by ilene - April 29th, 2016 4:45 pm
Courtesy of Lance Roberts of RealInvestmentAdvice.com
“With the breakout of the market yesterday, and given that ‘short-term buy signals’ are in place I began adding exposure back into portfolios. This is probably the most difficult ‘buy’ I can ever remember making.”
I also stated that it was probably a trap and that I will be stopped out in fairly short order. But that is the risk of managing money.
Well, since then the markets have gone, as of this writing, roughly nowhere as the market traded between roughly 2075 and 2100 all week. However, the following chart is what has me worried.
The chart of the volatility index measures the “fear of a correction” that currently exists in the market. As a contrarian indicator, the “time to sell” is when there is relatively little “fear” in the market. As the yellow highlighted bars suggest, that time is likely now.
Is the recent turn higher in the VIX signaling a market correction as it has done in the past? Possibly. If so, the question will be the depth of that correction. Will it be a mild pullback as saw in early 2015, or a more major decline as seen in August of last year? My bet is that it will likely be the latter given the weakening fundamental backdrop.
However, given the ongoing Central Bank interventions, verbal easing by the Federal Reserve and an excessiveness of “bullish hope,” there is still no telling what the markets will do next. This is why in this upcoming weekend’s newsletter (subscribe for free e-delivery) I will be discussing the possibility of “shorting against the box.”
Keith Fitz-Gerald once wisely stated:
“Always sit in an exit row.”
This weekend’s reading is focused primarily on the events from last week – The Fed and the markets. I suspect things are about to get much more interesting.
- Dumbest Idea Ever Interview With Jeff Gundlach via Finanz und Wirtschaft
- Will The Fed
by phil - April 29th, 2016 8:45 am
Wow, what a day!
Now aren't you glad we added those hedges on Tuesday? Keep in mind that I can only tell you what the market is going to do and how to profit from it – the rest is up to you… Our trade idea from Tuesday morning's post was:
The idea is we REALLY want to own 500 shares of AAPL at $85, so the $3,500 we collected for selling the puts is free money and AAPL only fell to $95 anyway, so we're feeling very good about our 2018 obligation. Meanwhile, the Nasdaq Ultra-Short (SQQQ) June $17 calls are already $3.10 ($12,400) while the short June $21 calls are $1.15 ($4,600) so we could close that spread now for $7,800 off our $700 cash outlay on Monday and that's a gain of $7,100 (1,014%) in 4 days – you are very welcome indeed and THAT is how we hedge!
That then leaves us with just the obligation to buy 500 shares of AAPL at $85 in Jan, 2018 if it is below $85. The current ordinary margin on 5 short puts is $4,225 according to Think or Swim or we could buy them back for $9.80 ($4,900) and then we'd be cleanly out of the entire trade with a $2,200 gain (314%) in 5 days.
by ilene - April 28th, 2016 9:40 pm
We often use big, overarching ideas to help us understand the world and the opportunities contained within. These narratives, which can change over time, are used to create context. They give us a frame of reference for comprehending the news and events that affect our outlook on things.
As VisualCapitalist's Jeff Desjardins notes, China’s economic prowess is one of these new paradigms that has emerged, but many people still can’t really wrap their heads around the scale or scope of it.
It’s happened suddenly, and the ramifications are extremely relevant to our investments and understanding. Here’s four maps on China’s trade dominance that will help you think differently about the world:
China is the world’s #1 trade partner
Image courtesy of: Connectography
The United States is the number one trading partner for 56 countries, with important relationships throughout North America, South America, and Western Europe.
Meanwhile, China is the top partner for 124 countries, dominating trade in Asia, Eastern Europe, Africa, and Australia.
China’s Sphere of Influence
This map shows the portion of trade conducted by each country with China in Southeast Asia.
Image courtesy of: Stratfor
The influence that China has with nations in Southeast Asia is significant. Most trade is in double-digit percentages, and China views this as its immediate sphere of influence. Throughout history, territories in this region would even pay tribute to China to gain access to trade.
