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Update 85: Stock Market-Good News-One Week Closer

March 20, 2020 OPINION & OBSERVATIONS

Well..the Good News is we are week closer to getting to finding a turning point! We are going to give you a review and a preview of what we see right now in stocks, bonds, dollar, gold, crude oil ect.. No need to go over the obvious with you…but if you want me to describe what has happened in two words it would be “Redemption Run”. While we all have seen the hoarding of toilet paper and pasta; we look only to the stock and bond market to see what they are doing with their portfolios..they are hoarding cash! Hey this redemption run was warned by us months ago (albeit not with this unfettered speed) but these ETF’s being sold as proxies for sectors with underlying non-liquid assets and the public piling trillions of $$$ in for 11 years was not going to end well…and it hasn’t. REVIEW We felt the rally above 3050 S&P was suspect as no GDP & earnings growth occurred by rather a stretch in valuations….if it doesn’t make sense it won’t last. Now the consumer is 70% of economic growth and he was spending a lot and working in a service economy. Companies took their tax cut and spent it on buybacks to “manage balance sheets”. The next move was to go after the debt market by offering yield hungry investors low yielding bonds & badly collateralized loans. This leveraged their companies (60 billion for some 45 Bill $$ for airlines). What did they do with the proceeds?..you guessed it…they bought more of their own stock. This artificially bid up stocks to a level that when the first interruption came the stock and bond markets have fallen like dominos. Why not….most people and companies cannot handle a one month interruption in their cash flows and rather then getting ahead of this in Jan..we’re looking for masks in March. We have seen unreal order imbalances (sells) in Bonds & Stocks because 11 years of people plowing in (particularly the post tax cut overvaluation run) has no buyers on the other side. Margin calls, forced liquidations and a stampede to cash. It’s a liquidity crisis we discussed in these updates for a long time before social distancing became the norm. The Fed is trying to be the bid in everything right now and that smells like 2008…although in 2008 it was homeowners and the banks in the mud…this time every hourly & tip earner, 401K, bondholder, travel & leisure & most every citizen is in the mud…so to make a case that the damage has the potential to be more pervasive is not far fetched. It’s an across the board Redemption Run with an unknown destination. We have our best guess-we will share our opinion.

Stock Market

Some various thoughts with an opinion….many dislocations..bank stocks trade behind tangible book value…10 day implied volatility most since 1929-2008 1987 all bad times…revenues collapsing in some sectors like airlines -80%+ and we saw that occur in China ass Adidas said revenues fell 85% YOY…dividends in many cases may be on the chopping block…Transports & Russell have declined to 2016 levels which may mean more to come for S&P….China got back going in 8-10 weeks but the virus was somewhat regionally contained and they have a manufacturing economy while the virus is in 2 very populated areas (California-New York) and we are a service economy needing consumer discretionary purchases to grow….the Dec 2018 2350 level S&P was touted as support but today we closed under that level and futures hit 2260 at the low. Lock downs in NY & CA was not welcome news and quadruple witching today saw 23 million option expire and volume explode…..VIX has hit 85 a few times this week but has faded by late week/maybe drop further next week?.. and must come down if we are to find a low…..some closed end funds and mutual funds are trading well below their NAV which is evidence of the non liquid nature & order imbalances….RECESSION talk…some say the 3 month Treasury vs the 30 yr Treasury is the one to watch for inversion to forecast a recession..well that inverted in June 2019…so some said a recession in 2020 would take place (they look right)…..some say the recession began in Feb 2020 (can we argue?)…..we have heard it will be hard & fast and last about a year. Who knows?…but right now we are in the same ballpark based on what we see…humility & flexibility can go along way in avoiding trouble….LEVELS..we are looking for the 50% correction of the move from 2008 low (S&P 667) to the 2020 highs (about 3400 S&P) which is the 2000-2050 area or a Fibonacci retracement of 61.8% which is about S&P 1700…numbers coming out potentially very ugly (Thurs unemployment estimates average 2-2.5 million-astonishing) and the Q1 & Q2 earnings, PMI’s, GDP numbers more than likely will be cringe worthy. Some quant guys are saying that we should focus on potential positive returns in 2021 and some say remember to be greedy when people are fearful and be fearful when people are greedy. We will be a lot more comfortable when we hear them rollback two words “Social Distancing”…..but here’s some potential things on our shopping list…..growth was the leader before and it may lead us out (5g, Cloud-Edge computing, Cyber Security, consumer discretionary, communications)….dislocations like transports (UPS UNP)…energy (XOM CVX)….usual suspects MSFT AMZN AAPL the Semis, GOOG….discounted brands (GM HD TJX TGT SBUX NKE MCD JPM JNJ V) and many more…..a reversion to the mean could rally to SP 2550 (10 day M/A)…

