Category: Market News, Research & Commentary

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…

This upcoming week should prove interesting for traders & investors. There is a lot of data to be announced/reported, as well as earnings reports, notably from some of the biggest names in tech (Apple, Microsoft, Google, Amazon etc…)

Factor in the recent volatility in oil, the speculations coming out of North Korea & the fact that reported numbers now both from the government & individual companies are containing time periods that were impacted from the lock-down & stocks have a lot to work with from a pricing perspective.

Reading Into Stock Earnings This Week

Some of the most prominent names in the Technology Sector will be hosting their earnings calls this week. Looking at the chart, Apple, Microsoft & Amazon appear to be better off than Alphabet. I’m going to be looking at how the impact of Pay-Per-Click revenue & sales etc.. are impacting Alphabet.

Google AdWords provides extra “digital-billboard” space to many small businesses, but with the already increasing Cost-Per-Clicks, a lot of companies are likely to be removing this from their budgeting.

Given the current state of small-business and their consumers, this should be something taken into consideration when trying to assess the strength of small-business & the economy.

I’ll also be keeping an eye on international markets, as well as the Materials, IT & Consumer Staples sectors, as outside of healthcare those had the strongest average improvements in technicals over this past week.

Economic Reports & News For The Week

There’s going to be a lot of numbers being reported this week that will also help guide us as to where we are heading next:

• Dallas Fed Manufacturing Index
• Goods Trade Balance
• Durable Goods Orders ex Defense
• Consumer Confidence
• GDP Annualized
• FED Rates Decision
• Initial Jobless Claims
• ISM Manufacturing PMI & Index and more….

I’ll be looking to see how these numbers begin to reveal more of the Corona-virus stats being reported by companies. Markets may give up some excellent deals as folks try to recalculate their positioning & re-balance their holdings according to the data being published.

This will be even more interesting, as it is likely that the more negative the headlines coming out of North Korea are, the more uncertain the market will become, adding to the existing volatility.

Volatility should kick up within the next two weeks, as unless all news & numbers we receive are good, there’s too much muck & ambiguity out there that is/has been recently impacting stock prices.

I am still in my previously mentioned short index, long volatility positions, and will continue adding to my long PSEC & ADES positions, as well as looking closer at UG as it approaches the $12-12.50 range (published in today’s notes here: https://optimizedvalue.xyz/united-guardian-inc-ug-stock-analysis/

I’m still not convinced that stocks have recovered, and I think that the factors above present a lot of opportunity to shake out the prices of over-bought stocks.

This will provide a great hunting ground for building positions in some value & growth names I’ve been looking at recently.

US Equity Futures have opened lower, let’s see how the rest of the week plays out…

Looking at this week’s market moves so far, Energy (+7.59) & Materials (+3.66%) are the leading sectors, followed by Industrials (+1.92%) & IT (+1.65%).

Earnings results & oil price issues have caused some of this movement, but it is further reinforcing that people are looking for companies with lower debt, more cash and or better & safer dividends.

The Materials & IT Sectors offer this, as both have similar Debt/Equity Ratios, and where IT has high levels of cash, Materials are offering above average yields at safer Payout Ratios than most other sectors.

As I mentioned earlier in the week, I purchased shares of Advances Emissions Systems Inc. (ADES Ticker), a Micro-cap value play that filled on Tuesday at $6/share (+9% so far EOD).

Names like these should continue to thrive under these lockdown conditions, as folks will continue to seek stocks that are value-oriented, and that offer better interest in their yields than other assets are currently offering.

Financials (+.09%), Consumer Discretionary (+.32%) & Real Estate (+.7%) have all performed the worst so far this week. I don’t know that I’m ready to go deep diving into that end of the pool just yet, but will be certainly looking at those companies over the weekend.

Coming up on Friday, I’m not expecting much from tomorrow, unimpressive numbers across the board continue to show the fragility of the market, and today’s morning bump, afternoon pump was certainly reassuring on my short positions.

Seeing things like Tom Hanks typewriter message kids on CNBC after the market closes also doesn’t reassure me that we’re out of the woods just yet…

Expecting to see folks sell off risk into the weekend, especially given the number of companies set to report earnings tomorrow. Let’s see what happens!

