This Week in Barrons – 7-23-2017:
“Without the will to do what is right – the world is defenseless.” … Aleksandr Solzhenitsyn
Thanks to SF for the following Q&A on the defenseless and fragile nature of our global economic system: https://www.youtube.com/watch?v=y6boC5Eqh24. A loosely translated version follows:
- Greece owes $367B – to most of the other European economies.
- Ireland owes $865B – to most of the other European economies.
- Spain and Italy owe $1T each – to France, Britain and Germany.
- France, Britain and Germany are struggling because of lending vast amounts of monies to other nations that can’t possibly pay them back.
- But how can broke economies lend money to other bankrupt economies – without either having any money to really lend, much less pay it back?
- How will any/all of these debts be resolved?
o They’re hoping for a bail-out.
- But where does the money for the bail-out come from?
o It comes from the U.S. – because the U.S. economy is much stronger than the European economy.
- How is that?
o Because the U.S. is owned by China.
But what about defending yourself – especially in states without individual ‘carry permits’? Think about the following:
The second most important ‘carry weapon’ is a tactical flashlight. Why the flashlight? Well, I'm not talking about your typical household flashlight that you leave in a drawer and hunt for during power outages that produce about 15 lumens of brightness – which is fine for finding matches to light candles. A tactical flashlight is made of high strength aircraft aluminum, and puts out between 500 and 1,000 lumens (80 lumens will temporarily ‘light blind’ someone.) In a self-defense situation, you want to use a tactical flashlight to temporarily blind the attacker – so that you have a few seconds to flee or attack back. After all, it's very difficult for someone to attack you if they are turning their heads, and putting their hands in front of their eyes.
Tactical flashlights are designed for the military, police, and others working in dangerous places. They're also very handy for just getting around in the dark – because they can illuminate a long way. The amazing thing about these new tools is that they're so small you can almost make them disappear in your hand. For my money, the best ‘tactical light’ out there is the Surefire E2D (shown). It is only 5.4 inches long, 1.25 inches in diameter, and puts out 600 lumens. I hope you never need to temporarily blind someone, but financial and personal defense are beginning to creep to the forefront of many people’s conversations.
This is quite the treacherous, roller-coaster market. It reminds me of 1999 when the market only seemed to go up, and it didn't matter how stretched the valuations were. We're in earnings season and most of the releases are coming out with nice year over year gains. Granted this is all "Non-GAAP" reporting with an awful lot of fuzzy math, but this is what we are forced to work with. A lot of the ‘talking heads’ are asking: "Why is this rally so hated?" I’m guessing they have forgotten that in the last 20 years a lot of people have gone through 2 market crashes – the tech crash of 2000-03 and the housing crash of 2008-09. And while fear keeps you sane and out of the market, it doesn’t allow you to benefit from the Central Bank’s money printing strategy.
Last week I noted that the equity markets were looking strong. The U.S. Dollar Index continued to look weak while U.S. Treasuries (TLT) continue their channel consolidation. Emerging Markets (EEM) look to break out to the upside. Volatility (VXX) should remain at extremely low levels keeping the bias to the upside for the equities and equity indices on both the daily and weekly timeframes. The S&P (SPY) continues to be in an uptrend with resistance at 247.10. I’m looking for a move over 248 in the short term, and over 255 in the longer term. With July options expiration and 1 full week of earnings behind us, index charts look to consolidate or slightly pullback; however, all look strong and ready to continue higher on a longer timeframe.
But if the Central Banks want this market at DOW 30K they can indeed get it there. I believe that once the Central Banks begin to pull QE away from this market, it will begin to pout and fall. So, I think that the Central Banks want this market as high as it can be, before they start working down balance sheets and cutting QE. That way, if the market is at 25,000 – a 20% pout still has the DOW at 20K.
Let’s take an Elliot Wave approach to the above fundamentals. According to Elliot Wave Theory (an extremely popular and accurate market behavior / forecasting methodology), a market correction is getting closer. The first correction will likely be Wave 4 (shown above), and Wave 4s are notoriously choppy and frustrating. This choppy correction should be followed by another rally (Wave 5) and a more pronounced drop later in 2017 or early in 2018. Under Elliot Wave the S&Ps are unlikely to make a lot of progress in the coming year, but there will be an opportunity for investors to lock in profits and avoid a significant drawdown. The Elliot Wave specifics go something like this:
- As long as the S&P 500 (SPX) maintains support over 2,440, place our upward target region between 2,487 and 2,500.
- The market could take as many as three weeks to move into this target. And, there could be a potential ‘timing target’ around Aug. 9 that would also mark a top in the market.
- The pullback region is between 2,285 and 2,330 on the SPX.
- That pullback should be a buying opportunity, with the market then moving higher into the 2,537 to 2,600 region – prior to a 15% to 20% correction in late 2017 / early 2018.
So, on both a fundamental and Elliot Wave methodology, it appears that the next 3 weeks could be a roller-coaster ride to remember.
1. EEM (Emerging Markets ETF): Oppenheimer’s head of technical analysis calls the EEM: “The chart of the week, month and potentially year. It not only carries significance for the future direction of Emerging Market’s trend, but also for the broadening global market participation.” The EEM is just now breaking out of a 10-year downtrend. Even Josh Brown (of the Reformed Broker) thinks that this has the potential to become very big news for investors looking for the next mega-trend.
2. GOOGL (Alphabet): If Microsoft’s and Netflix’s performances are any indicator of the tech sector in general – that could make you bullish on Alphabet (GOOGL). If that be the case, selling the September Put Credit Spread by buying the $945 puts and selling the $947.5 puts – is a bullish strategy with a credit that is 1/3 the width of the strikes and an 81% probability of success.
3. BABA (Alibaba): I’m also liking Alibaba (BABA) to the long side next week. Selling the June 28th Put Credit Spread by buying the $145 puts and selling the $147 puts producing an excellent short-term bullish strategy.
4. Biotech Sector:
a. Vertex (VRTX) is seen by many as being a catalyst for a strong biotech sector advance. VRTX rallied from $130 to $160 during the past week – closing on Friday with 7 times daily average volume indicating that reaching the $200 price level is not out of the question. Vertex is having a positive impact on the Biotech ETF because the VRTX accounts for about 3.75% percent of the sector’s total weight.
b. SPDR S&P Biotech ETF (XBI) is also moving quickly and bringing stocks such as Kite Pharmaceutical (KITE) with it. There are a number of Biotech heavyweights lined up next week to report their respective quarterly earnings. Vertex (VRTX) will lead the way together with Amgen Inc. (AMGN), Biogen, Inc. (BIIB), Celgene Corp. (CELG) and Gilead Sciences Inc.(GILD).
5. Marijuana Industry: It has been a growth monster over the past 12 months – with legalized sales expected to grow over 50% year-over-year.
a. GW Pharmaceuticals (GWPH) – has been in an uptrend since the beginning of the second half of the year.
b. Aurora Cannabis (ACBFF) – is showing positive signs as its stock price breached over $2.00 again. The Canadian medical-cannabis producer is in the process of developing the Aurora Sky project, which will be an 800,000-square-foot facility that the company claims will be the most advanced from an automation standpoint in the world. Target date of completion is 2018. And the company’s most recent announcement that its wholly owned subsidiary Pedanios GmbH had successfully passed the first stage of the tender application process to become a licensed medical-cannabis producer in Germany. Germany's medical-cannabis market is at its infant stage and Aurora could seize the opportunity and be among the first to get a substantial market share in the country.
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Please be safe out there!
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