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Friday, March 29, 2024

November Stock Market Analysis

Appropriately after Halloween, it was a hell of a month.

I think it's very important to remember how we got here, I'm going to try a new review format so hopefully we can get some perspective that will take us through what promises to be a very tricky couple of weeks as we head into the December 11th Fed meeting.

In the October wrap-up we were just coming to grips with a very moody market that had opened October at 13,900, run up to 14,200 on 10/10 and then began an orderly descent all the way down to 13,337, a very brief low of the day on 10/22 before bouncing back to finish the month of October at 13,930.

As we peaked out on 10/29 I realized what was wrong with the markets.  It was the yadda-yadding of the bad news!  The market had run up from the 10/19 low of 13,478 to 13,930 and the Fed made it's much anticipated move on Halloween, peaking the market out at 13,990 and closing just off it.  We also had our Q3 GDP report showing 3.9% growth but it had plenty of holes in it that concerned me at the time.  We had been shorting runaway oil stocks into the rally and on Thursday morning XOM came through for us and blew their earnings.  This was day 3 of my Jan 13th, 2000 clock (5 days before the big crash) which I had started that MondayXOM made us very happy that week, as did the rest of the sector but the market took a very harsh turn down on Thursday (11/1) and I noted that we had quite a few issues to address now that things were starting to matter:

 

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So there we were on day 4 of my 5 day doomsday countdown and already down 300 points.  Hey, we can't call them all on the nose!  That left us at 13,600 (I'm going to start rounding to be less annoying), where we stayed for the next 3 days.  C led the financials lower and the VIX flew back to 22 (up 17% on 11/2) giving us the feeling that something had to give.  Friday the 2nd was the day I called for a drop to 13,000 and a consolidation at that level in order to get back on our feet, that was how many yadda-yaddas had to be filled in for me to get comfortable with our pain.

The night before, Cramer did us the great favor of pumping BIDU to an all-time high by leading his sheep to the slaughter with this moronic "Four Horsemen of China" speech – possibly this will be looked back at as the moment Jim Cramer jumped the shark.  My comment on Friday morning was:

BIDU is flying in pre-markets this morning as Jim Cramer declares it one of the "Four Horsemen of China."  This thinly traded ADR is subject to wild swings and we have puts on it so we can cover with close calls and ride the wave up if they break $400 while we roll the puts higher in case the market doesn’t back the initial excitement.  ""I don’t care if China’s a bubble. I care about making money" said Cramer.  With advice like that, what can go wrong?

Cramer's stumping rallied BIDU from $385 on Thursday night to $429 on Tuesday, at which point his hedge fund buddies slaughtered the lambs he brought to the table, knocking BIDU back to $300 in just 4 sessions, giving us one of our best weeks ever as BIDU was one of many things we were totally on top of that week.  On Monday morning, even with my 13,000 prediction I worried: "Have I gotten too bullish?" as the bull was really hitting the fan hard and China (along with Jim's horsemen) commenced a 20% meltdown that would color most of the month.

Housing issues were rearing their ugly head but the Fed and the Administration jawboned the market on Tuesday but Option Sage kept it very real with his prescient look at the Hang Seng and his amazing FXI call a week earlier was another huge boon to members.  Andrew Wilkinson pointed out the VIX was at a 6 week high on Tuesday morning, the 6th, and that was a good enough reason for us to tread a little more cautiously and during the day I turned downright grouchy and we went as short as we get into the "rally" that took the Dow back to 13,660.

I thought I was going crazy on Tuesday as the Dow marched relentlessly upward and we kept rolling and covering based on fundamental issues I saw despite the "technical" bounce we were getting but it only took 16 hours to have our bearishness vindicated as GM let the 400-point collapse with $39Bn in losses for Q3.  That was also the day China decided to badmouth the buck along with UBS's director of foreign exchange.  For good measure, the Japanese index of leading economic indicators hit 0 (out of 100) and FINALLY, we were getting some healthy capitulation from the bull set.

By noon on Wednesday it was all over as the call was (and I quote): "COVER, CASH, COVER, CASH!!!At the day's end I said: "I’d love to point out the bright spots but there weren’t any.  It was an ugly awful day but just as we don’t buy too much into a rally that is led by commodities and financials, we don’t really buy into a sell-off that’s led by them either.  Bernanke speaks tomorrow and Bill Poole indicated there may be another cut in December and we’re not going to stand in front of that train."  AH HA!  On November 7th Bill "The Bear" Poole told us there may be another rate cut in December.  Gee doesn't that mean that we are now rallying on REALLY old news???

I was thrilled that we were finally addressing our problems and thrilled that the Dow continued to slide, making our members lots and lots of money as evidenced in our Thursday wrap-up.  We went into he weekend balancing out our virtual portfolio and I wrote about balance that weekend.   We seemed to be bottoming out at just about 13,000 on the 12th as the dollar had finally gotten bad enough to make the market go down, that looked like a bottom signal to me.  I called for a bounce on the morning of the 12th but we didn't get it until the next day, when the Dow jumped from 12,975 all the way back to 13,000, testing both ends of my trading range on the same day.  We took full advantage on Monday, buying and rolling all day long as we were quite confident in that 13,000 floor than we had been expecting for 2 weeks.

