement/all clear signal). The idea of looking toward hedging (covered calls-collars-married puts) looked reasonable to us. #2 We SHARED with you that SUPPORT ZONE so that one could look to BUY against those levels and we certainly got a ROBUST 180 point RALLY after hitting the 2975 neighborhood. Great Call….. WHAT ABOUT NOW? We have the valuation camp (Lee Cooperman & Warren Buffett ect) having a difficult time reconciling the prices with earnings & growth estimates while the more Quant camp (Mike Wilson-Kolanovic-Tom Lee) having been very bullish in the last 3 months based on things like rebalancing/selling capitulation/the belief that the restart would be sooner/consumer resilient-robust/earnings surprises derived from less employees -real estate. THESE ARE YOUR TWO GUNFIGHTERS. You know which one we have been betting on if you’ve read our UPDATES. Starting in March we told you of our high beta portfolio of VGT MGK SMH VCR and they have gone thru the roof. We also told you of income ETFs like VCSH HYG PFF & funds like VWEAX VUSFX VWLUX and more. We also told you of epicenter stocks like CAR MAR STWD CCL GM JBLU QSR BA HAL & more that had huge rebounds PLUS Oil having a L shaped supply & V shaped demand with prices going toward 40 bucks per barrel…..Great Calls. OK>>>BUT WHAT NOW?…With rates at almost ZERO in money market..11 Programs by the FED….restarts going….1-2-3 YR MA’s are at 3009-2903-2813 RISING c& INVERTED TO THE UPSIDE Plus $1.5 Trillion infrastructure package, UNDER investment by active managers & value guys & an Administration clearly focused ONLY on November to hell with LONG TERM consequences…the bulls have a good story BUT we need to CLOSE the gap @ 3200+ which OPENS THE DOOR to closing the GAP @ 3300 & NEW HIGHS in JULY as some have forecast. The BEARISH CALL is a WINNER IF we see SP take out 2950 & 3018 (50 day & 200 day MA”S which are INVERTED TO THE DOWNSIDE. As we told you LAST WEEK…Our BIG CONCERN is the DOW TRANSPORTS & RUSSELL 2000 FAILED to get above their LT MA’s (DJTA 10,000+ RUT 1540+) which suggests this is a FUGAZI RALLY not based on Earnings GDP & Jobs but OBSCURING. This would set up our NEXT HIGH NOON @ 2790-2800 neighborhood. RIGHT NOW WAIT …we should be ready to HIT the GAS or PULL the RIP CHORD SOON.
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Stock Market
FRIDAY saw remix- quadruple expiration (stock-index-S&P futures-options) NEWS that Apple was closing some stores temporarily put coffee in the booze bowl Friday as Thursday’s 1.5+ Million jobs lost didn’t disturb traders.Many of the epicenter stocks that had big rallies but are UNDER their 1-2-3 yr MA’s have lost their steam…Florida’s virus spike not welcome. The ones that have been best for us are the stocks & sectors who have not only rebounded but have gotten ABOVE their 1-2-3 yr MA’s and have just run & run& run. We have a focus list if you’re interested shoot us an email. The BIGGEST Cash flow recipients YTD have been LQD VOO VTI GLD & QQQ not a bad portfolio as well. The IPO ETF which works with Initial Public Offerings has gone from ball park 20 to 42 in that last few months as stocks like ZM & BYD PTON TDOC DOCU & others have made an IPO banner year. Many believe competition w/ INTERFACE will actually have MANY Winners. TECH (MSFT New Highs) SEMIS (NVDA) Biotech (IBB XBI) as well as CRWD (cyber security & CRM move up. Also; AMAT LAM PYPL MU TME BABA Up. Longer term ITB could hit the double whammy of cheap $$ & new demand. While JP Morgan report credit card activity jumped 4.7% (fueled by Govt $$) the BIG RISK for banks is the June 25 result of their STRESS TEST because they added a COVID twist that centers around BUYBACKS & DIVIDENDS and if they must cut or eliminate either or both..their landscape could change; if not then the selloff could be a huge BUY opportunity ass the FED probably doesn’t have a vested interest in spearheading a mass exodus out of shares. SP LEVELS of support we see as 3080-3050-3018-2950…end of Q2 squaring?? TERRIBLY SAD NOTE: A young man ended his life who apparently was trading at ROBIN HOOD (13 million customers/average age 31 yrs old). They NOW are making changes to enhance SUITABILITY & EDUCATION…Too Bad.
