by phil - February 10th, 2016 7:57 am
"The Future is ours so let's plan it
If there's one fool for you then I am it
I've one thing to say, and that's
Dammit Janet, I love you!"
Will Janet Yellen love us back today? We'll find out if she still has the touch when she gives her semi-annual address to Congress at 10am but already the markets are up 1% in antici—--pation in Futures trading.
Of course that means that, if you followed yesterday's morning post (subscribe here for pre-market Emailings and LIVE intra-day commentary) you are already making a fortune as our bounce targets were set at:
- Dow Futures (/YM) long at 15,840, now 16,090 – up $1,250 per contract
- S&P Futures (/YM) long at 1,850, now 1,870 – up $1,000 per contract
- Nasdaq Futures (/NQ) long at 3,900, now 4,000 – up $2,000 per contract
- Russell Futures (/TF) long at 950, now 972 – up $2,200 per contract
- Nikkei Futures (/NKD) long at 15,900, now 16,050 – up $750 per contract
We took the money and ran early this morning in our Live Member Chat Room as I was worried Europe was topping on a 2.5% move up at their open and now we're watching 16,100, 1,870, 4,000, 970 and 16,000 for signs to go back long (just grab the slowest mover when 3 break higher) and we will be keeping very tight stops if any of them fall below.
While we fully expected an up day today we're not going to be impressed if all we do is manage our weak bounce targets at 16,150, 1,887, 4,050, 1,000 and all the way to 16,640 on /NKD. Of course that means /NKD is our highest beta mover – risky but fun!
by ilene - February 10th, 2016 12:14 am
Time to embrace a larger budget deficit, or should we continue to do more of the same that doesn't work?
The story of the post-crisis economic period is simple:
- The housing boom left the household sector mired in a deep debt hole.
- This was further exacerbated by the leverage Wall Street added on top of the household sector’s debt.
- This left the banks and household sector needing a great deal of support.
- Since 2008 we’ve seen huge amounts of stimulus from the Federal Reserve and global Central Banks, but we’ve had trouble transitioning from the Balance Sheet Recession period of 2008-2012 to a more sustainable growth trajectory.
Why has the recovery failed to accelerate? I suspect a few things are going on here:
- We have relied too heavily on Monetary Policy which has turned out to be less stimulative than most people expected. While people like me were warning that QE would do a lot less than expected and could perhaps even be deflationary there were widespread fears of potential high inflation and “debt monetization.” These concerns were overstated thanks in large part to irrational expectations about the efficacy of Monetary Policy and QE.
- Concerns over US government insolvency due to high debt levels and the negative impact of fiscal policy resulted in far less fiscal stimulus than we could have enacted.
We are now beginning to get some real clarity on what worked and what didn’t. And one thing is abundantly clear – Monetary Policy has failed to ignite a strong and sustainable global economic recovery. QE was far less impactful than most people expected it to be and this is being seen around the global economy. It’s time to admit that Monetary Policy has failed and that we need to do more on the fiscal side to get the economy back to full strength.
The current low inflation and low interest rate environment is screaming for policymakers to do more. If you’re a Conservative then demand lower taxes. If you’re a Liberal then demand infrastructure spending. Both get us…
by phil - February 9th, 2016 8:19 am
Down and down we go – where we stop, who the Hell knows?
As you can see from Dave Fry's chart on the right, the Nasdaq is heading to the 20% correction line at 3,760 – back to the lows we tested in August's flash crash and, before that, back in October of 2014. Both times we quickly recovered and maybe this time is different but, for now, we're expecting a move back up (see yesterday's post) as we bounce off these technical levels. Of course, expecting a move back up doesn't make us bullish – just bounceish.
The problem the markets are having at the moment is we're not getting a proper sell-off because, pretty much every day, the HFT algorithms kick in and prop up the markets into the close. This prevents an all-out panic from sending the market even lower but it also prevents us having one of those big capitulation days where we finally find a floor.
It's loads of fun if you play the Futures for the quick in and out moves. Yesterday pre-market, for example, we picked a few longs that worked out into the open, then quickly stopped out at the markets turned lower but, on the EU close, we were able to come back in and again for the usual 2:30 pump job. As I often say:
We don't care IF the markets are manipulated as long as we understand HOW they are manipulated and are able to place our bets accordingly.
Oil had a nice $500 per contract run, back to $30.50, twice yesterday and this morning we like the Nikkei (/NKD Futures) at the 16,000 line to play for a bounce back to 16,300, which would pay $1,500 per contract if all goes well. If we keep tight stops below the 16,000 line – we risk very little against a nice, potential reward. Other bounce levels we are looking were detailed for our Members in yesterday's Live Chat Room as we called the usual "rally" at 3pm:
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…