On the Charts

Hey There Income Hunters,

 

I hope you’re enjoying Easter Weekend!

 

Is it just me, or do things seem a little bit brighter this year as we head into the Best Quarter Ever?

 

Money and vaccines are flowing, and the next several months should be very memorable — in a good way, this time around.

 

Of course, my work never ends, and as I looked through the charts yesterday I was keeping an out for cracks in the foundation …

 

What I mean by that is, price is just one part of the story. I wanted to see if this is a trend that can last …

 

In order to get the whole picture, I need to include volatility — and even volume — to confirm there is power behind the trend.

 

So, I wanted to really dissect the markets and see if these trends are for real.

 

Powerful combinations:

 

        • Prices rise, volumes rises, volatility declines: Green light to buy
        • Prices decline, volumes rises, volatility rises: Green light to sell

In other words, both higher volume and inverse volatility confirm the trend’s strength


So, to be sure Thursday’s breakout rally, we want to see volumes rise and volatility decline …


Nasdaq-100 (Ticker: NDX)


Now, since tech has been paired with interest rates the past couple of months, I thought this would be a good time to get the real story from the NDX itself.


The truth is, higher rates may impact a handful of the big names negatively … However, when you are trading the index, you have to let the market tell you the real story. 


Trading the index cuts out the noise and the recent trends in the NDX and the NDX volatility index (Ticker: VXN) tells a great story…


Check it out: The VXN has been plummeting while NDX was trading off. That is a very powerful “divergence” from the normal negative correlation between price and volatility …

 


The chart above shows you the power of options … 


And here’s why …


Volatility is a major factor in the price of an option… Great option traders, like Option Pit Founder and CEO Mark Sebastian, always account for volatility because it is often a leading indicator of market direction.


Now, the last piece of the price/volatility/volume risk management model is … volume. And on the day NDX began a new distribution higher, volume was up 11% …

 

 

Now let’s take a look at another critically important market to monitor since it was the best performer of the first quarter (+30%). I’m talking about energy and more specifically, oil …


 Crude Oil


Expectations for oil increases as the prices have trended higher … 


That shows the uncertainty surrounding future performance for oil as the global economy moves towards green energy.


But the market itself may be telling a different story, as you will see in the numbers…


In March, volatility spiked higher (+68%) as prices corrected 16% after reaching a March 8 high of $68. A battle between buyers and sellers ensued between $57-$61.5 into the end of the first quarter.


On Thursday, the first day of Q2, a report was released showing an increase in production — and the price plunged over 3%… however, once again buyers came in…


Q2 began with Oil closing up 3.9% while the CBOE Crude Oil Volatility Index (Ticker: OVX) closed down 12%.


It may be deja vu all over again …


In 2007, went through a similar correction while a similar spike in volatility ignited a major move higher. See the red circle in the chart below… 

 

 

In December 2020, OVX also spiked higher and collapsed back to the lows as oil soared 45% higher in a 25% move from $61 to $75: 

 

 

We will know just how much strength there is in the months ahead. It’s possible we’ll see oil go above $75 — $100 could be in the cards by the end of the year.


Bring It Home


Don’t underestimate the potential for outsized moves in the months ahead. The signals we are getting now show real underlying strength in the markets.


Plus, the money will keep coming …


The real key will continue to be interest rates and the Fed’s reaction to accelerating growth and inflation.


Power Income will continue to monitor the Fed and dissect the market factors for clues on where the real money is flowing.


Enjoy your family this weekend and as always …


Live and Trade with Passion My Friends,

 

Griff

Markets Hit Home Run on Opening Day

Hey There Income Hunters,


I’m a huge Mets fan — and just a huge baseball fan, in general.


Opening Day is always one of the most exciting events of the year for me — and it did not disappoint yesterday.


Yes, I know, the Mets and Nationals were postponed due to Covid, but I’m just that big a fan of the Game.