Questions contact us @ [email protected]

Bond Market

We will give our opinion and best guess…Again…not a real surprise here when you consider the lack of liquidity in these instruments for mass liquidations (redemption runs) which is exactly what we spoke of here in these updates for a long time. The Fed is adding enormous liquidity and will have to continue to do so. They are now buying Munis and commercial paper and maybe corporates before long. They want to help money market funds honor the buck and state and local municipalities are looking for block grants and a bid. Now investors who were hungry for yield and save money for a rainy day…well it’s raining. Look around at it all…some closed end funds & mutual funds trading at a discount to NAV….bank debt in the 4-6% range for short intermediate & long maturities…..look at the debt of the dividend aristocrats…if they can raise and pay dividends maybe they can afford their coupons….convertible bonds paying 4%+ and have a stock purchase kicker could be interesting..you gotta do your homework but the yields are getting juicy..in fact the spread between various levels of corporates is now at levels where they have been only 10% of the time historically…..preferred have gotten nailed..maybe some are worth a look..we are entering what has been a value zone as far as yields and price .but…CAVEAT EMPTOR….a value zone is often not a great timing tool….so with this big of a redemption run & the unknown of how long the virus lasts…and how consumer behavior will be affected….the RISK is elevated…so…like stocks or anything else..do your homework…and be aware that volatility could be significant as we are approaching levels last scene in 2011 with the Sovereign debt crisis and we don’t know in 2008 crash levels could still be a possibility…securitized & asset backed debt are of concerns and some say we are trading 80 cents on the dollar and sometimes that number can go to 50-60 cents on the dollar if things turn really south. Spreads seem stretched but who’s to say where stretch ends/defaults begin. During ’08 crash the Fed had 5+% to work with and now they have about none so look for an explosion in the balance sheet as we go from 20% of GDP up toward our pals in Europe & Japan that have huge ratios. TLT still looks like it could have seen a generational top at 180. It may be because the massive Fed liquidity response will surprise people and send yields up as the panic into Treasuries seemed to reek of capitulation.

International

Well worldwide providing liquidity id on as Abe & La Garde & Merkel-Macron all sound as if there is no limit to what they are prepared to do. Some of the international markets have gone to or surpassed the 2016 levels so if things stabilize they may offer an interesting diversification value. Since 17 Trillion or whatever of negative yielding debt is absurd but real; our thoughts do not revolve around any interest in their debt.

US Dollar

We’ve had a pretty good read on the dollar as our belief has been that we were in a trading range of about 100-95 which lasted for a long time with some bounces therein. We did state that a move above 100 could bring in a dollar stampede (not unlike our thoughts that a move over 145 TLT would bring in a buying stampede to Treasuries) which so far ha occurred. Will it last?…well our yield advantage is certainly on it’s way out the window and our “strongest economy ” ever was built on buybacks on borrowed money & overvaluation. But; the Dollar is the one-eyed man in the valley of the blind.Three lovely places to live with beautiful scenery which recently saw their currencies approach 50 cents are New Zealand, Australia & South Africa. If fiscal comes out of Germany & UK…..keep an eye on the BP & Euro.

Crude Oil

Biggest week up and down that pretty much the market has ever seen. Russia won’t be black mailed by Saudis (they usually do the blackmailing) and Saudis yanked their money out of oil when they sold ARAMCO during that phony engineered rally to 66 which collapsed once that money was in their house. NOW….it’s all about market share and what better way than to make your competitors go broke. Russia thinks they can play ball in Saudis league but we believe they can’t. Our understanding is Russia needs 40 bucks or better to make money and Saudi can take it out of the ground at 3 bucks and make money at ARAMCO at 15 bucks pre-dividend. The math doesn’t seem to favor Putin whose country depends on oil for 70% of it’s revenue….so Saudi wants market share and kill the sand business (Canada & the shale business (USA). The idea of pumping thru May seems to coincide with a hopeful summer driving season. Trump may get involved..why wait? Our guess is the big boys XOM & CVX to come out the other side as winners. We look for crude to possibly trade to 15-20 bucks but not last…reversion trade took you to 28-29 (10 day M/A) and now back in the soup on sub 20.

