Which Way Wednesday – Fed Edition

Wheeee, what a ride!

There's nothing like a nice market shake-out to let you know where things stand.  After all the drama though, we're right back to the same 2,835 line we were watching on the S&P in yesterday morning's PSW Report.  If we're back over 2,835 this morning, then all that panic was for nothing and this is merely a little consolidation off a huge run but we did run levels in our Live Member Chat Room that now need to hold on each index (futures) in order to be bullish again (currently we're just waiting and seeing):

  • Weak bounce lines:  Dow 26,130, S&P 2,835, Nas 6,980 and Russell 1,585.
  • Strong bounce lines: Dow 26,260, S&P 2,850, Nas 7,010 and Russell 1,590

At 8am, we have (in the Futures) Dow 26,257, S&P 2,836, Nasdaq 6,968 and Russell 1,595 so mixed signals so far and nothing we'd like to throw money at though yesterday, in our Live Chat Room, we were throwing money in all sorts of directions as we played the nice, violent market moves in the Futures.

OK, that was a nice dip to 6,920 but $500+ is always a good place to give your horse a rest so done with /NQ and now looking for a bounce again.  


continue reading

Tumblin’ Tuesday – Markets Take a Much Needed Pause

Finally!  

We keep betting on it and it finally happens but don't get exicted about this teeny, tiny pullback – it will take a lot more than this little action to derail the bull market.  I know it's very much in vogue to ignore "facts" and "news" but we're Fundamental Investors – we can't help ourselves and, when the conditions weaken, we bet against the market, no matter how good the charts look.  As I noted in Friday's Morning Report:

That means our index shorts (see yesterday's Morning Report) are back on in the Futures and we do have S&P (/ES) 2,850 this morning and Nasdaq (/NQ) 7,000 along with Dow (26,425) and Russell (/TF) 1,610 but, as with yesterday, we favor shorting the S&P and the Nasdaq as they cross below with very tight stops over the lines.  The once-again weak Dollar is supporting the indexes for now but it's not likely to last (China and Japan won't put up with it past this level).  

We're not shy about going back to the well and this is just another one of those ways the rich get richer in ways the poor don't even have access to (Futures accounts).  We discussed our hedges earlier in the week and I would strongly suggest not going into the weekend without any as it may occur to some people that a declining GDP might not support a 12.5% rise in the S&P since the beginning of Q4.

We didn't get a good entry signal (crossing below the lines from above) until Monday morning, when I sent out a 5am note to our Members saying:

Futures dipping a little bit but nothing exciting so far.  I still have 6 short /ES at 2,854 and 4 short /NQ at 6,999.68 and still long 8 /DX at 89.10. 


continue reading

Monday’s Market Magic Trick – Rising Without the Fed?

This is the most important chart in the World:

It illustrates the $2Tn "taper" that is about to take place and is, in fact, taking place right now and projected to accellerate rapidly into 2019 at which point (gasp!) Central Banks will become net sellers of assets and there is NO WAY that doesn't depress prices, even with a theoretical $2Tn being repatriated from overseas accounts on the Corporate side.  

While we can't count on Corporations to spend the cash they bring back in, we can expect the massive stock buyback trend to continue.  As you can see from Credit Suisse's chart, the only real buyer of US equities for the past 10 years has been the Corporations themselves – who have engaged in MASSIVE buy-back programs that have lowered the share count of US equites by 20% which has therefore inflated the earnings per share by 20% by simply reducing the number of shares those earnings are divided by.  

This makes our Top 1% CEOs look good and also makes them much, much richer (see: "Stock buybacks enrich the bosses even when business sags") and so far, so good, as the market has gone up despite most companies making roughly the same amount of Dollars they did back in 2008 – they are just changing the math to make things look pretty.

But, much like the Oil Cartel (OPEC) benefits from cutting supply and making oil more scarce and Crypto Currency purveyors keep their supplies limited to jack up the prices - the Corporate Cartel (MFers) reduces the supply of stock AND they themselves begin buying their stock – as if it's valuable at any price.  The higher the market goes, the more they buy – what can possibly go wrong?

Like any meth addict, they are now hopelessly hooked on buybacks and simply can't stop.  It's a finite World and they have infinite amounts of money and they can't grow market share so they will reduce the number of shares in their companies to make it look like there's great demand for their stock and, most importantly, to make it look like they are accomplishing something.

