This Week in Barrons – 7-26-2015:
“I just can’t believe this !@#$!# any longer.”
Setting a Bear Trap:
According to the Onion: a Gallup Poll describes three out of four Americans as: “No longer believing this s__t”. It seems that 73% of poll respondents described this s__t as "beyond belief," 9% said they could "hardly believe it", with another 5% “just barely” believing it. "The American people have had to deal with this kind of s__t for years," said Gallup Organization president Lee Sanderson, "but now, for the first time, it appears that the vast majority of them just can't believe it anymore.” They’ve seen:
- Banks fined over $45B for manipulating Libor, gold, treasury auctions, mortgages, etc.
- 6 Years of a Zero Interest Rate Policy,
- 4 Quantitative Easing (QE) programs, and
- Trillions spent on stimulus projects, just to have our economy maintained on ‘life support’.
Sanderson went on to add: "In all honesty, who can blame the average American? Regardless of one's political affiliation, socio-economic status, religion or just about any other viewpoint, you've got to admit, the s__t that's been going on lately is way out of hand." After all, Greece is in a shambles – with France, Portugal and Spain not far behind. China is propping up their own currency and stock market by dumping U.S. Treasuries. But ‘bottom line’, as you look around the globe:
- Electricity demand is down,
- Oil consumption is down, and
- Retail sales are down.
As if to add insult to injury, on September 13th we will see the final cycle of the 7-year Shemitah. A Shemitah is an old biblical process where debts are to be forgiven. Very big events have happened during past Shemitah years such as: the Black Monday stock market crash, the market crash of 2008, the 9/11 disaster, the legal ruling to remove prayer in schools, and the Roe vs. Wade decision.
Combine that with in September/October (for the first time in 80 years), 4 major economic cycles will converge:
- The Kondratieff economic cycle,
- The Kitchin cycle,
- The Juglar economic cycle, and
- A couple other 20 to 60-year cycles – all of them portending some form of economic downturn.
Currently this has the big players and the ‘smart money’ heading for the exits. We've seen classic ‘distribution’ days where stocks would be run higher on low volume, and then pounded lower on high volume. Last week the NASDAQ hit an all time high, but on that very same day – more stocks FELL than went higher. Consider this, the last time the NASDAQ hit an all time high with more stocks FALLING than going higher – was the year 2000 when (a week later) we entered a bear market and the index lost over 50% of it’s value.
So the entire world is in bad shape, and along comes all of these weird events and cycles converging on us this fall. Hey, maybe it means nothing, and this autumn comes and goes without so much as a whimper. But I think the market is already telling us that they are: “No longer believing in this s__t.” And even they are: “Mad as hell, and are NOT going to take this anymore.”
Is it possible that the market isn't going to wait until the fall to put in a major correction, and instead is already starting the process? I think there is a lot of uncertainty surrounding the fall, and that the market could decide to roll down hill from here. The market has tried to break out over its ‘all time high’ level several times now and failed. The market could just give up on the idea for a while, and decide (instead) to take a rest. I know this is dangerous talk because ‘every time’ the market has looked like it is ready to roll over, the ‘powers that be’ have rushed in and jammed the market higher. It's their way of extending the illusion that all is well – just like China. Except in China, their government ADMITS to manipulating their own market. I'm not at all convinced that a bear market is upon us; however, I am beginning to think that the long lost correction we haven't seen in 6 years could be right around the corner.
Add ‘DOW Theory’ to this mix. Simply stated: you cannot keep having new, all time highs in the DOW if the DOW-Transport sector is not also making new highs. Well, as the DOW has been climbing higher – the transports have been puking lower. This is never a good sign.
What about earnings? If you're only trading that narrow slot of tech companies that everyone is drooling over – you’re fine. But if you're part of the wider economy – your life isn't so rosy. Amazon (AMZN) used a ton of accounting tricks to post their first profit in 20 years, and everyone jumped on like it was an IPO stock. But what about: Caterpillar (CAT), IBM, and 3M? What about the hundreds of ‘normal’ companies that had their earnings expectations lowered, and still couldn't make their revenue estimates?
And what about the FED? This week the Fed is meeting again to discuss economic policy. We will get the results of that meeting on Wednesday afternoon. No one is expecting them to say anything about a rate increase; however, there have been a couple of twists to the story. This past week, a ‘supposedly’ confidential FED note leaked, and it suggested that the FED would like to see two rate increases this year starting in Q3. If that is correct, this fall just got a little more interesting. In the FED comments I would expect to see more justifications for delaying rate hikes and more dovish policies. But if the FED is at all hawkish in its comments, it will put pressure on a stock market that is currently trying to fight off the elements of a correction.
