Category: Market News, Research & Commentary

This past year has been an interesting one for watching the performance of stocks & the markets. Between all of the recovery type names, unique ways the TV pundits proposed calculating earnings during the pandemic & market momentum that has been pinned on there being more active participants than usual, there’s been no shortage of entertainment. But something that we haven’t seen much of is people discussing the negative fallout potential that all of this has created.

We all know that stocks take the stairs up, which they’ve been climbing with few faults since March/April 2020, but how far down the elevator ride will be hasn’t really been tested. This may ultimately be more problematic than most folks anticipate the next time around, mainly due to the rapid “recovery” that was made last spring.

A quick dive into the charts of the major indexes shows that the bandaid may be better off being ripped off in the near-term than later.

Breaking Down The Moving Averages Of Major Stock Indexes For 2020 Into 2021

In the last couple of weeks we have seen index levels flirting with their 10 Day Moving-Averages quite a bit, while always managing to break above them slightly & begin to establish new, slightly higher ranges. Something that is particularly troubling about this, is that RSI levels remain on the higher side, while MACD levels are relatively flat.

Treading water is an essential survival skill for maritime activity, but not necessarily the best for your investments & retirement account.

The charts below show how this is bringing major moving averages closer together to levels that may prove to be problematic the next time that even a 10% correction inevitably comes around.

This is the chart for QQQ, tracking the NASDAQ; note the relatively flat MACD levels mentioned before over the last 200 days, minus a few hiccups & the RSI in the last 50 days spending a lot of time cozying up to the 70 level. A 2.23% drop in price level is all that is needed to break below the 10 Day Moving-Average, and the 50 Day Moving-Average is only 4% lower than that.

A 10% correction would push prices below both of these levels in a bearish manner, with the 200 Day Moving-Average 12% below.

Using the SPY chart above, we see that the S&P 500 has even less room for error, with similar RSI & MACD trends as QQQ. SPY’s price level is less than 1% above its 10 Day Moving-Average, with only 3% lower to go to break the 50 Day MA in a bearish manner, and the 200 Day MA 10% below that.

A 10% correction in prices here will leave the 200 Day MA about the same distance below the current price:50 Day MA level.

The Russell 2000 has a bit more breathing room, with the IWM ETF price level being 1.6% above its 10 Day Moving-Average, and the space between the 10:50 Day MAs being an additional ~9%.

Applying a 10% correction would breach the 50 Day MA, but the 200 Day Moving-Average is still another ~19% below that, providing more cushion from a technical perspective.

Then we have the Dow Jones Industrial Average, who seems to have it the worst (although also the smallest sample size by components).

With its price level just .11% above the 10 Day MA, the 50 Day MA is another 2.7% below that & the 200 Day MA is only 9% below that level, making a 10% correction a much larger issue from a technical standpoint.

As you can see, from a technical perspective we are standing on bambi legs, as a healthy move to the downside will have most of these indexes flirting with breaking the longer-term trend.

Much of this is due to the need to place money somewhere for growth, and a lot of speculative bets being made, primarily on technology & medicine, which will also likely make the difference between QQQ & IWM become much closer to the SPY & DJIA levels shown above.

A Correction Sooner Than Later Will Be Beneficial To Rip The Bandaid Off

I added in the 200 day & 50 day yardsticks above, as it highlights that there is an additional problem posed by the rapidness of the market’s recovery. The recovery speed of last spring for the most part outpaces the performance of the more recent time periods, which is somewhat of a life-ring for the longer-term moving averages shown above.

Using the QQQ ETF again, I added in an additional yardstick at the 150 day ago mark. Note that the 200-150 day ago period QQQ grew by almost 22%, while between 150-50 days it increased another 16%, followed by ~15% growth in the last 50 days. That rapid spring recovery is a major reason why the 200 Day Moving-Average has the spread between the 50 Day MA that is currently enjoys.

Looking at the S&P 500 via SPY, we note the same thing; 12.6% growth in the 200-150 day ago period, followed up by 15% growth in the 150-50 day window & only 8.2% growth in the previous 50 days.