Gold-Silver Copper

We have been all over the Gold story since the breakout above 1350 the move the 1580 resistance (2012 lows were resistance) to the holding of support at 1450 to the run to the Tudor Jones target at 1700 to the current pullback fueled by worldwide asset deflation. Wow..so now what? well our view is that when they are done bailing out the worldwide stock & bond markets with currency expansion beyond your wildest dreams that paper currency skepticism & possible inflation (Treasury debt blow off) could bring the bulls back to the market. Reversion rallies have been limited (1560 10 day M/A) and support is 1450-1400 & breakout point 1350. We have blown out speculators leverage players but may have more work to do in the weeks/months ahead….if we break 1300-1200….then deflation won. It was reported an option player bought a spread on June Gold for 10,000 oz looking for 1900 + by expiration..$6.4 mill bet…if 1900+ at exp. = $100 Mill. Good Luck on that one…..Silver really wiped out the longs and is trying to bounce but the business breakdown hurt this industrial metal even more than the Gold. We said the copper had to hold 250 and if not 200-220 you go..where that’s where we’re at…waiting for China to reengage and buy.

Soybeans & others

Commodities on balance beaten down with the economic meltdown…no restaurants open so cattle prices hurt and some California farmers say they are hurting. Corn, Wheat Soybeans all caught a bid this week..as we have stated we felt the planting & growing season may provide some news that could finally get these markets moving above some fairly sturdy resistance.The Vanguard Commodity Strategy Fund has sold off more than 20%+ from it’s highs so read the prospectus if you want to learn more.

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 discuss your own suitability. Past performance is not necessarily indicative of future results . Use Risk Capital.

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Update 84: Stock Market-Exposed

March 14 2020 OPINION & OBSERVATIONS

WOW!….last month after seeing the market as overpriced overvalued and over leveraged…we felt a pullback on the S&P toward the 200 day moving about 3000 made sense but always felt that the market cap to GDP ratio was very elevated and maybe explained why Buffett was sitting on so much cash. Well..we now see why. Some realities have reared their ugly heads like the fact that the tax cut that went to corporations was used not for capital expenditures/higher wages/ pay down debt but rather to buy backs of stock creating as a way to redirect attention away from slowing GDP/Revenues/profits and earnings to simply stock prices which everybody loves when they rise….also with the Fed dropping rates so low then forced people further out on the risk spectrum into Bonds (leveraged loans-high yield-junk-emerging markets ect) wherein some companies took those proceeds and bought more of their own stock…that’s a lot of temporary buying. The problem is you need more buying to sustain prices (the public-hedge funds retirement plans ect were all in) at lofty levels not based on fundamental strength but rather some may say creative accounting. When the virus hit China; I was listening to Paul Tudor Jones’s interview in Davos where he said this virus was serious and he would be very concerned to be long stocks. This was followed by China shutting down cities and businesses (supply chains) and announcing a PMI number of 35 (below 50 is contracting) which was followed Japan Q4 GDP contracting by 7+%…bad #’s. The market has gone through many numbers like a knife through butter because liquidity has dried up as no one knows what GDP 3’s will be and earnings so how can you valuate stocks & bonds with any confidence. The Transportation Average and the Russell (DJTA & RUT or IWM) failed to confirm the new highs (topped in 2018) and have now taken out the Dec 2018 levels and approached 2016 levels before rebounding on Friday. On the positive side; it has been reported that insiders bought more stock in the first 2 weeks of March than anytime in 9 yrs and there has been a panic by many into money market funds and the selling volume has been huge. We are very oversold technically and some say the public stops panicking when governments start panicky…well worldwide governments willing to throw cash at this thing has zoomed thru the roof. BUT we needed Central banks not to drop interest rates (European loan demand collapsed) but be the buyer of last resort of bonds and stocks as the corporations who were buying their own stock/the public and institutions were nowhere to be found (liquidity). On the negative side is the unknown and consumer psyche when the flu fades (hopefully) and there we look to China. It took 4-8 weeks after quarantines for people to go back to work and stores to re-open. Adidas CEO was saying Q1 saw an 85% decline in revenues Y/O/Y and that now it has been slow to recover because buying athletic shoes are not first on consumers mind once things reopen. We re hoping that the panic we see in consumer here (going to cash in stocks/buying up all the water & toilet paper they can find/and governments willing to print- lend-forgive “whatever it takes without limit” is a sign that we will stabilize markets & fend off this flu virus and come out the other side by Q3 or Q4. The unknowns of credit downgrades, credit defaults, repricing re-valuating markets that were way overvalued (market cap to GDP) is of greater concern and frankly no one knows the outcome and only a fool would say. The market’s overvaluation leverage complacency liquidity was exposed. Questions..contact us at [email protected]

