RF's Financial News

Sunday, April 22, 2018

This Week in Barrons - 4-22-2018

This Week in Barrons – 4-22-2018:

“I tell kids: somebody’s gotta win. Get better ‘cause loosing stinks.” … Yogi Berra

“Get better ‘cause loosing stinks” (the following quotes in italics are by Yogi Berra):

I love baseball season. BL reminded me just how much my brother and I loved toplay baseball every summer. That was back when the biggest stars in the game were Mickey Mantle, Willie Mays, and Yogi Berra. Our father paved the way by buying us gloves, taking us to the ballparks, and always sitting and watching the two of us play. To him it probably was: “Déjà vu all over again.” This was back when you'd leave the house, tell your mother you'd be home for dinner, she’d have no idea where you really were, and was not worried in the least. Maybe there were a couple ‘couch potatoes’ scattered around the neighborhood, but most kids walked or rode their bikes to the schoolyard to play ball. It wasn't organized – just whoever showed up. You already knew who was good and who was bad, but we chose teams anyway because: “It’s tough to make predictions, especially about the future.”

We never played ball in the snow, but when March 1^strolled around my brother and I were ready – because tryouts were on April 1^st. During games I remember putting on our uniforms, being introduced before the game, and having stands full of people. After all: “No one goes there anymore, it’s too crowded.” If we won – we went to Dairy Queen, but if we lost – we went home, heads down, and dejected.

I know that it’s different now. I know kids play soccer, then T-ball, and yeah everybody still gets a trophy. In my day, you either ‘had the goods’ or you didn’t. Because: ”In theory there is no difference between theory and practice. But in practice – there is.” In my day, either you made the team or you didn't, and the trophy meant everything. You learned that a lot of things in life are: “90% mental and the other half is physical.” With us, striving towards excellence was more important than being a member of any group. After all: “You can observe a lot by just watching.” It was an era when you learned how to handle being bullied because you were not getting bailed out by your parents or school admins.

“The future ain't what it used to be.” I don’t watch a lot of baseball anymore. Like Yogi said: “When I came to a fork in the road, I took it.” My brother took the left fork and went on to briefly play pro-ball, but I took the other one. The lesson in both cases was the same: “It ain’t over – till it’s over. You can ALWAYS come back” Thanks Yogi!

The Market:

I’m betting that not every asset in your portfolio is up 622% year-over-year as Bitcoin is. If you don’t think cryptocurrencies are making a difference, look at the:

- Celebrity Endorsements: Currently celebrities are being used to push hundreds of crypto-currencies. Just ask the people behind Bitcoiin– where the extra "i" stands for: "I can't believe Steven Seagal is the spokesman for this thing." Paris Hilton recently tweeted her support for LydianCoin, and then had to backpedal when the CEO was convicted of domestic battery and assault. Floyd Mayweather endorsed Centra– a company who ‘made-up’ their CEO. Their website image was a Canadian professor who had no idea what the company was. Note to self: If I’m ‘making-up’ a CEO – limit the investor raise to under $10m.

- Stupid Currencies: ‘BunnyTokens’ are positioning themselves as the official crypto-currency of the porn industry. ‘Dentacoin’ can be only used to pay for dentists – and nothing else. ‘Podeum’ managed to raise $11m before vanishing, and replacing their website with the word ‘Penis’. ‘Useless Ethereum’ currently specializes in giving money to strangers to buy television sets. And ‘Whoppercoins’can be used to buy Russian Burger King Whoppers. For a mere 1,700 Whoppercoins ($30) you too can purchase ONE Burger King Whopper hamburger.

- Rampant Thievery: I’m wondering if a crypto-currency is harder or easier to steal than a piggy bank that I can hide under my bed? ANSWER: According to Japan’s Coincheck, the crypto is waaaay easier to steal – because that piggy bank can ONLY be stolen from under my bed, but $500m in crypto can be stolen from anywhere on Earth. In January 2018, Japan’s Coincheck exchange suffered the largest heist in the history = $500m. Lucky for us cryptocurrencies are (cough) ‘super secure’.

- Sylvain Ribes’ report that shows more than $3B of all digital currency trading volume is fabricated by exchanges to mask their illiquidity. Related forms of contentious activity are also occurring such as:

o Rebate trading: Paying commissions to those that create liquidity,

o Wash trading: Buying and selling the same shares, and

o Front-running: Moving buy or sell orders in front of others to gain an economic advantage.

- Tax Season effects:Tom Lee of Fundstrat Global Advisors predicted that U.S. investors owed nearly $25B in capital gains taxes for cryptocurrency holdings. As retailers accepted that they must pay taxes on their fantastic 2017 cryptocurrency gains, many investors were forced to sell additional positions to cover their bills.

