by ilene - February 8th, 2016 9:12 pm
Courtesy of Wade of Investing Caffeine
It was another bloody week in the stock market (S&P 500 index dropped -3.1%), and any half-glass full data was interpreted as half-empty. The week was epitomized by a Citigroup report entitled “World Economy Trapped in a Death Spiral.” A sluggish monthly jobs report on Friday, which registered a less than anticipated addition of 151,000 jobs, painted a weakening employment picture. Professional social media site LinkedIn Corp. (LNKD) added fuel to the fire with a soft profit forecast, which resulted in the stock getting almost chopped in half (-44%)…in a single day (ouch). [This analysis does not even include today's sharp selloff.]
It’s funny how quickly the headlines can change – just one week ago, the Dow Jones Industrial index catapulted higher by almost +400 points in a single day and we were reading about soaring stocks.
Coherently digesting the avalanche of diverging and schizophrenic headlines is like attempting to analyze a windstorm through a microscope. A microscope is perfect for looking at a single static item up close, but a telescope is much better suited for analyzing a broader set of data. With a telescope, you are better equipped to look farther out on the horizon, to anticipate what trends are coming next. The same principle applies to investing. Short-term traders and speculators are great at using a short-term microscope to evaluate one shiny, attention-grabbing sample every day. The investment conclusion, however, changes the following day, when a different attention-grabbing headline is analyzed to a different conclusion. As Mark Twain noted, “If you don’t read the newspaper, you are uninformed. If you do read the newspaper, you are misinformed.”
Short-termism is an insidious disease that will slowly erode short-run performance and if not controlled will destroy long-run results as well. This is not a heretic concept. Some very successful investors have preached this idea in many ways. Here are a few of them:
‘‘We will continue to ignore political and economic forecasts which are an expensive distraction for many investors and businessmen.” –Warren Buffett (Annual Newsletter 1994)
‘‘If you spend more than 14 minutes a year
by ilene - February 8th, 2016 7:55 pm
The stock market decline doesn't feel like a gift right now but it may turn into one if you have a long-term investment plan. And ironically, the downside risk is less now than it was in May of last year. Which shows how fear and risk are not necessarily coupled in the stock market.
Courtesy of Michael Batnick, The Irrelevant Investor
The S&P 500 closed at a 52-week low on January 20th for the first time since 2011. Last week I took a look at how stocks did in the year they made a 52-week low. Maybe not surprisingly, they performed significantly worse in the years when a 52-week closing low occurred, returning -10% on average, versus 18% for all years that didn’t experience this. Today, I’m going a step further to examine how stocks performed in the one and three years following a 52-week closing low.
When looking out only one year, it’s almost always impossible to say anything conclusive. and this exercise is no exception. With that said, here are a few observations.
- Stocks have historically not been any more likely to be positive one year after they’ve made a 52-week closing low. However, when stocks were positive one year later, the average change was 24%, significantly higher than all periods.
- Following the previous statement, after closing at a 52-week low, stocks were more likely to have an outsized move a year later. For all one-year periods, stocks closed either +/- double-digits 65% of the time. One year after a 52-week closing low, stocks had a double-digit change 75% of the time. Grab your popcorn.
Contrary to what our stomach would have us believe, stocks actually get less risky as they decline. For long-term investors that are working and buying stocks every two weeks, these declines should be thought of as “a gift from god” (H/T Nick Murray).
I usually stay pretty far away from predictions, but here’s something I feel 86% certain about; stocks will be higher three years from now. That’s what has happened historically following a 52-week closing low, so I’m going to go with that. I’m also 74% certain that the S&P 500 won’t be more than 10% lower than the…
by phil - February 8th, 2016 8:23 am
That's the word from CitiBank, which is SUPPOSED to be the voice of reason in these markets. When Banksters tell us to get out of something – it's usually time to get in and, this morning, I put out a Trade Alert to our Members (and tweeted here) to take a long on Oil Futures (/CL) at the $30 line (with tight stops below) as well as lines on various indexes I detailed in the Alert.