Stock Market

Where to start?….Europe & Asia were both in a slowdown (recession?) BEFORE we got hit by this virus and GDP in the USA wasn’t looking good. We seem to be in a bit of a lock down worldwide and conventional thinking is that the virus is transitory (gone by summer) and then free credit and stimulus puts us right back on the bicycle with the consumer back at it again…maybe?….certainly many companies we watch are on sale MSFT, AAPL, AMZN, GOOG,JPM, C, WFC, BAC, PRU,BX,GS MS UPS,DIS, SBUX, HD, NVDA,ADM, , UNH, JNJ, AMGN, ABBV,COST, and many many more. Plus; we see many of the dividend aristocrats have been on the chopping block. Finally some of the closed end funds are trading at a substantial discount to NAV due in part to liquidity issues. The sell off (ETF-Index related) has been indiscriminate and therefore stock selection ss very interesting due to some stronger companies were dumped out with the truly troubled ones.Having said that combined with some of the aforementioned points; there is a lot of unknowns and ass the old adage says “when the tides change you see who’s swimming naked” which is very apropos we believe for the current market. So our best guess/hope is as follows…..the VIX is at 57 and hit 77 this week (the highest since the crash)…we don’t believe it will go in a straight line to the 15-20 zone of stable bullishness. But IF things stabilize relatively quickly ; then the idea of a trading range to work off the excess volatility in the VIX makes sense with the ceiling of the top coming in at ballpark 2875-3050 (basically coincides with the 10 & 20 day moving averages) and the floor down at 2300-2400 where the recent and Dec 2018 lows come in….yes that’s big but we’re coming off 77 VIX, a global shutdown, and a consumer panic. The next zone under that is the high low for 2016 which is ballpark 1800-2200 which I am sure the Fed & the administration will fight tooth & nail. Our big worry is that prices of the Dow Transports & the Russell 2000 went into levels not seen since 2016 last week when they were on their lows and the Transports & Russell were good indicators for questioning the Oct-Feb S&P rally so we would be foolish not to give that fact appropriate weight. Indexes in Europe, Asia & Emerging Markets have revisited 2016 as well..

Questions contact us at optionprofessor @gmail.com

Bond Market

Another one of those where do we start?….well let’s start by opining on the lack of liquidity in high yield, leveraged loans, investment grade, munis and treasuries which was astounding. As we said for a very long time; ETF and passive investing works on the way up but if everyone wants out at the same time there may not be much of a bid on the other side. For those of us that thought investors were reaching into the toilet to get yield..those fears came home to roost. HYG traded behind NAV last week and to levels not seen since 2016 which was another ominous sign that triggered big intervention by the FED as spreads on our best credit (Treasuries) blew out. Everything from short-intermediate-long term paper was getting sold and lines of credit by Hilton, Wynn & Boeing certainly didn’t boost confidence. Munis were sold as state solvency was of concern and leveraged loans, asset backed loans, and others lost their bis as spreads exploded. Can you blame them? The ability to determine what’s backing the loans was questioned plus hedging costs for payment risk zoomed. Also CECL was a concern as banks may have to reassess the status of borrowers of existing loans and change the risk level of their outstanding book. The new isssue markets have been kind of frozen here and abroad..another sign of worry. Now it looks like full scale panic by worldwide governments that state they are prepared to give, loan, forgive and whatever else needed to halt the liquidity crisis and while they seem 2-4 weeks late…better late than never….all is on table. Closed end funds are trading at big discounts to their NAV’s but can you trust NAV’s where the bid is questionable? Big week this week Mon China retail sales & G7 meets Tues USA retail sales/industrial production Wed Fed cuts (most say 100 basis points) but if the follow the lead of ECB no cuts more QE ….bridge loans could zoom with cash cut off. So where to look when all is on sale? How about short term & longer term investment grade, high quality munis, preferreds to name 3 right off the bat. Now if we are to stabilize here and the virus is transitory; this bargain hunting in stocks and bonds may be reasonable; however if we’re to revisit 2016 levels like some indexes/bond sectors have done then caveat emptor. The Bond Market was exposed for its liquidity, covenants & leverage risks.

