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Monday, February 26, 2024

Thrill Ride Thursday

Wheee – this is fun!

Everything went according to plan yesterday as the very fake pre-market pump I warned you about in the morning post very quickly turned into a day of carnage for the markets.  Sure we only ended up down 10 points, but it was down 100 from the open

Fortunately, we have learned how to ride this bull and we grabbed the DIA $105 puts at a .55 average per my 9:47 Alert to Members and we cashed those out at .90 (up 63%) in the afternoon.  We also had a quick 20% winner on Dec QID calls and we kept the Jan QIDs as our continuing bearish bet as we didn't want to risk a possible overnight pump job taking the markets back up with open Dec calls.  Still, we weren't worried enough to cover our longer DIA puts so we were very bearish but, as I said yesterday: "We have neglected to do is play the futures pump for the past week as we keep expecting something very bad to happen and boy would we feel silly if we were just 55% bearish when this house of cards comes tumbling down."

It has been volume, volume, volume that kep me questioning the rallies this year – the fact that all the up moves come on very thin volume (ie. manipulated) while all day long the insiders sell to the suckers who are draw in by the futures action and stick saves (it's a team effort).  This chart from Ron Greiss illustrates what's wrong with our rally on a more macro level:

While we are certainly not ready to do a bearish victory dance on this tiny little correction, we certainly feel a heck of a lot better about our decision to stay bearish.  In addition to adding bearish DIA and QID plays yesterday, we (of course) added more SRS at our target bottom, took the money and ran on EWJ, shorted XTO (rumors XOM may walk), got more UUP and shorted V.  Our long covers were TOL and the VIX but it was a very bearish day of picks, especially considering our already bearish stance (see Weekend Wrap-Up – Too Bearish or Just too Early?). 

Also a little too early was our positioning for an up move in the Dollar, which began in early November when I wrote a lengthy article on the Dollar, Gold, Oil, The CRB and the Fed and why I felt we were reaching the end of that run.  The dollar is now well over where it was when I wrote that article but gold is still up $100 while oil is down slightly and the CRB has been holding flat overall (so far).  Yesterday we entered the zone where we are expecting a 5% short squeeze that should take the dollar index back to 80 so we'll be keeping close tabs on the Forex market for the balance of the month, watching the lines at 90 Yen, $1.60 to the Pound and $1.40 to the Euro to see if they offer any resistance to the rising dollar.

Last Wednesday I posted my article "Hedging for Disaster" and if you think you may be too bullish going into the holidays, those are still valid plays – although we got fabulous entries Friday and Monday that may not be seen again.  Too bullish has not been our problem in December – the worry this weekend was that we were too bearish and the $100K Virtual Portfolio was so bearish that we got killed (-5%) on a relatively small 200-point bounce last week but we decided to stick to our fundamental convictions after we could find almost no appealing upside plays to make last Thursday and Friday, despite the run-up.

Speaking of the run-up.  We expected a sell-off after Thanksgiving but we didn't get a good one, mainly because FDX pre-announced better than expected FYQ2 guidance on December 7th, which turned the markets back up on a dime.  The Transports had been holding back the Industrials and the bulls could not have gotten a better early Christmas present thant FDX's statement.  Funny thing about that though – now that  they hype machine has run it's course it turns out the FDX Q2 earnings FELL 30% from last year and are just 4 cents above $1.06 expectations on 10% lower revenues and, outlook for next quarter (FYQ3) is a SHOCKING .50 to .70 a share vs. estimates of .84, a 20% or more MISS

As I often point out when I parse out Fed statements for members – there is a huge gap between happy talk expectations and actual economic facts but the CEOs, the MSM and even our Government will spin that happy talk for all it's worth as a well-informed public seems to be the enemy of everything these people stand for.  Perhaps we can't handle the truth but I thought we elected Obama because he was at least going to give it a try – how about we start with a realistic assessment of the economy for once so people can plan their finances according to what is rational to expect, rather then plowing money into this fantasy-land stock market?

The higher the market has gone over what we considered fairly bullish targets for the year (Dow 9,850, S&P 950) the harder it has been for us to run with the bulls and the last couple of weeks have been very frustrating as more and more it seems like investors simply have their heads in the sand and don't want to hear anything negative about the markets.  I hate to be Chicken Little but sometimes the sky IS falling (gosh, I made this same speech on Nov 7th 2007 and that is scaring me!) and someone needs to point it out.  So please – take a moment to read that old post and consider that nothing is really new – the same games get played over and over again…

The Shanghai Composite fell 2.3% this morning while the Hang Seng dropped 1.2%, mainly on liquidity concerns as regulators approved a big supply of IPOs this week.   China Shipbuilding Fell 6.6% in their initial trading day and China Citic Bank fell 5.2% indicating investors may no longer be willing to buy any company that slaps the name China in it somewhere (although I will be going ahead with plans to launch PhilsChinaWorld next year to cash in on the trend).  The Hang Seng would have been much worse but for a 150-point stick save into the close pulling the index off a possible breakdown at 21,150, which has been pretty good support since early October.  The Nikkei's market looked much like ours did yesterday – nothing but selling after an early morning pump.

The dollar rising is bad for China as it makes their pegged exports more expensive but the really bad news came out of Hong Kong this morning, where their Central Bank said the city may face “sharp corrections” in asset prices should fund flows reverse, adding to concerns voiced by Japan, China and South Korea on the dangers of speculative capital.  A rally in the stock market was fueled by an influx of capital as investors’ risk appetite gained and they bet on an improving outlook for China’s economy, the Hong Kong Monetary Authority said in a quarterly report yesterday. Outflows may bring “volatilities in the real economy,” the HKMA said.

Donald Tsang, Hong Kong’s chief executive, said Nov. 13 that he was “scared” that money flowing into Asia could lead to another crisis. “We have a U.S. dollar carry trade at the moment,” Tsang said. “Where is the money going — it’s where the problem’s going to be: Asia. You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.”  The carry trade is where investors borrow cheaply in one currency and use the funds to invest in other currencies.   The danger is when the borrowed currency rises faster than the invested assets, causing investors to scramble to pay loans back before they can no longer afford to on the conversion costs.  A rapidly rising dollar can cause a major invesion very quickly – something I've been warning about since we began to bottom out the dollar in September. 

Europe is down about 1% ahead of the US open, led down by (unsurprisingly) the National Bank of Greece, LYG and BCS as well as Australias Westpac Banking Corp – pretty much anyone who lent any money to Greece or Dubai is being called into question.  “The market is using this as a pretext to lock in profits,” said Kilian de Kertanguy, a fund manager at Cholet- Dupont Gestion SA in Paris, which oversees about $2.3 billion. “Some investors might have anticipated more of a transparent discourse from the Fed, saying that rates would remain low all year.”  

Jobs were the usual 480,000 losses this week but analysts had gotten all excited by the NFP report and were aiming for 450,000 so it's a disappointment to people who take analysts seriously.  Leading Economic Indicators are expected to come in at 0.7% today and that will be well up from October's 0.3% and we may get some disappointment there as well.  At 10 am we also get the Philly Fed and if that is a disappointing as the NY Fed was this week, we could get some additional selling there into lunch where, who knows – we may be able to do a little bottom fishing finally. 

We're really going to have to play this one by ear – it's going to be a tricky day!



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