In this episode I am thrilled to have Mark Newton, Founder of Newton Advisors. Mark is one of those Technical Analysts that I have followed for many many years. His intermarket perspective and top/down approach is one of the best on The Street. He does great work on relative strength and ratio charts to really gauge the flow of money from one asset to another. His experience on both the Buy Side and Sell Side gives him a unique perspective and I've always found it helpful to pick his brain whenever I get the chance. In our conversation we discussed U.S. Stock market breadth, keeping an open mind to future outcomes, Interest Rates, Oil and Gold and how he approaches the market day in and day out. I really enjoyed recording this episode and I think you'll quickly see why. This was a good one!
For most of the year we've been talking about downside in Bonds and the potential effects that would have on Equities and Commodities. With rates extending their gains to start the fourth quarter, we're going to use this post to look at the structural trends in Commodities and determine which are best positioned to benefit if we start to see money rotate.
U.S. stocks gave everyone a little reminder last week that stocks don't always go straight up in Bull Markets. Significant gains will be seen in the drivers of every bull run, but not without pauses and pullbacks along the way. Overall, we're still bullish here, but more cautiously so and looking to minimize our risks on long plays as best we can.
If the markets are currently undergoing a pause that refreshes, then we expect the resumption to highs will be lead -- at least in part -- by semiconductors. With that in mind, we want to be buying dips amongst the leaders in this space and we have a great candidate lined up.
Gotta love it when the market hands us a little two-way action to remind everyone that stocks go both up and down. And more importantly, I get real excited when I start to see options premiums rise thanks to irrationally freaking out market participants. Is the top in? I don't know and neither do you (my gut says no), but there are plenty of people starting to buy protection in the options market to protect their positions. We'll happily take the other side of those insurance bets.
There are a lot of interesting developments working through the markets these days. Whether it's the relentless sector rotation underneath the surface or the divergences between small and large-cap stocks, there is no shortage of topics to discuss about the current environment. I have been in the camp that a breakdown in Bonds to new multi-year lows would likely be accompanied by a lower yen and higher stock and commodities prices. Through last week that strategy has worked really well.
Moving forward, however, how does this face-ripper in rates impact U.S. stocks? Is the relative strength in financials this week a positive sign for equities? Or are they just getting a sympathy bid because of rates? Are Semiconductors finally going to break out above their epic 2000 highs, which they've been flirting with all year? What about Gold and Crude Oil? How do they fit in?
This morning I was on the Benzinga Premarket Prep Show discussing what I felt are the most important topics in the markets right now. Here is the interview in full:
From time to time I like to review some of my Best Practices for my own benefit, but also for the benefit of readers of this blog, and for subscribers to All Star Options. So let's get right to it...
This past Friday marked an important monthly date in the regular cycle of options expirations. Friday marked the line in the sand where we crossed under 21 days until October expiration.
Why is 21 days until expiration important?
In short: because of theta and gamma.
For long premium positions, theta decay starts to become a major drag, and increasingly so with each passing day. For short premium positions, gamma has the potential to produce wild swings in your position equity. Neither of these scenarios are very appealing for obvious reasons.
Lets breakdown the risks and actions to take for a variety of common strategies.
There is a lot of noise being made this week about potential divergences in U.S. Stock markets. The one thing that gets lost in the shuffle is that just because asset A is rising and asset B is not keeping up, that asset A needs to correct and come down to meet asset B. Rarely does it get mentioned that asset B can just get some rotation and catch up to the relative strength that asset A is showing. In fact, during bull markets (which we're in, not sure if you heard) the latter is a perfectly normal occurrence.
Today we're going to take a look at a more macro correlation that I think we need to be watching. We're talking specifically about the long-term behavior patterns of the S&P500 in America and the DAX in Germany. Going back many decades, these two indexes really move in sync.
We were bullish on Microsoft all summer, and with $MSFT printing another new all-time high this week, our stance hasn't diminished in the least. The only thing that's changed is we've raised our price target. That tends to happen in bull markets.
In our October conference call for subscribers, we teased a bullish trade idea in $MSFT. And upon further reflection, I think I've come up with an even better probability play with an opportunity for better risk adjusted returns.
Small and mid-caps have been hit hard since late August, so rather than look for short opportunities after a large move, we're looking for potential counter-trend trades on the long side. Today's candidate is PTC India.