The Russell 2000 IWM ETF has fared the best, with 19% growth in the 200-150 day window, followed with increasing growth, with 22.5% gains in the 150-50 day window, and 24.5% growth in the last 50 days. This is why their 200 Day Moving-Average has shown the best amount of cushion for any pricing pullback out of everything shown as examples here.

The Dow Jones Industrial Average has the worst recovery:recent growth story, to be expected based on our last DJIA chart. With 10% growth in the 200-150 day window being followed by a 13.7% increase in the 150-50 day period, and only 5.4% growth in the last 50 days.

Tying It All Together

All-in-all, if we continue to tread water the way we have been compared to last spring’s recovery growth, this will only make the major moving averages get closer together. This will then make any normal correction become potentially much more dangerous, as the downside movements in price will come much closer to breaking the long-term trend, if they don’t blow right through them.

With this in mind, it is becoming more & more essential for traders & investors to have a hedging strategy in place, and be ready to actively trade during the upcoming downward motion, whenever it ends up happening. It appears that the sooner it takes place the better it will be, as otherwise there will be more obstacles to overcome from a technical perspective.

Perhaps its best if the bandaid is ripped off now, before a cast & sling are required later on down the line…

This week we will begin to hear about the impact that Covid has had on Black Friday & Cyber Monday, which will be a great barometer of consumer sentiment for a year that has hurt many financially.

Another item of interest will be to see not only how Covid cases/deaths continue to climb & where, but how drastic the “lockdown” measures taken to combat it will be.

I will also be interested in hearing more about Flu numbers, as we are in full on flu season now, and it isn’t sounding like that bad of a year, which raises suspicion on Covid reporting.

On Tuesday Powell will be testifying, when we also get the ISM Manufacturing PMI number, as well as the ISM Manufacturing New Orders Index, ISM Manufacturing Prices Paid & Employment Index numbers as well.

Wednesday brings the ADP Employment Change report, which will be interesting to see how seasonal jobs that may have been taken in year’s prior for the Christmas season fared due to Covid restrictions.

I’ll also be interested that day in the EIA Crude Oil Stocks Change, as well as the Fed’s Beige Book & Williams’s speech.

Thursday’s Initial Jobless Claims & 4-Week Average numbers will bring more clarity on the current employment situation, as well as shed light into how many jobs are still being lost as more & more companies are forced to reduce workforces due to virus restrictions; the ISM Services PMI will also be reported on Thursday.

Lastly, on Friday we will get to hear the Nonfarm Payrolls report, Trade Balance Numbers & Factory Orders M-o-M, all of which will help shed light into how the economy looks to be heading as we begin winter.

While markets tend to perform well in December, at/near all-time highs, any one bad report that doesn’t meet anticipated expectations may cause some of the jenga pieces to fall, providing a new entry point for market participants.

Lots of folks have been saying that they see it occurring in January 2021, but when markets are running this hot, any hiccups in data are prone to start a correction in prices.

Last week provided nothing short of a wild-ride in terms of the news cycle.

Particularly interesting is that the presidential race in the US was called on a Saturday, and with the amount of information that shows there is likely to be some strength to the lawsuits against the counting process.

This will make for an interesting week ahead, particularly in the stock & currencies markets.

Beyond Meat & a number of popular cannabis names will be reporting earnings this week, along with some energy companies, which will provide interesting market movements.

In the US, the JOLTS Job Opening report comes out Tuesday, which will be worth examining as it will likely begin to show more seasonal employment changes, along with some FED speeches & the Unemployment numbers.

These will give better insights into the current state of the economy in the US, and give some idea as to how far ahead of itself the market has become.

FX markets will also be a good indicator as to what’s to come, along with bonds across the globe.

There will likely be some volatility that traders can take advantage of, and that longer-term investors can use as entry points on their favorite stocks, whether to establish new positions or to build upon existing ones.

All in all, it’s going to be a fun week in the markets, but certainly one to keep a watchful eye on.

