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March 25 2023 Option Professor Opinions & Observations
While everyone keeps chasing all these trading ideas; the big flow of capital has been in Money Market Accounts ($5 Trillion+ & +$300 Billion recently). Why Not? Treasury Bills & CD’s have been have been assuring investors of 5%+ (in some cases). A fantastic rally we spoke of in the Presidential Cycle (Oct-April) may be nearing an end depending on how things break. If so; many markets may see VOL spike.
The Goldman Sachs Commodity Index (which we told you topped out last year at 850 failing to take out the 2008 highs) is at 549 hitting KEY SUPPORT in the 530-500 zone. It is UNDER our M/A’s on the 5 year chart. Should we sustain UNDER GSCI at 500 say bye bye to OIL GOLD GRAINS. We will see if the OIL MARKET can start that big REVERSION rally as we go into spring & summer DEMAND season. Of course; we will be all over it if it does but e have avoided the big DECLINE in the energy sector recently. GASOLINE inventories have been declining and the LOWS at 2.00 may be solid with better weather ahead.
The 10 year Treasury broke UNDER the 3.40% area and could hit an air pocket sending it to 3%-2.50% if we get an unravelling of these regional banks who have lost TONS of deposits. Th Fed may be dancing in the street in one respect….this could cause BIG problems for small business and instigate job cuts. This in turn will hurt demand and get inflation down quickly. BUT since when is bi jumps in unemployment and a slowdown in business activity good for earnings? You’re Right-NEVER! The the jobless rate at 3.6% and Fed yearend target at 4.5%….looks like heads will roll as collateral damage. We told you M2 money supply had TANKED into negative area this year after UP 25%. The Fed Balance Sheet (which they were supposed to be reducing) has made little progress and now ROSE by $400 Billion recently. If M2 spikes- Assets Up.
We’ve had 46 global rate hikes this year and money markets have surged to the biggest weekly gain since 2020. We got inflows into Treasuries at the fastest clip EVER. Outflows from IG Credit is most since 10/22. HISTORICALLY; the last 2 times (2008-2020) were turning points for market lows HOWEVER we did not have the Inflation numbers as we do now. The markets work off GREED & FEAR. Unfortunately; the market GREED is for Interest Rate Cuts and there is NO FEAR of recession as VALUATIONS remain high. Powell said no rate cuts this year. The Fed is supposed to be hiking by 25 basis points. IF they get thrown off course either way (meaning no hike-cuts or 50 BP hike); it’s probably a reason NOT good for stocks. The markets are OVER 100 basis point ahead of the Fed for Fed Funds cuts. For stocks; that’s scary stuff
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