This Week in Barrons – 6-11-2017:
“Ball of Confusion” … The Temptations…1970
“Agitation, desperation, ostentation, immigration, confrontation, exploitation, regulation to our nation. Ball of Confusion – that’s what our world is today. Hey – Hey. And the VIX goes on.” Pardon my interpretation, but in times like these I turn to ‘The Temptations’ to try to make sense of this market. A market that rallied when the x-FBI Director called the President a liar, and lost 100+ NASDAQ points on a single Goldman Sachs memo hi-liting the FAANG stocks accounting for 55% of the year-to-date gains in the S&P – baffles me.
Attempting to predict economic behavior is simply a “Ball of Confusion.” Why? Because most of the information that you think is true – is not. For example, Morningside Hill did a follow-up on the ‘birth/death/ model used by the Bureau of Labor and Statistics (BLS) when reporting ‘Non-Farm Payrolls’. According to the BLS, a certain percentage of laid-off people will start their own businesses and hire other people. Every month the BLS guesses at the number of new, undocumented business hires and includes that number directly into the ‘Non-Farm Payrolls’ report. Morningside Hill conducted a proper investigation and found that: 93% of ALL NEW JOBS created since 2008 were fictitiously added via the BLS’s ‘birth/death’ model – and less than 20% of those ‘birth/death’ jobs were ever supported by real data. In fact, real numbers point to a sharp decline in entrepreneurship since 2008. Thank you, Morningside Hill. I feel vindicated now that it seems over 80% of all Non-Farm Payroll jobs created since 2008 are (in fact) bogus.
Another ‘Ball of Confusion’ seems to be our unemployment metrics. The BLS does not count a person who desires work as unemployed – if they are not working and have stopped looking for work over the past four weeks. The BLS also does not count someone as unemployed if they perform one hour of work in a week and receive at least $20 in compensation. The Gallup organization would like to change this metric by creating a Gallup Good Jobs index (GGJ). They define a ‘good job’ as one that provides 30+ hours of work per week for a regular paycheck. Under this umbrella, the percentage of the working U.S. population with ‘good jobs’ is 45.7%. Gallup believes that the GGJ and the U-6 unemployment metric (8.4%) are the correct indicators for our economy.
This week Apple introduced the Apple HomePad speaker – loosely termed the iWife (shown below). It's a Siri-powered smart speaker that allows you to play music, check the traffic, control your smart lights, query sports scores etc. – a direct competitor to the Amazon Echo and Google Home.
In the spirit of resolution and graduation, SF reminded me of a commencement address that Admiral William McRaven (commander of the elite Navy Seals squad) gave at the University of Texas. His message: “What starts here – changes the world. If you want to change the world:
1. Start by making your bed. Making your bed every day – allows you to accomplish the first task of that day.
2. Find someone to help you paddle. Changing the world takes friends, colleagues, the good will of strangers, and a strong coxswain to guide.
3. Measure a person by the size of their heart. Nothing matters but your will to succeed – not color, religion, background, education, or status.
4. Get over being a sugar cookie and keep moving forward. Sometimes no matter how well you prepare or perform – you still end up as a sugar cookie. That’s life.
5. Don’t be afraid of the circuses. The circus was a form of SEAL punishment. Life is full of circuses. You will fail, and likely fail often. It will be painful, discouraging, and test you to your very core.
6. Sometimes you have to attack the obstacle head first. A student broke the obstacle course record by taking it on – head-first. It was dangerous, foolish and risky — and it saved him half the time.
7. Don’t back down from the sharks. If you ever hope to complete your swim, you will have to deal the sharks.
8. Be your very best in the darkest moment. In the darkest moments of a mission, is when you must be calm, composed, and all of your tactical skills, physical power, and inner strength brought to bear.
9. Start singing when you’re up to your neck in mud. During Hell Week, students are neck deep in bone-chilling cold mud. When one student starts to sing – others join in – and it gets them all through the ordeal.
10. Don’t ever, ever ring the bell. There is a brass bell in the center of training camp. By ringing the bell, you leave the SEALs, and also the runs, the obstacle courses, and all of the training hardships. In other words, you ‘can’ quit – just DON’T."
Last week we had the NASDAQ and the New York Stock Exchange (NYSE) trigger the Hindenburg Omen. This is the first time since 2014 that the signal triggered on both exchanges on the same day. The average return (one month after this signal) is normally negative by 5%. The Hindenburg Omen does not guarantee a market correction, but rather measures when a market is showing signs of fracturing prior to a potential correction.
