by Sabrient - January 19th, 2015 10:57 pm
Courtesy of Sabrient Systems and Gradient Analytics
As widely expected, the New Year has begun with plenty of volatility on high trading volume, as investors fear more than just a mild correction to start out the year. Despite the strong fundamentals here in the U.S., there are plenty of dangers around the rest of the world, and many fear that our cozy comfort at home simply cannot remain insulated for much longer.
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.
I would like to start by saying that I have been traveling a lot lately, speaking with and presenting to financial advisors to promote our annual Baker’s Dozen portfolio, which is packaged as a unit investment trust by our strategic partner First Trust Portfolios. Many of these advisors are readers of this weekly article, and I want to take this opportunity to say that I have been humbled and gratified by your tremendous interest, enthusiastic reception, and warm hospitality. We are doing our best to sustain your loyalty and respect, and of course, to continue our record of outstanding performance.
Anyway, just when we all had grown accustomed to the old Wall of Worry and the scary bogeymen under the bed, there are new bogeymen peeking out from the bedroom closet. The new sources of worry are really bigger and scarier versions of existing ones, including the continued slide in oil prices (far further than hardly anyone believed possible), worsening recession and deflation in the Eurozone (leading to drastic actions), and the global metastasis of radical Islam (despite our successes in foiling their plots and destroying their infrastructure). News headlines seem to getting worse for both issues.
First, radical Islam has been with us for a long time, and of course it jumped to the forefront with 9/11. Today, splintered organizational infrastructures and terrorist training facilities have suffered highly-publicized defeats by the skilled efforts of the civilized world, but each of these successes consumes an incredible amount of time and resources, while the hateful ideology continues to spread…
by phil - January 19th, 2015 5:21 am
It's Martin Luther King day so the markets are closed.
It's a good day to read his "I Have a Dream" speech – really is amazing when you think of the great social change in this nation that was set in motion by one man with a vision. Here's a great video of the actual event.
It is a testament to the power and effectiveness of Dr. King's movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn't obvious to the majority of people that segragation, whether by law or by practice, was an outrage.
Sadly, many of the lessons he taught us have already been forgotten, some great quotes:
- Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.
- Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.
- It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.
- The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.
- Human progress is neither automatic nor inevitable… Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals.
- Never forget that everything Hitler did in Germany was legal.
- We will remember not the words of our enemies, but the silence of our friends.
- The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows.
- A nation or civilization that continues to produce soft-minded men purchases its own spiritual death on the installment plan.
- A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.
- One of the greatest casualties of
by phil - January 16th, 2015 8:14 am
It's been this kind of week:
The hits just keep on coming as bad news is suddenly bad news for the markets and even the promise of Draghi waving his money wand next week isn't enough to keep investors in equities. $4.1Bn flowed out of US-based stock funds according to Lipper while $4.3Bn went into bond funds – driving TLT all the way to $135, where we decided to initiate a short position in our Short-Term Portfolio.
Our STP finished the day yesterday up 92.5% and we're still very much on the bear side, up 16.6% for the week ($16,600) while the S&P fell 3.3% – AND THAT IS HOW YOU HEDGE! Yes, our bigger and bullish Long-Term Portfolio lost 1.8%, but that was "only" $8,600 so our net for the week is up $8,000 as our BE THE HOUSE – Not the Gambler strategy continues to pay off for the first two weeks of 2015.
Of course $8,000 a week is $400,000 a year (+66% to our $600K start), so it's not likely that we will be as much on the right side of trades all year as we were this week, but it's a fantastic example of how well our balanced portfolio approach works under extreme market conditions. We made only a couple of minor adjustments (like adding the TLT shorts) but, for the most part – we don't have to do anything to get that performance when we call the direction right.
Monday is a holiday in the US, so we're certainly not inclined to flip bullish today – or even neutral, for that matter. All of our weak bounce lines were broken, which is what we feared would happen on Tuesday, when we set them. Fortunately, our 5% Rule™ prevented us from capitulating during the run-up last week and now we are reaping the rewards on the way down!