“In East Asia’s tribute system, China was the superior state, and many of its neighboring states were vassal states, and they maintained a relationship of tribute and rewards,” writes Liu Mingfu in The China Dream, a popular book about China’s plans to return to power.
Maintaining influence in Southeast Asia is part of the reason that Beijing is posturing in the South China Sea. In fact, China’s coastguard is growing so fast that in 10 years it will have…
by ilene - April 28th, 2016 2:06 pm
One of Phil's strategies made $1,500 in 30 minutes during yesterday's Live Trading Webinar!
(Don't miss next week's webinar in real-time. Get LIVE access to Phil's Weekly Webinars by joining us at Phil's Stock World — click here!)
00:01:13 Tempting Tuesday – Cash! Cash, cash, cash and more cash!! Trade Idea
00:08:14 Trade Ideas
00:14:47 AAPL: ’13 ’14 ’15 stock of the year. Product Cycle. Charts. Trade Ideas
00:34:14 AAPL: Spread. Trade Idea
00:38:36 AAPL: Long Term Portfolio
00:42:21 Checking on the Markets: YG, SI, DOW, NASDAQ, TWTR, RUSSEL, NIKKEI, AAPL, BA, CL, WYNN, AMZN, TSLA, NG, VIX, TLT, XLF
00:46:20 Top Trade: TWTR
00:54:14 FOMC Meeting
00:59:21 GSPC comparing to UUP
01:01:48 Trade Ideas
01:14:26 Checking on the Markets after FOMC Meeting: YG, SI, DOW, NASDAQ, TWTR, RUSSEL, NIKKEI, AAPL, BA, CL, WYNN, AMZN, TSLA, NG, VIX, TLT
01:23:32 More Trade Ideas….
by phil - April 28th, 2016 8:27 am
I told you so!
Yes, I say that a lot these days and that's because I regret not being more emphatic with my cash calls in 2007 and 2008 when I was a less-experienced writer and felt "silly" being the only analyst who was worried about the irrational exuberance of the time. A good example is our November Wrap-Up from 2007 and, specifically, November 6th, when I said:
I don't like to play the role of Chicken Little but I feel like the casting is forced on me because almost everyone else I talk to is a bull. I said my piece about the housing disaster on Monday and that's only ONE of the things I think are really terrible in the economy!
This is the problem with the markets, we are rallying on leaders and, in the case of oil companies, the worst kind of leaders, while the rest of the market; retail, regional manufacturing, services, dining, discretionary… is in the doldrums. Rallying the market based on the energy sector is like a group of hemophiliacs electing a vampire as their leader, it's a recipe for disaster. And who are our other "leaders"? Commodities stoking inflation! Holy cow people, does anyone actually live on the planet we're investing in?
Back in August I told readers about the dirty little secret of the financial press, they are ratings whores just like every other aspect of the media, and that means they will tell you whatever you want to hear! Newsletters (like this one) are no different because we rely on subscribers to pay the bills and subscribers don't like to hear bad news any more than the average person who
by ilene - April 27th, 2016 3:06 pm
Courtesy of Urban Carmel of The Fat Pitch
Summary: The "summer months" start next week. The period from May through October is known as the "worst 6 months" of the year for stocks. True, the probability of a truly bad month is higher and the probability of a really great stretch of months is lower during the summer than in the winter. But, overall, the expected return over the next 6 months is positive: median returns in winter and summer since 1970 are nearly the same. You might very well sell in May and buy back higher in November.
One of the axioms of Wall Street is 'sell in May and buy after Halloween'. Mark Hulbert says that over the past 50 years, the Dow has an average return of 7.5% from November through April ("winter") versus an average loss of 0.1% from May through October ("summer").
So, is the summer period that awful?
Using SPX instead of the Dow, the data since 1970 still favors winter over summer: the average return is 6% in winter versus 2% in summer.
But this data is skewed by a few outliers; stocks fell 37% in the summer of 2008, by 20% in 1974, and by 15% in 1987, to name a few.