Last Week In The Market

Last week had a lot of interesting earnings reports, and a bit of an unwinding of the NASDAQ & S&P 500. This was overdue, as the NASDAQ had far outpaced the S&P based on vaccine optimism, and people looking to trade tech as they deemed it the best work-from-home market option. I didn’t make too many trades, but did pick up some PTON calls, as well as WKHS calls. Some of the WKHS calls I am carrying over the weekend, although I sold many of them last week.

I also sold some CYDY after 45%+ gains, and rolled the profits into AGNC, whose 12.67% Dividend Yield is paid out monthly, adding a nice 1% of my principle back to my portfolio each month. I also hold PSEC which is a similar type of company, but recently began diversifying by holding both.

As the summer has been a bit nuts between losing a close friend (and avid reader of my site, he used to text on Sunday nights asking when posts were coming out if one wasn’t up yet) in July & some trips taken recently, I have not been updating the site as often as I normally would. With that said, a couple of weeks ago I picked up DHT for the quick Dividend Play as they were paying out $0.48/share, it was a quick hold for 8%. Depending on what their next announced dividend is I may do it again as well.

What I’m Watching This Week

Well the Patriots of course…

We’ve got some interesting earnings calls coming up that may give us more color into the true shape of the economy this week. That will pair perfectly with the US Industrial Production numbers (Tuesday), Retail numbers (Wednesday), Business Inventories (Wednesday), NAHB Housing Market Index (Wednesday), & FOMC Economic Projections & Fed’s Rate Decision (Wednesday).

Thursday we will get a look into Jobless claims & employment figures, Housing Starts & Permits data, before Friday we hear about the Michigan Consumer Sentiment numbers & accompanying Inflation Expectations.

This has the potential to throw a little more volatility our way, especially when you look at the current 1 year NASDAQ chart, and see that the current level has intercepted the 50 Day Moving-Average.

This to me shows that we may have a little more volatility coming our way in the near future. This would be healthy for markets, and also be appealing for some new stock entry points.

Final Thought – My CNBC Fast Money Appearance Last Week

Last week I was on CNBC’s Fast Money, with my post-Covid haircut & handlebar mustache, had to share it here!

Summer has flown by & we find ourselves in the second week of August already. August tends to see an uptick in volatility each year (I believe someone on Bloomberg said ~4% on average), which could make for some interesting trading conditions over the next three weeks.

S&P 500, NASDAQ & Dow Jones Are All Spreading Apart

As we are to be expecting an uptick in volatility, lets check in with the charts. Below is the chart for the S&P 500 for the last year, with the NASDAQ (Purple line) & Dow Jones Industrial Average (Aquamarine line).

The NASDAQ has recovered much faster & more aggressively, as it is being fueled by Biotech bets, and tech companies that are helping people work from home in the new age of COVID. Looking at February 2020, at their most spread apart point in the last year, these indexes were all much closer to one another in performance.

Looking at the VIX, it seems that things are taming down, but with a performance spread that far apart, there will likely be an ugly correction coming up in the future, as the VIX is still above where it was when the indexes were performing more in unison.

What We’re Watching For In The Market This Week

There are going to be a lot of diverse companies reporting earnings this week, which should add to the rocking of the boat. There are going to be companies in the tech & biotech sector who may be chopped down to size based on them growing at the rate of their peers (on speculation), and other companies in battered down sectors such as travel will be reporting what look to be dismal results.

Will the markets be looking ahead and past this bad quarter, or will the inevitable reality check come back to haunt us, reminding market participants that there things aren’t back to normal yet, and there is still a long road ahead of us for getting people back and actively involved in the economy.

US Job openings will be something to keep an eye on, as we look to see how many people are returning to work, after being surprised week-over-week by the numbers of jobless claims that have been reported. There are going to be a number of Fed speakers this week, and US PPI numbers will be Tuesday as well.

Inflation data & Mortgage application numbers should also be interesting, as despite the trying economic times, people are fleeing the cities to buy homes in suburban areas.

