by phil - October 27th, 2016 8:27 am
I don't know what people are so excited about?
During our Live Trading Webinar yesterday, we called a long on the Russell Futures (/TF) and nailed the bottom at 1,200 with a target of 1,203, paying $300 per contract. We quickly made that money but then there was another chance at 8pm and another at 4am and another at 5am and now the Russell is up at 1,206 with $1,500 worth of gains just from making the same trade over and over and over again.
I you are going to be a day trader – learning to identify channels is the most important thing you can do. We had similar success with our S&P longs (/ES) off the 2,125 line and we just passed our strong bounce line at 2,140 this morning – which is a good place to cash out with a $750 per contract gain on those (see yesterday's post for bounce lines).
As we're flashing more green this morning, we're not looking to go short unless we get signals to do so. You can see what the Labor Market Conditions Index looks like (yuch!) and we have Durable goods at 8:30, Consumer Comfort at 9:45, Pending Home Sales at 10 and the Kansas City Fed Report at 11 – so plenty of data to chew on along with about 200 earnings reports. I see a lot of reds in those reports but the markets are in the mood to rally – so get out of their way for now.
How fragile is this recovery? Well, here's one of those WikiLeak Emails from the new head of the DNC to John Podesta about the mood of the American people:
Here's some quick charts from Harvard via ZeroHedge that illustrate the state of our economy:
You get the picture, but it's a picture that doesn't match the markets, which are still skating along at their all-time highs. Why is it that Apple (AAPL) can have great earnings and great revenues and…
by ilene - October 26th, 2016 11:07 pm
Picture via Pixabay
Courtesy of Joshua Brown, The Reformed Broker
Reuters on the last week’s fund flows:
Mutual fund investors flooded stockpickers with redemption orders during the latest week, cashing out the most money in five years, Investment Company Institute data showed on Wednesday.
The investors pulled $16.9 billion from stock mutual funds in the seven days through Oct. 19, more than in any other week since August 2011, the trade group’s data showed.
By contrast, stock exchange-traded funds took in $2.4 billion. ETFs mostly “passively” track market indexes, while the mutual funds largely employ “active” managers who pick stocks.
by phil - October 26th, 2016 8:36 am
"When I get to the bottom I go back to the top of the slide
Where I stop and I turn and I go for a ride
Till I get to the bottom and I see you again" - Beatles
If you think you have deja vu, you are right. The title of our Wednesday post two weeks ago was "Wednesday Weakness: Controlled Descent or Helter Skelter?" and we predicted the recent movement, saying:
Just as the path of the Helter Skelter is predictable, so is the eventual unwinding of a market rally and, no matter how much QE you pump into it, things do come down eventually. Only when you build on the base are you able to raise the bottom of the slide. Otherwise, no matter how high you climb – you will see that bottom again.
And so, exactly two weeks later, we are back to the bottom of the slide and just as likely to go back to the top where we'll stop and we'll turn and we'll go for another ride until we get to the bottom and we do it again – yeah, yeah, yeah!
There's nothing wrong with a repetitive market pattern, we're doing fantastically well getting in and out of futures plays and, as I noted that Wednesday, there are plenty of stocks we do like and we're doing plenty of bottom-fishing along the way because, while we're looking for a market correction in the short-term, in the long run we're pretty bullish. Meanwhile, we're simply looking for the same Futures bounce lines we outlined at the time to confirm a real recovery:
by phil - October 25th, 2016 8:08 am
Good news for Visa!
You know how you get that "teaser" rate on your credit cards or no interest for 12 months when you start? Well, that all goes away when you have a delinquency and then they get to hit you with 22% interest FOR LIFE AND penalties and then you are DOOMED!!!! Well, 2.2% of credit card holders are now in that category, the most since the market collapsed in the sub-prime loan crisis.
Of course, we'd never make that mistake again, right? So what have our beloved credit card companies been doing about it? Well, they issued over 20M new credit cards to subprime borrowers in 2015 and that's up 56% from 2013. And the borrowers paying those crazy penalty rates are, of course, the ones who can least afford them:
Missed payments in states with large oil or energy sectors continue to worsen. The share of card balances that were at least 90 days past due increased 12% in Oklahoma, 10% in Texas and 20% in Wyoming in the third quarter from a year prior, according to TransUnion. The Wall Street Journal reported in April that rising unemployment in the energy sector was pushing up delinquencies on credit cards and auto loans, raising the risk of new losses for banks.
