Profits Accelerator

March 13, 2020

I’ll keep this brief, as I have some personal matters that require my attention.

It’s been a turbulent week in the markets, but the major indices seem to have regained some ground after today’s open.

While that volatility can be good, nothing clear has emerged and triggered my system.

So, for now, just sit tight.

As usual, I’ll monitor my indicators closely and alert you if there’s new trade alert.

Lance Editor, Treasury Profits Accelerator

March 6, 2020

Just in case you’ve been living under a rock for the past couple weeks, the markets have been on a rollercoaster of a ride!

By last Friday, the Dow had dropped seven days straight. Then on Monday we saw a near 1,300-point rebound followed by an 800-point drop Tuesday, an 1,100-point jump Wednesday, and a near 1,000-point drop yesterday.

Futures trading this morning point to another very sharp drop in value. Traders are confused, worried, and on edge because they simply don’t know what to make of how long the coronavirus will persist or to what extent it will affect the global economy.

When this all began, markets were at record highs. The U.S. economy was chugging along nicely. China, Mexico, and Canada had agreed to new trade deals with the U.S., and the markets were going higher.

Not long ago, I was concerned that the market was too complacent and not considering any sort of risk. The Treasury bond market had been flashing warning signs for a long time and now yields are at all-time lows, suggesting to investors that we’re in for tough times ahead.

Treasury yields fell again earlier today. The 30-year Treasury bond showed a yield of 1.30%, while the 10-year dropped to 0.73%. Remember, just Tuesday the Federal Reserve cut the overnight federal funds rate to 1-1.25%. The 10-year Treasury note is trading far below the overnight rate and telling the markets we’re going into a recession.

This morning, the markets will digest the February employment report, but no one really cares. As important as it usually is, the jobs report shows us what has already happened.

The markets are concerned with what will happen in the future.

Employment Surprises Again

This morning, the Bureau of Labor Statistics updated the February employment situation. Non-farm job creation was expected to be fairly strong with analyst expectations of 175,000 new jobs. That’s a drop from a very strong 225,000 new jobs in January.

Instead, jobs jumped by 273,000 in February while the previous two months were revised higher by another 85,000.

The unemployment rate was expected to remain at 3.6% while earnings were expected to rise by 0.3% on the month. Manufacturing payrolls dropped by 12,000 in January and were expected to drop another 5,000 in February.

The unemployment rate dropped back to 3.5% — a 50-year low. Earnings rose 0.3% as strong as expected.

Manufacturing jobs rose by 15,000. Retail was the only sector that lost jobs.

Overall, this was a stellar report. But the markets didn’t move much higher after the release.

Manufacturing Slows Again

The Institute for Supply Management’s (ISM) Manufacturing Index was updated Monday. The February ISM Index showed slight overall growth at 50.1 — a reading above 50 means growth.

Maybe U.S. manufacturing will grow in the near future as companies move some overseas manufacturing home, but if the global economy slows, all manufacturing slows. The ISM Index is closely watched by the Federal Reserve and investors because it is forward looking. The ISM surveys about 300 manufacturing firms nationwide and questions purchasing managers about the general direction of new orders, production, employment, supplier deliveries, and inventories.

Closed Position

We closed our lone position last Friday for a very healthy 142% gain! We sold to close the March 20, 2020, Stifel Financial (NYSE: SF) $70-strike put options.

Despite the extreme volatility, we haven’t opened any new positions in a while, but stay tuned!

Next Week’s Market Movers

The only significant scheduled economic updates out next week will be inflation statistics.

The February Consumer Price Index (CPI) will be updated Wednesday.

Year over year, the CPI has crept up to 2.5%. When food and energy were removed, core CPI moved to 2.3%. Overall, consumer inflation isn’t expected to move much in February. A surprise could move the markets again.

Thursday, the February Producer Price Index (PPI) will be updated.

Producer prices moved up over 2% on the year in January but are expected to fall sharply in February. Headline producer prices are expected to fall from 2.1% to 1.6%. When food and energy are excluded, core inflation is expected to fall from 1.7% to 1.3%.

As usual, I’ll monitor my indicators closely an alert you if my system triggers a new trade alert.

Lance Editor, Treasury Profits Accelerator

February 28, 2020

Stocks are in correction territory. It’s time to close our lone position for a 70%-plus gain. So, let’s get to it!

My target price was hit at the close of yesterday’s trading on SBA Communications (Nasdaq: SBAC).

Action to Take: Sell to close the March 20, 2020, SBA Communications (Nasdaq: SBAC) $290-strike put options.

The “bid” price for this contract is about $20.00, meaning you could have sold at yesterdays close each contract at the market for about $2000.00.

The market moves quickly. The “bid/ask” price may or may not be the “bid/ask” price when you are able to execute the trade. It could be higher, or it could be lower.

Exit Strategy: Sell with a limit order (between the “bid” price and the “ask” price) immediately.

The markets are down in early pre-market trading, which should help our trade.

Pandemic Panic

The potential economic disruption of the COVID-19 (corona)virus is being priced in the markets as we watch. Stocks have already taken a 10% hit, and there may be more bad news to come.