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Bond Market
The Fed announced that on June 16 they would buy bonds and they did just that…of course a good bit of front running seemed to go on and HYG sold off by the end of the week and FAILED @ its 1-2-3 YR MOVING AVERAGES which come in at 85-86 (the highs)….INVERTED TO THE DOWNSIDE will it tank like DJTA RUT…stock sell off coming?? Stay Tuned! As we told you TLT had a blow off top at 180 & subsequent tank to the 150 handle. Our belief is a WIDE trading range could establish now 180-150 as things settle down. International Fixed Income is starting to stabilize a bit VWOB BNDX so there may be opportunity there. Munis are stable with expectation of Fed help BUT Junk/Leveraged Loans hardly out of the wood. IG quality pays not much so yield hungry still linger in HY. What should KEEP YOU UP at night in the debt market is that some believe the 10yr Treasury should be SP dividend yield plus GDP or 2%+2% = 4% yield…it’s about .70% so if these people ever become 1/2 right…TIMBER.. Our focus list has been our friend
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US Dollar/International Markets
As we told you in PRIOR UPDATES; we are NOT on the SECULAR BEAR market for the Dollar & in fact told you that 95 was the BASE. THIS WEEK we put a 97 handle back on it (close 97.66) and while still substantially LOWER than 2 months ago…the Yen-BP-Aus$-Can$ have all FAILED to turn their MA’s around and this week the rally in the EURO went the way of the Buffalo. Time will tell if sustainable foreign currency rallies will materialize Stocks are another matter..it’s time to keep a close eye on Germany Brazil Japan China Australia & Canada as they are attempting to get ABOVE their 1-2-3 yr MA”s…if they FAIL at these levels…back in the soup they go. Mexico & India have more substantial ground to go so you can put on your rally cap
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Crude Oil
The Saudis export to USA fell to a 35 Year low and prices have been stable between 35-40…BUT our target was about $40 upper band …we expected a V Shaped Demand & L Shaped Supplies (Rig counts tank/OPEC cuts/Fracking done) which is EXACTLY what has occurred. NOW the oil stocks that had huge JUMPS as we expected and told you about MONTHS ago have faded so we see a lot of DEMAND returning and IF we underestimated that we could BLOW OUT to the Upside BUT most all oil companies are way under their 1-2-3 yr MA’s….something to consider..REPLACEMENT TRADES…a strategy where you reduce stock exposure and replace it with limited risk Calls.
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Gold Silver Copper
Gold & Silver have been STALLED for 2 BASIC REASONS. #1 In the case of GOLD…the 1-2-3 YR MA”s are 1569-1420-1380 all RISING & INVERTED TO THE UPSIDE…which means to us we are in a BULL MARKET with a lot of potential runway BUT we are OVERBOUGHT. #2 THe MONEY SUPPLY has EXPLODED (good for Gold) BUT MONEY VELOCITY has tanked (bad for Gold)…it’s difficult to have INFLATION with that relationship…you need VELOCITY to RISE. So do we believe in holding LT exposure ABSOLUTELY.. are we CONCERNED this & by the popularity by retail coin buyers & ETF Money flows ….yes….GOLD SHARES GDX GDXJ ect) are holding supports and are still way UNDER their HIGHS from the last run at $1900…not sure if OK or telling us something….if we BLOW OUT 1800-1900 & GDX ABOVE May’s HIGHS…then the train is on it’s own schedule….but until then….wait a bit. Silver got ABOVE $16- $1650 and looks like it’s ready to ROAR as LT MA’s are at 17-16-16.23..a little sloppy by OK…the BIG KAHUNA is 19-21..above that level and you wanna be there. Copper has done pretty much ass we suggested for months which is move toward resistance @ 2.50 and after breaking thru try to make a run at 2.80…LT MA’s are at 2.55-2.66-2.80 so INVERTED to the DOWNSIDE albeit crossing over the first two…if we turn down from here…no good…getting ABOVE and sustaining +2.80 needed.
Soybeans & Sugar
Both Markets have turned up off their lows and have maintained their gains pretty well HOWEVER…more heavy lifting ahead….need to get those pro China buying stories going again…maybe crop interruption via weather to get above 10 buck soybeans to get acceleration…..LT MA’s 8.80-9.15 areas. Sugar prices popped out of the 9-10 area and some tell us commercials have been leaning bullish…the turn formation off 9 looks good to us but again LT MA’s loom ABOVE at between 12.20 and 12.70…by late summer we may either get volatility enough to resolve these markets one way or another.
REMEMBER… There is a substantial risk of loss in short term trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.
