This Week in Barrons - 7-23-2017

This Week in Barrons – 7-23-2017:

Thoughts:

“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.

The Markets:

   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.

Tips:

Recommendations:

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 28^th 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.

To follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there!

Disclaimer:

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 subscription by visiting:

<http://rfcfinancialnews.blogspot.com>.

Please write to Mr. Culbertson at: <rfc@culbertsons.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 <http://rfcfinancialnews.blogspot.com/>.

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 StockTwits 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:

https://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = https://youtu.be/n2QiPSe_dKk

Investing = https://youtu.be/zIIlk6DlSOM

Marketing = https://youtu.be/p0wWGdOfYXI

Sales = https://youtu.be/blKw0zb6SZk

Startup Incinerator = https://youtu.be/ieR6vzCFldI

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.  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. 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://rfcfinancialnews.blogspot.com/> 
Until next week – be safe. Until next week – be safe.
R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 7-16-2017

This Week in Barrons – 7-16-2017:

 “It’s different this time – we learned how to defy gravity.” … Andrew Lo

   The phrase “It’s different this time” has almost worn out its welcome within financial circles.  It’s often the rationale given for why bullish investors (at their own peril) dismiss various stock-market warning signals.  In the late 1990s, critics said that the Internet would change the world – and it did.  But the investing sectors still had their traditional number of losers and winners.  And in 2008, when the ‘wisdom of crowds’ gave way to the ‘madness of mobs’, investor reaction swung between emotion and instinct – leading to either irrational exuberance or panic selling.

   But Andrew Lo (director of the MIT Laboratory for Financial Engineering and a leading authority on behavioral finance) believes the phrase “It’s different this time” means that many of the old investment rules are less true – making investing a lot harder.  His book “Adaptive Markets: Financial Evolution at the Speed of Thought,” describes aspects of the market and human behavior that prompts a new look at the traditional investment paradigm.  Lo believes that investors (after an 8-year period without a correction) are perceiving a reduction in risk, and are responding like Evil Kenevil and taking on additional risk.  Then when a bad event happens, investors will freak out and go to the opposite extreme.  And after the fear subsides, they will then realize that the opposite extreme isn’t appropriate either, so will start the cycle all over again.  Lo believes that the next financial crisis will be the result of J. Q. Public over-risking themselves.  Because high frequency trading funds have created links and contagion across previously unrelated asset classes – managing risk via asset allocation does not currently yield the proper result.  Instead you also need to diversify across stocks, bonds, international, currencies, commodities and other smaller asset classes.  So, maybe “it is different this time”.

   What’s also “different” now is that a $6 bottle of Australian red wine (St. Andrews Cabernet Sauvignon 2016) earned the coveted ‘double gold’ medal from a panel of sommeliers, retail buyers, distributors and exporters at the Melbourne International Wine Competition last week.  It beat out over 1,100 other wine submissions from more than 10 countries.  Wine connoisseurs will love it for its black cherry and cranberry aroma, and for its intense flavors of cinnamon with balanced acidity and soft tannins.  The rest of us will just be thrilled that it’s under $10.  Other top finishers under $10 were: (a) a Savino Prosecco from Italy ($8.99), (b) a California 2015 Bogle Chardonnay ($9.99), (c) a Costieres de Nimes 2016 Chateau de Campuget, (d) a Diablo Malbec Concha y Toro ($7.99), and (e) a 10 Span Vineyards Pinot Noir ($8.99).