Yesterday’s selloff of about 4.5% in the S&P 500 was mirrored in the other major stock indices. Technically, the markets have broken the uptrend we’ve experienced over the past decade.

Once again, the Treasury bond market is flashing recession, while the yield curve is inverted. In other words, the 10-year Treasury yield is lower than the federal funds rate or the overnight rate the Federal Reserve charges member banks to cover reserve requirements.

The inversion means that bond investors are positioning for a major downturn in the economy and are speculating the Fed will cut interest rates.

Unlike the financial crisis of 2008-2009, when the federal funds rate was over 4%, which the Fed eventually cut to 0%, the Fed is starting from 1.5% now.

But what about more quantitative easing (QE) or purchasing bonds to prop up stocks?

The Federal Reserve balance sheet stood at $900 billion in September of 2008 and eventually ballooned to $4.5 trillion until December of 2017. That’s when the Fed decided it was smart to reduce the balance sheet, just in case the economy gets into trouble.

The Fed managed to reduce its balance sheet to about $3.75 trillion until August of last year. It then needed to provide liquidity to the banking system and began purchasing short-term Treasury bills. The balance sheet is now back to about $4.2 trillion.

As I’ve written about in the past, the Feds tools are much more limited now than they were in 2008. The Fed can only cut 1.5% before we’re back to zero, and the Fed’s balance sheet is near where it was at the end of QE.

So far, the U.S. economy has held up pretty well. But most of the data looks backward and could take a turn for worse.

If it does, the Fed won’t be of much help.

Inflation, Spending, and Income

Speaking of the Fed, its preferred inflation gauge was updated this morning.

The personal consumption expenditure price index, better known as the PCE Price Index was updated for January.

Overall inflation was up 0.2% on the month. When excluding volatile food and gas prices, core prices were only up 0.1%. On the year, core inflation rose 1.6% — unchanged from December. Inflation was expected to rise slightly on the month but didn’t.

Personal income rose 0.6%, sharply higher than expected — up from the 0.2% rise in December. Consumer spending rose 0.2% in January, less than expected and down from the 0.3% rise in December.

I expect to see big drops in inflation and spending in the months to come. The jobs situation may get ugly and incomes should also eventually drop if things worsen

New Home Sales Jumped in January

Treasury yields are at all-time lows and that’s helped home sales. Mortgage rates last I checked were around 3.5%, and are falling along with stocks, though home prices are rising. So, the question going forward: how long until buyers disappear?

December new home sales were revised higher to an annual rate of 708,000. January sales were expected to move slightly higher but instead jumped to 764,000 — up 7.9%! This was the highest annual rate of new home sales since 2007.

On the year, prices are up 14% while mortgage rates fell to eight-year lows.

Again, consumer confidence was at very lofty levels, the unemployment rate near all-time lows, consumer spending and incomes both up.

Considering what’s happening with the global economy and the financial markets, I wouldn’t expect the housing boom to last much longer.

Closed Position

Earlier this week, you should have sold to close the March 20, 2020, Stifel Financial (NYSE: SF) $70-strike put options.

All eyes will be focused on Friday’s February employment situation. But first we’ll pay close attention to Monday’s February Institute for Supply Management’s (ISM) Manufacturing Index. Time was up on the position and we exited with a 24% gain

Next Week’s Market Movers

ISM Manufacturing Index surprised to the upside and showed expansion at a level of 53.3. When the index level is over 50, manufacturing is expanding. Levels under 50 show contraction. The expectation for February is a slight drop to 50.8. ISM is closely followed by the Fed and investors alike.

As usual, I’ll monitor my indicators closely and alert you if my system triggers a new trade alert.

Lance Editor, Treasury Profits Accelerator

February 25, 2020

Time is up on our oldest position. So, it’s time to close out for a small gain.

Action to Take: Sell to close the March 20, 2020, $70-strike put options on Stifel Financial (NYSE: SF).

The “bid” price for this contract was about $6.90 at yesterday’s close meaning you could have sold each contract at the market for about $690.00

The market moves quickly. The “bid/ask” price may or may not be the “bid/ask” price when you are able to execute the trade. It could be higher or it could be lower.

Exit Strategy: Buy with a limit order (between the “bid” price and the “ask” price) immediately.

I’ll have more on what happened this week, as well as a recap of our trade, in my regular issue of Profits Accelerator.

Lance Editor, Treasury Profits Accelerator

February 21, 2020

The longer the coronavirus outbreak disrupts China’s economy and spreads elsewhere, the greater the damage to earnings. Apple was the first to give an earnings warning.

Even though no one seems to believe the data coming out of China (economic and virus statistics), the markets haven’t been pricing in any sort of risk.

That is, until yesterday…

Markets fell from record highs as cases of the epidemic rose outside of China and the news inside China worsened.

Treasury yields have been falling, even while stocks rose and seem to be pricing in risk of a faltering economy. In fact, inflation seems to be rising according to recent consumer and wholesale inflation statistics which should be pressuring rates higher.

