by cefpodoxime
TL; DR: Buy SPY 330 Calls for Sept 2020.
The bull market will continue. Some data presented below.
VIRUS FUNDAMENTALS:
- Percent of tested positive cases continue a downward trend in the US (especially in both Georgia and Texas that opened up weeks ago – where media spreads fear that overall cases have risen but this is due to increased testing. PERCENT POSITIVE is falling pbs.twimg.com/media/EYL3LGZX0AEj7Cq?format=png&name=small).
- MOST CASES are asymptomatic and not detected which is good news for the trend towards herd immunity. www.nature.com/articles/d41586-020-01095-0
- FORTY PERCENT of deaths have been in ALF and nusring home facilities. NURSING HOME PATIENTS ONLY MAKE UP 0.4% OF THE POPULATION. 94% of deaths occur in age 50 or above. The working force labor pool remains very well intact.
- Denmark and Norway cases have not spiked despite reopening schools 3+ weeks ago (despite COVID’s incubation period being <14 days). Sweden has done very well staying open (curve has stayed flat/hospital capacity never overwhelmed).
- Hope for vaccines continue to increase. Of more than 100 vaccines in development globally, at least eight have started testing in humans (lightning fast vs other vaccines in prior epidemics). www.wsj.com/articles/coronavirus-vaccine-frontrunners-emerge-rollouts-weighed-11589707803?mod=hp_lead_pos1
CONSUMER DATA
- Thanks to income equality, the bottom 40% of households comprise 11% of total income in the country. The top 20% hold 52% of total income. Of people working in February, nearly 40% of those with a household income below $40,000 reported a job loss in March.
- The April jobs report that showed nearly 90% of Americans who had lost a job said they were on temporary layoff.
- Social distance spending (bars, restaurants, transportation/airfare, cruises, sports, gyms, movies) only comprise $717 billion of the $17 trillion consumer wallet. >90% of spending can remain intact, if no one ever does any of the social distancing activities ever again.
- Thanks to federal $600/week increase to state unemployment benefits, income for majority of unemployed people is actually higher than when before losing their job.
- Fiscal policy works, UMich edition: “Confidence inched upward in early May as the CARES relief checks improved consumers’ finances and widespread price discounting boosted their buying attitudes.” US Univ. Of Michigan Sentiment with surprise rebound in May, P: 73.7 (est 68.0; prev 71.8)
- Home-Buying Demand Passes Pre-Coronavirus Levels www.redfin.com/blog/wp-content/uploads/2020/05/Redfin-Homebuying-Demand-Graph-May-10.jpg
DON’T FIGHT THE FED
- “…there’s a lot more we can do. We’ve done what we can as we go. But I will say that we’re not out of ammunition by a long shot. No, there’s really no limit to what we can do with these lending programs that we have. So there’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to.” – JPow earlier today. www.forexlive.com/centralbank/!/feds-powell-federal-reserve-is-not-out-of-ammunition-can-do-more-if-needed-20200517
STOCK INDICATORS
- AAII sentiment is a great retail sentiment contrarian indicator, which is also clear with r/investing being majority bear. www.aaii.com/sentimentsurvey?
Remember in 2018’s correction, sentiment change was very similar to this year’s crash; and 12 months later the market had soared (i.e., was great time to be buying stock while majority were scared) blog.aaii.com/aaii-sentiment-survey-pessimism-surges-to-a-5%C2%BD-year-high/ - A good short squeeze set up is happening.
“The assets sitting in money market mutual funds now totals $4.8 trillion, which equates to around 16% of market cap. On a percentage basis it’s not as big as 2008, but it’s still a meaningful amount of dry powder earning little & suffering from increasing FOMO.” pbs.twimg.com/media/EYQiz4TWAAEbPOu?format=jpg&name=small - On April 30, Boeing completed the largest bond deal ever not associated with a transaction – they wanted 10 billion, but because there was SO MUCH demand they ended up with a 25 billion issuance, with some bonds that won’t even be redeemed for 40 years at 6%. This is all despite the facts of complete collapse of airplane demand and its 737 max scandals, and even despite literally the day prior, Boeing reported a second consecutive quarterly loss and had its credit rating downgraded to a notch above junk status. Bond investors are looking ahead through this crisis.
- Overall in March 2020, U.S. investment-grade issuance topped $259 billion for a new monthly record and an additional $162.7 billion in April 2020, bested only by March! This means many of these companies have raised enough to insulate themselves through the downturn for up to 12 months.
- In every recession related crash, markets have ALWAYS bottomed BEFORE initial jobless claims PEAKS. They have ALWAYS bottomed BEFORE consumer sentiment bottoms out. This has very likely already occurred when we saw initial claims peak out at 6.8 million in March, after the Mar 23 stock bottom. d3fy651gv2fhd3.cloudfront.net/charts/united-states-jobless-claims.png?s=ijcusa&v=202005151525V20191105
pbs.twimg.com/media/EUycDxXWAAALS64?format=jpg&name=medium
TECHNICALS
- Mostly copied from my prior April 10 post: When you look at the 1987, 2002, and 2008-2009 crashes, whenever the stock market had recovered 50% of the losses, it was already well on its way to completing the next high of the new bull market. We have closed above 2792.69 on SPX, and has held solidly. This is clear confirmation that the bottom has already passed. imgur.com/a/LsHZCpb
- And if you also look at the prior crashes, recovery to 50% takes about half the time it took to crash. We fell for six weeks, and now 3 weeks from the march 23 bottom we are already closing in on 50%. It also takes three times the duration of crashing to reach ATH if you look at the prior events- meaning we could be SPX 3300 before September or October.
- That being said, stocks will remain volatile. No one can predict short term market movements. That’s why I’m staying long, continuing to buy stocks and hedging with trading of short term puts. Based on analysis from Robert Sluymer (at 48 minute mark: www.youtube.com/watch?v=EBdaJ7OX_3U&t=48m ) which I am going off of: anticipate no greater than 10% correction from the ~2950 SPX recent high, so if stocks drop to the 2600s level, I will go all in at buying that dip.
TAKE AWAY:
- Remember. Stock markets always always always always bottoms out BEFORE the bad data bottoms out. Do not look at data today and try to ‘price’ the market at where we are TODAY. Try to price today’s market at what you think it will be in the future. Markets. Are. Forward. Looking.
- Uncertainty does NOT always mean ‘stocks have to keep going down’. It only means ‘expect volatility’.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.
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