Anyway, the unspoiled hope and promise this year was doubled because — as longtime readers know — I’ve been saying that we’re heading into the Best Quarter Ever … thanks to incredible government cash flows and the vaccine rollout spurring a recovering economy.


As for the Mets, with new owner Steve Cohen at the controls, we’re making incredible progress, including locking up All-Star shortstop Francisco Lindor to a reported 10-year, $341 million deal — news that made up for the delay.


Meanwhile, the market hit a grand slam — with the S&P 500 finishing over 4,000 for the first time in history …


PLUS …


One sector performed in a way I never thought it would.


The Highlight Package


In addition to the S&P 500 closing above 4,000 for the first time, here are a few of the other highlights from Opening Day …


  • SPDR S&P 500 ETF Trust (Ticker: SPY) closed over 400.

  • NASDAQ (Ticker: NDX) rose another 1.8%.

  • Oil traded down to 58.80 after an increase in production report — and still rallies to 61.38, closing UP 3.5%.

  • And a personal favorite … GLD completes a two-day, 2.5% rally on good volume.


However, the most extraordinary performance of the day has to go to iShares 20+ Year Treasury Bond (Ticker:TLT) …


It was up 1.5% with the 10-year yield dropping to 1.67% — in spite of sky-high prices …


For example, the median price of a home nationally has risen 16% from last year, according to the National Association of Realtors.


Elsewhere, used car prices have reached an all-time high — up 10.5% from last year — per Cox Automotive.


Finally, my Chart of the Day has to go to SPY I said earlier this week we would see 403 by the end of the month … 


However now I think I may be low!


Check this out …



The top of the channel doesn’t come in until around 408. Plus, look at the last 6 days of volume … 

There must be barrels of cash on the sidelines looking to be invested.


Bring It Home


I can only dream the Mets will get off to as good a start as the market once they start playing.


On the bright side, the Amazins remain undefeated!


Enjoy the long weekend everyone and Happy Easter


As always …


Live and Trade With Passion My Friends,


Griff

What a Finish — Wait ‘Til You See Q2!

Hey There Income Hunters,


Technology picked up the pace yesterday and finished in the green by a nose for the quarter …



Now, thanks to the great work in the US to distribute the vaccine, we will surpass the goal of 100 million shots in the first 100 days of the Biden presidency …


Confidence in consumers is surging as Q2 gets underway and we see growth accelerate.


And with excess savings — more than $2.3 trillion in accounts nationally — there is a ton of pent-up demand to spend as the economy reopens … 


I bought a couple of new names yesterday in areas where I think there is the most potential for growth, including one I find especially interesting.



High Hopes


Cannabis offers excellent potential for growth, no pun intended.


New York has legalized it, while Virginia, Pennsylvania and New Mexico are reportedly making progress, as well.


Sales in the US are expected to rise to $21 billion in 2021 and expand at a rate of 12% a year, according to CNN … 


With most companies trading over-the-counter and no options listing, I think the AdvisorShares Pure US Cannabis ETF (MSOS) cannabis ETF is the most efficient way to gain exposure because it does have liquide options … 


The top-5 holdings are the big names that are either multi-state operators or global operators … 


MSOS holdings include:



The sector has gone through a six-week correction after more than 100% return.


This is a great time to get in because I think Q2 will bring a resumption of money flowing into growth companies …



My MSOS strategy yesterday was to buy a vertical call spread and, on a break above $44, to buy an outright call to trade around …


At-the-money volatility is about 58%, so I see this as a good name to trade aggressively short-term.



Bring it Home


I am bullish heading into Q2, and I think stocks will continue making new highs and S&P could see 4,300.


The key, is always, is what happens to interest rates … 


If the Fed makes the mistake of letting them go too high — meaning above 2%, in my opinion — we could be in for a 10% correction.


I do not believe Fed chair Jerome “J-Pow” Powell and Treasury Secretary Janet Yellen will make that mistake at this point …


However I’m closely watching that number and looking for clues that tell me otherwise …


All the best to all #IncomeHunters in the forthcoming Best Quarter Ever!


