Option Professor-Stocks-What Happened? What to Expect Next? This is a Must Read!
June 18 2021 Option Professor Opinions & Observations
Welcome Back!…..Well we had quite the wild week but not unexpected to us as we issued an ALERT warning of a volatility spike before the Fed meeting and Quadruple Witching Friday. We saw this due to the likelihood the Fed would address the inflation numbers/dot lots and the options trading volume has exploded so of course when you hit quarterly expirations colliding….order imbalances that cause volatility is a no brainer. We have told subscribers that the S&P was OVER 1000 points ABOVE our long term moving averages and that was not sustainable plus valuations on banks-industrials-materials ect. were at nosebleed levels. We discussed ways of reducing risk like collars, trimming, married puts and replacement trades. So the yield curve flattened (bye banks), the dollar got strong (bye commods, industrials, materials) and data out of China weakened (bye industrial metals). The strong dollar (which could have a contrarian run in it) also took the legs out of Europe-Emerging Markets and Asia Pacific markets. This was no overnight story as these markets have either been deteriorating for weeks or stalling waiting for the igniter. When you subscribe at optionprofessor.com/subscribe we share with you our views gleaned from decades of experience.
So what’s next?…while saving specifics for subscribers we will share some broad strokes….Since Canadian borders not yet open and vaccinations in EM are way behind and Europe is still not fully open….we see a long runway still ahead for some before it’s game set match (probably caused by non transitory inflation like wages and housing). You already see durable goods getting whacked. Before this week; we said a rotation out of value into areas that either seem rather bulletproof (near monopolies-great free cash flows), those who offer great ROE’s, or are reopen-pipeline stocks look to be where the puck is going. Risks remain the variants, vaccinations, and if higher costs pinch profit margins with expected earnings for S&P at 200 this year & 215 in 2022. We look forward to cap ex spending, M&A activity, corporate cash and global re-openings to fuel the next upswing AFTER this drop runs its course. Too soon to say the yield curve collapse is here to stay but we see opportunities in different stocks than the popular ones 6-9 mos ago. We will be sharing our specifics and our ALERTS for turning points…..also we will review the RISKS of passive investing and the old 60-40 portfolios if BOTH stocks & bonds drop together–Go to optionprofessor.com/subscribe–Join Us Today!
Stock Market
Is there more to go on the downside…yeah probably….but if last Q1 Quad Witching is any indication…we keep an eye on this week late for a turn after the FED guys are all over the news (Congress) calming nerves and wash out the weak hands. Getting back ABOVE 4200 SP would be a start….. a deeper move toward 3800 not off the table but at this point seems unlikely….after Jax Hole late August?…that’s a horse of a different color and could be rip chord time. Stocks that have great free cash flow, can pass on higher costs, pay compounding dividends, great ROE’s and benefit from a low rate long term environment seem to be the ones that could fuel the next advance…..we will share exactly what we see. Go to optionprofessor.com/subscribe and add us into your research.
Bond Market
The yield curve flattened as short rates popped for the first time in a long time. Much of fixed income was stable such as short term investment grade corporates, high yield, preferred, senior loans for the most part while the jump in the dollar whacked emerging market debt (one of the big risks as some local currencies came off their high horse. We cover the INCOME markets so join us at optionprofessor.com/subscribe and get educated.
US Dollar/International Markets
We told readers AND subscribers that the Dollar Index was having trouble breaking 88-90 and since the whole world was negative on the Dollar the contrarian bet looked good…some same a 5-7% move on the Dollar to the upside could occur. We said back ABOVE 91+ could put it back on the horse and we closed at 92.31….don’t be too fast to dismiss the rally as Europe is starting to print and do you trust the Yuan or Yen?? Commodities tanked so Can$ & Aus$ are ?? Go to optionprofessor.com/subscribe and we’ll share our specific views.
Crude Oil Natural Gas
We warned readers about the fact that SLB HAL XLE were having problems staying up above moving averages and sustaining advances….this week they went into the soup. Like most markets that got hit: important to note they remain ABOVE their long term moving averages so we may be looking at a buy the dip deal. Rig counts are actually picking up (permian) and the stalled re-openings may hurt demand temporarily…but prices above 55 seem to generate great cash flow for the diversified/leveraged firms. We called the turn at 2.50 Natural Gas and we are still way above 3.00 and we called the turn in LNG at 70 and it ran all the way to 90! We saw a rollover a bit and we’ll update subscribers on our next ideas on energy which along with health care can be reliable in inflationary times. Go to the website & Subscribe!
Gold Silver Platinum Copper Crypto
We called the lows back in March on the Gold & Silver followed by a great run BUT we told everyone that price were hitting resistance at 1950 Gold area and 2850 Silver area…once Gold took out the 1 yr MA at 1850 ball park it sold off in a vacuum. We feel that the inflation #’s still will shock on the upside so as long as 1650 Gold & Silver 24 bucks hold..we will be looking for potential entry points for a significant rally going into the fall/winter. Copper was way overdone as we told you (we got bullish on FCX UNDER 10) so this drop is no shock as China puts the squash on it. Not ready to throw the baby out with the bathwater as EV’s, green deals & infrastructure await. Crypto like Gold & Silver are best bought AFTER they drop in price so we maintain that Bitcoin 22-28 (GBTC) is a buy and ETHE may be good but we see BitCoin as the foundation (some say way better than Gold as store of value) and ETHE as a great programmable block chain but if someone comes a long with a little better set up it could go the way of Yahoo when a company named Google came up with a little better search engine. Join us at optionprofessor.com/subscribe—LEARN!
Soybeans Sugar Coffee
We’ve been saying in our own way that we liked these markets late last year and early this year at way lower levels and said so in our updates. HOWEVER after their big advances where they got so overbought on weather and bottle necks; our experience told us that the risk reward (transitory factors) was out of whack and when you throw in your biggest buyer (China) is on a crusade to reduce prices..you get out…Now we reassess now that the prices came in a bunch. Time to Subscribe/Learn about uses & risks of ETF’s optionprofessor.com/subscribe
Remember There is a substantial risk of loss in short term and option trading and it is not right for everyone. Consult your brokerage firm/broker/advisor top determine your own suitability. Past performance is not indicative of futures results. Opinions provided for informational purposes only an is not advice, Use Risk Capital Only
