by phil - December 17th, 2014 8:20 am
What a wild ride yesterday was!
As we predicted, we opened down half a point and then raced all the way up to our strong bounce lines before tumbling back to give up all of those gains and more – a major technical failure for the markets but a huge profit for anyone who followed our trade ideas in the morning post.
Using the bounce lines we published early in the morning for the Futures trades gave the following outcomes on that morning spike:
- Dow (/YM) Futures 17,000 to 17,350 for a $1,750 per contract gain
- S&P (/ES) Futures 1,965 to 2,010 for a $2,250 per contract gain
- Nasdaq (/NQ) Futures 4,120 to 4,180 for a $1,200 per contract gain
- Russell (/TF) Futures 1,130 to 1,155 for a $2,500 per contract gain
I called the top in our Live Member Chat Room at 11:42 and, since we had made a public pick in the morning, I also tweeted out the note to take profits for our followers (and on our Facebook page, of course). That's how we pick up a little spare change in the Futures while we wait for our bigger positions to play out.
In fact, we also cashed in a couple of our bearish positions on DXD and SQQQ that were up significantly on yesterday's drop, leaving us a little bit less bearish ahead of the Fed – just in case they actually do something today that boosts the markets. We don't really expect it, but not taking 100% gains off the table is just foolish – we can always find new hedges to cover our longs with.
As you can see, our Short-Term Portfolio finished the day up 96.5%, a gain of $22,310 from Monday's close so of course we wanted to take some off the table. Our cash position has increased by $46,500, which was one of our primary goals (getting to mainly cash) into the holidays, which are just 7 days away now. All in all – perfectly timed this year!
by ilene - December 16th, 2014 8:27 pm
By John Mauldin
Last week we started a series of letters on the topics I think we need to research in depth as we try to peer into the future and think about how 2015 will unfold. In forecasting US growth, I wrote that we really need to understand the relationships between the boom in energy production on the one hand and employment and overall growth in the US on the other. The old saw that falling oil prices are like a tax cut and are thus a net benefit to the US economy and consumers is not altogether clear to me. I certainly hope the net effect will be positive, but hope is not a realistic basis for a forecast. Let’s go back to two paragraphs I wrote last week:
Texas has been home to 40% of all new jobs created since June 2009. In 2013, the city of Houston had more housing starts than all of California. Much, though not all, of that growth is due directly to oil. Estimates are that 35–40% of total capital expenditure growth is related to energy. But it’s no secret that not only will energy-related capital expenditures not grow next year, they are likely to drop significantly. The news is full of stories about companies slashing their production budgets. This means lower employment, with all of the knock-on effects.
Lacy Hunt and I were talking yesterday about Texas and the oil industry. We have both lived through five periods of boom and bust, although I can only really remember three. This is a movie we’ve seen before, and we know how it ends. Texas Gov. Rick Perry has remarkable timing, slipping out the door to let new governor Greg Abbott to take over just in time to oversee rising unemployment in Texas. The good news for the rest of the country is that in prior Texas recessions the rest of the country has not been dragged down. But energy is not just a Texas and Louisiana story anymore. I will be looking for research as to how much energy development has contributed to growth and employment in the US.
by phil - December 16th, 2014 7:42 am
This is getting very ugly.
This picture was from Moscow on Friday, with the sign offering 54 Rubles for $1 and offering to sell Dollars for 59 Rubles (nasty spread). Today, just 4 days later, you need 80 Rubles to buy a Dollar with that currency dropping 45% (so far) in less than a week. This is happening DESPITE the Russian Central Bank raising it's overnight rates to 17% from 10.5% – up 62% overnight – AND IT DIDN'T HELP.
This is bad, folks. Russia isn't Greece, Russia is a $2Tn economy with 143M people and very close ties to satellite nations that surround them so the contagion is likely to be fast and direct and can very easily spread quickly to Eastern Europe, which hasn't been strong in the first place. In our Live Member Chat Room this morning, we discussed the impact of the Russian Rate increase:
Raising the rates makes (in theory) your notes more attractive so people use their relatively stable foreign currencies to buy your Ruble notes so they can benefit from the high interest rates. The problem for Russia is that their currency is down 50% this year and 10% this week so it's not that attractive to exchange $10,000 for 650,000 Rubles (at 65 to the Dollar) at 17% and get back 760,000 Rubles next year only to find out it's now 100 Rubles to the Dollar and now you only have $7,600. This is the kind of spiral that leads to hyperinflation.
Don't forget, you also have to believe that the country you are lending money to won't default. Russia did default in 1998, which was only 16 years ago and now oil is simply crushing their economy so why on Earth would you give them $10,000 to hold for 2-5 years –
by phil - December 15th, 2014 7:48 am
The Russell 2000 (we're short) went negative for the year on Friday. How long until the other indexes begin to follow? Even with incredibly low oil prices ($56.25 overnight lows) the Transports just gave up the 20% line, less than two weeks after giving up the 25% line. The Dow (we're short) itself is up just over 4% for the year now, S&P 8.5% and Nasdaq 11.5% (we're short them too).
The question before us now is – "How low can we go?" So far, we're not even close to the drop we just had in October. For the Transports, that would be a tragic 15% drop from where they are now, as they led the rally off those lows.
The other indexes are about 10% above those levels and we'll see if Santa has completely forsaken the markets over the next couple of weeks but the technical damage is done and fear has come back to the markets with the VIX rocketing up to 23 on Friday, settling into the close at 21.
That's going to make is a fantastic time for us to sell some long-term options and we'll be looking into our "Secret Santa's Inflation Hedges" next weekend in a post but during the week in our Live Member Chat Room. We don't do them every year, the last time we called for inflation was back in 2011, when our 5 hedges averaged over 200% returns for the year – THAT's the way to hedge against inflation!
As we were discussing in Member Chat this weekend (thanks ZZ), we may be approaching a Bondocalypse, the likes of which we haven't seen since the collapse of the bond market in 1994. While the MSM is burying the news, the 2-year notes are now at a level not seen since 2011 (when we last became justifiably concerned about inflation) with expectations of Fed Funds climbing to 1.375% by the end of next year – up over a point and all the way to 2.875% at the end of 2016!
Such a rapid (and necessary) rise would CRUSH the bond market, where people have sold 10-year notes for…
by Sabrient - December 15th, 2014 12:53 am
Reminder: Sabrient is available to chat with Members, comments are found below each post.
Courtesy of Scott Martindale of Sabrient Systems and Gradient Analytics
Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds — and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to rank at the bottom of our forward-looking sector rankings.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
The fear of broader fallout from issues like Ebola, ISIS, Russian aggression, European malaise, and slowdown in China had subsided, so the market has been waiting for next big worry to spike the fear gauge and cause a selloff to test support levels. The Dow Industrials suffered its biggest weekly percentage loss in three years. After all, it is hard to break out to new highs when bullish conviction has not been recently tested and reconfirmed. Well, it found its next big worry in the fall of oil prices and all that it might be foretelling, such as defaults in the high-yield bond segment of the Financial sector and recession in global economies.
Crude oil fell another 3% on Friday to 5-year lows and 46% below the June highs after the International Energy Agency cut its outlook for 2015; and it expects prices to fall further. Tremendous increases in domestic production through enhanced recovery techniques and the prospect of energy independence in the U.S. (which once was considered an impossibility) has…
by SWW - December 14th, 2014 12:39 am
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