Tuesday the 13th, we got the rally we were looking for but the 330-point run was so severe and so obviously overdone (even before it started) that I had to make a call to sell into it.  That was the day that C ripped into ETFC, which brought down all the financials that week – including CitiBank!  On Wednesday, with the Dow at 13,300 the day before (at the top of my range), we continued to lock in what I called "our ill-gotten gains."  BSC and HBC came out with more write-downs but we had a huge open at 13,465 on good data from WMT and friendly sounding economic numbers but I said: "if the market is determined to rally on the same bad news it dove on last week then who are we to stand in the way but I will be covering and cashing into this run as there is nothing here that warrants a 400-point recovery in such short order.  The market seems schitzo (and I’ve dated enough to know the signs), this has trouble written all over it.  If we break out on technicals, we’ll give it a fresh look but this sudden, irrational movement is not the kind of rally I can see forming a long-term relationship with." 

As expected, the market's relationship with the bulls soured quickly and we fell from 13,465 all the way to 12,725 in the next 5 sessions (ouch!), taking us into the holiday.  As we called it on the nose we simply had great day after great day as the market finally picked a direction and the direction was down!  It got so severe that I diagnosed the market with signs of depression and any good Freudian knows that the bottom of the depressive cycle precedes the manic phase by only a very brief interval so we started slowly but surely dipping our toes back in the water at around 13,000.

We played it cool into the Thanksgiving weekend as the dollar truly went into the toilet but I called the bottom at 75 (a point below the target I set in the summer) and made a hopeful bottom call for the whole market on Monday the 19th as we tested and failed my 13,000 call, finishing at 12,950. 

Tuesday was "Tempting" but we didn't bite on another silly morning spike as, EVEN THOUGH I WANTED A TURNAROUND, I didn't like the premise this one was based on (old China investment stories and a forced Asian rally).  I said that morning "Learning not to be fooled by false rallies is the key to taking your investing to the next level" and any member who wants to get there should go over the posts and comments from this week as we had a lot of good discussions about what constitutes false and genuine moves.

Thursday we were back in bear wrestling mode and I lost faith in my 13,000 floor, even though it held it, saying: "While we finished spot on my 13,000 floor, it’s a shaky old floor and the Nasdaq couldn’t hold our critical 2,600 mark and they are supposed to be giving us leadership!"  Intraday Tuesday, on a spike up to 13,170 was the second time in the month I had to say "Cover, cover, cover!!!"

On Wednesday we were clearly going down into the holiday as the dollar finally fell to an all-time low against they Yen and there was no way we were buying into the long weekend (plus I went away!) and our members know whenever I leave my chair the market drops 150 points anyway so we were not surprised to end the day before Thanksgiving at 12,800.  Our ongoing PSW Retail Survey led us to expect what would finally be a turnaround based on fundamentals, including what could only be a massive run on AAPL based on our channel checks.  My comment on Friday morning was: "The real action begins on Tuesday when all the top dogs roll in from their long weekends.  Even those that show up on Monday usually spend the day in meetings and, unless retail looks worse than our early survey results project, most of those meetings are likely to be about what to buy into the close of the year."

We came back on Cyber Monday with guns a blazin' and I made public calls to buy AAPL $180s at $5.35 (which topped out Friday at $8.25)  and COH May $37.50s at $3.70, which are still going strong at $4.60 as we continue the PSW tradition of giving our Free readers some stocking stuffer picks.   We actually got those much cheaper as Monday was another one of those days with a strong open (13,100) and a terrible close (12,700) and I was away that day so it wasn't until Tuesday morning when I could officially say: BUYBUYBUY as everything was proceeding exactly as we had foreseen (if anyone has a Star Wars sound bite for that statement, please send it to me!).

I was thrilled that the market was finally dealing with it's depression by accepting all the terrible news we were yadda-yadding the month before.  It was good, it was healthy and IT WAS PLAYABLE!  We said goodbye to our callers on Tuesday and let the market take us back to the top of my 13,300 range and beyond, where we went pretty much neutral into the weekend as I don't really expect us to break over 13,500 any time soon.  Tuesday evening I called for oil's demise and it dropped 10% for the week as Wednesday morning OPEC Minister Ali al-Nuaimi said: "There is NO relationship between the fundamentals today and the price of oil.  There is a mismatch.  Fundamentals do not support high petroleum prices. The world market is well supplied."

Well knock me over with a feather!  Oil had it's worst week EVER in dollar terms as the buck came back and the barrel came down, likely putting the breaks on all that talk about re-pricing oil in Euros (you don't benchmark your commodity to a currency that is more likely to fall than rise (although they should have thought of that re. the dollar when Bush passed his first wealthfare program).  Wednesday was another one of those rallies that was so severe that it put me off a bit and Thursday we decided to sit out the madness as the market moved back to denial

Friday we got all excited again as the Government finally did something (or at least said they were hoping to do something) about the sub-prime crisis and implemented my plan to put rates on hold but the convoluted conditions they are placing on the mortgage holders has put me off endorsing it until I see it fleshed out.  We ended the day in a fairly neutral posture after turning in our most profitable month ever as we called those wild swings right on the nose 3 times.  Once upon a time you were lucky to call 3, 500-point moves right in 5 years, not 4 weeks – this market is nuts and we are loving it!

Well this took way longer than I thought to finish up so I apologize to members and will post the virtual portfolios this evening but I thought this review would be very important as we are just 8 days away from the next Fed decision and we need to think long and hard about what worked and what didn't work around the prior Fed meeting because one thing for sure in a schitzo market is you can expect to see some pretty clear behavioral patterns as long as you can avoid getting caught up in the madness.

That's why we've been focusing on balance on the member side, balance lets us remain objective and take appropriate action rather than becoming mental patients ourselves!

 

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