  

 “I like ideas that (when they first hit your ear) almost seem nonsensical.”…Ashton Kutcher

   That is what lures actor, producer and seed-stage startup investor Ashton Kutcher into investing in companies such as: Airbnb, Uber, Spotify, Skype and Warby Parker in their early days.  Mr. Kutcher, who once played the role of Apple co-founder Steve Jobs, told Stephen Colbert this week that he’s interested in startups when they are a little more than “two guys, a dog, and a Power Point.”  Ashton talked about his latest investment – a company called Acorns.  Acorns is essentially a digital change jar meant to add up to substantial investing profits when linked with special investment portfolios designed by Nobel economist Harry Markowitz.  I personally was introduced to Acorns in 2013 when Acorns personnel CD and TC did a successful entrepreneurship project with my CMU class.  Back then the class and I agreed on what a great and unique solution Acorns was.  Glad to see that Acorns is still a hit in 2017.  I guess not everything “is different this time around”. J

The Markets: 

 “We need to be more alike - if we’re going to remain together…” Jennifer Aniston

   A pair of typically closely correlated equity benchmarks haven’t been seeing eye to eye, lately.  The Dow Jones Industrial Average (DJIA) and the S&P 500 Index (SPX) usually move in lockstep, and display what is known as a positive correlation.  But lately, the equity indicators have seen their lowest level of correlation since 2003.  A reading of 0.00 describes no relationship between the two assets, while a reading of 1.00 means that the two indicators are perfectly aligned, moving in the same direction at the same time.  A 15-year average of the DOW and the S&P 500 shows that the relationship is nearly perfect with a 0.9557 correlation.  However, the latest rolling 20-day period shows a stark erosion of that relationship down to a reading of 0.4655 – marking the lowest level of correlation between the S&P and the Dow industrials since Aug. 4, 2003.  “The disconnect is probably due to the downturn in tech stocks – because some of the biggest companies are tech, but not many of them are in the DOW,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.  The big takeaway here is that when the correlation between the DOW and S&P goes out the window – so do words like ‘diversification’ and any semblance of how to calculate portfolio risk. 

“This is your brain on stocks…”

   Last week Canada's largest bank said that it’s time to tighten policy.  So, while everyone has been trained to believe that the market only goes up, and every dip should be bought – no one is paying attention to the idea that the Bank of International Settlements (BIS) wants its member banks to clamp down on their free money policies.  So, over the coming months we should start to see the ‘smart money’ start to sell into the hands of those willing to buy at any cost (J. Q. Public).  I don't think we'll see a fast correction, but rather a stair step lower.  Traditionally the ‘smart money’ selling to J. Q. Public will happen over and over again, until one day everyone realizes that the market isn't going to bounce to new highs anymore – and then we will see more serious selling. 

   After all, envision an on-line trading room – crammed with 1,000 traders all exchanging ideas and speaking their mind.  The market has been on a tear to the upside for the past 8 years, and valuations are stretched to the limit.  I overheard the following dialogue between Trader A and the Moderator:

-       Trader A:        “Can you explain position sizing to me, as I just quit my job to trade full time.”

-       Moderator:     “Why did you quit your job?”

-       Trader A:        “Why would I want to go to work, when I can sit here and make 3 times as much trading?”

-       Moderator:     "Have you been successful in your trades?"

-       Trader A:        “Yes, very much so.  It’s easy.  The market really doesn't go down any more.  You simply double down on every dip, and in a week or so, you're back making big money."

-       Moderator:     “Do think this market is normal?”

-       Trader A:        “Yes, this market is the NEW normal." 

   Well, maybe Trader A is right?  Maybe it is a Teflon market where nothing sticks – not war, not debt, not lousy fundamentals.  After all, just consider that it’s been: (a) 247 days since a 5% correction, (b) 341 days since a 10% correction, and 2,086 days since a 20% correction.  Even FED Chair Yellen turned dovish during her two-day Congressional testimony last week.  In 1999, it was fun selling Yahoo for $25 more per share in the afternoon than it opened in the morning.  In 2017, it’s fun selling NVDA for $14 more per share after holding it for just 2 days.  Enjoy the fun. 