Of course, we warned you last week that the market would likely turn back down and I detailed our hedges on the Ultra-Short S&P ETF (SDS) at $22.50 and mentioned we were long on Gold (/YG Futures) at $1,155 and Silver (/SI Futures) at $14.90 and Natural Gas (/NGK6 May Futures) at $2.15 on Thursday. This morning they are at:
- SDS $23.70 – up 5.3%
- Gold $1,180 – up $8,000 per contract
- Silver $15 – up $1,250 per contract
- Natural Gas $2.27 - up $1,200 per contract
Our one loser (so far) was Copper (/HG Futures), which dropped from $2.12 to $2.075 for a loss of $1,125 per contract. Of course stopping out your losers is important with Futures and we'd be happy to get back in either over $2.10 or off the $2.05 line (with tight stops below).
In Friday morning's post we detailed two major hedges for the S&P (SDS) and the Nasdaq (SQQQ) using the Ultra-Shorts and, of course, those are both paying off like gangbusters as Friday was already a bad day and the markets are following through this morning. We also detailed a trade idea for Barrick Gold (ABX) to leverage the run in gold – also doing fantastically, thank you! We're hoping for a bounce but really we're using our bullish future bets, pre-market to lock in the tremendous gains of our index hedges at what we THINK might be the bottom again at 1,850 on the S&P.
Nattering Naybob had a very good summary of the weeks events, reminding our Members yesterday afternoon of my Wednesday warning that we were simply in a "dead cat bounce" and likely to fall…
by ilene - February 6th, 2016 8:00 pm
Fighting to Lose
An election has been described as two wolves and one lamb voting on what to have for dinner.
We’re going to make a difference on election day! Or maybe not…
Actually, there was never any doubt about what was on the menu. An election is really when the wolves scrap over who gets the choicest pieces. To bring new readers fully into the picture… It doesn’t matter who won in Iowa. Major policies are not determined by the voters but by the more or less permanent elite who run the government, aka the “Deep State.”
The Fed is an instrument of the Deep State, not of the people. This sounds conspiratorial. But it doesn’t require any hidden agenda or secret handshakes. Most people want power, money, and status. If you can get control over the government – the only institution that can steal and kill, legally – you’ve got it made. That’s why so much money is spent trying to get elected or to influence public policy.
The U.S. presidential campaign has seen surprisingly strong showings from two “outsiders”: Donald Trump and Bernie Sanders. Why? As former Congressional staffer turned Deep State whistleblower Mike Lofgren recently told Bonner & Partners Investor Network editor Chris Lowe, it’s because each in his own way warns voters about the wolves. The insiders, according to Trump and Sanders, are predatory and incompetent.
Bernie and the Donald – voters like them because they are seen as the anti-establishment choices. The press decries them as “populists” and “nutcases”, which means they must be doing something right. As an aside, the European press is completely apoplectic over Trump, to our unending amusement.
The Deep State is more predatory and less incompetent than it appears. It fights wars, for example, not to win them… but to lose them. The War on Poverty has been going on for more than 50 years. Still no sign of victory. But it has financed countless careers and retirements of government operatives.
The resounding “success” of the so-called “war on poverty.”
by ilene - February 5th, 2016 5:20 pm
There is no way that a tax on oil could be a good idea at this time.
Courtesy of ZeroHedge
With President Obama unveiling his $10/Barrel tax plan to fund government-subsidized public transportatation (versus an individual's choice over his method transportation), we thought a glimpse at the pros and cons of such a choice may be useful…
Weighing factors such as convenience, time commitment, and enviornmental impact, deciding whether to commute via your own fossil-fuel-powered car or government-provided unicorn-fueled public transportation can be difficult.
