This is the free weekly update that is posted first to the OptionProfessor.com site each week. The Substack paid updates provide more specific detail.
July 17 2021 Option Professor Opinions & Observations
Good Day Everyone!……….We told readers over 2 weeks ago that July was going to be choppy & possibly brutal and that is EXACTLY the month we are having so far. We also told readers that NVDA may replicate the price action of AAPL last year BEFORE it ran up citing a pre-split advance of UP about 60% followed by a post-split decline of about 60% of the advance…which so far is EXACTLY how NVDA has traded. We also told you that there is data that suggests that when Treasury yields peak (March 1.75%)…the stock market peaks 2-4 months after which would be now in July….we will monitor that one closely. We like using LT moving averages as one of our go to tools to determine trend direction and of course since last year it has been effective to smooth out the bumps HOWEVER if there is a trading range market their effectiveness is removed. The whole world knows earnings will be good versus last year as we were in lock down in Q2 2020…..but the music may be changing due to a number of factors such as inflation (can companies pass thru costs). This may have been addressed by retail sales surprising jump and the CEO of Macy’s saying he welcomes higher apparel prices. Another factor is consumer sentiment which is tanking as only 30% think home buying conditions are attractive (no loan demand) but counting on consumers to spend is always a good bet (leisure) and BofA says almost 70% of stimulus checks have been spent (big data). When we keep hearing 3 dates when comparing inflation they seem to be 2000, 2008 and 1981…..the problem we have is all those years would be they were either followed by a crash or a big spike in interest rates and tangible assets. Some say the return of workers this fall, supplies replenished and the technological efficiency enhancements (big factor) will kill all that but we’re not so sure. Some very sharp people are concerned that by year end the piper will get paid as Bonds are ridiculously OVERVALUED and the best thing you can say about stocks is that they are a little less so. All investors can see from their account values (P&L) that we are slowing down or correcting….our LT moving averages are still inverted to the upside so LT still bullish BUT if we do not take out the July highs in AUGUST…and inflation is still in the news…collars, married puts and trimming may be savior. VARIANT RISK is looming as morons with a microphone (many) make money by scaring citizens on vaccines. We will update SUBSCRIBERS as to what sectors we like….which ones to avoid…& if a major correction is on.
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Next week we get more earnings from the likes of IBM KO NFLX JNJ TWTR AAL AXP so we get a taste of a wide variety of businesses. The banks gave us a sell the fact reaction and we wonder if these companies will do the same although the banks were hurt by an oversized run into the reports…not such a risk for some of these. Our short term indicators on S&P show MA’s and RSI in negative territory and Russell-Transports look terrible. Hope is not a strategy so we best see a turn in prices off these earnings and since short term we may be bit oversold so it is possible. The future is clouded by the VARIANT RISK plus inflation which either hits the bottom line if it is not passed thru to the consumer or at some point is systemic in the economy…neither outcomes sounds attractive. The Fed is accommodative but some of them sound like if by Jax Hole they still see high numbers….emergency accommodation will leave the building. Let’s see if we get our boat legs back this week as we see if the monthly lows (S&P 4250) can hold and price reconstruct. We educate subscribers on where to go for growth and dividend income..check it out optionprofessor.com/subscribe
Most traders cannot believe that with inflation running this hot and earnings robust yields are declining…but they are. We told subscribers that we were way oversold in Q1 and positioning for higher rates was a joke. The taper tantrum happened then and until we take out 1.75% 10yr Treasuries/2.55% 30 yr that has been the way to bet. Why are rates so low??…our guess is the flood of liquidity in the system (huge % of all dollars in circulation printed in the last year) and of course the firm dollar and yield advantage over Europe & Asia. You could get a high yield out of China but good luck with that after the 2022 Olympics when their polite demeanor could change dramatically (go ask Hong Kong). It’s all working for us INCOME seekers now from Munis to High Yield Corporates to Senior Loans to EM Sovereign Debt.
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US Dollar/International Markets
The trend on the Dollar is Up and has been since after the correction ended with a break above 90…now support is 91 but RSI’s are above 50 and do you want the Euro or Yen until they figure out their Delta Variant Risks/Inoculations?? On the International markets…..we are back on the defensive in Asia-Pacific (Japan Korea-Australia) and Europe so Caveat Emptor there and Cathie Wood’s reportedly dumping China exposure as Wall St is coming around to the concept many already knew which is a new Cold War with China. If this VARIANT leads to shutdowns; all bets are off for more upside progress and there are plenty of people to leave the theatre BUT with rates so low you may see TINA (there is no alternative) com to the rescue on sell offs…right now upside momentum has left the building. Our Latin American friend in Mexico and Brazil may do well as they are natural resource rich in an inflationary environment.
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Crude Oil/Natural Gas
The oil market is in a tug of war….the oil prices have been generally of (this week they lost altitude) but the oil stocks have been slipping big time. Some say that will close in the months ahead but we are questioning that as the slippage in shares is getting serious. When the 1 month-6month-1 year MA’s and RSI’s are flashing breakdown and have so for months and a VARIANT risk looks real…..you are left with the last rung to hold on the subway….the LT MA’s & RSI. For the bulls they are still intact so our call is we could be coming into an outstanding buying opportunity here as the averages are being tested and the RSI’s are nearing that 50 level….also the LT MA’s are inverted to the upside…so it’s seatbelt time dust off the buy the dip in a bull market theory….we’re going on sale….but not a bear market in our view. Natural Gas is a horse of a different color at this time as our bull call at 2.50 remains (now3.67) and LNG call at 70 (83+)
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Gold Silver Platinum Copper & Crypto
The precious metals tried to get started but by the end of the week they were losing their legs. Some say inflation will rage and paper fiat currency printing is at insane levels while others like Cathie Wood say workers return, bottlenecks will fade and technology will cause DEFLATION….who knows??…so we follow the tape which like oil suggests long term trend are bullish and we need to surpass and maintain prices above the 1 yr MA on our long term graph to get these horses running (Gold +1830-Silver+25.70-Platinum +1060)…Copper has lost altitude since it topped at 4.80 (LT MA at 3.80) but it is the new oil they say with massive infrastructure and China demand in front of us, China has been trying to DEFLATE everything in their path including their stock valuations and commodities (with obvious results). The only thing we say about BitCoin & Ethereum is the press stinks now (China & mining plus energy usage etc) and so do prices BUT let’s look at our old buddy Fibonacci to get some perspective….GBTC started its run from 5 bucks and ran to almost 60 (a 55 dollar move) so 61.8% of 55 is about 34 AND 58 has been the high so 58 minus 34 is 24 which has also been the low of the down move so let’s see if our buddy from the Middle Ages may be telling us we are near the lows:)
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Soybeans Sugar Coffee
All three were our favorites last year BEFORE they had huge moves to the upside…..now all 3 have hit short term peaks and are consolidating. We have ways of playing these markets as part of a basket or individual ETF’s-EDUCATE– LEARN
REMEMBER There is a risk of loss in all investing and it is not right for everyone. Consult your brokerage firm/broker advisor to determine your own suitability. Past performance is not indicative of future results. Opinions and information are provided for informational purposes only. It is NOT advice