Just this morning, Lowe's (LOW) announced a $5Bn stock buyback program ON
continue reading

Flip Flop Friday – Dollar Rallies Briefly on Trump Statement

What a wild ride the Dollar is having!  

Technically, so far, it's just a weak bounce off the (hopefully) floor at 88 but it's been a week of wild trading in US Dollars as first Treasury Secretary Steve Mnuchin talks the Dollar down (see "Record High Wednesday – Diving Dollar Boosts Equity Markets") and then his boss, Trump, completely negates what he says and promises a stronger Dollar. 

You can see the very quick reaction we got yesterday but then traders remembered it was Donald Trump who promised a stronger Dollar – and it began to sell off again.  Meanwhile, we're long on the Dollar (/DX) here as we think the Fed will indicate they are on a path to tighten further while Draghi and Abe continue to prevaricate.  That's what currency values are all about – your currency relative to someone elses.  The Dollar index itself is measured against a basket of other major currencies – there's no absolute value to the Dollar at all (kind of like BitCoin!).  

We'll see what happens this morning as Trump is giving his Davos speech (8am, EST) and the theme is "America is Open For Business" touting our resurgent economy and, of course, low taxes and lack of regulations.  In fact, just this morning, Trump named BPs lawyer and noted climate foe, Jeffery Clark to head up the DOJ's Environmental Unit and, as the linked article has to note – "No, this is not a headline from The Onion").  At least Clark has experience (though it's in destroying the environment, not protecting it). 

To show how serious he is about trade, Trump's appointment for Deputy Chief of US Trade, G. Payne Griffin, just graduated American University in 2014 with a Bachelors Degree in Economics but, don't worry folks – he was an Eagle Scout, so things should be great.  Hopefully he'll work out better than 24 year-old Drug Czar, Taylor Weyeneth, who just had to resign because he lied on his resume. 

Speaking of the envrionment (enjoy it while it lasts!), Weather.com put together a fantastic article on climate change called "50 States, 50 Stories" which should be read by


continue reading

Thrilling Thursday – Nasdaq 7,000 Is Our Next Summit

Can we really go higher?

Bullish Sentiment is literally off the charts and only 7,826 (11.4%) out of 68,119 investors polled by Earnings Whispers are currently bearish about the markets.  Usually you might thing that's the sign of a turn but if my daughter's softball team were going up against the Yankees, you might see similar sentiment results in favor of the Yankees and that does NOT mean betting against the Yankees is a smart move – just because it's the contrarian play. 

Sometimes, the crowd gets things right though not this time – this time the crowd is full of idiots who are chasing a trend off a cliff but other times, you shouldn't just be a knee-jerk contrarian.  Meanwhile, as I've been saying since Nov 29th's "Record High Wednesday – We Will All Be Billionaires," if they are going to keep giving money away in the markets – who are we to turn it down?  The Money Talk Portfolio we looked at that morning was "only" up 70.7% for the year and, this morning, those untouched positions are now up 80.9% less than two months later.

We cashed our other portfolios in and started new ones on Jan 2nd and our $500,000 Long-Term Portfolio is already up $25,000 (5%) in 3 weeks – a pace that will make us $1Bn in 14 years (at 75% annualized) and of course that's ridiculous and unsustainable but that's what you are paying for when you buy into a market that is basically up 5% for the month as well.  While earnings are "pretty good" so far, they are (as I mentioned in yesterday's Report) bolstered by a weak Dollar as well as the stimulus of a $1.5Tn Tax Cut, which consumers have already borrowed against to spend last Christmas.

Looking forward, we are now counting on the repatriation of Trillions of overseas Dollars to boost the markets into 2018 but, just like the rising income inequality in America, the benefits of the repatriation are concentrated to the Top 1% Corporations and, in fact, just 16 companies account for half of all overseas funds:


continue reading

Record High Wednesday – Diving Dollar Boosts Equity Markets

How low can we go?

Clearly the US Dollar has fallen out of favor, now down 12.5% since Donald Trump took office.  Since the S&P is priced in Dollars, that means it should be  at least 12.5% higher simply to adjust for the weakness in the currency you use to buy it and, over the same period, the S&P has marched from 2,275 to 2,847 so 25% – the market has doubled the Dollar's move, which is actually a typical reaction by the market.