Here is a side-by-side comparison of the two options…
by ilene - February 5th, 2016 4:55 pm
Courtesy of Lance Roberts of Real Investment Advice
Over the last two months, the deterioration in the economic data has become much more prevalent despite the ongoing hopes of the more “bullishly biased” mainstream media.
Furthermore, as I predicted early last year, the Federal Reserve likely made a mistake in hiking interest rates when the economic and inflationary backdrop were exceedingly weak.
“The real concern for investors and individuals is the actual economy. There is clearly something amiss within the economic landscape, and the ongoing decline of inflationary pressures longer term is likely telling us just that. The big question for the Fed is how to get out of the potential trap they have gotten themselves into without cratering the economy, and the financial markets, in the process.
It is my expectation, unless these deflationary trends reverse course in very short order, that if the Fed raises rates it will invoke a fairly negative response from both the markets and economy.”
And so…that has come to pass. Of course, for me, since I am deemed a “bear” for being a “realist”, my writings are more like a “tree falling in the woods.” The only problem is that just because no one hears it, doesn’t mean the damage to individuals isn’t just as real.
This weekend’s reading list is a compilation of articles discussing “The Awakening” by many to the real problems currently plaguing the economy, the markets, and the Fed.
While it is said “it is better to be late than never,” such sentiment doesn’t sit well with individuals when they are told after the fact what they should have known before hand. But then again, since the turn of the century, “getting back to even” has apparently become a new investing strategy.
1) It’s Time To Worry About The Economy by Matt Phillips via Quartz
“And now the brightness in the US appears to be dimming, at least a bit. The latest benchmark update on the US manufacturing sector shows activity continued to decline in January, marking four straight months of contraction. The strong US dollar—it’s up about 13% against the currencies of major trading partners—is a key culprit.”
by phil - February 5th, 2016 8:13 am
What a crazy start to 2016!
Of course, it is no crazier than the 3rd quarter of 2015 so far, when we had our August crash followed by a slow September bounce that led into a mega-rally that closed our year off back at the highs. At the moment, we are playing with the premise that it's the highs that were wrong – NOT our current 1,900 level on the S&P. We're not expecting any big rally here – just consolidation.
This is nothing new, of course. Back on December, 2nd, in: "Which Way Wednesday – S&P 2,100 Yet Again," I noted:
The S&P gets to 2,100 and we short /ES Futures at 2,100 (with tight stops above the line) and Russell (/TF) Futures below the 1,200 line and Nikkei (/NKD) Futures below the 20,000 line and then, tomorrow or Friday, I'll tell you how much money we made shorting and you'll say "why do I never catch these great trade ideas" and I'll say it's because you're not patient enough to wait for the pattern to reset itself and just make the obvious play.
This is the 11th time the S&P has been over 2,100 since May and, so far, it's been like a little money machine for us all year long on the short side. I know this time may be different and the last 10 times may have been different too, which is why we stop out if we don't get confirmation from the other indexes that things are toppy but, when it works – it's good for $250, $500, $1,000+ PER CONTRACT in the Futures at $50 per point to the downside.
By the way, I know we've been talking a lot about the Futures lately and that's because our portfolios are mainly in CASH!!! That means we have plenty on the sidelines to play with and the quick in and out…
by ilene - February 4th, 2016 7:06 pm
The latest PhilStockWorld.com Weekly Webinar – 02-03-16 – is up! Scroll down for a time key to the major topics.
00:02:16 Checking on the Markets: Russell, OIL, NG, DX
00:09:58 Trade ideas
00:30:15 BAC: Stock of the year 2012, trade idea
00:39:40 Checking on the Markets
00:42:01 Exit on Futures, trade idea. Don’t pick the exit, watch the exit.
00:51:05 Options Opportunity Portfolio: Puts
00:59:15 Think or Swim. Pivot point.