   I for one do not believe that “it’s different this time”, and that this market is NOT the new normal.  And according to the most recent financial institutional survey – others seem to agree.  Currently the S&P Index (SPX) sits at 2,459.  The following predictions show where these organizations think the SPX will end 2017 (spoiler alert: only 2 organizations believe that the S&P will end the year higher than it is right now):

-       2,300 = Bank of America, Morgan Stanley, Credit Suisse, UBS, and Goldman Sachs,

-       2,325 = Citi and Jeffries,

-       2,350 = BMO, Deutsche Bank, and Federated Investors,

-       2,400 = JP Morgan, Societe General, Barclays, and Blackrock,

-       2,500 = RBC, and

-       2,575 = Prudential.

   I (like 85% of the financial institutions on the list) believe that this market will end the year lower than it is right now.  But, this turn will not happen overnight.  This market has had forward momentum for so long, that just because I’m beginning to see some people fold up their tents, there's still enough picking them back up to push us forward. I still see one more FED rate hike in September.  Any Trump tax cuts, infrastructure spending, or health care reform won’t happen in 2017 – if at all.  Our societal demographics push health care long-term, but there is no short-term catalyst to ignite the sector.  Housing permits, starts, and construction data have gotten stronger – but starts are historically below trend and are forcing home prices higher – which will choke off demand.  For banks, a modest number of rate hikes will happen, but these will only add small interest rate-driven profits.  Prepare for the final innings in the later part of 2017.  I think big changes are on the horizon.

Tips:

 Veeva Systems Inc. (VEEV) is my ‘chart of the week’ shown above. 

   Year-to-date: Facebook + Apple + Microsoft + Google + Amazon have averaged +26.68%.  The entire NASDAQ has averaged +18.89%.  Therefore, it’s not a stretch to say that 5 stocks are holding up this market.  I’m scared of this market, because market volatility is at its 2^nd lowest level – ever.  The SPX (sitting at 2459 with a 19.42 weekly expected move) is expected to close between 2439.50 and 2478.42 next Friday.  That is the lowest expected move in SPX history.  It just doesn’t feel right.

My recommendations:

-       Veeva Systems (VEEV = $64.25) = All of the moving averages are stacked nicely on top of one another, the MACD and StochRSI are in the right place and right direction, my momentum trend indicator is 100% green, it’s an IBD 50 stock, and daily and hourly squeezes about to fire long. 

o   Sold the +60 / -65 July 21 Put Credit Spread

o   Bought the 60 September 15 Calls

-       Russell Small Cap Index (RUT = $1,428.82)

o   Bought the +1420 / -1440 July 21 Call Debit Spread

-       Biotech Index (XBI = $79.07)

o   Sell the +75 / -76.5 July 21 Put Credit Spread

-       Vantiv (VNTV = $65.19) = If you’re looking for unusual activity, look no further than lightly traded payment processor Vantiv (VNTV).  There was unusual options activity in the August $70 calls last week.  A single options trade accounted for nearly 100 times the normal daily call volume.  After recently acquiring U.K. based Worldpay, and with earnings approaching on July 27 – this might hint at VNTV beating (or blowing away) expectations.

-       Apple (AAPL) = Buy the July 21 Butterfly centered around $150,

-       Simon Property Group (SPG) = Buy the July 21 Butterfly centered around $160, and

-       Home Depot (HD) = Buy the July 21Butterfly centered around $155.

To follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there!

Disclaimer:

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 subscription by visiting:

<http://rfcfinancialnews.blogspot.com>.

Please write to Mr. Culbertson at: <rfc@culbertsons.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 <http://rfcfinancialnews.blogspot.com/>.

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 StockTwits 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:

https://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = https://youtu.be/n2QiPSe_dKk

Investing = https://youtu.be/zIIlk6DlSOM

Marketing = https://youtu.be/p0wWGdOfYXI

Sales = https://youtu.be/blKw0zb6SZk

Startup Incinerator = https://youtu.be/ieR6vzCFldI

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.  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. 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://rfcfinancialnews.blogspot.com/>  Until next week – be safe.
R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>