Live and Trade With Passion My Friends,



Griff

What’s Really Behind the Archegos Collapse

Hey There Income Hunters,


There is the media narrative about what happened with Archegos — that it failed because it couldn’t put up additional capital to cover unrealized losses — and there is the underlying issue that causes these events.


I have seen this play out many times during my 40-year career, and here is the real problem …


I always loved trading derivatives, however, I kept my derivative trading to the on-exchange variety …


Here’s why: Working for Wall Street Banks most of my career, I saw first hand the inner workings of the prime brokers and came to learn most systemic issues begin and end there.


Prime brokers are financiers, accountants and risk managers who offer a variety of services on behalf of banks, brokers or dealers who require their services …


Primes lend their clients money.


They set them up with access to every market in the world.


They help them raise capital.


They wine and dine them.


Most of all, prime brokers financially engineer bespoke products tailored to their clients’ exact needs. 


But here’s where it gets a bit tricky … 


You see, if clients ever need to sell these amazing products — they are bound to brokers through a bilateral contractual agreement …


In English that means a contractual agreement between two parties that sets the terms and maturity of the dea l…


And bilateral counterparty exposure presents the greatest systemic risk to our capital markets system.


It always has.


That is why I have only ever traded centrally cleared, exchange traded derivatives (which include futures and options that trade on national exchanges).


Inside I’ll share my firsthand experience with John Meriwether, the founder of Long-Term Capital Management …


The LTCM crisis of 1998 shares similarities with the Archegos episode — but nearly took down the entire system


At Bear Stearns


I spent the first 15 years of my career at Bear Stearns, and by 1994 Bear had had one of the largest prime brokerage businesses on Wall Street.


1994 was also the year John Meriwether founded LTCM. The firm started with $1 billion but within four years, their total exposure to the markets was over $1 trillion.


That is the power of prime brokerage — the setup allows you to have multiple arrangements around the Street with access to leverage from all of them


LTCM’s game was risk arbitrage, which is a long/short strategy … they were modelling geniuses and would find correlations all over the world and bet on massive mean reversion trades. (Correlations and mean reversion are match calculations that help identify long/short strategies.)


The problem with that is, every one of a customer's prime brokers knows what they are betting on because they provide risk management on their portfolios …

And when they see how much money is being made, word gets out and the strategy is copied many times over.


Some of the trades were simple pair spreads between two US Treasuries. But the number of positions — and the massive leverage used — did not take into account a lack of liquidity associated with an external event large enough to cause abnormal moves.


Then the Russian debt crisis hit and the worst-case scenario was realized.


At that time LTCM was said to have 40-1 leverage …


Let me tell you, it doesn’t take a large move to bankrupt your business with that much leverage.


By the time LTCM realized they had to unwind the trades, it was too late.


Tons of other positions were being closed ahead of them … 


Then Bear Stearns made a margin call in the $100s-of-millions to LTCM and they were finished.


Bear put a consortium of banks together that pooled a few billion in bailout funds and took ownership of LTCM.


In Later Years …


About 10 years later, after leaving Wall Street, I was designing exchange traded products for BNY Mellon, intending to provide greater safety and security to the prime finance market …


A salesman told John Meriwether about it and he invited us to meet him at his home in Connecticut.


He wasn't at all like I imagined him to be.


Maybe he was seriously humbled by the LTCM experience.


He said he thought a cleared finance product would greatly improve the security of the system, but he also said the banks would never let it come to market.


Unfortunately, he was proven right.


And there is a lot more risk in the system today.


Bring it Home


Wall Street has always been a rigged casino, but that’s not really a secret. 


And investors have a choice …


Exchanges — like the Chicago Mercantile Exchange (CME), Chicago Options Exchange (CBOE) and NASDAQ — have proven the test of time and the central clearing model, for instance OCC who clears all exchange options trades have proven to be very stable and secure.