01:01:56 SQQ Hedges
01:04:15 GOOG, AAPL
01:05:30 Checking on the Markets: YG, SI, DX, INDEX, NG, TLT, RB
01:06:41 OIL chart
01:09:56 Commodity pricing the Dollar.
01:10:24 Checking on the Markets: Russell, trade idea, AAPL, NASDAQ
01:15:38 BMY: the options are expensive. Trade ideas.
01:22:01 Checking on the Markets: Russell
01:27:00 What will happen on Monday.
01:28:43 Checking on the Markets: S&P, DOW, NASDAQ, NGK6
01:40:33 Next Week: China's shutdown.
01:42:08 Checking on the Markets
by phil - February 4th, 2016 8:12 am
That's right, we did it again!
Yesterday's Live Trading Webinar was open to the public (see yesterday's post) and, during the session, we found a trade on the Russell 2000 that made $500 per contract and, into the close of the Webinar, we decided to go long on the Nikkei (/NKD) at 16,985, looking to get back to 17,200 and we NAILED IT into the close for a $1,075 per contract win in just hours! Futures trading is fun – don't be afraid – check out our Options Opportunity Portfolio and get access to all of our Live Trading Webinars.
Also in yesterday's morning post (and on our Twitter feed) I mentioned the Alert we sent out to our Members in the morning, noting the following long plays in the Futures:
- 1,900 on the S&P (/ES), closed 1,907 – up $350 per contract
- 16,100 on the Dow (/YM), closed at 16,320 – up $1,100 per contract
- 0.975 on Gasoline (/RB), closed at $1.045 – up $2,940 per contract
- $30 on Oil (/CL), closed at $32.50 – up $2,500 per contract
Yes the futures are risky (and we were down before we were up in the Webinar) but they give you a tremendous advantage in volatile markets as you can use them to better balance your portfolio before the market opens or after it closes – rather than sitting and sweating while you wait for the opening bell to trade. Since we practice a generally Balanced Portfolio Approach at Philstockworld, we mostly play the Futures for fun but the experience we get while having fun really comes in handy when there is an after-hours surprise in the market. You've probably seen this commercial recently:
And no, it doesn't matter who your broker is (most of us use TD's Think or Swim) but this commercial hits it right on the head – being able to trade the Futures gives you a tremendous edge on the market. Let's say you only used one of our trade ideas and made just $1,000 yesterday on a single contract. What percentage of your portfolio is that? How…
by ilene - February 3rd, 2016 6:28 pm
Confucius, Sun Tzu, China's currency and the Monkees, all together in one post.
By John Mauldin
“It does not matter how slowly you go as long as you do not stop.”
“Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. Thereby you can be the director of the opponent’s fate.”
– Sun Tzu
While we in the West get used to writing “2016” on our documents, China is getting ready for its own Lunar New Year. Their calendar kicks off the “Year of the Monkey” next month. At the rate they are going, though, Chinese markets look more like that hapless rock band that can’t quite reach the main stage.
China isn’t the only reason markets got off to a terrible start this month, but it is definitely a big factor (at least psychologically). Between impractical circuit breakers, weaker economic data, stronger capital controls, and renewed currency confusion, China has investors everywhere scratching their heads.
When we focused on China back in August (see “When China Stopped Acting Chinese”), my best sources said the Chinese economy was on a much better footing than its stock market, which was in utter chaos. While the manufacturing sector was clearly in a slump, the services sector was pulling more than its fair share of the GDP load. Those same sources have new data now, which leads them to quite different conclusions. If you have exposure to China – which you do if you own just about any stock listed anywhere – you’ll want to read this issue carefully.
Let me remind you, before we delve into China, that the early-bird pricing for my annual Strategic Investment Conference ends next Sunday at midnight. I will admit to taking no small amount of pride in the fact that almost everyone who talks to me about the conference says it’s the best investment conference they have ever attended. I carefully craft a blend of speakers each year to speak to the particular dynamic environment we find ourselves operating in. Attendees who have been to most of the conferences…