On Monday, Michael Hartnett of Bank of America wrote: “Central Bank balance sheets have grown to a record $15.1T – up from $14.6T in late April. Central Banks have purchased a record $1.5T in assets year-to-date." That means our Central Banksters will purchase over $3.5T in financial assets in 2017. The NYSE is worth about $15T, so by the end of the year our Central Banksters could own 23% of the entire NYSE. Do you think that injecting $3.5T into an already overly valued market will continue to push prices higher? You bet. I only have 2 fears:
1.Will they decide to pull the plug (on Donald Trump) and crash everything,
2. Or will the velocity of money increase too quickly, and we hyper-inflate.
But Central Banks will continue to push this market higher because:
1. Every Pension Plan that's still solvent – requires a rising market.
2. Every Insurance Company that’s paying claims – requires a rising market.
3. Every Bank that has a mere 20 derivatives hypothecated against its holdings – requires a rising market.
Next Wednesday our FED is going to tell us that they will be raising rates ¼ percent. They will tell us that our economy is in great shape, and everyone is fully employed. However, the real data shows that 102m people have left the labor force. The BLS's birth/death model has accounted for more than 80% of all the jobs created, and those jobs don't really exist. But our FED will raise rates because if they don't – everyone will think that things are worse than they already are. Then, the FED will start talking down expectations for any further hikes.
To recap the geo-political events of this past week:
1. We heard from the ECB that interest rates would remain low, and that they would continue to buy 60B worth of financial assets a month, at least into December.
2. We heard from x-FBI Director Comey no big bombshell that would give impetus to any impeachment proceedings against President Trump.
3. We saw a UK ‘snap’ vote go against PM May, but our market seemed ok about it either way.
4. Then Friday came, and it was a bit bizarre. The FAANG stocks were taken to the woodshed. At times Amazon was down 80 points, Google was down 50, Priceline down 40, Netflix down 10, Apple down 8 – it was a full blown ‘flash crash.’ The final tallies showed: Amazon down 32, Google down 33, Apple down 6, and Netflix down 7.
So, the question becomes – is this a rare buying opportunity to pick up the highest fliers on sale, or a warning shot to show how shallow this market really is? Well, there's no question that the market is shallow, and I don’t believe that’s news to anyone. What’s to stop the next wave of Central Bank buying – going right into Amazon, Google, Apple, Netflix, etc.? In my mind the only question is: WHEN will that buying occur? After all, the Central Banksters can either allow the global economy to melt down or they can continue to print money, buy stocks and figure some way to get out of this trap. They are well aware that if they stop printing money – the bubble will pop faster than a pimple on the face of a 13-year old. They know that our market has gone beyond ‘bubble-status’ to become an endless funnel of cash residing below every market dip. I'd suggest taking a couple days just to keep an eye on things, and see if they continue to buy up the FAANGs. If they start sagging again, you might want to consider taking some small short-side positions. But if they drive the FAANGs right back up, chances are that they're going to take out their old highs.
Last Friday, at 11:49 am there was a mini-flash crash in many of the FAANG stocks – but what stopped them from completely imploding and dragging the rest of the market down with them? The NASDAQ hitting its downward expected move before noon – prevented the tech driven index from completely imploding. Last week I showed you how the major hedge funds were using the NASDAQ futures to help cover their S&P positions – well this week they used the S&P futures to help rescue their NASDAQ positions.
This coming week’s S&P expected move is $27 – giving the SPX (2,432) a range of between 2,405 and 2,459. The financials and energy sectors were the main beneficiaries of the tech-crush. Now that the XLF (the financial ETF) is above 24, this becomes reminiscent of the 1999 – 2000 debacle. In March of 2000, it took weeks / months for all of this to unfold, but it started with: (a) people selling tech stocks – driving them lower, (b) people buying everything ‘except’ tech stocks – pushing them further downward, and then (c) people selling everything.
- Markets do NOT rotate sectors for long, but if this rotation continues – buy the VIX because volatility will be on the rise.
- The NASDAQ (currently at 5,748) could drop all the way to 5,408 (8-day EMA) without disturbing its technical uptrend. The next area of NASDAQ support is 5,673.
- On Monday:
o If we gap down, I think we will retest the 5,673 low and then grind higher into 5,825.
o If we gap up, I would short the gap and assume that it will retest the lows described above.
- For a rebound, I would look for the tech stocks that went down on light volume such as:
o AVGO – that came down to its 8-day moving average,
o NVDA – that came down to its 8-day moving average, and
o NTES – that again came down to its 8-day moving average.
To quote John Carter: “A big part of trading is understanding what is possible. Focus on the high probability move, get in, get out and wait for the next setup.”
Next week we have monthly options expiration, which normally produces an upward bias in the markets. I can easily see:
- Amazon (AMZN) and Google (GOOGL) pinning at $1000,
- Apple (AAPL) moving back up to its 50-day SMA,
- The NASDAQ moving back to its 21-day EMA,
- FedEx (FDX) moving higher into earnings, and
- The Russell 2000 (IWM) continuing to move higher.
Be careful because any upward retracement which fails to surpass the highs – might be a short-term selling opportunity to see how far the next leg down will go. The real opportunity still remains to buy once we get a larger pullback. However, when the real pullback comes it should last for more than a few days – so we should have time to set up for it.
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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