Questions contact us at [email protected]

US Dollar

As we have said for about 2 years; the index has been range bound at about 9950 and 95…we peeked out of both sides temporarily and both times it lead to big changes of direction (100 led to 94.5/and 94.5 led us back toward 99…lots of volatility within a range. Now maintaining above 98 and blowing out 100 could lead us to a Dollar stampede however our yield advantage should be out the window this week and our economics don’t look so rosy now (whose does?). So as we’ve said the Dollar could be the one eyed man in the valley of the blind (yen-slow GDP/VAT tax/236 debt to GDP & the Euro has negative rates and a commissioner not talking savior like (that could change). In fact; our opinion i the Fed balance sheet is about to explode as USA debt to GDP around 20% pales in comparison to Europe 40% and Japan over 100% and this was BEFORE the printing binge we’ll see soon In our view; this is where the Fed will and should come into play…expand the balance sheet/leave some room to cut further when & if loan demand materializes and spend your targeted money where it’s needed…providing a bid in stocks & bonds to calm everyone…makes sense we could see better prices by the end of month before the March statements go out/avoid panic.

Crude Oil

Sounds like a broken record….but this is the second punch to the gut (the virus is the other) that served ass the match to light the flame. Well…when the Russians & Saudis want to fight…they really go at it huh? Russia wants to kill the shale producers (probably so does Saudi) and as we told you forb months..after Saudi dumped the 2.5 Trillion in Aramaco when they pushed oil to 66…no need to sustain prices after that …they just got their money out ($2.5 Trill)….but a good time to mess up USA oil and eliminate competition. This was tried in 2016 during the last growth scare and all it did was make the industry more efficient and send everything up. Now you’ve got the majors some of which have huge bank rolls to buy shale guys at pennies on the dollar and consolidate the industry. While there is still a chance for sub 20 levels temporarily; our view is the bigger guys XOM CVX HESS and others may come out of this and could be something to look into at 50% + discounts from highs in some cases…still looking for 47% oil energy share.Market share wars where you both lose tend to get resolved & Trump is supposed adding to the strategic reserves. Lower gas prices..consumer ++

Gold Silver Copper

As we’ve been saying Gold broke into a bull run when it broke above 1350 and Paul Tudor Jones early on quoted a 1700 price target. Well it did all that and then it entered into the Show Me state….meaning we wanted to see GDX get above and maintain 30 (now at 2016 prices) and wanted Silver to get above 19-21 per oz to reinforce the bull as stories like record retail sales of Gold coins started hitting the tape. When deleveraging happens in stocks and bonds occur (big time last week)..some say that’s Deflationary and leads to a strong dollar…double whammy for Gold & Silver (which always lagged evidence the Gold-Silver ratio)….Gold saw it’s biggest drop in a very long time and Silver was no slouch falling at twice the rate of Gold. Now the 1350-1450 area which was support before is a line in the sand and maybe if the Governments can stabilize the equities and debt markets…the conversation will turn from deflation/recession to paper currency madness Copper was trying to hold the 2.50 area as China is trying to stabilize (cases shrinking/normalcy returning) which we believe is imperative for a copper run to higher levels later on…otherwise into the 2-220 soup we may go.

Soybeans ect.

Many ags were under pressure like everything else. We look to the planting and growing seasons and stabilization of financial markets to see if we can get the news needed to overcome resistance at 950-100 area although it seems China may use Wheat as their US crop buy while taking advantage of the currency/economic collapse in Brazil to grab beans at a bargain.

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 discuss your own suitability. Past performance is not necessarily indicative of future results. Use Risk Capital Only.

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Update 83: Stock Market-We Were Right