Crude oil stocks, jobless claims & retail sales & industrial production numbers will also be interesting to watch as they come in, to see if they are in line with what the market’s performance seems to be expecting.

Recent Options Bought – Ford $F Straddle, $REAL Puts, $PETS Calls

I’ve been studying options more of recent and began trading them a month and a half or so ago. Some of my recent purchases were $REAL $12.50 puts with a 12/18 expiration. I don’t see people having much demand for their products this year, especially given the fact that so many states are flip flopping on their COVID responses as infection rates fluctuate.

I also purchased some $PETS $35 calls with a 9/18 expiration after their drop on earnings. I liked the stock prior to that, as I had recently written about it in the stock research section of the site.

Also, I have a $F $6.50 ratio-straddle that expires on 8/28, with a ratio favoring the puts 3:1.

Back after taking some time off to relax, and I’ve got a few things to review. Markets have continued to climb up slowly & steadily, yet the Vix is staying relatively flat/creeping up every so often. Most of the major market reports this week are outside of the US, showing that Virus fears & recovery prospects have a better than average chance of swaying markets locally in the US.

Over The Last Two Weeks, I Purchased Shares Of MGA, WCLD, TFII & STX Stock

I have been a longtime fan of Magna International stock ($MGA), as they offer steady performance with a sustainable dividend yield, while providing exposure to the Auto Parts & Equipment Industry.

WCLD also provided a unique way to build upon a position in the Cloud Computing space via SKYY, as their recent performance has been ~2x that of SKYY, and their share price is ~50%. This enabled me to add to my cloud exposure, without muddling the existing levels of SKYY profits I have.

Seagate Technologies stock ($STX) is another purchase I made, as they offer a strong dividend, healthy fundamentals & Information Technology Sector exposure, but from a more value-oriented perspective than most of it’s peers.

TFII is another name that I purchased shares in yesterday. Their fundamentals & technicals have both been quite strong recently, and they provide me with exposure to the Road & Rail Sector & Trucking Industry.

Buying Options – GE, CSU & CHEF Puts & SQQQ Calls

During the last week I also purchased some General Electric GE $6 Puts, with an expiration of 11/20.

I also purchased some $2 Capital Senior Living Corporation, $CSU Puts, with a 12/18 expiration.

Chef’s Warehouse $CHEF has $15 Puts that expire on 1/15/2021, which I also purchased.

Additionally, I picked up some SQQQ $9 Calls that expire on 1/15/2021 for some extra protection from any uncertainty around the NASDAQ in the meantime.

Tying It All Together

Today is a market down day based on what the futures are saying (writing this before the open), and I’ll be keeping my eyes peeled for some deals on a few other names that I like in the longs & calls.

It’s interesting watching how people are starting to become much less certain of the strength of the markets now vs. a few months ago when not much has changed.

As a result, I’ll be still purchasing strong positions, and pick up some hedging options along the way until it appears that the markets are ready to take off.

Last week we saw a lot of market action. Powell paid for us all to come out to dinner, and then the check came come Thursday… Will Mnuchin leave a big enough tip for our tab to keep the party up?

Last week was a big gainer, I sold a lot of $UXVY, $SPXS & $SQQQ calls I had been building up over the previous weeks, and had a 57%+ week.

I have some short & long options on the table still, and have trimmed a lot of long positions to pivot them into existing yield-plays & new value/growth opportunities, some of which I outlined in my other posts today, with Magna International Inc, MGA & Cummins Inc., CMI and a handful of other names.

I also picked up some Hertz $HTZ puts last week, which have already turned a slight profit. I am interested in seeing how their restructuring/new offering plays out, but I don’t see any magic share-price recovery based on the existing options they have.

What I’m Watching For The Market This Week

It’s safe to say we all know that civil unrest is causing domestic issues in the US, and attracting international ridicule (although mostly as a deflection tactic when we look at the main aggressors).

COVID-19 is alive & thriving, although now hospitals seem to at least be resourced enough to get by and take regular patients who have issues that need to be seen.