FYI, President Obama just nominated another vacant FED governor seat – with another academic with strong Keynesian leanings. President Obama will be the first President since the inception of the FED, who will have appointed ALL of the FED governors, Vice-chair, and Chairperson. No one is making a big deal of this; however, if any President had been able to appoint every Supreme Court Justice, the media and political frenzy would reach epic levels. I would argue that the Fed is far more reaching and powerful than the Supreme Court – when it comes to the future of our nation.
What are the road signs? Watch the S&P. The S&P is considerably more ‘important’ of an indicator than the DOW because it is so much larger. Here is my roadmap:
- If the 2076 to 2979 level fails, the next stop lower would be 2063 – the 200-day moving average.
- If the 2063 level fails, then the last and most important stop is 2046 – which was the closing low set on July 8.
- If the market closes below 2046, then I think we could see that 10% correction that has been eluding us for the past 6 years.
- In terms of upside, if we close above 2102 then we need to believe that the markets have shaken off the ‘prowling bear’, and we're going back to the highs.
It's an interesting time in market-land, and I think the next six months are going to bring us increased volatility and fireworks.
With the increase in volatility I’m picking up my pace of selling Iron Condors (40 to 90 days out) on the SPX at a Delta 14 or less. The volatility index (VIX) is approaching the 14 level again – and therefore the sales premiums are picking up along with it.
o Buying the AUG1 - $290 Calls for $5
o Selling the JUL5 - $260 / $255 Put Credit Spread for $1.33,
- - FB – Buying the JUN5 - $99 Calls for $3.90
- - Mondelez (MDLZ) – Buying the December $40 Calls @ or under $2.80
- - Time Warner (TWX) – Buying the January $90 calls @ or under $4.00
- - TAP – Buying the January $90 calls @ or under $1.40
- - CCE – Buying the January $45 Calls @ or under $2.60
- - ADI – Buying the December $70 calls in ADI, @ or under $3.00
I’m currently holding:
- DIS – BOUGHT the AUG $119 Calls for $2.60,
- IWM – SOLD the August 112 / 114 to 132 / 134 Iron Condor,
- MDLZ - BOUGHT the SEPT $43 Calls for $1.05,
- NDX – SOLD the SEPT $4875 / 4900 Call Credit Spread for $2.95,
- RUT – SOLD the August 1140 / 1150 to 1330 / 1340 Iron Condor,
- SPXPM – SOLD – Iron Condor – SEPT @ 1885 / 1890 to 2200 / 2205,
o SOLD – Iron Condor – Aug1 @ 2040 / 2045 to 2145 / 2050,
o SOLD – Iron Condor – Aug2 @ 2025 / 2030 to 2170 / 2175,
o SOLD – Iron Condor – Aug @ 1895 / 1900 to 2160 / 2165,
o SOLD – Iron Condor – Aug @ 1940 / 1945 to 2170 / 2175,
o SOLD – Iron Condor – Aug @ 1965 / 1970 to 2170 / 2175,
o SOLD – Iron Condor – Aug4 @ 1895 / 1900 to 2150 / 2155,
o SOLD – Iron Condor – Aug4 @ 1950 / 1955 to 2170 / 2175,
o SOLD – Iron Condor – Aug4 @ 1995 / 2000 to 2180 / 2185,
o SOLD – Iron Condor – Sept1 @ 1935 / 1940 to 2160 / 2165,
o SOLD – Iron Condor – Sept1 @ 1955 / 1960 to 2175 / 2180,
o SOLD – Iron Condor – Sept2 @ 1925 / 1930 to 2180 / 2185,
o SOLD – Iron Condor – Sept @ 1845 / 1850 to 2190 / 2195,
o SOLD – Iron Condor – Sept @ 1870 / 1875 to 2215 / 2120,
o SOLD – Iron Condor – Sept @ 1925 / 1930 to 2215 / 2120,
o SOLD – Iron Condor – Sept4 @ 1900 / 1905 to 2175 / 2180,
o SOLD – Iron Condor – Sept4 @ 1900 / 1905 to 2210 / 2215,
o SOLD – Iron Condor – Oct1 @ 1895 / 1900 to 2210 / 2215,
o SOLD – Iron Condor – Oct1 @ 1905 / 1910 to 2210 / 2215,
o SOLD – Iron Condor – Oct2 @ 1870 / 1875 to 2195 / 2200,
o SOLD – Iron Condor – Oct @ 1850 / 1860 to 2200 / 2210.
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!
Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com> .
Please write to Mr. Culbertson at: <email@example.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <>.
If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower - "taylorpamm" is the handle.
If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing:
To unsubscribe please refer to the bottom of the email.
Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.
Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.
All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.
Remember the Blog: <http://>
Until next week – be safe.