March 7, 2020 OPINION & OBSERVATIONS

Last Week was a continuation of a relatively probable opinion that we’ve had for some time. Let’s recap….when we went on that ridiculous Oct ’19 to Feb ’20 run based on weak GDP, lackluster earnings & revenue growth, massive overvaluation (Market Cap to GDP) and with more technical warning lights flashing like a Christmas tree plus an almost 400 point premium to the 200 day moving average on S&P…we felt the odds were not favorable and the market could see exhaustion going into 3400 ass we felt it had no business breaking above 3100 in the first place. We discussed various ways to reduce risk in portfolios (among them- option strategies like Collars, Married Puts, Covered Calls & asset allocation adjustments-such as if you are 80% Stocks/20% Bonds or the ever popular 55-60% Stocks 45-40% Bonds….one might adjust the weighting as to increase the Bond % while reducing the Stock % but of course consult your brokerage firm/broker, taxman ect to determine your own route to follow as one approach is right for everyone. There is a risk in taking action and sometimes there is a risk of not taking action. We started in Oct 2020 in the S&P 2800-2900 range and so far we have essentially wiped that the ill-deserved rally. Two areas that we harped on that kept us out of the wildly bullish camp were the Dow Transports & Russell 2000 (RUT) both of which failed to take out their 2018 highs and have since rolled over-DJTA big time! The world (Germany Italy France China Japan (VAT tax)) all had flat-down-shrinking growth numbers BEFORE the Virus so imagine what the numbers will be now?? China announced PMI numbers at about 35-….shocking…USA? We said that a VIX 10-15 is bullish…15-20 Neutral…20-25 favors bears above 25-40 usually means the abyss…stubbornly high can mean up 1,000 down 1,000 days like last week. We are here NOW….so let’s opine on GOOD NEWS BAD NEWS……as we go on remember our main feeling is that if the Virus in gone within a few months (summer)…the odds the pullback is a BUYING opportunity increases substantially….but if we must wait 18 months for a vaccine then we are looking at a horse of a different unknown color. Our opinion is that the GOOD news starts with the fact that we’ve had an unprecedented drop (although 6x in history we’ve had a 10% drop) and 3 mos later and 6 mos later the market had good advances. The VIX spike has been the highest since 2008/2011 and we also saw a historic number of 90% DOWN days ((90% of all stocks down) which have coincided with important lows with the exception of 2008. Deleveraging to a great extent has occurred but a decade of passive investing could get unnerved without stabilization soon before those March statements go out. GOOD news is the FED & Central Banks worldwide are on the move and if fiscal or targeted injections of liquidity materialize…more good news. Now we believe this interest rate drop and printing money bonanza at the FED is not totally unwelcome and needed to be done anyway as the Dollar was to strong due to our yield advantage (going going gone) and the deficits are going through the roof and will be financed by substantially lower borrowing costs..good. More GOOD is that the millennial generation is now employed, finance a home for about 1,000 bucks a month fixed ( household creation yeah!), maybe re-fi that student debt or since we’re printing overtime maybe seek forgiveness. USA debt to GDP ratio was at between 100-110…you can expect that to rise hopefully not to the level of Japan (236)! Many Sectors have been hammered (Energy-Airlines-Cruise cos.), some corrected (Financials-Transports-Disney-JP Morgan) but many still sub 20%. Internationally; many country ETF’s are near their Dec 2018 lows so we’ll see how it plays. NOW…we turn to the more worrisome side which of course starts with the premise that the Virus is not transitory (done by summer) and that business comes to a halt not a pause. The Dow Transports have taken out their Dec 2018 lows and since they were a key factor in our avoiding the top it may be a key factor in us getting back in prematurely. The all important Tech Sector has a long way to go if we are to retest that low area and since MAGA (MSFT-AAPL-GOOG-AMZN) are at the top of many index lists….it’s scary. Also valuations returning to their lofty levels is not assured but with interest on Treasuries so low that game could return. Supposedly Buffett values the Market Cap to GDP ratio (Russell 500 to GDP) and that relationship is concerning as it is at the same level as 2000 and 20% higher than 2008. He’s not sitting on a hoard of cash for no reason. If you’re Bullish you better hope with Treasuries so low that our darling T.I.N.A. (there is no alternative is more alluring than the bean counters who actually must calculate how much to participate. One other GOOD thing potentially is the Dividend paying stocks that have current Free Cash Flow Yields above 10% (ability to pay) and whose yield range from 3.5% to above 8%. High Yield spreads are in and around 500 so historically 600-800+ has been an area of interest. Some just like one stop shops like QQQ, SPY, IWM FXI TLT when it’s time. Fed’s worried about system & consumer freeze up…..me too. Contact us at [email protected]

Stock Market

Last week the VIX remained elevated above 30 and spiked and the gyrations were in line with a high VIX….expect more of the same until the VIX settles in at least under 25 which may take time. We like to use market ranges and parameters rather than to play Nostradamus….so here’s our take…the ceiling has been established at S&P 3400 with the low at 2850 and the 50 day M/A @ 3250 area & the 200 day M/A @ about 3050….the rebound high was about 3125 and the lows of late Feb (3200) plus the gap at about 3275-3325 may be addition resistance. Importantly; we see support at the 2850 (about 50% correction of the 2350-3400 move) with slippage taking you to 2750. If that goes a last stop could be 2600 followed by the Dec 2018 lows around 2350. We expect volatility and price swing to remain wild as long as the VIX is unmoored. Should the Tech sector does a major fade on concerns about supply chains, demand- growth or valuation then we believe the odds of following the transports and international markets towards the Dec 2018 levels increase. We still believe the money for no interest & demographics & tax rates & deficits could finance a potential move toward 400O+ in years to come after we come out the other side. Lots of bargains potentially but selective over time is our mantra currently…technical & fundamental damage has been done.Careful….we have some bargains…more to come?