I want to see how the numbers of COVID move, in relation especially to the areas of protesting, given that most of these folks are not socially-distanced, and not wearing masks.

It will be especially interesting for the sake of assessing where we are at with COVID to learn how it is impacting residents & police/front-line workers in these areas, as well as people in the new “CHAZ commune”.

Powell speaks this week, and Japan announces rates, pair this up with Trump/Mnuchin comments, and increasing international tensions, I’m not really sure where we go.

Retail Sales & Building Permits numbers will also be interesting to see, especially with how they relate to the new Unemployment Numbers on top of the existing trend.

My Week’s Market Plans

As previously mentioned, I’m not certain where I am sitting for tomorrow. I will be watching the futures all night, as it is tough to gauge the reaction to an overinflated market that has gapped down on a Thursday with a filled-green candlestick on Friday…

Almost as if there was overnight dip-buying in futures, which carried over early, and then gains began being tapered off immediately Friday.

I still have some short index ETF & long VIX calls I’ll be working with, and am planning to build upon my existing longs & some call positions, but how I balance everything will depend on how the week goes.

I don’t see markets going to the March lows, but I am eyeing S&P 500 at 3,000 as well as at the 2,900-2,950 range. The NASDAQ is more likely to move based on virus vaccine & tech movements, so S&P seems to be a better gauge at the moment, especially given how they’ve diverged this year.

This week ahead should have some excitement to it. The last week of the month certainly finished off strong in the final minutes, but what really changed? Most likely folks looking to pump up June numbers by planting seeds early to pull as the trouble starts…

But Stock Went Up For May?!

The S&P 500 & NASDAQ all had pretty decent months for May, but on what? Talks of more companies working on a virus vaccine, talks of more financial stimulus packages, and folks giving recent earnings calls a “mulligan” & readjusting their expectations to be modeled around next year’s projections…

So the answer there is nothing… Lots of speculation, hopes & dreams…

Markets Will Have To Brace For Global Unrest

People are losing jobs left & right around the United States, and on top of that there has been well-recorded rioting taking place all weekend/last week. The markets somewhat traded cautiously last week given the news of China & Hong Kong protests, but with the weekend’s China-India scuffle, they’re likely going to be much more reflective of the current state of affairs in the coming days-to-weeks.

Coronavirus is still a factor at play, although it seems to be less popular in the headlines than it was previously.

This Week’s Plays & What I’m Watching In The Market

While still holding long positions, I began buying call options in short-S&P 500 EFTs & VIX based products, with mid-October expirations. If the prices are right I’ll add onto them this week, as I see within the next week or two there will be some turbulence in the markets.

Looking at the charts from last week, indexes look to be stalled, not sure of which way to turn, especially looking at the candlesticks from the last few days.

While the NASDAQ’s moving averages have been greatly helped by the rush to Bio-tech & healthcare, the S&P 500’s price, 200 Day & 10 Day Moving Averages are all cozying up to one another.

With the lack of strength behind recent buying & conviction, and the optimism in light of conflict, I see these options being able to help reduce to risk to my long-term holds while the market corrects its prices.

I’ve been holding more cash recently, but still maintain the view that the value-oriented names with less levels of debt and a safe dividend yield will be best suited for the start of summer, where buy-in opportunities will begin to present themselves again…

This past week was much like the previous; lots of noise coming from earnings reports & global economic data that lead to cautious movements for the most part dictated around how indexes opened. It was almost like watching a bunch of deaf folks play musical chairs in the dark, lots of early-round momentum lead to folks moving in one direction, but prices didn’t indicate that anyone knew where they were going, or why.

If Things Are Better Than The Worst Case Expectations, Is That Really Good?

Clearly markets agree with that statement more often than not; they’re supposed to be a judge of the current value of businesses contained within them, but as growth stocks have been favorites over the last number of years, they also project a certain amount of hopes & expectations. “We should be trading on 2021 expectations” has become an overused drinking phrase on the daily market TV coverage, which is going to be especially difficult to gauge, given most folks don’t seem to have an idea as to how bad these global economic shutdowns will be in the coming weeks, much less years.