Here is a rough diagram and brief description of how it works …



In the exchange-traded, centrally cleared model, prime brokers contribute to a guarantee fund held by the central counterparty (CCP).


The CCP dictates what each prime broker must contribute based on their prorated volume.


The central clearer also has rigorous risk management capabilities to ensure the guarantee fund is large enough to handle worst-case scenario events.


All participants are blind to each other and all products are fungible, meaning there’s an equality among assets that allows them to be exchanged and traded.


It is open, transparent and fair … 


Have a great Wednesday, be sure to tune in at 9 and as always …


Live and Trade With Passion My Friends,

Griff

Not Enough to hold interest rates down

Hey There Income Hunters,

Have you ever watched a movie where the bad guy takes a punch and just keeps coming?

We’ve got the financial equivalent happening right now …

And there’s a market that not even a bullish relative strength index (RSI)/price divergence can save.

Not cool, man, that’s one of my favorite analysis tools!

Divergences are usually awesome technical indicators that help me measure the bullish/bearish direction and momentum of an asset … and it can also help predict highs, lows and trend reversals.

A divergence occurs when there’s a disagreement between price and RSI. In an uptrend, the price will make higher highs but RSI will not.

That’s not happening in the market I’m talking about.

Can you guess which one it is?

Longtime #IncomeHunters will know …

Because Power Income’s the No. 1 principle is to Trade the Fed by riding the most powerful money flow in the world.

And right now our central banking system is committed to printing money into oblivion to inflate the U.S. debt away … while the response from leaders is that we don’t have to worry about inflation.

Well, Americans certainly are worried.

Why shouldn’t we be?

We see prices, including gasoline and food, rising every month.

And the bond market certainly knows better … as an overwhelming supply/demand imbalance may just power through a solid bullish RSI/price divergence that formed this month.

Take a look at this chart to see what I mean …              

There are more telling signs why bonds will continue going down unless the Fed flips the supply/demand imbalance.

And there’s a way for you to take advantage!

It’s a Trap!

On the other side of the coin, there’s a Fed secret that the media, the administration and the Fed itself doesn’t want to talk about:

For every dollar the Fed prints, a dollar of Treasury bonds must be issued to pay for it.

You see, when a country’s debt issuance grows above 80% to gross domestic product (GDP), it reaches the point of diminishing returns.

Translation: every dollar of debt outweighs and produces much less than a dollar of growth.

This bleak scenario is known as “negative productivity trap.” It began here in 2016 and has now reached 129%, so the hole continues to deepen

However, we #IncomeHunters can use the Fed for prey.

If they are so hell bent on devaluing the dollar and Treasury bonds, then we may as well get out ahead of them and *Jim Cramer voice*, “Sell, sell, sell!”

How High and Low Can They Go?

So, how high can 10-year rates go and how low can iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT) prices go before the Fed steps in?

Fed intervention, by the way, would come in the form of

  • Yield curve control via more quantitative easing (QE), with spending on longer-term securities (such as government bonds) to increase money supply and economic activity.

  • Yield curve twist via selling into the market short maturity bonds to buy long maturity bonds. The goal being to force long-term interest rates lower to build more affordability into the housing market.

In a recent JP Morgan poll, asset managers were asked what levels it would take for the Fed to come in and stop interest rates from rising. The overwhelming response was 2%. So far the 10-year has risen to 1.75% and TLT bottomed out at 133.19.

I do not agree with the notion of 2%. Heck we are only 29 basis points (.29%) away!

Knowing what Fed Chairman Jerome “J-Pow” Powell is trying to accomplish, I think he will let rates rise to 2.25%-2.5% so he can unload a cash bazooka on the market.

He needs enough of an excuse to buy $250 billion in bonds a month … because the banks are not happy campers and they could make his life miserable.