Bond Market

We felt the trend for rates was down of course no one imagined the parabolic speed that rate rates have collapsed. Treasuries look like they are on their way to ZERO but caution TLT (long term Treasury) is way above its 200 day moving average & everyone is on the easy money bandwagon. Felt a little like a blow off last week but the flight to sovereign debt is mammoth & historic…heck they don’t even pay interest or less in some countries..Mad. Right Now…Credit Spreads in the 500’s not really juicy yet and down grades could be on the way for BB & BBB’s…the health care & energy sectors are under the microscope as well as others…the FED is on guard monitoring the system as they remember from 2008 if credit/liquidity freezes-it could be game set match. Leveraged Loans & CCC’s and others are on the risk radar. Again..if business halts..some companies can’t afford the cash flow miss.Some believe in longer dated money center bank debt…we’ll see.

US DOLLAR

We’ve said for some time that the dollar is range bound between 995-95 where it has resided for some time..not buoyed by our “great” economy & growth but rather our yield advantage over other countries (Japan -China-Europe)..well that went out the window last week and the Dollar hit the skids..now putting it in perspective it just reversed a false upside breakout and put us near the lower part of the range at 96 but it’s downsside momentum is palpable and should we break 94-95 like a knife thru butter…then the door opens for 88-90. The Fed wants more inflation & growth & the admin wants a lower dollar/rates to compete..well you got it! Again all currencies look nutty with the Debt to GDP ratios very dodgy.

Crude Oil

As we told you after ARAMCO sold all that stock the need to keep prices elevated went away and so did 60+ crude oil. Now OPEC can’t get cuts (Saudis acting as if they want to cut-they got paid on ARAMCO why do they care?).Russssia gets hurt under 40 they say..we’ll see..now if we hold 40 and reverse…are XOM,SLB,COP,CVX, HAL, BP, RDS.A good values or will they follow the oil companies who may default on debt due to low free cash flows? Stay Tuned it could get wild in the next 90 days.

Gold Silver Copper

We are a bit torn as Gold had a great week but Silver & the mining shares not so much…we have been all over the Gold since the break above 1350 rally to 1580 pullback to 1450 and subsequent rally to the Tudor Jones target of 1700…but since then not so much progress….so if we fail to get going a pull back could occur as the popularity of be bullish is out of the bag…Gold-Silver ratio spiked which historically did wonders for Silver historically…it could outpace Gold’s prices if historyy repeatss itself. Copper is hanging on for dear life at 2.50 area..stay tuned the metals could be ready for changes as nearby Vol of Gold options versus the back months is huge.

Grains ect

Most grains & softs still meandering and we feel the planting and growing season ahead may hold the key for future ability to break resistance or fail.

REMEMBER there is a substantial risk of loss in short tern trading and option trading and it is not right for everyone. Consult your brokerage firm, broker, advisor to determine your own suitability. Past performance iss not necessarily indicative of future results. USE RISK CAPITAL ONLY

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Update 82: Stock Market-Where to Now?

February 29, 2020 Review & Forecast OPINIONS & OBSERVATIONS

We are going to review our opinions this week and provide you with current views, Ok..last week the bottom fell out of the stock market and we closed out the week with a huge volume flush out…spike to 50 on the VIX and reversal on the close…..obviously the bulls are hoping 2850 will hold and reparations will begin which is possible but in this time frame where so many companies have lost faith in their ability to predict EARNINGS…valuating companies has become guesswork at best. Certainly P/E ratios that were excessive have been coming off but are S&P P/E ratios correcting from 19 to 17 sufficient? What will 2020 Growth & Earnings be? As I write this China was announced at a horrific 35.7..the worst in history. Next week Mon. USA PMI & ISM numbers Tues Fed speaks/USA Auto Sales Wed USA Service Sector #’s Thurs OPEC meets/USA Factory Orders more speaking from more Fed guys and Friday we get the US Payrolls (Jobs)

Any Question?? Contact Us at [email protected]

