Update 93: Stocks-Reversion Rally Over? Not So Fast -Read On
May 16, 2020 Option Professor OPINION & OBSERVATIONS
Hey everyone…another exciting week for stocks as we saw S&P go thru the 2800 level (every Tom Dick & Harry had their stops there) and drop to the 2766 area only to close back above 2850. THE BIG QUESTION???…Did we peak @ S&P 2975 area below our LEVEL 3 resistance area (1yr & 200 day M/A plus 61.8% of 3393-2174 decline)? We say NOT CONFIRMED YET….Why? Simply because the 3 yr moving average @ S&P 2790 has not seen a close UNDER that level & all 3 moving averages (1yr 2yr 3yr) have not crossed to the downside & essentially are still pointing UP. So the EVIDENCE we see still suggests that this is looking like 2016/2018 where the market resumed its UPTREND within months rather than the years it took in 2001-2008.
HOWEVER…We recognize comments from Tepper-Druckenmiller & Buffet about VALUATIONS & PREDICTABILITY…we recognize the risks are that company earnings could lag as about 50% of workers earning less than $40k are jobless..almost 40 million total…we see retail sales dropped 16+%..the most on record…about 50% of all companies can give NO forward guidance & many companies are suspending dividends & forget about buybacks…landlords (many small guys) are getting stiffed on rent/mortgages which trickles down to revenues for the states (NJ said state revenues DOWN 60%). Governments & People & Corporations are taking on HUGE debt to BRIDGE themselves…always a risky proposition. IF IF IF we squash the VIRUS fear & Companies have a VIGOROUS RETURN to EARNINGS due to LOWER levels of COSTS due to less employees & real estate….& we clear SP 3000…BE Bullish…Be Very Bullish. The next few months are key for PRICE & TIME….SP 2800-2500 will turn these KEY MOVING AVERAGES down & set the stage for a drawn out recovery (Powell’s Fears)……S&P 2750-3000 will support the Big Year End Rally theory of 3200-3400 & new highs next year & SHOCK many who will be left wondering how we can have HUGE Unemployment & Rising Stocks.
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Stock Market
NEXT WEEK is a big week for earnings on retailers such as TJX WMT TGT and many more plus NVDA & DE. This week saw big moves down & up in FAANG stocks spec names like DKNG (on our radar also CHDN & PENN). Trump & Co. think it’s a good time to escalate tensions with China as they mess around with Huawei & talk about bringing our supply chains “home.” China responded against QCOM & Trump launched new restrictions on China investments in USA start ups & Telecom Infrastructure. Foxconn’s profits plunged almost 90% due to Covid-19 which may be bad news for AAPL. SMH sold off pretty good on the news & we’re watching this fluid situation as if Mega Cap Tech & Semis head for the hills..maybe we should too. VIRUS stocks (ZM PTON DOCU IBB) had decent moves this week …but these EXTENDED Sectors may be candidates for collars ect to PROTECT your Equity against Declines while allowing for more Upside. Also: some are considering out of the moneyy cash put writing on stocks they like at lowe levels and hedging upside using the premiums to buy call spreads. Too much to cover here…Questions—email us at [email protected]. We follow sectors & ETF’s in our work…some of the ones in various stages of uptrends are VOO MGK VGT SMH VHT VCR VONE VOX VTI VDC VIG…while others have had rebounds of varying degrees but have NOT regained their longer term moving averages.. VPU VNX VAW VYM VDE VIS VFH Plus Value & Small Caps…some believe without Banks & Industrials participating..it is tough to sustain a bull run….many in the laggard sectors are trading below book value but in this environment….tough to figure value..use Cape Ratios?
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Bond Market
Run for Cover!!…there’s an AVALANCHE of debt issuance hitting the markets ($1 Trillion Corporates & $3 Trillion Govt). The FED started buying ETF’s this week and of course Boeing getting $25 Billion sold in their condition some say was confirmation that the lows are in. Powell & Fauci have something in common…they have to deliver reality with the dose of hope. Powell said this week that the recovery may take a long time as it will be of little solace to the majority of Americans if the FED/Administration are Successful at REINFLATING asset prices at the Expense of the Unemployed. WARNING…Duration may have significant risk to it as INFLATION would be a killer to low yielding long term Bonds….if they bring SUPPLY CHAINS back..does the costs of Tech rise?….is FOOD Inflation here to stay & with all the cuts in oil cap expenditures/rig closures spell HIGHER fuel costs? C’mon we’re going after a $4 Trillion dollar fiscal deficit & & a $10 Trillion Fed Balance Sheet & Paul Tudor Jones is HEDGING with BitCoin….this game of market crash—Rates @ Zero—-TINA—force Grandma into risk is crazy. Trump wants NEGATIVE INTEREST RATES ass a “present” to the people…who’s he kidding…he wants the public to get in on the Govt scheme of unlimited borrowing with little interest (cost of service actually down) to boost real estate & financial assets/spending. Remember Atlantic City-Big Debt/Lagging Revenue=Busted! Thankfully; Powell wants no part of negative rates (yet) as he sees that once you get into that hole….you can’t get out…Europe & Japan are drowning. Our radar VUSFX VFSUX VMBS VCIT VCLT PFF..watching high yield HYG VWEAX….Follow the Fed but carefully.
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US Dollar/International
Seems like the Dollar has turned into the Hong Kong Dollar (used to be fixed at 7.7 to 1) as we remain in and around the 100 number for weeks. The $$$$ range is tightening between 101 & 99 approx…..we closed at 100.36. The Japanese Yen & Euro have failed to surpass their 50 & 200 day moving averages so for now the path of least resistance for Yen & Euro are lower while a solid move thru 101 could ignite a dollar rally. The Aus $ & Can $ have held their 20% bounces as oil & Gold have improved…maybe more if commodities rally Internationally; On our radar BABA JD TCEHY BIDU but Emerging Markets & Europe still look dead in the water.
Crude oil
Well as we’ve said…capital exp cuts/oil & gas rig counts (record lows) plus Fracking Operations going from 1158 to 92..throw in Saudi/OPEC cuts and our base case of L shaped supplies with V shaped demand makes 25 to 40 range by year end & 40 to 55 range for 2021 look better by the day. CVX XOM WPX COP SLB OXY (debt?) VLO MPC ect all on the radar.
Gold Silver Copper
Well we added exposure to the Gold stocks this week as it appears to be breaking out to the upside on GDX GDXJ SIL SILJ plus spot Silver breaking ABOVE 16-16.50. Having said that; these are add ons and the risks remain that the Gold is OVERBOUGHT over its long term moving averages & bullishness (coins $135+ over spot) is concerning…so we don’t fight the tape..but a break even stop on the extra positions is kind of our thinking. A strong dollar & CPI readings that are declining not normally Gold’s cup o tea Copper backed off the 2.40 area which caused SCCO & FCX to fade..CHINA??
Soybeans Ect
Still no real action to report as window is tightening between 860 & 820 & now we must see if the planting-growing-harvest seasons will deliver news and or if China’s bid ever shows up…until then we monitor prices in the thought that under the right circumstances volatility will create risk & opportunity….we also have Sugar prices on our radar..for now..no legs yet.
REMEMBER There is a substantial risk in short term trading & 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.