The chart below shows that the Fed’s primary dealers are unable to hold as many Treasury bonds on their balance sheet. Due to supplementary leverage ratio requirements they must shrink their assets to meet the requirements …

Bring It Home

I want to keep driving these points home because of how powerful these debt forces and capital flows will be …

It’s very important to play the market from both sides. Right now, you should try and short about half the capital you are long. In a couple of months, that may switch to only being long half of what you are short.

In the meantime, bonds are the No. 1 short, followed by mega-cap tech and consumer staples…

As we witnessed yesterday, with Archegos  there is a minefield of bankruptcies just waiting to happen. That is the consequence of so much debt.

Keep your thoughts and comments coming, and as always …

Live and Trade With Passion My Friends,

Griff

Pedal to the metal for growth and inflation

Hey There Income Hunters,

I pointed out last week that Federal Reserve Chairman Jerome “J-Pow” Powell is being very sneaky …

Reading between the lines, I sensed there was a reason he kept repeating that the Fed will continue to purchase “at least” $80 billion in US Treasury securities and $40 billion in mortgages each month.

Well check out the table below

Last week’s balance sheet report revealed that the Fed is WAY over the $120 billion total for March …

In fact, the current total for the month is $170.6 billion — and there are still three buying days left …

This intel adds to the bullish case for accelerating growth and inflation as we head into April.

Here is even more …

Since the Fed’s decision late last year to allow banks to buy back their own shares again …

Buybacks are accelerating and recently hit record levels. See below:

And just last week Treasury Secretary Janet Yellen gave her blessing to the Fed’s decision …

Why wouldn’t she check out the impact buybacks have had on the stock market rally since 2009 …

This chart shows who the cumulative net buyers have been in the stock market since 2009. Clearly it is hands down the non-financial corporations (red line) who execute the buybacks.

So, I see 3 bullish indicators for stocks as we head into April…

        1. The buybacks are back.
        2. The Fed is supercharging its quantitative easing (QE), which is spending on longer term securities (such as government bonds) to increase money supply and economic activity.
        3. Yellen continues to inject what remains of the $750 billion of excess borrowing proceeds from the Treasury account — PLUS she will add another $500 billion in Q2 …

I think early this week we may see quarter-end rebalancing out of stocks and into bonds …

That would be a great dip to buy.

I see the SPDR S&P 500 ETF Trust (Ticker: SPY) going to 404 in April. Other than one false breakdown, SPY has been in a nice upchannel.

And after holding the bottom of the channel, I think SPY will head to the top, which would take it to 404-405 … 

Bring it Home,

Let’s go #IncomeHunters … This week will be a launching pad into a dynamite Q2!

Stay focused on the sectors that will benefit from the accelerating growth and Inflation:

        • Financials
        • Industrials
        • Materials
        • Energy
        • Commodities

I hope you all crush it this week

As always …

Live and Trade with Passion My Friends,

Griff

 

 

The Charts That Matter for Next Week

Hey There Income Hunters,

It was an exciting week for me for two reasons …

First, my kids (27-year-old daughter and 24-year-old son) came to visit after not seeing them since Christmas.

And, second, it was also exciting to see sentiment in the markets shift from higher rates and corrections in stocks and commodities back to looking ahead to greater growth and inflation in Q2.

Refreshing on both fronts!

So let’s run through 5 key charts that I will be watching again next week.

First up …

1. Russell 2000 (Ticker: IWN)

After dropping 9% from Monday’s high, IWN staged an impressive rally and turned all the way around Thursday afternoon, closing $4.62 higher on the day …

The move completed a bullish relative strength index/price divergence by establishing a new low price on Wednesday followed by a lower low on Thursday while the relative strength index (RSI) finished higher by the close …

We should see continuation of the uptrend next week and a new all-time high next month …

2. iShares 20+ Year Treasury Bond ETF (Ticker: TLT)

TLT built on a positive divergence of its own from two weeks ago to start the week …

Then it rolled over on Thursday as the Treasury issued $125 billion in 5-year and 7-year notes on Wednesday and Thursday. We have a break in supply until the second week in April when 3-year, 10-year and 30-year auctions are on the schedule …

Between the positive RSI/price divergence and end-of-quarter rebalancing, the lows in TLT should hold for a while…

I am looking for higher prices to sell next week because the following will bring 3-year, 10-year and 30-year auctions with approximately $120 billion in supply for the market to absorb.