Using median values, winter's return is 5% versus 4% in summer. That's a very small difference. The returns in summer are typically positive, meaning, you might very well sell in May and buy back higher in November.
Overall, 76% of winters since 1970 have been positive; fewer summers are positive (67%), but the difference is slight.
So why do investors fear the summer months? There are two reasons.
First: since 1970, 64% of the worst months (in which stocks fell 5% or more) occurred during the summer. A bad month is twice as likely during the summer as the winter.
Moreover, really bad seasons with losses of more than 10% occur more often in the summer: 13% of summers experience a "correction" versus only 4% of winters.
by phil - April 27th, 2016 8:32 am
I told you so!
Aside from saying CASH!!! 9 times in the morning post (and 3 more in our Live Member Chat Room during the day), we laid out a perfect hedge on the Nasdaq using the Ultra-Short (SQQQ) that will now be over $8,000 in the money off our $1,100 outlay with another $8,000 to gain if the Nasdaq gets any worse – not bad for a day's work, right? Actually, the real money was made in the evening, as my last trade idea for our Members in Live Chat (3:19 pm) was:
Into the close I kind of like shorting Nikkei Futures (/NKD) at 17,530 as long as it stays below 17,550. If we go down – they'll go down but if we go up, they are already up and I doubt the pop so fast as you can't stop out. Obviously, if AAPL earnings are good – get out.
As you can see on the /NKD chart, we nailed the move and caught a 230-point drop to the 17,300 line for a $1,150 per contract gain. We'll be doing one of our World famous Live Trading Webinars this afternoon (1pm, EST) where, among other things, we teach the fine points of Futures trading.
In last week's Webinar (replay available here), we left off with 11 short oil contracts (/CL) at $43.54 and 3 short S&P (/ES) contracts at 2,101 and the S&P fell to 2,080 the next day (21st) for a $3,150 gain and oil hit our goal at $43 for a $5,940 gain. This morning, we shorted oil again at the $45 line, but with tight stops above as we're wary of the inventory report at 10:30.
Futures trading is how we amuse ourselves at Philstockworld, as we're not day traders and long-term trades – if done properly – are BORING! Our Long-Term Portfolio, however, is not boring at all – closing out yesterday up 94%, though we'll take a little hit on Apple (AAPL) this morning. Speaking of AAPL, the details are on our main page but…
by ilene - April 26th, 2016 4:45 pm
First it was Twitter, now it is consumer tech titan AAPL's turn to tumble. For those pressed for time, here is the breakdown:
- APPLE Q2 REVENUE $51.56BN, EST 251.97BN
- APPLE Q2 EPS $1.90, EST $2.00
- APPLE SEES 3Q REV. $41B-$43B, EST. $47.4B
- APPLE SOLD 51.2M IPHONES IN 2Q, EST. 50.7M
- APPLE SOLD 4.03M MACS IN 2Q, EST. 4.6M
- APPLE SOLD 10.3M IPADS IN 2Q, EST. 9.4M
- APPLE 2Q IPHONE ASP $641.83, EST. $651
- APPLE BOOSTS QTR DIV TO 57C-SHR FROM 52C, EST. 57C
- APPLE INCREASED SHARE REPURCHASE AUTHORIZATION TO $175B
And now the details:
Moments ago AAPL reported Q2 EPS of $1.90, missing expectations of $2.00 on revenue of $50.56BN which not only plunged by 13% from ayear ago, but also significantly missed expectations of $52 Billion. Perhaps the biggest driver for this was both the sequential and annual plunge in Chinese sales, which dropped to $12.5 billion from $16.8 billion a year ago.
And while Apple beat expectations on iPhone sales, selling 51.2 million units in the quarter, above the 50.7 million expected, if still 16% lower than a year ago, it did so on both a lower than expected margin of 39.4%, and lower iPhone ASPs, which dropped to $641.8 below the $651 estimate.
