Category: INO.com Contributors

Weekly Stock Market Forecast

Posted on by The INO.com Team

This week we have a stock market forecast for the week of 7/18/21 from our friend Bo Yoder of the Market Forecasting Academy. Be sure to leave a comment and let us know what you think!

The S&P 500 (SPY)

SPY Daily Chart - Stock Market Forecast

The rally in the S&P 500 (SPY) fizzled out this week as forecast, and while the forces I am able to observe and measure in the index itself didn’t collapse into bullish domination, the bears were really mauling all the potential longs on my watchlist.

I would expect to see the selling continue as a correction form but wouldn’t expect a full market break this week unless external news pounds an already vulnerable market.

This upcoming week is a “wait and see” week as the best opportunities I was able to find only carried a 60%-65% chance for success. With the likely stop losses coming in HOG and NKTR, I have used up my “aggression budget” for the time being and am gearing down into a more conservative posture. Continue reading "Weekly Stock Market Forecast" →

Navigating Volatility - Beta-Controlled Options

Posted on by The INO.com Team

Controlling portfolio beta, which measures the overall systemic risk of a portfolio compared to the market, on the whole, is essential as these markets continue to break record high after record high with violent pullbacks. The month of June was a prime example as the markets pushed to new all-time highs early in the month, then suffered a Federal Reserve induced sold-off to only bounce back into positive territory to close out the month. Controlling beta while generating the same or superior market returns is the goal with an options-based portfolio. A beta-controlled portfolio can be achieved via a blended options-based approach where 50% cash is held in conjunction with long index-based equities and an options component. Options alone cannot be the sole driver of portfolio appreciation; however, they can play a critical component in the overall portfolio construction to control beta.

Generating consistent monthly income while defining risk, leveraging a minimal amount of capital, and maximizing return on capital is the core of this options-based/beta-controlled portfolio strategy. They can enable smooth and consistent portfolio appreciation without guessing which way the market will move, and allow one to generate consistent monthly income in a high probability manner in various market scenarios. Over the past 15 months (April 2020 – May 2021), 293 trades were placed and closed. An options win rate of 98% was achieved with an average ROI per winning trade of 7.0% and an overall option premium capture of 84% while moving in lockstep with the S&P 500. The performance of an options-based portfolio demonstrates the durability and resiliency of options trading to drive portfolio results with substantially less risk via a beta-controlled manner. The options-based approach circumvented September 2020, October 2020, January 2021, and May 2021 sell-offs (Figures 1, 2, and 3).

Options
Figure 1 – Overall options-based performance compared to the S&P 500 from April 2020 – May 2021
Continue reading "Navigating Volatility - Beta-Controlled Options" →

Financials - Stress Tests Easily Pass

Posted on by Noah Kiedrowski

Federal Reserve, CPI and Prospective Rate Increases

A string of robust Consumer Price Index (CPI) readings spooked the markets as a harbinger for the inevitable rise in interest rates. Furthermore, Federal Reserve commentary also induced volatility in the markets when Jerome Powell spoke in early June. As investors grapple with the prospect of downstream rate increases, pockets of vulnerabilities throughout the market have been exposed. The overall markets have been on a blistering bull run since the November 2020 presidential election cycle. Year-to-date, the S&P is up over 16%, while all valuation metrics are misaligned with any historical comparator with heavily stretched valuations and record risk appetite. As real inflation enters the fray, these frothy markets will come under pressure and possibly derail this raging bull market. Although rising rates may introduce some systemic risk, the financial cohort is poised to go higher. The confluence of rising rates, post-pandemic economic rebound, financially strong balance sheets, a robust housing market, and the easy passage of annual stress tests will be tailwinds for the big banks.

2021 Financial Stress Tests

The recent stress tests were easily passed and indicated that the biggest U.S. banks could easily withstand a severe recession. In addition, all 23 institutions in the 2021 exam remained “well above” minimum required capital levels during a hypothetical economic downturn.

The central bank said that the scenario included a “severe global recession” that hits commercial real estate and corporate debt holders and peaks at 10.8% unemployment and a 55% drop in the stock market. While the industry would post $474 billion in losses, the Fed said that loss-cushioning capital would still be more than double the minimum required levels. Continue reading "Financials - Stress Tests Easily Pass" →

Don't Fear The Taper

Posted on by George Yacik

Long, long ago, even before the 2008 global financial crisis, the world’s central bankers, including the Fed, shifted their focus from trying to fight inflation to trying to create it. As we know, however, that pursuit of the holy grail of 2% has taken more than a dozen years, and now that we appear to be there, and well beyond it, in fact, the Fed refuses to believe it.

Ever since the economy began reopening earlier this year, the U.S. year-on-year inflation rate has been rising steadily and strongly, well above the Fed’s 2% target. In May, the YOY rise in the consumer price index hit 5.0%, while the core index, which excludes food and energy prices, rose 3.8%. Looking ahead, it’s hard to see inflation easing anytime soon, given the trend in rising worker’s wages, which once on the books are going to be hard to pull back, especially given the dearth of workers relative to job openings. Prices are also rising due to strong pent-up demand that is far outpacing the supply of goods, due partly to the lack of workers.

Yet Fed Chair Jerome Powell continues to insist that this recent surge in inflation is “transitory,” a mere temporary reaction to the economic reopening.

Is he saying that because he really believes it, or because he’s worried what will happen if the Fed starts to turn down the juice, even a little bit, and with a fair warning? Continue reading "Don't Fear The Taper" →

Palladium Futures To $4,628?

Posted on by Aibek Burabayev

Last summer I spotted a hot trading opportunity for you with 45% potential gain as Palladium futures were set to retest the all-time high. The progress was not as nimble as I thought; however, the target was reached this April as the price even overlapped it. Most of you supported that option, and I hope you enjoyed that gain.

Weekly palladium Chart

It looks like this champion metal offers another stunning opportunity for traders.

The crawling move to the upside since 2016 with a rocket style ending in 2019-2020 was marked as AB part. Continue reading "Palladium Futures To $4,628?" →