Stock Market

When we broke above the 3050 area we targeted the area around 3400 S&P as a possible exhaustion area based on number of factors including the failure of the advance decline line to make a new high, the valuations being way ahead of earnings and growth, complacency in the VIX, RSI’s extended, prices of index & key stocks trading so far above their 200 day moving averages (overbought), the Transports & Russell failing to take out their 2018 highs, the dismissive attitude of supply chain interruption & the Virus, the lack of interest from readers to inquire about the uses & risks of hedging (collars-married puts-covered call) and much more. So now we look for support technically and Central Bank intervention to help guide us thru this Katrina like event. Our opinion is we have no idea how this will play out but hope it is just a Q! & Q2 tragedy. We have ranges we hope will hold and they are 2850…then 2700-2600…then the lows of Q4 of 2018 2350. If you believe that extremely low interest rates will bring TINA back…will encourage consumer spending (a new generation of household creators)….a refinance boom and lower gas prices (more cash for consumers to spend)..more Federal spending (stimulative deficits)….5G …the cloud-edge computing still coming….then a buy plan to phase into the decline or wait until we see an S&P monthly low surrounded by higher lows to enter could make a lot of sense…..VIX (fear gage) hit 50 last week which historically has been a stretch point (during the crash times it hit 90)….on our radar is VYM & SCHD which provides diversification and dividend income and of course discounted high flyers MSFT AAPL GOOG AMZN and the semiconductors & the health care sectors could be worth a look. Energy is so out of favor and dividend yields are so juicy…iss XLE, XOM, COP, HAL,SLB, CVX, worth a look? Remember Baruch & the “Buy Your Straw Hats in the Wintertime”

Bond Market

OK…the phrase here is how low can you go..think about it…we’re at the point where we should have Federal Budget Surpluses but we’re running huge budget DEFICITS….so how can we finance them…how about we get rates toward zero….the Fed may cut but I’d bet they know they need to inject liquidity (balance sheet expansion right now)……the last time we had a panic into Treasuries the yield went to 1.4% and snapped back to 2%…..when we get clarity or a break in the action…one view is you will be left with easy access to consumer loans…pent up demand…a supply chain that could cause scarcity & higher prices….a huge snap back in growth and rates near zero on 2-10 year paper….if all these profits that huge amounts of bond players are sitting on want to actualize (sell)…who’s going to buy (maybe the Fed?)…we are now seeing what happens ( in stocks) when a hugely populated bulls party ends with the scream of FIRE! Liquidity is an issue as ORDER IMBALANCES expose inefficiencies in the financial system. If you’re in enjoy the ride and the yields you locked in but we said the trend is UP on TLT for a long while now but the 200 day average is in area 138 and we trade 155….a move between say here to 165 could be a time to fade.

US Dollar

We’ve been talking trading range here for more than a year and recently we peeked out above 9950 DXY…but 100 is the real Wall….and the about face from that area reinforces that belief…..if we close above 100 the risk of a melt up exist (98 area now)…otherwise our opinion is Fed printing & huge budget deficits..Admin desire for weaker dollar..makes south bound logical. Yen Pound Euro ect…..all paper currencies look a bit questionable currently.

CRUDE OIL

OPEC meets this week and as we warned you after the big guys (Saudis) ran the prices to 66 bucks a barrel so they could sell the ARAMCO deal prices could slide back down and a break under 50 could send us sliding if OPEC can’t get uniformity in reducing supply (also said Jan gets a lot of pension buying in stocks & maybe stocks will do like oil after all those monies are in) So Now…let’s see if 40 bucks can hold and if the Saudis can get cooperation on cuts…the oil stocks have gotten so far under their 200 day moving averages & their yields have gotten so high that either they are becoming a Good Buy or they will become a Bye-Bye….electric cars coming…gas is here.Watch RDS.A BP XOM CVX SLB HAL VLO KDI and many more for clues

Gold Silver Copper

We have been all over Gold since it broke 1350 and we told you of Tudor Jones forecast of 1700 per oz…after the move to 1600 we told you of overbought conditions and a possible pull back to 1450-1400 area and a renewed move to the target 1700…we told you of GDX above 17 and 22 and resistance around 30….so now we are pulling back the short term excesses in both Gold & Silver (weaker because of industrial demand stumble)…..what now…we test support 1550-1575 then 1500-1450 and long term averages point to 1375-1400 worst case if we are to remain bullish…if you believe higher prices are ahead because of easy credit..huge deficit spending and a Fed who dreams of inflation & an administration who craves a weaker dollar and worldwide insanity on monetary policy..the obviously you’d see bargains on the dips and plan accordingly.

Grains & other

Here comes more subsidies (not socialism of course because it comes with votes)…and the demand side is on it’s ear…watch for planting & growing news to increase volatility…..tough times sometimes don’t last forever

REMEMBER There is a substantial risk of loss in option trading and short term 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. USE RISK CAPITAL ONLY.