Weekly Market Assessment
Where is the inflation!? Over the last few years, rates have remained at record low levels as a way to stimulate the economy and spur growth. The affects of low interest rates brings higher commodity prices, however over the past few years we have seen a big decline across certain asset classes that should expose the oncoming signs of inflation. Over a period of one year, gold is down 30%, copper -13%, crude oil remains flat, soybeans -20% and corn -32%. Looking over a period of 5 years, an even worse picture of the declines is painted. Many people, including myself, believe that this extreme intervention from the Federal Reserve should have created an environment for hyperinflation! However, looking at these inter-market relation does not "currently" express how a market should react to current condition.
The most recent report from the Beau of Labor Statistics on Thursday further expressed a decrease in inflation. "Core Inflation Rate in the United States decreased to 1.70 percent in December of 2013 from 1.72 percent in November of 2013." Are we reaching a capitulation point where it is time to begin to look toward these specific asset classes as an investment to fight the threat of inflation? Jefferey Gundlach, who was named the "King of Bonds" with assets under management of ~$50 billion, recently gave his opinion on the market and what he is looking at. "Gold’s looking good technically." he said, “Sentiment is black as night on gold so I’m actually long on some gold miners.” Is inflation on the horizon, has the Federal Reserves responsibility to the Dual Mandate worked or is this just a mirage to a further decline in prices and the beginning stages of deflation?
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Next week Ill be looking at companies earnings releases and more specifically EBAY and NFLX. With EBAY, I see Amazon being the place to go and this should negatively affect Ebays business. Even though Paypal plays a huge part in its business, I think Amazon continues to take up market share. NFLX, has traded down to its 100 day moving average and continues to be stuck in this range. Ill be looking for NFLX to beat on its earnings and will be looking to purchase out of the money straight calls.
We received the Housing Starts data and Michigan Consumer Sentiment. Housing Starts came in better than expected with 999,000 new starts but XHB sold off along with individual home building stocks. Data was clearly baked in due to market response. Michigan Consumer Sentiment came in below estimates, however (LULU) had sold off due to an earnings pre-announcement that didn't meet the street/companies estimates. And (AAPL) jumped on the announcement of selling the Iphone in China but sold off on Friday for who knows why! It looks like the Consumer Sentiment was correlated to the jobs report.
From the Trading Floor to the Option Pit: A quick look at what's on the trading desk
S&P 500 (SPX)- As I mentioned last week I sold another Vertical "CALL" spread at 1855/1860. I bought back this option for a 15% option gain.
Tesla (TSLA)- After several tweets from the CEO Elon Musk and a lift from the NAFTA inquiry on TSLA, it spiked big on more than 3X average volume, while breaking well above its 100 day moving average. All bullish signs. TSLA also has a high short interest of 50%. I bought a weekly $160 "CALL" and sold this for a 1 day option gain of 269%.
NuSkin (NUS)- develops and distributes anti-aging personal care products and nutritional supplements under the Nu Skin and Pharmanex brands worldwide. After a report came out of the China Daily that NUS was a pyramid scheme and was going to be investigated by Chinese officials, NUS went from $140 down to $67, on more than 8X average volume. I sold a weekly Vertical "CALL" Spread at $120/125 and then another Vertical "CALL" Spread at $95/100 for a combined option gain of 79%.
Volatility Index (VIX)- The VIX is again at year lows and as usual we get a spike in price around this price range, which currently sits at 12.52. I have purchased a straight February "CALL" at the $14 strike price. I am using this for a hedge for any spikes in volatility and market corrections.