Unfortunately, we have to consider that earnings are also priced in Dollars so companies that aren't earning 12.5% more than they earned last year are actually losing ground when priced in gold, silver, Euros, Yen, Yuan, BitCoin, oil, etc…  This is especially true for S&P 500 companies who make more than half their money overseas and are currently getting the most favorable conversion rates in decades – making this a great time to repatriate money.

Repatriation is also driving the Dollar lower as we're getting a tsunami of Dollars blowing back into the country from overseas.  Some estimate put the number at $2 Trillion that will come back into the country – compare that to $960Bn added to the economy in a year of peak QE by the Fed.  

This is why bonds are collapsing and our rates are going higher – whether the Fed takes action or not – because if you want people to lend you money priced in, yuch, Dollars – you'd better give them a really good rate of return to compensate for the crappy currency you are promising to pay them in.  

Making America great again by changing the measuring stick is not the best way to run a country.  It's like claiming your kid got taller because he was 60 Inches tall but now he's 152.4 Centimeters tall – it's the exact same thing but it sounds like more.  In fact, the last leg of the Dollar dive was caused by Trumps own Treasury Secretary and film producer, Steve Mnuchin, who actually just said at Davos:  "Obviously a weaker dollar is good for us as it relates to trade and opportunities" adding that the currency's short term value is "not a concern of ours at all."
continue reading

Tariffic Tuesday – Trump Declares Trade War in Davos

"As we learned after President Herbert Hoover signed the Smoot-Hawley tariff at the outset of the Great Depression, vibrant international trade is a key component to economic recovery; hindering trade is a recipe for disaster" - Asa Hutchinson 

This is how we're making America great?

Back in the 1930s, the Smoot/Hawley Tariff Act was supposed to "Make America Work Again" after the stock market crash of 1929 but, instead, it destroyed trade so effectively that, by 1932, American exports to Europe were 1/3 of what they had been in 1929 and World Trade collapsed – leading to job losses in every country, a 10-year Depression, the rise of Fascism and, of course, WWII.

On his way to Davos, Trump declared tariffs on imports of Chinese solar panels and South Korean washing machines.  Measures his administration said were needed to protect U.S. manufacturers from a flood of cheap imports.  South Korea’s Trade Ministry called the tariffs unfair and argued they violated World Trade Organization requirements, while China’s commerce ministry called the action an “abuse of trade remedies.”  The U.S. action will also mean higher prices for American consumers and, already, companies like Kimberly-Clark (KMB) are cutting 5,000 jobs, citing sluggish sales.  

Solar-industry leaders said tariffs will slow growth in solar-panel installations and the jobs they create, which are more plentiful than in solar-cell manufacturing, a relatively small industry in the U.S. 

The most immediate impact of Trump opening the door to tariffs may be spurring retaliation by trade partners, as well as inviting more U.S. companies to seek help, said Chad P. Bown, of the Peterson Institute. That, in turn, could trigger additional trade skirmishes and fallout for U.S. workers and consumers, saying: “This is now really starting to escalate.  The concern is that now we’re at a tipping point.”

Of course, driving the cost of solar panels up 30% is good for the coal industry, as it makes cheap, clean, renewable energy more expensive but there are 10x more jobs in renewables than there are in coal so this whole thing is idiotic AND very unnecessary, as the main purpose of tariffs is to create jobs and
continue reading

Monday Market Movement – With No Government, What Will Move Us?

Government shudown! 

No one really cares.  It sounds like somethign, but it's nothing.  The government was shut down for 2 weeks in 2013 and hardly anyone noticed and, frankly, this Government has been dystfunctional for pretty much all of 2017, so it's not like we're going to miss it.  Meanwhile, our President is tweeting from the twilight zone where Global Warming is "good weather" and millions of women marching against him all over the country is a "celebration" of his policies.  You can't make this stuff up.  No, really, you can't, because a sane person couldn't imagine having that reaction to what is actually happening.  

chartMeanwhile, the last time the markets were this bullish was 1987 and we begain that year with a rally from S&P 250 to S&P 335 in August and then back to 200 (-40%) in October – so a hell of a fun ride that time!  More recently though, we were also very enthusiastic in 2015 and there we topped out, also in August, at 2,200 on the S&P and we only fell to 1,850 (-16%) into 2016 so maybe this rally can last into the summer but, if it does, it will be the most overbought, overconfident market ever measured – much healthier to have a small correction now. 

