Option Professor Report- Stocks Sell the Fact & Valuation Compression-Must Read
April 30 2021 Option Professor Opinions & Observations
Greetings!….We spoke in Mid April on the run up to S&P 4200 and rallies into earnings that HEDGING tactics may be in order. These tactics included covered call writing, protective collars, married puts. trimming and replacement trades using calls & call spreads. If you are unfamiliar with these strategies and do not know how to adjust these tactics once the market goes up or down…we suggest you go to optionprofessor.com/subscribe and get educated and ask your questions. Last week we said that we may in a binary situation at S&P 4200 in that if short term peak growth and peak earnings plus valuation compression were to prevail…then a correction spoke of by many big firm talking heads could occur. While this appears to be the case after this weeks price action….like college football announcer Lee Corso says….NOT SO FAST!…..we say this because IF Covid vaccinations start hitting 40%+ and the reality of open ended Fed accommodation plus fiscal-monetary- human (pent up demand) stimulus & household liquidity comes roaring back in May….the move to S&P 4300-4500 is not off the table but obviously must blow out the highs created this week first. Nine months ago we didn’t have a vaccine nor much of a steep yield curve nor a VIX UNDER 20 but we said they were coming. We said the Value stocks, Dividend paying stocks, Banks, Energy, Industrials, Materials, Consumer Discretionary ect. were the place to be. Now 95% of all S&P 500 stocks are ABOVE their 200 day MA’s & 90% are beating earnings estimates due to OPERATING LEVERAGE we spoke of long ago. Inflation numbers are picking up and we expect will expand (but with terrible money velocity may not last) and the yield curve will steepen by the June Jackson Hole Fed meeting (5yr-10yr spread is at 75 and should be 100-125). Where does investor positioning make sense now and what markets around the world may advance as they unlock and get vaccinated? Good question huh? Well we invite you to our site optionprofessor.com/subscribe you can see our PORTFOLIO ROADMAP & FOCUS LIST and get weekly updates!
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Stock Market
Personal Income jumped to a record and some say there is a Silver Tsunami coming of people turning 60+ who may make RV’s, Boating (owner/part owner/and mountain bikes (outdoor activities a fertile ground. High Valuations were hurt by RISING RATES which may continue. Apple & Autos may be getting hurt by the chip shortage as AAPL wanted no part of the 140’s & GM wanted no part of the 60’s…let’s see. Drug companies like AMGN MRK PFE JNJ BMY got whacked but some say buy the tip-dividends and valuations. Industrials (BA HON) faded too but that may be short lived. Ditto home construction (ITB) which is on fire as people don’t want to sell their homes and millennials are tired of their parents basement:) . Q1 & Q2 comps on earnings are a breeze as the first 6 months of 2020 were a disaster but no problem for the national monopolies such as GOOG FB (search/social media) AAPL (tech) AMZN (e-commerce) MSFT (cloud) FDX UPS (delivery) among others crushed it. People seem to be eating out (QSR MCD YUM YUMC DRI) and Consumer Discretionary may not be done yet (VCR). Elective surgeries are coming back (SYR MDT) and the proliferation of streaming hurt growth at NFLX. With movies back on a roll and amusement park reopening.. a peek at DIS CMCSA SIX AMC makes sense. There is a lot to consider and not all of it is good. The Merry Month of May (Camelot) promises to be a potentially wild one so educate yourself! Go to optionprofessor.com/subscribe and learn what we feel are solid asset allocation choices right now.