Benjamin Graham made it pretty clear that predicting the future isn’t an easy task, much less one that you should base investments & trades on, yet folks don’t seem to care.

At the end of the day, Mr. Market will come back to straighten things out…

What I’m Watching This Week

Earnings reports will slow down this week, which will likely change the structure of volume we’ve seen over the last few weeks, as less people will be trying to play the reports one way or the other.

I’ve also noted that the technical’s ratings for Materials Sector stocks seem to be outpacing the growth of their share prices, which still have shown W-o-W growth. I am in ADES, which has seen 25% growth in the last couple of weeks since I bought it.

CPI numbers will be reported Tuesday in the US, EIA Crude Stocks Wednesday, Jobless Claims on Thursday & Retail Sales, JOLTS Job Openings & the Michigan Consumer Sentiment Index.

While Friday was a strong close to the week, I’m not as confident in this upcoming week.

Checking In On The S&P 500 & NASDAQ Charts

Looking at charts for the NASDAQ & S&P 500, I’m still not certain we are out of the woods just yet.

The S&P 500 is still facing downwards pressure from the 50-Day & 200-Day Moving Averages, with an RSI of 58 on the 1 year chart, showing it is heating up a bit.

While the NASDAQ chart looks a bit more bullish, note the RSI is at 64, where a number over 80 in considered over-bought territory.

Tying It All Together

As I noted last week, a 2.5% drop in either index would be able to spur a technical sell-off of sorts. With last week’s gains that has built up a safety cushion.

With that being said, bad but not the worst-case scenario data may have been able to hide out behind massive amounts of earnings calls these last few weeks. Now that the Fed has cut down on the amount of their buying programs, and data will still be most likely coming out bad but not the worst, we should see some giveback from the indexes.

I would still be favoring names with good value & safe dividend yields, as they will continue to growth & be better suited to weather any potential storms. I also am still short the indexes & long volatility, although I did some rebalancing last week to favor more volatility.

After an interesting week last week, it looks like we’re knocking on the door of the way down. It’s almost like there’s a door that the markets are knocking on, except on the other side is just the edge of the cliff, that we’re about to step off of.

The effects of the Covid virus have made global economic numbers dismal, earnings numbers were not fantastic & we learned that the Fed has begun to step back even further on their Treasury QE buying… Roadrunner Powell’s about to send Wall St. Coyote off the cliff potentially.

Lots Of Earnings Calls On Deck For This Week

Over 1,600 companies will be reporting earnings this week, which should add a lot of noise to the current situation. Based on everything that we saw last week, I’m not buying that we’re going to see anything good come from these calls, but there is enough volume of them to cause some chop for sure (upwards or downwards in this instance).

Considering that a majority of all positive market movement these days is coming from FAANG stocks, this should open up the stage for more fallout.

We’re Technically Closer There Than You Think

After looking at some of the last few month’s charts, we may be closer to the edge of the diving board than we think. Most of our market action these days is dictated on the open of the day, and then trades relatively floundery the rest of the day in one way or the other.

Looking at the charts for the S&P 500 & NASDAQ, a 2.5-3% gap down day could be the exact thing to trigger the next market downfall.

This will make market opens more interesting to watch, as a 2% gap down open already has stocks playing 1st & Goal for a fallout..

We’re playing with dynamite at a time where Fed Officials are stoking the fire, almost like a controlled burning of a building that will lead to the downfall of the block once the neighbors join in…

What I’ll Be Doing

I am still maintaining my short positions, I don’t see things turning around anytime soon, and I’m not convinced that we’ll find a miracle market mover this week either.

Headlines regarding state’s reopening may help soften some of the blows we are about to take, but after Gillead’s drug botch & earnings call, I don’t know that markets are too inclined to move on drug optimism as much as they were.

Factor in the other elements listed above & I don’t see this being a prime time to be buying stocks long, however, it is a great time to start putting together a “wish-list” and expected buy-in ranges for when things start to settle down after the next decline…