3. United States Oil Fund ETF (Ticker: USO)

Crude Oil has also put in a bottom this week …

I called the turn in oil last week based on the Volatility of Oil Volatility Index (Ticker: OVX), which is the volatility index of USO…

This is an interesting chart. Let me set it up for you … 

At the end of last year, we had two corrections in oil -17% and -19% with +76% and +60% volatility.

This latest correction was close to the previous two in deltas at -16% — but the vol spike was a much smaller 31% …

I see that as an important divergence meaning the down trade is just that — a trade within a Bullish trend …

I added to my EXXON (Ticker: XOM) 62.5/57.5 Sep call spread yesterday and will look to add more next week…

Check out the chart below and notice how oil responded to each spending bill. The USO ETF (Black Bars) trended higher soon after each spending bill was put into action …

And what’s on deck? Joe Biden’s infrastructure spending bill, which is expected to be launched by September with a reported $3 trillion price tag

4. SPDR Gold Trust (Ticker: GLD)

Gold has been locked in a tight trading range

I see that as positive news that the gold correction is also ending.

With expectations for higher consumer price in the months ahead and accelerating growth, as well ,… GLD could continue its longer-term bullish trend that began in mid-2019.

On a break higher out of this consolidation range, I will be adding to my GLD vertical option strategies and my gold miner stocks as well.

Bring it Home

OK, #IncomeHunters, this is it …

We turn the page next week to what may end up being the most powerful quarter in U.S. history, what I have dubbed The Best Quarter Ever.

We have had nice corrections in all sectors and now the fundamentals will take over …

The only way we would not have a positive quarter for the reflation sectors — including Energy, Materials, Industrials and Commodities — is if bond yields start a new trend higher and the Fed sits back and lets it happen.

But I am ruling out that possibility!

Why?

Because the Fed (with Janet Yellen at the Treasury) will do whatever it takes to create higher inflation so they must keep rates low for longer…

Have a great weekend Everyone and as always …

Live and Trade with Passion My Friends,

Griff

Let’s Go Bears: More Bond Supply on the Way

Hey There Income Hunters,

The latest projections from the Chicago Mercantile Exchange (CME) for monthly Treasury bond supply came out showing a major jump in May of $23 billion

The average size of the US Treasury auctions were less than that just 5 years ago …

Power Income’s #1 Fed Insight

I always stress that for EVERY dollar the Fed prints, the Treasury MUST issue a dollar of US Treasury Bonds to cover it. Those bonds are issued via publicly-held auctions.

We are already starting to see less participation in the auction process, as defined by the coverage ratios that the Treasury announces when the auctions are completed ..

This could eventually lead to an auction that doesn’t have enough buyers — which would force the Fed’s hand to step in and be the buyer of last resort …

And that is why leaning on supply can give you such a big advantage.

So, today I wanted to introduce a couple of other ETFs that can juice your returns when bond yields rise and prices fall …

Two Killer Bond ETFs

1. PIMCO 25+ Year Zero Coupon US Treasury Index ETF (Ticker: ZROZ)
The first ETF tracks zero coupon bonds, which is the asset class I traded most of my career …

They were a cool product that allowed investors to buy, what were essentially long-term Treasury Bills (T-Bills).