Bond Market
Rates started to drift back up as we got very strong (expected) data and the Fed has made itself as clear as a bell. They are outcome and data driven and so forget your theories (dot plots) and focus on UNEMPLOYMENT INFLATION & SUSTAINED INFLATION until further notice. They put this plan together over 5 yrs and are not going to throw it out the window like a speculator. As we said above; the 5yr – 10yr spread suggests it should widen which could mean a drift higher in yields. Steeper yield curves and a strong economy flows right into our scenario of where to position for INCOME. Junk Bonds had the biggest month ever in April and the banks have been issuing bonds like crazy (betting on higher rates?) Our best guess is that tight labor markets may fuel wage inflation and steepen the yield curve along with strong data. This is a wave that is really just beginning with a lot of runway. Some feel population growth is shrinking, aging baby boomer continues, technological advances & globalization goes on to lift all boats…so we invite you to go to optionprofessor.com/subscribe & LEARN how to find INCOME thru DIVIDENDS Preferred Munis IG HY EM & More!
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US Dollar & International Markets
Our view on the Dollar (DXY) for that last year was that 100-104 was the peak and a sell off occurred when our rates tanked taking away our yield advantage. In comes a rise in rates in Q1 and all shorts got pinched as our yield advantage returned as we held 88 and went 93-94. We then said the break under 91.67-91.53 was no good as we could see a Golden Cross to the downside. We sold off and this week bounced up to close at 91.29 DXY. If we clear 91.70 & sustain a move back to 94-96 is possible buy our feeling is with the recoveries later this year in Europe and EM plus the deficits and Fed policy may force the Dollar to slide further. Internationally; we have strong opinions in Europe ( UK Germany France Spain ect.) & Asia plus Emerging Markets-Mexico Brasil Chile–there is a lot to LEARN about here. Go to optionprofessor.com/subscribe and LEARN what the Option Professor sees for opportunities right now.
Crude Oil/ Natural Gas
Crude Oil is benefitting from expectations of a demand boom worldwide as we reopen the economies. We have been bullish on this area since LAST YEAR so no surprise here. XOM & CVX both made money & CVX hiked its dividend. Always back & forth action but from the drillers to the servicers to the refiners we have ideas to share with subscribers. We told you weeks ago that Nat gas bottomed at 2.50 (closed at 2.94) and LNG at 70 (closed 77 1/2) so we’re happy! Take the time to go to optionprofessor.com/subscribe and LEARN what’s on OUR FOCUS LIST!
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Gold Silver Platinum Copper Bitcoin Ethereum
Well one metal we saw this week made RECORD HIGHS which was Palladium which we hope is good news for platinum as they compete in the catalytic converter space. We told you a TRADEABLE low for Gold Silver Platinum happened in March at $1675 $24+ $1000+ and rally they did. NOW we need to use the Missouri slogan (The Show Me State):) We need to clear the highs of April to keep this turnaround alive. Good News is the inflation numbers are picking up and the FED will not raise rates anytime soon. Bad News is MONEY VELOCITY is a joke (low) and you can print all you want but if people deleverage and save and avoid credit card use/loans (they are)…then inflation will be TRANSITORY. We still don’t know how much Crypto stealing from the metals as a store of value but maybe more than we think. We do expect big things later this year and later this year is coming on fast. We follow the metal mining shares and other ideas for subscribers. Copper is the Kingfish this year as demand from housing, infrastructure and EV’s outstrips supplies by a lot. Be careful up here as we have come a long way.. we told you about FCX & SCCO last year-BOOM! We told subscribers about Bitcoin (GBTC) and Ethereum (ETHE) and the year after halving is boom times BUT to use 30%-50% drops (we just had one) as entry levels RISK CAPITAL ONLY. We think ETHE is a double play on digital currency and programmable block chain. This stuff is backed by confidence so if people ever lose confidence it’s over Go to optionprofessor.com/subscribe and LEARN our views and forecast & our FOCUS LIST & ask questions as well!
Soybeans Sugar Coffee
We told readers about these bull markets since last year and now we have BACKWARDATION in some of these markets suggesting very tight supplies versus strong demand (if you don’t know what this means-another reason to subscribe) Since we got bullish on all 3 markets so long ago….and the markets up here in the ozone…..it’s boom or bust time.
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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. Opinions & Observations provided for INFORMATION PURPOSE ONLY Use Risk Capital Only
