Light at the end of the tunnel

Some places are partially reopening in coming weeks. Even here in California they’re talking about re-opening beaches while encouraging people to use them responsibly with social distancing.

An article said that testing in New York suggests about 20% of the population there already has antibodies related to Covid 19. This could mean that we’re looking at the Coronavirus passing through the majority of the population in coming months, especially as we slowly re-open the economy. There are plenty of if’s here, but it makes me think we’re more likely to be back to normal next year if it’s already that widespread.

It’s really hard to tell how to play the markets here. The S&P 500 benefits from a number of things, including perceived backing from the US federal reserve and US government. Will the federal reserve really pull all the stops to prevent a stock market decline? Many believe they will.

Sentiment seems to be high in that one of the Real Vision podcasts mentioned high individual investor interest buying USO – very risk-on if you ask me. Sentiment also seems low in that investing in the VIX Open Interest hasn’t picked up according to this: https://stockcharts.com/articles/tac/2020/04/vix-open-interest-still-laggin-922.html. I tried looking up the put-call ratio on SPY and it seems somewhat middle sh according to alphaquery.com

I have to admit I’m thinking a lot about selling off my short bets. I’m down about 20% on them so far, but they’re long-dated options so they still have considerable value. The unemployment rate is 3x higher than the 2008 recession and stocks are barely down, but the Fed is going all out as is the US government. Most jobs lost aren’t necessarily the kinds that offer 401k’s, so 401k money may continue flowing into 100% equity index funds, offering price-insensitive buying. Most S&P large caps are big tech companies like Apple, Google, Microsoft, Amazon and so on … big beneficiaries of both the digital acceleration and the Fed largesse. Main Street companies simply might not matter much to the S&P, I really don’t know.

Anyway, as of now I’m planning on holding my short plays while going much longer gold miners. I’ll give it a week … the futures settlement date of 4/27 will be the next target for the big swap dealers to push the price of gold down, so that should offer me a good entry. There are certainly major economic problems going on, and they must mean something. Plus bear market rallies are often large, long, and brutal for anyone trying to play it short. If the market rises due to central banks and government actions, my gold miners should shoot higher to help compensate. If everything goes down, my puts will be there. My current vehicle to go long gold miners is Jan 2022 calls, as they have a long duration for the premium they charge, giving me cheap leverage without debt or margin calls (the minimum value is zero). I got some last week and even chased a bit today – sticking to big names for now like barrick, Newmont, Franco Nevada, Royal Gold, and the large gold miner ETF GDX. While it’s true that the S&P could stay high while gold goes down, I just see that as unlikely.

Anyway, good luck with whatever you’re doing.

About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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