*** I have a long position in $ADES, as well as Short positions against the S&P 500, NASDAQ & Russell, & also am Long Volatility, related to the above article***

It’s been an interesting few weeks in the markets, and it seems that most folks agree that they don’t know exactly where to go next. Fundamentals have been skewed for years, and technicals on the charts have become a bit muddled; adding to the fog. 

We’re entering more bearish times, which will become messier by Federal Reserve intervention, energy prices (Oil going negative  today), and bond prices all re-adjusting as people begin to follow what debt the Fed will be buying. 

Add in earnings that now include COVID-19 lockdown time, and things become ever the more unclear. Here’s what we see:

Stocks To Decline Further As Investors Seek Cash & Safe Yields

We have been short Indexes as well as long Volatility for the last month or so (took a trading hiatus for 6 months for work/personal reasons), mostly utilizing inverse-leveraged ETNs & ETFs. The markets were already running on fumes & being propped up by easy-money policies & headlines more-so than any fundamental value, and the “Economy Time-Out” being imposed by most governments has caused a rush for cash, and is starting to weed out the weak from the strong.

This will make value-investments all the more important, as they focus on financial strength, blended with interest offered through Dividend Yields, and the yields’ sustainability. I’ve been analyzing 6000+ companies recently, and the trend is clear that people want safety in companies that are of high value; solid balance sheets, good debt ratings & offering a yield cushion for any future falling. Small caps may offer additional safety, as they will be less likely to move with the market, and move more based on performance. I’ll be posting notes on a new small cap value pick tomorrow.

Earnings Season Is Upon Us, What’s Next?

This earnings season will be particularly interesting, as most companies have not been posting incredible Y-o-Y improvements in their reports as it is, and now they are going to have to face the same obstacles, with a virus stay at home ruling in place. Before we go any further, remember that next earnings season will likely be even more painful…

With already limited wiggle-room, companies now have to account for additional loss of business, which will make even more issues for traders & investors.

New modeling will be forced to be done to account for so many anomalies occurring at once, and algorithms will still be running rampant, which may create additional volatility once things really kick off ($IBM is currently down 1.32% after hours as I type this)…

This may help shorts in the meantime, which are increasing again, and will create great entry points for value stocks in the near-term. The weaker companies will now start to become exposed, making money that has to earn money retreat to tried & true value picks.

How To Navigate Earnings Season For Stocks This Time Around

Numbers as we know with most companies are already manipulated a bit… now we must factor in adjustments being made for things that don’t have much previous data to model around. With such limited sampling, things will become much shakier than usual, again influencing investors into higher value names.

We recommend using your existing stock measurements for the last 1-3 years, and comparing them to the earnings moves of this quarter for themselves, their sector, industry & sub-industry to see if you can potentially draw up any trends. It’s not a perfect system by any means, but this is a time where the basic principles of KISS become even more important (Keep It Simple, Stupid…)

Remember, the trailing proven numbers are much easier to adjust than forward looking estimates… use these items for baseline benchmarks as well in comparison.

Stocks & Sectors We Like

As mentioned prior, most of the current holdings are in securities such as TVIX, SQQQ, SPXS, & RWM for the volatility and shorts portfolio. This also contains a position in Prospect Capital Corp (PSEC), as well as a order for Advanced Emissions Solutions Group (ADES) that has yet to be filled based on a sub-$6 price target (post to be published tomorrow).

The thought behind this is that the high, yet (relatively, due to PSEC’s payout ratio, ADES looks highly sustainable) sustainable yields can provide more cash to take advantage of the continuing downtrends, as well as to set up long-term value positions with leveraged long-ETF positions as well for the rebound.

As far as a sector that we think shows promise as a whole, Materials & Financials seem to have some opportunity for current growth, as well as long-term facing growth. Both are reading in at the lower end of better-valued sectors, with the exception of energy which is still a bit of a gamble. They offer safe yields, solid cash & lower debt, while being some of the underlying bigger players in the near-mid term future as the economy has to kick-start, no matter how it is done.

Tickers Mentioned: TVIX, SQQQ, SPXS, RWM, PSEC, ADES