I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back). The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a primary bear market, and buy back in for most of the next bull market. You can always scroll down a few weeks and find the latest “Long Term” update.
If you lose your bookmark to the blog, google “Rich Investing” and it should show up on the first page or so. The more often you google it and hit the link, the higher it will show in your results.
The monthly Long Term update was posted this past Wednesday, so it is just below this post.
The Consumer Price Index increased 0.6 percent in June on a seasonally adjusted basis after falling 0.1 percent in May. It was led by the increase in oil prices. Initial jobless claims in the prior week were 1.3 million, higher than the worst week of the 2008 crisis, reflecting the continuing problem with the economy. Retail sales rose 7% in June after the 18% increase in May, but these numbers are just coming off the low lockdown levels of April. Consumer sentiment flash for July from U. of Michigan is at a current level of 73.20, down from 78.10 last month and down from 98.40 one year ago.
The initial jobless claims are very high and show an economy under stress. The fall in consumer confidence reflects concerns on main street about the COVID hot spots in Fla., Tx., California and Arizona. Those 4 states represent 20% of the US economy.
The stock market looks good, but that is the large publicly traded companies that can weather big storms. The unemployment stems from the smaller private economy, restaurants, bars, gyms, retail stores, and things are bad in that segment.
The virus is raging in the south and southwest. We’re getting mandatory facemask orders, bars are being shut in areas, in general state and local government are passing new restrictions to slow transmission of the virus.
On the positive virus front, it appears progress in being made on the vaccine front with the possibility of broad availability during the first half of 2021.
Consumer sentiment as well as stock market sentiment are driven by COVID news.
We are close enough to the presidential election that some thought is being given to what a democrat administration would mean to business. Some worry about regulation if Elizabeth Warren became Treasury Secretary, or what the democrats may do to regulate drug prices. The US pays the highest drug prices in the world, which proves we don’t have a free market for drug prices. But with all the big pharma lobbyists in DC, I don’t think the drug companies have too much to be worried about. The stock market did fine under the last two democrat presidents, Obama and Clinton. Biden is a moderate also.
The S&P was up 2% on the week.
Technically the chart is like last week, neutral with a slight upward bias. RSI at the top remains neutral at 60 and moving sideways. Momentum shown by MACD at the bottom is neutral and moving sideways. The price action is mildly positive but mostly moving sideways. It is noteworthy that the price action has moved up above the down-sloping purple line, the current trend. But, it has not done so decisively, yet.
JP Morgan reported Tuesday and EPS was $1.24, down 51% from the same quarter last year, but up 77% from Q1. They took a $10 billion reserve for bad debts, up from $8 billion in Q1. But for JPM and the other big banks, the story going forward gets worse. Consumers who sought forbearance on their loans actually continued to make payments, due to the $1,200 per adult gift to most adults from Congress, and the extra $600 per week from Congress paid to the newly unemployed. These payments from the government will be cut back after July 30. Things will probably get worse going into the fall (the airlines are preparing for major furloughs and layoffs) and not improve until the vaccine is widely available.
What am I doing? Not much. I sold some covered calls to add to my cash flow. On 7/17 I had a ton of covered calls expire and only a few were exercised, PFE, CAT, and JNJ. All were called within $1 of their current price, so I will put buy orders in to buy them back at a lower price. I had an INTC 55 Put expire. Sometimes I sell a Put instead of entering a buy order. Let the market pay me to hang a buy out there. The problem with that plan is sometimes the stock will sink below the Put strike price, then recover above it, and you didn’t actually buy the stock, where with a straight buy order, you would have bought the stock. Alas, there is no perfect way to make money in the stock market, or we’d all be rich!!!
My biggest position is JPM and I have a 110 call that expires on 7/24. Right now it looks like I will keep the stock, which is my objective. I sold the call 3 weeks ago, I usually go 4 weeks out, and got 1/3 of a percent for the option premium. Last month I sold the covered call and got 1%, so we see that volatility has come down and that has brought down option premiums in the banks. When this option expires, if I keep the stock and JPM is selling around $100, my next option trade would be an 8/21 $120 call. I want to keep the stock, so as it rises, I have to move the strike price higher which means the option will sell at a lower premium and it limits my income. If the stock price is moving up, that is a good thing, better than capturing a relatively small option premium.
———————– I will do trading in my IRA account. I have a core portfolio in a taxable account, stocks I bought at the bottom of the crash in late March of 2020, that I intend to hold for the dividend and hopefully long term capital gains. JPM, GS, BAC, JNJ, HON, ABBV, MSFT are some examples. At particular market peaks I may sell 20% of the holding, and at market lows I may add 20% back, but this will be a slow process, maybe once a year. Being retired I need to generate some income, and hopefully book a capital gain in the longer run.
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You can use the hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window. The reader who suggested this wants to look at the chart side-by-side with the blog text. If you bookmark the link to the chart you can look at it each day of the week to see how the market is progressing to certain milestones. The picture in this post is a static .jpg so it does not update.
Rich Comeau, Rich Investing