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Thursday, March 28, 2024

Will We Hold It Wednesday – Record Highs Edition

Image result for nasdaq 1999 chartUp and up she goes! 

As I noted in yesterday's report, we're very likely in the late stages of a bubble rally but you could have said that at any point in 1999, when the Nasdaq rose from 1,750 to 3,750 and you would have been right in early 2000, when it kept going all the way to 4,816 because it went far below that over the next two years but you also would have missed a hell of an opportunity on the way up – as long as you knew when to take a profit…  

I misseed a lot of the rally in 1999 as I thought a double at 3,000 was a bit much and I sat there with my arms crossed, cluck-clucking at all the fools who rushed in for the next 1,800 points but a lot of those guys got very, very rich chasing those crazy stocks and some of them got out ahead of the crash but my takeaway from that was to just be patient, make a bit of money on the way up but I find I'm far more comfortable using that money at the bottom to pick up value stocks for the long-term.

On the whole, I'd rather own a stock at a great price for 10 years and make constant streams of money than jump in on a momentum stock and try to time my exit.  It's a difference in style and it's important to know what kind of trader you are – especially in a rapidly moving market like this one.  While you can make some very nice money buying AMZN for $1,932 and selling it for $2,000 we STILL have a lot of the trade ideas that we played since the 2009 crash like:

AIG at .40, BAC at $4, CY at $5, F at $1.68, FAS at $4.76, GE at $8, GOOG at $350, HCBK at $9.50, HOV at .80, IP at $5.62, IWM at $37, JPM at $16.80, UNH at $20, VNO at $30, WFC at $12, X at $10 and dozens of others that were detailed in that week's wrap-up 

THOSE are the kind of trades I get excited about.  I happened to be on TV on Friday, March 6th, as the market was collapsing and I called out 13 trade ideas that returned 469% on cash just 6 months later (and went on to make much, much more) but opportunities like that only come along if you have cash on the sidelines.  If the market collapses and all you are doing is scrambling to avoid margin calls – then you are doing it wrong or, more accurately, you WERE doing it wrong – which is pretty obvious in retrospect but far too late to fix.

Despite my experiences in 1999, I found there were far too many people who lost their shirts in 2008 and I felt, at the time, that I should have done a better job warning them because, while I was bearish and I did call for cash – I started doing so in 2007 and by mid-2008 I felt like a broken record (and I'm sure I sounded like one) and I was tired of being wrong so I went back to cluck-clucking from the sidelines when I could have been more active warning people of the dangers of chasing a bubble.  

So, this time is different and I am determined to keep reminding you how foolish it is to over-commit, no matter how exciting the market looks.  As I said yesterday on CNBC Japan – there simply isn't enough money in the World to support a $100Tn Global Stock Market rising more than 4% in year – because that's the $4Tn growth in Global GDP (also about $100Tn) so, if every panny of that flowed into the market – THEN there would truly be a $4Tn (4%) gain in VALUE in the markets – as it is, all we have are gains in PRICE and, as we saw in 2000 and 2008, prices can collapse very, very quickly!  

Keep in mind that the market is PRICED like an auction only the price of the one item being bid on (a single share of stock) leads to a re-pricing of EVERY OTHER SHARE OF THAT COMPANY.  When you think about it, that's kind of insane because if, at the close of the day, on the last trade, I buy a single share of Apple (AAPL) stock from you for $500, then AAPL will close at $500 and have a $2.5Tn market cap, gaining $1.5Tn thanks to may $500 transaction.  

Image result for rise in etfs 2018Of course it will likely reverse over time but this is how people manipulate the markets, to make stocks look better or worse than they really are by simply bidding them up or down into the close.  Pick the right stocks, and you can manipulate the indexes and, if you manipulate the indexes, you manipulate the money that flows in from ETFs and that's how easy it is to manipulate the entire market – especially when the recent explosion in ETFs and Index Funds have made them the market's most significant (and easy to control) players these days.  

The problem with ETF's, as we learned in 2008, when they were 85% smaller in size, is that they don't only buy mindlessly in bulk, they also sell mindlessly in bulk so, when and if assets begin to be withdrawn from these funds, they will relentlessly dump their holding and manginfy market losses at a very alraming rate.  The fact that they are generally managed by robots these days does not make it better – it makes it much, much more terrifying!  

Image result for hedging strategiesTo that end, we pressed the hedges in our Short-Term Portfolio this week and that helps protect us from a sudden sell-off but we press our hedges so that we can BUY more longs.  As a rule of thumb, we take 25-35% of the money we make on the long side and use it to lock in our gains with hedges and THEN we can put more money to work on the long side, knowing that there will be a floor to our foolishness – THAT is what I figured out in 1999 and that's what protected us during the last market downturn, which is why we had CASH!!! ready to buy Google at $350 while others were bailing and JPM at $16.80, etc.  If you are not prepared, then not only do you lose much of your gains in the downturn but the opportunity to make real money over the long-term passes you by – that's just a risk I'm never willng to take!  

The hedging adjustments we made to the Short-Term Portfolio should pay us roughly $200,000 if the indexes fall 20% and a 20% fall in the indexes will, presumably, wipe out all of the gains made in our Long-Term Portfolio, which is up 40% of $500,000 or —-  $200,000.  If the market keeps going up, we'll probably lose $70,000 on our hedges but our LTP will likely gain another $200,000 by the end of next year so we're giving up roughly 1/3 of our gains to hedge our positions.  

Only there's another trick as we also hedge our hedges and, to that end, we haven't lost any money in the STP this year so it's worked out extra-well – so far.  Notheless, we will remain vigilant – even as we do look for more opportunities to go long from time to time.  

Today is the day we've been looking forward to all month as it's time to short oil into the holiday weekend!   This has been a very reliable way to make money and we already added a new, aggressive Ultra-Short Oil (SCO) spread in the STP on Tuesday afternoon but oil is back over $69 again – so you didn't miss anything if you are late to the party.  

Of course we like the Futures (/CLV8) short as well and we already went in and out of Gasoline (/RBU8) shorts at $2.10 and that line is still good but, in both cases, tight stops above and our next attempt would be $70 on oil but $2 on /RBV8 (October), as the Sept contracts are too close to expirations (2 days).  We only want to play just below the lines with tight stops above as we have the overhang of Iran news still able to pop things higher.  

The API report showed very little change in oil and gasoline inventories and a 1Mb build in Distillates and we had hoped for a big draw in /RB to drive it higher and also to assure us that we're less likely to have a draw AFTER the holiday (on the assumption that Gas stations topped off their tanks before).  Since that's not the case, we'll wait and see how the EIA report looks and what kind of reaction we get and I'll call an audible in Live Chat this morning as well as, of course, going over the situation in this afternoon's Live Trading Webinar (1pm, EST).

Real GDP Percent ChangeWe got our first revision to Q2s GDP and it's still showing a 4.2% gain, up form 2.2% in Q1 so averaging 3.2% for the year so far and Corporate Profits are up 2.4% for the Quarter and that's up 6.7% for the year but a huge disappointment considering the tax breaks kicked in this year.  So corporate profits are up 6.7% and the Market is up 20% – that seems about right, doesn't it?

Rest of the World Corporate profits, where they don't have a $1Tn Government Tax (or lack of) giveaway boosting the bottom line DECREASED by $8Bn – not much as a percentage but their markets are also rallying to follow ours because – ETFs and Index Funds…  

Be careful out there!

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