Don't worry about bank losses – we'll bail them out – where's the risk in that? Speaking of criminal banking institutions, 14% of Wells Fargo (WFC) customers have decided to leave the bank, the other 86% seem oblivious to the news. Of course the other banks are eager to meet the former WFC customers, so they can cross-sell the crap out of them! This is how the free market is supposed to work, where the customers punish wrongdoers by withdrawing their support. Unfortunately, you wouldn't know there we wrongdoers without regulatory oversight and, even then, it apparently takes years and years to uncover.
by ilene - October 24th, 2016 10:14 pm
Courtesy of Cullen Roche, Pragmatic Capitalism
Hillary Clinton will be a one term President. The reason I say this is because I suspect that her economic plan will not be very stimulative and I think that four more years of weak economic growth will be intolerable. And the main driver of my thinking here is deeply rooted in Bill Clinton’s presidency.
Back in the late 90’s the US government ran a brief budget surplus. It was heralded as an act of “fiscal responsibility” at the time. Of course, when the economy tanked immediately following the surplus the government was driven back in the red as tax receipts cratered and automatic spending jumped.
So, was the surplus, followed so closely by a sharp recession, just a coincidence? I suspect not. As Wynne Godley outlined back in the late 1990s, the fiscal position was never all that sustainable because, as a current account deficit country the flows were unsustainable. As I outlined in my popular paper, Understanding the Modern Monetary System, some sector of the economy has to be expanding its balance sheet in order for the economy to grow. If the private sector isn’t expanding its balance sheet (usually through borrowing) then the economy needs to make up for this drag via a government expansion in the deficit OR an expansion from the foreign sector. Since the foreign sector was a negative drag in the 90’s the US economy relied heavily on private borrowing for expansion. The federal budget surplus made this borrowing even more important as the surplus acted as another spending drag on the aggregate economy. And when the tech bubble burst the corporate borrowing binge collapsed and the economy and financial markets collapsed with it. It didn’t stabilize again until the government position moved back into deficit and private borrowing stabilized.
The current environment is worrisome because we’re still climbing out of a very deep economic hole. The foreign sector is still acting as a drag on growth and the deficit has declined sharply as the private sector has recovered. But the private sector is still weak. In fact, household debt growth is still at levels consistent with past recessionary periods:
by ilene - October 24th, 2016 4:28 pm
Courtesy of Wade of Investing Caffeine
Fall is here and the leaves are beginning to change, which means it’s baseball playoffs time and the World Series is quickly approaching. Investing in some respects is similar to baseball because they both require discipline and patience. One investing legend who embodies those characteristics is Warren Buffett, and he has repeatedly spoken about Ted Williams and waiting for the “fat pitch.”
John Huber, over at BHI, did a great job summarizing Ted Williams’ hitting philosophy here:
“Ted Williams was famous for “waiting for the fat pitch”. He would only look to swing at pitches in the part of the strike zone where he knew he had a higher probability of getting a hit. There were parts of his strike zone where he batted .230 and there were other parts of the strike zone where he batted .400. He knew that if he waited for a pitch over the heart of the plate and didn’t swing at pitches in the .230 part of the strike zone—even though they were strikes—he would improve his odds of getting a hit and increase his overall batting average.”
This lesson of patience and discipline is critical for your investment portfolio. Too many people speculate by chasing a hot tip or good stock story, or on the flip side, panic by selling based upon transitory negative news headlines. Today, we see risk aversion happening on steroids. Consider there is over $8 trillion sitting in savings accounts earning effectively nothing – the equivalent of stuffing money under the mattress (see also Invest or Die). In other words, investors are paying extremely high prices (chasing) for safer (less volatile) securities – bonds and cash, while equities are yielding a much higher rate as measured by the earnings yield of the S&P 500 (S&P operating profits / index value). Scott Grannis at Calafia Beach Punditcalls this dynamic the equity risk premium (chart below).
by phil - October 24th, 2016 8:33 am
Just another manic Monday.
Europe gapped higher at their open (3am) and took our indexes up with it as no volume, of course, so we'll have to see what sticks but I already put up shorting lines for our Members in this morning's Live Member Chat Room. Essentially, we're just shorting at the same bounce lines I laid out last Tuesday so nothing has changed – except it's Monday, not Tuesday. Today though, we added the Nikkei (/NKD) short at 17,350, as strong data from Europe should strengthen the Euro and weaken the Dollar a bit (98.60).
This has, of course, been going on all year in a generally flat market, though that hasn't stopped us from ranging between 1,800 and 2,200 on the S&P – more than a 20% variance from highs to lows. Logically, 2,000 is then, the middle of the range yet, despite 65% of the S&P 500 trading below their 50-Day Moving Average, we're still much closer to the high end of our trading range.
Clearly the so-called smart money has been fleeing the markets all year, as evidenced by JackDamn's cash flow chart, which illustrates the massive outflow of money from the 500 in 2016. Think of each block of outflows like Jenga pegs that are being removed – even as the tower is built higher and higher. You KNOW what will eventually happen – you just don't know exactly when the whole thing will collapse. Given that the outflows are increasing at the moment – we should keep a careful eye on this indicator.
