This Week in Barrons – 3-1-2015:
"I grew up in a world where people enjoyed the freedom to communicate without being monitored, measured, analyzed, sorted or judged by systems.” … Edward Snowden
Dear Ms. Yellen:
Lately, I’m feeling violated. There are no secrets anymore. The ‘social bubble’ that we’re living in is giving me a false sense of hope and trust. Do you think it’s healthy when:
- TV remotes are going to listen to our conversations? These new remotes will log my face, what TV shows I watch, and the websites, emails and conversations that it overhears. This information will then be SOLD to third parties.
- The newest ‘talking Barbie’ will come with voice recognition and access to Wi-Fi. Barbie will log her conversations and will also ‘sell’ these interactions to third parties.
- The headline in the Business Insider reads: “Oregon man fatally struck by Amtrak train as he posed for a Selfie on the Tracks".
- The average person believes that they have over 200 friends, but in reality have only met 10 of them?
Ms. Yellen, you went before Congress this week and explained that although interest rates will be rising – you’re in no big hurry to do so. But in the same breath, you told Congress that ‘under no circumstances’ do you want them AUDITING your FED. So although it’s our money and you are appointed (not elected), you don’t seem to feel the slightest obligation to let us know where, how, how much, and when our money is being spent.
I won't bore you with the details, but the month of February was a scary month:
- 33 of 38 economic indicators fell short of their estimates,
- The Keystone Pipeline was killed – again,
- The Chicago PMI touched ‘deflationary’ levels,
- The 4th Quarter GDP was revised downward from 5% to 2.2%,
- The price of ground beef hit an all-time high,
- The Ukraine experienced hyper-inflation as their currency collapsed,
- The Greeks renewed their rioting, as they rejected increased austerity,
- AND the U.S. Government declared the ‘Internet’ officially under its control. Correspondingly the FCC refused to release the documents under which it will ‘govern’ the Internet.
It doesn’t take a genius to connect the dots between the FED not wanting Congress to AUDIT it’s books – to the FCC not wanting to release the rules surrounding how they’re going to govern the Internet. It seems that Government agencies don’t want their privacy invaded.
Well, it’s weeks like this one that I wonder who is violating me more. Is it the information gatherers – that ‘monitor, measure, and analyze’ our information in order to sell J.Q. Public stuff that he doesn’t need and can’t afford? Or is it our FED that ‘sorts and judges’ the information in order to make our economic systems survive at the expense of the vast majority of its citizens?
According to the latest analysis from Goldman Sachs, hedge funds that are holding approximately $3 trillion – are 57% long the stock market. This is the highest commitment to stocks ever – including the market peaks back in 1999 and 2007. How can this be? There are sell signals everywhere. (a) Stocks are at all-time highs. The probability of a move to the upside is 0.23%, while the probability of a move to the downside is 6.3%. (b) The probability of a positive trend continuing for a 5th consecutive week is less than 16%. Again, it doesn’t take a genius to know that the stock market isn’t where it is because of fundamentals and tremendous economic growth. The numbers are telling me that (this coming week) the market favors the downside. So I’m taking some profits at the top of this trend, and crossing my fingers that the selloff stops before the S&P dips below the 1,980 level.
Factually, nothing says global recovery like:
- Home Depot announcing that they will be buying back more stock than what is owned by all of their largest institutional investors combined.
- The National Association of Realtors reporting that existing home sales fell 4.9% in January. This was the lowest re-sales total since last May 2014.
- Learning that QE is still with us as the FED (by their recent own admission), is still buying mortgaged-backed securities, buying government treasury bonds, and keeping interest rates at zero.
- Seeing Israel and China cut their interest rates – making it 21 global central banks that have slashed their interest rates in the first 2 months of 2015, and
- Viewing 33 out of 38 economic reports in February missing their estimates to the downside.
Last week the DOW and the S&P both made new highs. Normally when indexes make new highs, the index itself will run higher for a couple of days and then fade back to ‘confirm’ the breakout. A breakout is ‘confirmed’ when the breakout level becomes the new ‘support’ level. If this test of support is successful and the index reverses back to moving higher, then you can be fairly confident in the resumption of the upward trend.
For example, this coming week the first test of the new S&P breakout will be the 2,100 level. If this level fails, then the breakout level from last year at 2,090 comes into focus. As long as the 2,090 level holds, then the general ‘up trend’ is sill intact; however, if we break and close under the 2,090 level – then it's an indication that something deeper is about to happen.
Right now I'm not terribly concerned, as Fridays have been strange days lately. I do think that the bears are watching, and Monday will be interesting indeed as history always repeats itself. The ‘Dot Com’ bubble had Alan Greenspan lowering rates – which triggered increased borrowing and spending – which inflated both the housing and stock markets. Then Alan began raising rates back to normal (6%). The ‘Housing’ bubble had Ben Bernanke lowering rates – and doing the exact same thing. Which brings us to our current ‘Interventionist’ bubble. Unlike Greenspan and Bernanke, Ms. Yellen has yet to raise rates or actually end QE. So when this asset bubble bursts (and it will), what will the FED do if rates are already at zero? It can’t lower rates if rates are already at zero., and there is no: “Our rates are already at Zero – Get out of Jail Free’ card. Unfortunately, raising rates and ending QE goes against the current FED’s fear of deflation. However, when this bubble bursts, we need to understand that our FED has no tool set left to save us.
Below is a chart of the ‘technicals’ for the up-coming week:
A couple thoughts for next week:
- Nike (NKE) – as earnings are coming up in March, I’m looking for a move higher,
- Google (GOOGL) – is looking like it wants to move higher,
- KSU – is moving higher, and of all the railroads it has the most upside potential,
- Proctor & Gamble (PG) – is looking to follow JNJ which broke-out to the upside last week,
- Gilead Pharmaceutical (GILD) – is looking to break-out to the upside,
- Russell 2000 (RUT) – I’m waiting until it fails the 1,215 level before doing a call-side butterfly,
- Samuel Adams (SAM) – had a disastrous quarter, but could be ripe for an Iron Condor moving forward, and
- FDX (FDX) – I will be adding the 190 Call Credit Spread onto our Put side to form an Iron Condor this week.
I’m still using the market volatility to sell into, and I wouldn’t be surprised to see a market pull back early in the week. Some of my holdings going into the week are as follows:
- CF – MAR – BUY the +310/-315/+325 Call Butterfly, along with the +280/-290/+295 Put Butterfly – both for Credits. [Yes, you will ‘get paid’ for buying this pair,]
- IBB – MAR – BUY the +345/-350/+360 Call Butterfly, along with the +300/-310/+315 Put Butterfly – again both for Credits. [Again you will get ‘paid’ for buying this pair],
- KR – MAR – BUY the +72.5/-75/+80 Call Butterfly,
- KR – MAR – SELL the -67.5 / +65 Put Credit Spread if it drifts lower early in the week,
- CP – MAR – SELL the +170/-175 to -200/+210 Iron Condor,
- COST – MAR1 – BUY the +145 / -150 / +155 Butterfly earnings play,
- RUT – MAR – SELL the +1040/-1050 to -1270/+1280 Iron Condor,
- SPX – MAR1 – SELL the +2065/-2070 to -2135/+2140 Iron Condor
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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Until next week – be safe.