Worse, the company's guidance for Q3 revenues was absolutely abysmal, and now sees only $41-$43BN in Q3 sales, well below not only the median estimate of $47.35bn but below the lowest sellside estimate of $43.95bn.
But the scariest chart is probably the one showing the sharp slow down in sales across virtually all geographies.
For those curious about AAPL's crash, the gross cash rose once again to a new record high…
… but net cash after deducting AAPL's rapidly rising debt shows that it is virtually unchanged for 3 years:
by phil - April 26th, 2016 8:39 am
Here we go again!
Back in the summer, EVERYONE said we were going to break out to new highs and the analysts were tripping over themselves to predict a higher goal for the S&P and, after calling for caution since May, I virtually screamed for people to get to cash on July 20th in "Monday Market Manipulation – Everything is Awesome" in which I said:
CASH!!! People! Cash, cash, Cash and more CASH!!! I can only tell you and show you that the conditions we are seeing now – INCLUDING the market-boosting government bailouts – are VERY similar to what happened in 2007/8 leading up to the collapse. That is the limit of my ability. In 2007 and early 2008 I also was "wrong" and the markets went up and I said it was ridiculous and the markets went up and I warned people to go to cash and the markets went up and my only regret was that I didn't do MORE to warn people how dangerous the markets were at the time.
Fortunately, we followed our own advice and cashed in our Member portfolios – getting out at the red line on our Big Chart (+15%) and getting back in at the green line (Must Hold) and THAT is why we have AVERAGE gains of over 100% since last summer – especially as we did it all over again in November! Our timing could not have been better. PERHAPS this time is different but I have that same sense of foreboding I had in July but not so imminent that we've gone to all cash – but we do have $120,000 worth of downside hedges in our Short-Term Portfolio and we did tightly cover our Long-Term, Butterfly and Option Opportunity Portfolios (see weekend review).
In fact, we gained about $8,000 (1.3%) in our paired Long and Short-Term Portfolios on yesterday's little dip so I think we're bearish enough there but the OOP lose $2,000 (2%) and the Butterfly Portfolio, God bless it, was flat (it's supposed to be). Portfolio balance is a tricky thing and it's important, when you are worried about market direction – to have a very good idea of how a 1% rise or fall will affect your overall balance. …
by ilene - April 25th, 2016 2:16 pm
Courtesy of Jim Quinn of The Burning Platform
The chart below would appear to be in conflict with the results of a recent Gallup poll regarding stock ownership by Americans. The ratio of household equities to money market fund assets is near a record high, 60% above the 2007 high and 30% above the 1999 internet bubble high. The chart would appear to prove irrational exuberance among the general populace.
In reality, the lowest percentage of Americans currently own stock over the last two decades. With the stock market within spitting distance of all-time highs, only 52% of Americans own stock, down from 65% in 2007. As the stock market has gone up, average Americans have left the market. They realize it is a rigged game and they are nothing but muppets to the Wall Street shysters.
The reason the ratio of household equities to money market funds is so high is due to the Federal Reserve’s “Save a Wall Street Banker” policies implemented over the last seven years. When you purposely destroy the lives of senior citizens by reducing interest rates to “emergency” levels of 0% and keep them there six years after the great recession is over, it tends to reduce the amount of savings in money market funds. The divergence created by the Fed’s insane policies is borne out by the data.
The average middle class American has experienced two Fed induced financial collapses since 2000, with another coming down the tracks in the very near future. They have been impoverished by the Fed’s ZIRP and QE policies, sold to the masses as saving Main Street, but really designed to save and further enrich Wall Street. The entire engineered stock market rally has been designed by the Fed, Wall Street bankers, and the CEO’s of corporate America who have bought back hundreds of billions of their stock, in order to enrich the .1% and their lackeys.
The average middle class American has rationally exited the rigged stock market and refuse to be lured back in. Back in 2007, nearly three in four middle-class Americans, with annual household incomes ranging from $30,000 to $74,999, said they invested money in the stock market according to Gallup polling.