We added some portfolio hedges into the Government shut-down weekend but, so far, there's no indication that the markets care and we assume there will be a relief rally once Congress comes to an agreement so, if anything, we may go higher from here.  Earnings, so far, have not been bad so no particular reason for a pullback but, this week, 20% of the S&P 500 (100) Companies will report and then we'll have a pretty good picture of what's happening in various sectors.

Not only is there not much data scheduled to be released this week but it might not be released at all if the Government contines to be shut down.  Currently on the schedule are reports from the Chicago, Richmond and Kansas City Feds along with some housing data but nothing major until we get our GDP and Durable Good Reports on Friday.  All of this is up
continue reading

TGIF – Market Rally Will Finally Rest Over the Weekend

Wow, what a week!

With these wild swings, there's money to be made on the long and the short side of the market.  This morning, I called for shorting Nasdaq Futures (/NQ) at 6,850 and we just cashed out our Gasoline (/RB) shorts with a nice profit and now we're shorting Oil (/CL) from $63.60, for reasons I will get to shortly (get it? "shortly"!).  Hey, it's Friday, cut me some slack…

We caught nice dips yesterday with our Morning Report's call to short the indexes saying: 

Up and up the markets go but we see shorting opportunities this morning IF we cross back below Dow (/YM26,100, S&P (/ES2,800, Nasdaq (/NQ6,810 and Russell (/TF1,585.  The rule of thumb for shorting the futures is wait for 2 to cross below and then pick the next one that crosses and keep very tight stops back above the line and if ANY of the indexes go back above their line – kill the trade and wait for the next set-up.

As you can see, any of the indexes made nice gains – and that's PER CONTRACT on the Futures.  It's not as easy to make the call on a Friday morning but, as I noted, we did short the Nasdaq and we'll be adding a Nasdaq hedge to our Short-Term Portfolio to help lock in some of the gains we've made in the Long-Term Portfolio.  Our primary hedge in the Options Opportunity Portfolio is the Russell, using an Ultra-Short (TZA) spread to lock in those gains. 

Getting back to Gasoline (/RB), hopefully we won't regret taking a quick $5,000 gain off the table this morning at $1.865 (we still have 2 short at $1.87) but, as I often say to our Members, if you can't be satisfied making $5,000 daily gains ($1M/yr pace) – then maybe you need to play roulette instead of trading stocks.  

These are not, by the way, portfolio trades.  Our portfolios are managed to generate steady, sensible, reliable, long-term returns.  Futures trading is what we do for fun with a very tiny portion of our CASH!!! while we wait for our long-term positions to mature.  Unfortunately, since they move all the time and are short-term trades – we tend to talk about…
continue reading

Thin Air Thursday – Markets Begin to Gasp At New Highs

Image result for higher higherHigher, higher!  

Up and up the markets go but we see shorting opportunities this morning IF we cross back below Dow (/YM) 26,100, S&P (/ES) 2,800, Nasdaq (/NQ) 6,810 and Russell (/TF) 1,585.  The rule of thumb for shorting the futures is wait for 2 to cross below and then pick the next one that crosses and keep very tight stops back above the line and if ANY of the indexes go back above their line – kill the trade and wait for the next set-up.

We demonstrated the stopping out part in yesterday's Live Trading Webinar but I missed my chance to flip long as we got caught up in another discussion and missed the Beige Book Rally.  Still it was a nice day trading as we picked up $4,312 on our Coffee (/KC) trade and now we're waiting for a nice pullback to reloaid and do it again.  Speaking of releading, we're still short on Gasoline (/RB) at $1.86 and it's a $1.865 this morning so we're down $210 per contract at the moment – ahead of the EIA Inventory Report at 10:30.

The Futures are not only a fun way to pick up some extra cash while we wait for our positions to pay off but they also provide a quick hedge – even when the equity markets are closed.  As you can see from the chart, our call on the Dollar long at 90 in yesterday morning's PSW Report was also a nice winner, topping out at $750 per contract and now back at 90.40 but we think consolidating for a better move up – hopefully to 92.50, which would be $2,500 per contract gains.  

Remember, I can only tell you what is likely to happen and how to make money playing it – that is the extent of my powers – the rest is up to you!  

As we're moving into earnings season, this last leg of the market bubble is being driven by earnings revisions due, mostly, to Trump Tax Breaks but, as we warned about
continue reading