This morning, stock futures are moving lower and Treasury bond prices are moving higher — yields are lower. This should be helpful to our holdings.

Wholesale Inflation Spikesh

After soft prices in December, the January Producer Price Index (PPI) was expected to follow suit. But month over month, January prices spike 0.5% on expectations of only a 0.1% move. On the year, PPI jumped from 1.3% to 2.1%.

When excluding volatile food and energy, core prices also jumped 0.5% on the expectation of a 0.1% move. On the year, core price moved up from 1.1% in December to 1.7% in January.

Consumer prices typically follow producer prices, so we’ll see if a new trend is developing here.

Open Positions

Wednesday we bought the March 20, 2020, $290-strike put options on SBA Communications (Nasdaq: SBAC). We’re down a little over 31%, but it’s still early.

We’re in the March 20, 2020, Stifel Financial (NYSE: SF) $70-strike put options. We still have a little time, but we’re down about 58% so far.

Next Week’s Market Movers

Wednesday, January new home sales will be updated. New home sales are important to the economy because of the ripple effect from additional sales that come with purchasing a new home like appliances, furniture, landscaping, and other related items. Because of strong housing starts over the past couple months, we’ll likely see continued strength here.

Additionally, we see data for January pending home sales on Thursday.

Friday morning, the Fed’s preferred inflation gauge — the Personal Consumption Expenditure Price Index (PCE Price Index) — will be updated for January. This is still running well below the Feds 2% target in contrast with the Consumer Price Index that runs above 2%. Monthly personal income and spending for January will also be updated.

As usual, I’ll monitor my indicators closely and alert you if my system triggers a new trade alert.

Lance Editor, Treasury Profits Accelerator

February 14, 2020

The coronavirus still dominates the headlines, but it hasn’t had the effect on the markets you might expect. All major U.S. equity indices are trading at, or near, all-time highs.

Earnings and economic updates are driving trading. There don’t seem to be any other risks.

Yesterday, the January Consumer Price Index was updated. In this measure of inflation, the overall rate only moved up 0.1% on the month.

On the year, CPI moved up 2.5% — up more than expected. When removing food and energy, core inflation increased 0.2%. On the year, core inflation rose 2.3%.

It’s interesting to compare the Fed’s preferred inflation gauge, the PCE Price Index to CPI. The gap is the highest it’s been since 2011. The PCE Price Index is showing inflation at 1.6% while the CPI is showing it at 2.5%.

When looking at retail sales as a driver of inflation, the CPI might be more correct than PCE.

December retail sales shot up 0.5% when excluding autos and gas and was up 0.4% in January. That’s higher than the expected 0.3% consensus.

The markets are chopping around this morning and indices are mixed. We have room for another three positions. I’ll let you know when I get another alert.

Closed Positions

On Tuesday, we closed the March 20, 2020, $95-strike call options on Northern Trust (Nasdaq: NTRS). We closed this out for a solid 30% gain in less than two weeks.

Open Positions

Wednesday, we bought the March 20, 2020, $290-strike put options on SBA Communications (Nasdaq: SBAC). We’re down a little over 20%, but it’s very early.

Last Friday, we opened the March 20, 2020, Stifel Financial (NYSE: SF) $70-strike put options. It’s still early, but we’re down about 43% so far.

Again, we have room to add a couple more positions and I’m monitoring my indicators closely!

Next Week’s Market Movers

Monday, the markets will be closed for President’s Day.

Wednesday will be busy with housing and inflation updates.

New home starts and permits for January will be updated in the morning. December starts jumped by nearly 17%, so we’ll be looking for adjustments or follow-through to the strength. New home sales drive our economy not only in the real estate and construction sectors, but also with related purchases of furniture, appliances, and the like.

Wholesale prices will also be updated when the January Producer Price Index (PPI) is released. PPI has been running well below the Federal Reserve 2% target.

As usual, I’ll monitor my indicators closely and alert you if my system triggers a new trade alert.

Lance Editor, Treasury Profits Accelerator

February 12, 2020

One sector that moved yesterday was the wireless communications infrastructure. The stock the jumped the most: SBA Communications (Nasdaq: SBAC) — rising over 7% on the day. This move triggered a trade alert.

This falls into my financial sector since it’s really a Real Estate Investment Trust (REIT). The company makes its revenue by leasing antenna space.

We’ll position for a pullback over the next two to three weeks.

Action to Take: Buy to open the March 20, 2020, $290-strike put options on SBA Communications (Nasdaq: SBAC).

Buy-up-to price: $14.50

The “bid” price for this contract is about $14.00 meaning you can buy each contract at the market for about $1,400.

The market moves quickly. The “bid/ask” price may or may not be the “bid/ask” price when you are able to execute the trade. It could be higher or it could be lower.

Entry Strategy: Buy with a limit order (between the “bid” price and the “ask” price) but, don’t pay more than the buy-up-to price above.

I’ll have more on what happened this week, as well as a recap of our trade, in my regular issue of Profits Accelerator.

Lance Editor, Treasury Profits Accelerator