Stock Market-Prices Explode to the UPSIDE on Sigh of Relief-Throw Caution to Wind? Read It!
August 12 2022 Option Professor Opinions & Observations
Since we hit the lows in the stock market in mid June; there has been NO LIQUIDITY on the offer (sell) side of the market…..Why would there be?….if you held you stocks….you were underwater and living the mantra “NEVER GET OUT”…..if you were out of the market…..you had NOTHING TO SELL….if you were a trader….you were probably SHORT the stock market (particularly ARKK-Tech companies). Since the middle of June; we got Q2 EARNINGS which by no means were world beaters (some the polar opposite). BUT they were NOT HORRIFIC and everybody’ working and making money and spending on goods AND services. We then got INFLATION DATA that showed Inflation was “SLOWING” on both the consumer side (CPI) and the wholesale side (PPI) which was received like the Second Coming! In the last 8 WEEKS; we have cleaned out the shorts, got sideline money mobilized (VIX UNDER 25 breeds confidence), and put smiles back on investors faces replacing panic and frowns. A classic “FACE RIPPER” bear market rally fueled on technicals and a SIGH of RELIEF that any recession will be in 2023 (EARNINGS OK), the Fed will SLOW HIKES, the break in Inflation will ACCELERATE, and the JOBS market is BULLETPROOF. All BULLISH!
Is it Time to THROW CAUTION to the WIND? The funny thing about markets is they tend to SURPRISE Us! From January to June; stock prices tanked as investor hope was lost. July-August; Investors hope is back
Here’s the rub….
#1. The 200 day moving averages are pointing DOWN on both the S&P 500 (SPX) and the Nasdaq (QQQ)…..they also LOOM ABOVE at SPX 4350 area (also a Fibonacci retracement of SPX 4800 to 3630 or 1170 points X 61.8% or 723 + 3630 =4353). The QQQ 200 day moving average is at 343 area ( a Fibonacci retracement of 408 to 269 = 355). These may be DIFFICULT LEVELS to exceed and should be MONITORED
#2. The VIX is UNDER 20 which has occurred a number of times in the last 9 months and did not end well. In late December/early January; the VIX was about 16 and the SPX was about 4800….within a months we saw SPX near 4200. In late March/early April; the VIX hit about 18 and the SPX was 4600 and the next month we saw SPX 3800. In early June (after Memorial day rally); the VIX about 24 and SPX 4200…later that month VIX hit 35 and SPX saw 3630. RIGHT NOW-VIX 19 and SPX into 4250-4400 Zone…next month?
#3. Everybody is speaking for the Fed and seem to know that all waves will break their way. Somehow with a $5 Trillion rally in asset prices, full employment, 8% to 9% INFLATION….slower hikes & cuts loom?? The Fed plans: DRAINING LIQUIDITY (QT) & do a RATE HIKE in September…thin/volatile markets follow?Anything can happen…but if there is an Achilles heel for the bulls…this belief of the Fed is done is risky.
#4 BUYBACKS by corporations; in our view, can be at times where they should be the LEAST confident. In 2018; they bought back $1.1 Trillion (last Fed tightening) followed by $918 Billion-2019 right before DROP In 2021; there was RECORD $1.2 Trillion in Buybacks and this Year 2022 the plans are already OVER $800B! What does that mean for 2023? Maybe nothing…but it does seem their boat legs can lead to rough seas:):
The next month SEPTEMBER may be a wild one for EITHER Up or Down Markets so Caveat Emptor-Ready
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All the Best,
The Option Professor
REMEMBER All investing involves a risk of loss and it is not right for everyone. CONSULT YOUR BROKERAGR FIRM/broker to determine your own suitability and risk tolerance. Past performance is not indicative of future results. Information and opinions are provided for informational purposes only.
It is NOT advice.
