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December 11th 2021 Option Professor Opinions & Observations
After a week in Hawaii…..good to be back updating you on the markets…glad we stayed connected as our buy signal went off at VIX 35 area and SPX 4500 area about the time we were @ Mai Tai Bar @ Legendary Royal Hawaiian Hotel:) Many investors have had tougher times this year because they chased high valuation momentum/meme trades or did too much trading in their accounts or most likely for most…they were way UNDERINVESTED due to lack of a discipline. We do our best to follow trends (moving averages-RSI’s) and look at OVERBOUGHT/OVERSOLD areas to TRIM or ADD. RIGHT NOW..we are looking at the Growth to Value Ratio which is near the highest level since about October 2000 and may be plateauing. Baked into current prices is a Fed slow withdrawal from stimulus and a consumer who still has lots of money to spend. As we go to 2022; what’s not baked into prices is Inflation in wages & rents….Faster taper & rates normalizing by the Fed…..Valuation compression/Earnings slowing…COVID..and Geo-political risks-China-Russia-Iran. We have been very correct on 2 very important things this year…NUMBER #1..we have maintained that the 10YR Treasury yield PEAKED at 1.75% in March and TLT EDV prices bottomed and until those March lows in prices and highs in yields are taken out….we have viewed every spike in yield as a gift. Even now; after we have thrown record inflation & GDP growth and Fed tapering at this thing…we still have the March values intact. WHY?…because the Fed works on short term rates (the 2yr Treasury has spiked in yield) and the Fed wins its wars (remember unemployment in 2020?) and they are now at war on inflation & excess valuations & pricing (Biden is getting murdered on inflation in the press). Short term rates rise (if they go above longer term rates that’s inversion which leads to recession) and it can choke off inflation at some point and that is why the 10yr & 30yr Treasury aren’t moving as the market believes the Fed wins again and inflation levels will abate. The world is round…bottlenecks & shortages don’t last forever nor does unabated price rises and demand. NUMBER #2…the second thing we have been good on.. we have believed that when the VIX spikes to the 25 to 35 area; we get a tremendous buying opportunity which is followed by a quick rebound to new highs most times a couple of weeks to a month. We have a seasonally strong period ahead for the next 6-8 weeks with liquidity coming into stocks after Jan 1 and Q4 earnings which should be dynamite. After that; the air may get thin and the move to the big names (AAPL AMZN GOOG FB MSFT ect) may continue but be joined by financials, health care, staples, dividend payers & dividend growers as Will Rogers old phrase ” I’m more interested in the return OF my money more than the return ON my money” will be the investor’s mantra before the end of 2022.
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