This Week in Barrons – 3-27-2016:
Ms. Yellen – 2 Things on Easter:
Happy Easter. Easter is one of those holidays that emphasize: “Things are not always what they seem.”
On Tuesday, ISIS struck the Brussels airport and metro station. By noon, it was estimated that 30 people had died, and 200 were injured. The natural reaction was a ‘sealing of borders’, and a labeling of the refugees as a ‘Jihad Invasion force’. After all, 72% of the refugees are male, between the ages of 19 and 35, and presumably leaving their wives and children behind for a better life. In fact, just this week Victor Orban (the Prime minister of Hungary) stated: “Europe is no longer free because freedom begins with speaking the truth. Today in Europe:
- It is forbidden to say that those arriving are not refugees, but an invasion that brings crime and terror to our countries.
- It is forbidden to point out that this is not an accidental chain of consequences, but a preplanned and orchestrated operation.
- It is forbidden to say that in Brussels they are scheming to transport their foreigners over here as quickly as possible.
- It is forbidden to point out that the purpose of settling people here is to reshape the religious and cultural landscape of Europe, to reengineer its ethnic foundations, and to eliminate the final barrier to internationalism.
- It is time for us in Europe to wake up to the lies, and to take back our individual nations.”
All of this violence and rhetoric beg question: Who’s paying for all of this? If we think that it’s ISIS – then let’s freeze their bank accounts and cut off their source of funds (presumably oil) before we have another Brussels on our hands. Heck if we can break into an iPhone – we can … oops, sorry we can’t do that yet. Well, I did ask a couple computer guys I know, and they gave me directions. And then I asked Siri and she told me: “(a) tap the Emergency Call button on the lock screen, (b) then, enter "####", (c) as soon as you enter "####" tap the dial button, (d) immediately, press the lock button which is on top of the iPhone, (e) now you are back into your iPhone – enjoy.” But that all seems too easy, what am I missing?
In another equally ‘weird’ turn of events, the Wall Street Journal reported (http://www.wsj.com/articles/navinder-sarao-faces-u-s-extradition-1458738749) that Mr. Navinder Sarao could face extradition to the U.S. Mr. Sarao was the trader who (from his parents' home in west London) has been accused of stock market manipulation. Presumably he (single-handedly) caused an $800B stock market flash-crash in the fall of 2010. Mr. Sarao (37 years old) faces 22 counts of wire fraud, commodities fraud, spoofing (buying or selling with the intent of cancelling the transaction), and general market manipulation. These charges carry a maximum sentence of 380 years in prison. If these actions of a single individual (Mr. Sarao) sound ‘astonishing’ and ‘outlandish’ to you – they do to SF and myself as well. Putting aside the gentleman’s guilt or innocence for a moment – I am being asked to believe that:
- Mr. Sarao amassed an individual fortune (of over $50M in 5 years) - trading stocks on a computer in his parents’ house – under a Heathrow flight path.
- This 37-year old traded remotely (and without relationships) on an exchange that he had never seen.
- He single-handedly out-smarted one of the most highly computerized exchanges in the world. On this exchange, ‘High-Frequency Programs’ (HFPs) pick up the slightest movement in price – jump in front of the trade – and take advantage (millions of times) of these small price differences.
So they’re asking me to believe that one gentleman, operating from his parents’ house in west London – with at most $50M at his disposal – caused an $800B flash crash. That seems like a stretch – even on Easter. Which begs the question: Who’s benefiting by Mr. Sarao’s indictment? What am I missing?
Ms. Yellen, it’s holidays like Easter where we get to ‘pull back’ and remember that ‘rich’ and ‘wealthy’ are just outcomes, describing different behaviors that require different journeys. ‘Wealthy’ describes a process that can be diligently learned and followed. ‘Rich’ describes a more personal journey – often involving loved ones. ‘Rich’ often encompasses taking some time for yourself and ‘smelling the roses’. As the old adage says, when you DO look back – it WON’T be that one great trade you’ll remember. Happy Easter – celebrate the day.
Yesterday was the lowest volume day of the year. The 2nd lowest volume day occurred the day before yesterday, and the 3rd lowest was the day before that. Last week (if you take out Friday’s options expiration), we had more ‘low volume’ days due to corporations being forbidden from buying back their own stock – 5 weeks ahead of their earnings announcement. Yet this market has held up remarkably well. That’s because it’s actually easier for ‘them’ to hold up the market when the volume is low, because ‘they’ can goose the market higher by buying relatively few shares, or with a few well-timed futures buys.
In fact, on Thursday the market was in a foul mood with the DOW down over 100 points and the S&P quickly falling toward its 200-day moving average. But ‘they’ were NOT going to let us take that feeling into a 3-day weekend. Sure enough, things started inching higher, and by the closing bell the DOW was GREEN by 13.
So we just had our first RED week out of the last 6. Does it mean anything, or was that just some profit-taking after one of the biggest short squeeze run-ups in years? Frankly, it doesn't mean anything. While this market belongs thousands of points lower, seeing it dip a bit after a massive run-up means nothing. What we need to ask is: Will it hold at these levels? The 200-day moving average on the S&P is at 2016. The S&P closed on Thursday at 2035. So, as long as we remain above that 200-day moving average, we can feel reasonably sure we will trade sideways and choppy. If however the S&P were to go below that 2016 level, it could start a significant amount of short selling and push us lower.
At this point, our entire economy is geared toward pushing the markets higher. Wall Street loves it. Central Banks require it. And people enjoy it. But when markets rise for the wrong reasons, they always end up with a sharp and painful correction or crash. This market (in particular) has risen for the wrong reason, and each day brings us one step closer to that inevitable rug pull.
I think that this week, we trade sideways and choppy as they try and defend that 200-day moving average level. Remember, without the help of sustained, stock buy-backs, we could ultimately fail the 2016 level on the S&P, and see a series of tests lower. When we fail 2016 on the S&P, the next stop would be the S&P 2000 level.
- Long various mining stocks: AG, AUY, EGO, GFI, IAG, and FFMGF,
- Long an oil supplier: REN @ $0.56,
- Long GLD – Apr – Call Debit Spread – 118 / 123,
- Long NKE – Apr – Call – 67.5,
- Long POT – Stock & Apr – Call 20,
- Long SBUX – Apr – Call – 55,
- Sold SPX – Apr1 – Call Credit Spread – 2055 / 2060,
- Sold TEX – Apr – Put Credit Spread – 19 / 20
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.