Meaning, you buy them at discount to 100 (par) and they always mature at par. The difference in prices is your return over the life of the security…

The investors receive a single balloon payment at maturity… making their duration much longer than the iShares 20yr+ Treasury Bond ETF (TLT) –with 10% higher volatility…

 Check out the chart below illustrating how they outperform on the upside and downside — which means more juice for you:

2. Proshares Ultrashort 20+ maturity Treasury Bond ETF (TBT)
The other product is a 2x bearish bond ETF. This ETF seeks daily investment results that are two times the inverse (-2x) of the daily performance of ICE U.S. Treasury 20+ Year Bond Index.

Bring it Home

I have been asked by a couple of #IncomeHunters if there is a calculation they could apply to the TLT ETF that would enable them to more accurately trade TLT as a proxy for the 10-year….

It makes a lot of sense in theory since the yield of the US 10-year is what global investors monitor so closely …

I have been tracking the two, however, their maturities are so far apart that the correlation breaks down. Here’s why:

The slope of the yield curve between 10-30 years is very steep and volatile, so you could be off by just .01%, which is a single basis point, and that could throw off the TLT price by as little as 18 cents… 

As always, keep the questions and comments coming. I will do some additional work on it and report back.

Until then …

Live and Trade With Passion My Friends,

Griff

Don’t Bet Against Oil and Energy Stocks

Hey There Income Hunters,

 

The consensus in the energy markets has definitely shifted in the past few weeks.

 

I think it started with the Biden administration talking about taxes and continued as US 10-year interest rates rose from 1.50% to 1.75% …

 

However, to me, it’s like the noise you hear when your favorite band is in between sets …

 

The fans are killing time with small talk, bottles are clinking, there’s the occasional “Woooo!”

 

That’s all that is going on right now in the markets …

 

The weak hands are fearing a turn and closing out longs, so the fear spreads …

 

All of a sudden, consensus shifts to a deteriorating outlook — when just weeks ago, headlines were about revised upward price targets.

 

What I see coming our way is the most powerful acceleration of growth and inflation that we have witnessed in our history …

 

I also see the volatility of Light Crude Oil Futures defining a market in consolidation mode as it waits for the push to higher highs over the next couple of months … 

 

 

I thought this was an interesting soundbite on crude …

 

        • “The swing lower was triggered by the deteriorating near-term demand outlook,” said TD Securities commodity lead Bart Melek. “With prices breaking below the 50-day moving average during the session, technical traders may well take WTI lower still.”

You can always find a reason after the fact. But understanding the power of pent-up demand can provide foresight.


For instance…


        • Nationally, more than $1 trillion in aggregate household savings above the pre-Covid levels 
        • A $700 billion drawdown from the Treasury account has to be completely injected into the economy by month’s end
        • $120 billion per month in Fed purchases, with most of the money making its way into the markets
        • $1.9 trillion in stimulus and aid making its way into the economy
        • Possibly $3 trillion in infrastructure spending to add near- and long-term growth to the economy

 

Take a look at the crude futures chart with the options overlay and note the September to November correction in between stimulus bills …

 

 

Crude had rallied after storage constraints forced longs to get out and the price fell to -$40.


The market recovered to rally to the $40-$45 area, which had been established previously as a critical support and resistance zone.


But here is the key …


Each plunge was met with a higher spike in volatility. However, the vol spikes quickly reversed and prices continued higher …


In the current setup, the volatility of OVX, the volatility index for crude futures, came off hard on the plunge, similar to the episodes in Q4 2020.


Crude may continue to consolidate for a couple of more weeks, but once the stimulus money flows take hold, I look for it to be off to the races once again.



Bring it Home


It’s important to keep the macro picture foremost in your mind as we head into the second quarter. The U.S/ has a lot of company in the money printing game and the money will be spent.


I own the producers: Exxon (Ticker: XOM), Chevron (Ticker: CVX) and Shchlumberger Limited (Ticker: SLB). They are all trading at a discount to fair value and their valuations are tied to lower oil prices, so they have a nice cushion.


Keep the faith — this market has some legs left … and we will know when it’s time to sell.


Have a great day and as always …


Live and Trade With Passion My Friends,



Griff