Last Friday, for example, we mentioned that our Members had added $13,000 of TZA longs to our Short-Term Portfolio and TZA has rocketed up from $12.33 (a trade idea we published for free for…
by phil - January 15th, 2015 7:15 am
Oil hit $50 just after midnight, /NG topped out at $3.37, gasoline at $1.385 and the markets spiked up almost 1%. India cut their reserve rates 0.25% – a total surprise. Also, positive notes from China and /NKD is up from 16,600 yesterday to 17,200 just now (and I like /NKD short on that line with tight stops above).
Just two hours later, ALL HELL BROKE LOOSE and the Nikkei dropped 300 points (now more) and those /NKD shorts gained $1,500 in just two hours. That one was more luck than skill as the Swiss National Bank made a VERY SURPRISING announcement that they were removing their 3+-year currency peg to the Euro and that sent the EUR/CHF pair from the usual 1.20 all the way down to 0.85 before stabilizing at about 1.02, down 20% in minutes!
Needless to say, hedge funds who made the very usual, very normal short bet on the Swiss Frank are F'd this morning. As the Euro had been very weak recently, there were a large amount of short bets on the Franc (CHF) in expectations of the SNB stepping up their Euro-buying program to get back to their usual 1.20 goal.
But nooooooooooooooooooooo! They went the other way by 20% and, as I reminded our Members this morning, those wrong way currency contracts (and there are 1M of them on this chart) lose $1,100 PER PENNY move. That's $22,000 on a 0.20 move in CHF x 1M = $22Bn in losses this morning for currency traders. Someone is gonna have some 'splainin' to do!
I already sent out a detailed tweet on the subject earlier this morning, so you can delve further into the subject at your leisure. For now we should contemplate the…
by phil - January 14th, 2015 8:12 am
The World Bank has downgraded the Global Economy.
According to today's report, the Global Economy will slow to a 3% growth rate, down 10% from the previously projected 3.4% calculated in June. That's a pretty alarming rate of decline in the 2nd half of the year, don't you think? The report adds to signs of a growing disparity between the U.S. and other major economies while tempering any optimism that a plunge in oil prices will boost output. Risks to the global recovery are “significant and tilted to the downside,” with dangers including a spike in financial volatility, intensifying geopolitical tensions and prolonged stagnation in the euro region or Japan.
“The global economy today is much larger than what it used to be, so it’s a case of a larger train being pulled by a single engine, the American one,” World Bank Chief Economist Kaushik Basu told reporters on a conference call. “This does not make for a rosy outlook for the world.”
The bank sees average oil prices falling 32 percent this year, a decline that’s historically associated with a boost to global GDP of about 0.5 percent. Yet the impact on growth may be smaller in 2015 and 2016 because of other headwinds including weak confidence that encourages saving rather than spending, and a “significant” income shift from oil-producing countries to those that are net consumers, the World Bank said.
In other words, all those things we have been telling you to worry about were actually things you should have been worried about. As I mentioned to you in Friday Morning's post, we added back $13,000 worth of TZA (ultra-short Russell) spreads in expectations of negative economic news this week. Those spreads have a $17,000 upside (130%) if the Russell fails to hold 1,170, which is right where we bounced off yesterday (the -2.5% line).
We'll see if that line holds up today, as well as our two remaining Strong Bounce Lines (see yesterday's post for predictions that came true) of Dow 17,460 and Nasdaq 4,656. As we…
by phil - January 13th, 2015 7:52 am
Wow, I'm getting dizzy.
I'd say the market is like a roller-coaster but there are no roller-coasters that make moves this crazy. Unfortunately, all this zig-zagging up and down is only serving to exhaust the erstwhile dip buyers, who haven't been getting quite the easy ride they've become used to over the past few years.
More importantly, we are NOT making our Strong Bounce Lines per our 5% Rule™, which has kept us from chasing these bounces as we just haven't quite gotten over the hump at:
As you can see, only the Dow has really cleared it's goal by any significant amount with the S&P right on the line and the NYSE and Russell pulling up the rear. All should be over at the open as we're getting a 1% pop in Europe, where inflation is so low that investors are CERTAIN that Draghi will come and save the day a week from Thursday (22nd) at the next scheduled meeting.