Oil (/CL) Futures tested $51 again early this morning but is already back to $50.34 so too late to short it if you weren't paying any attention to the last 3 week's worth of posts, where we shorted at $51 over and over again. Speaking of last week's picks – you can still pick up Natural Gas (/NG) long as it crosses over the $3 line and use that line as a stop so very little to lose and much to gain on those futures.
by phil - October 22nd, 2016 8:22 am
Who says we're not bullish?
While we are, certainly, cautious on the market and well-hedged (just in case), we certainly do seem to find a lot of bullish positions to take. That's because we're VALUE INVESTORS and there is almost always something of value to buy in any kind of market and our Top Trades are, of course, our top value picks – the ones we feel most confident in.
In our first year, our Top Trade Ideas had an astounding 81.1% winning percentage with 86 out of 106 trades making money within a few months. That's without even adjusting them. We do not have a portfolio for Top Trades, we just do these reviews but many of our Top Trade Ideas do end up in one of our 4 Member Portfolios.
Our August review took us through July 12th and July 12th was the last Top Trade Idea we had until August because I REALLY didn't trust the market in mid-July so this month, we'll just be reviewing our August trades as we like to give Sept time to cook before reviewing those. We had a surprising amount of trade ideas in August though. Our 15 May, June and July picks had 11 winners but, unfortunately, that actually bought down our percentage!
Of course, when you are reading our reviews, those losing trades are often still opportunities. CMG, CBI, PSO and SDS are all plays we still like from the last review – they are simply late bloomers! SDS, in fact, is a hedge – it's not supposed to win if the others are doing well but we still count it as a loss.
Top Trade Alerts come from our Live Member Chat Room at Philstockworld and represent a very small portion of our trade ideas but they are a fair representation of applying our "Be the House – NOT the Gambler" strategy and you can learn a lot by reviewing the performance of these trades through up and down markets over the course of a year. All PSW Basic and Premium Members have Top Trade Access (just make sure your smart phone number is in the box here if you want text alerts in addition to our EMail alerts).
by ilene - October 22nd, 2016 1:22 am
Summary: Throughout 2013, 2014 and early 2015, fund managers were heavily overweight equities and underweight cash and bonds. Those allocations have entirely flipped in 2016, with investors persistently shunning equities in exchange for holding cash.
Global equities are more than 15% higher than in February. A tailwind for this rally has been the bearish positioning of investors, with fund managers' cash in October rising to the highest level since 2001. Similarly, their equity allocations are now like those in February, mid-2010 and mid-2012, periods which were notable lows for equity prices during this bull market. Overall, fund managers' defensive positioning supports higher equity prices in the month(s) ahead.
Allocations to US equities had been near 8-year lows over the past year and half, during which the US outperformed most of the world. After rising for two months during the summer, allocations fell again to underweight in both September and October. Bearish sentiment remains a tailwind for US equities.
European equity markets, which had been the consensus overweight and also the world's worst performing region, are now underweighted relative to their long term mean. Investors are chasing the world's best performing region – emerging markets – which now have their highest overweight in 3 1/2 years. Emerging markets may rise further but note that the contrarian long trade is now over.
Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better ones as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.
The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).
Cash: Fund managers' cash levels at the equity low in February were
by ilene - October 21st, 2016 4:25 pm
Courtesy of Lance Roberts of RealInvestmentAdvice.com
In yesterday’s post, I discussed Howard Mark’s view on being a contrarian:
“Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, particularly when momentum invariably makes pro-cyclical actions look correct for a while. (That’s why it’s essential to remember that ‘being too far ahead of your time is indistinguishable from being wrong.’)
Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.”
The important point of his comment is that being too far ahead of a turning point (either bullish or bearish), even though ultimately being proved right, is still “indistinguishable from being wrong.”
However, there is a huge difference between being making the right call early, particularly when the trend is changing from bullish to bearish, and making no call at all.
The “buy and hold” mantra is essentially based on the premise that stocks rise much more often than they fall, and since you are either too stupid or lazy to actually understand how investing actually works, you are just better off making investments and forgetting about them. Hopefully, you will win.
This is the equivalent of saying: “Since 8 out of 10 people who play ‘Russian Roulette’ survive the first pull of the trigger, the odds are in your favor of winning.”
While that is entirely true, it is the 20% of the time you lose that matters most.
The chart below shows the long-term view of the market, going back to 1920, as compared to GAAP valuations. This is a QUARTERLY price chart which also shows the points in history where valuations have collided with extreme overbought conditions.
While hindsight is pretty clear about what happens given the current environment of weak economic and profit growth combined with high valuations and deteriorating technical underpinnings, the ultimate outcome took months to develop. Just as with the “boy who cried wolf,” warnings eventually fell on “deaf ears” at the point those warnings actually mattered.