- Tim Draper: While VC predictions are by no means prophecy, Tim Draper’s $250k target for Bitcoin in 2022 sets a tone. Tim’s conviction comes from Bitcoin’s ability to revolutionize multiple industry sectors, and to serve as a global currency. According to Tim, there is over $100T of circulating fiat currency, and Bitcoin’s market cap is below $140B.

- Pantera Capital: The blockchain investment fund announced that they believe $6,500 marks the low for this bear market, and that “a wall of institutional money will drive the markets much higher”. Pantera sees a Bitcoin price above $20k within 12 months as “highly likely”, and the fund has only made 4 crypto-currency trade recommendations in 7 years.

- ICO Demand: Regulatory hurdles will make it harder for companies to obtain ICO funding, and that may be good for the market’s health moving forward. For 2018, we’ve seen over $1B in monthly funding volume.

- ICO Correlations: As more ICOs were issued on Ethereum, the price of ETH continued to rise. As the market pulled back in mid-January, projects that previously raised capital in ETH were prompted to liquidate their positions and lock in funding in USD. While recent selling pressure contributed to ETH’s downward spiral, an increase in ICO funding could bring about positive correlations in price as the year progresses.

- Don't Forget about Jeff Bezos: Amazon’s newly approved patent proposes a streaming data marketplace where Bitcoin addresses are combined with shipping addresses. Telecom providers could then correlate transaction IP addresses to countries of origin, and governments who could correlate tax data to identify purchasers. This isn’t the first timeAmazon filed a patent that sought to monetize user data. Their last fillings put them right up there with Google and Facebook:

o A system for listening into all in-home conversations for keywords that would allow statements to be stored and converted into targeted ads.

o A system for identifying speakers in a conversation and building interest profiles on them.

o A system for inserting paid content into responses allowing requests such as: “Restaurants near me” to deliver those that paid for Amazon ads first.

Globally the financial system is slowing. Just like a junkie, without ever larger injections of stimulus, the system will go into withdrawal. Each market level we attain is NOT built on organic sales, but rather cheap money allowing for stock buy backs, and on Central Banks buying futures and equities. But because the market has become such an economic force (as so many loans and derivatives are co-joined to it as collateral) any serious downdraft would end up being worse than 2008. So, globally everyone will do all they can to prevent this from happening. My question is whether at some point the globalist elites actually pull the plug and create a massive crash? Or, is there a point where they can no longer manipulate the market?

Last week our markets could not hold their respective 50-day moving averages. Combine that with the S&P’s inability to exceed its downtrend resistance line – and you have a recipe for any rally falling apart. After all, the world is slowing – interest rates are rising – and the yield curve is flattening. These facts were ignored early in the week when the market gapped higher (above all of the 50-day moving averages) but without any volume confirmation – it just faded back down. It’s significant that on big market ‘down days’ the trading volume exceeds the volume on big ‘up days’ by 44%. That suggests to me that the smart money is doing the selling, and the latecomers are picking up the pieces.

We could easily be on a track to reach down to the March / April lows. If those lows fail to hold, we could be looking at a much lower market. Periods of chop almost always signal a turning point, and we've been in massive chop for 3 months. The tide appears to be turning, and if that's true, there's no telling how far this market could fall. But for as much as I think we've seen the highs in this market, there's no rule that says we can't chop in a sideways pattern for a long time. The new plan might just be to keep it from crashing.

The 10-year Treasuries are now around 2.95%, and the heavy dividend paying stocks are becoming the first to be impacted. After all, why go out and purchase a volatile asset like Verizon that could may a 4% dividend – when you can purchase a secure T-bill that pays 3%. The heavy dividend payers were once thought of as ‘low-beta’ (lightly moving) stocks, but due to higher interest rates – they are seeing increased volatility. I’m expecting increased volatility over the next several weeks. In fact, this marketplace has become quite ‘diabolical’. By that I mean, the market will display wild sell side activity – followed by 2 weeks of calm – immediately followed by additional downside activity. For the past 8 years you could virtually buy every dip. Moving forward, I think you’re going to need some real ‘trading chops’ because the market is not going to ‘bail you out’ of every mistaken, fat-fingered buy that hits your tape. In the larger picture, we’ve reached the top of the downward channel and could be headed back down over these next weeks. I’m first expecting us to move higher into 2680 on the SPX prior to heading lower, and by lower I mean down into 2626 and potentially 2575.

The financials – in a rising interest rate environment with tax reform – should be performing well. But I’m hearing a lot of rumblings surrounding: (a) higher bankruptcy rates, (b) higher loan default rates, and (c) much higher sub-prime loan defaults. There will be some big earnings out this week: Microsoft (MSFT), Facebook (FB), Apple (AAPL), Google (GOOGL), and Amazon (AMZN). As these companies continue to beat expectations, the overwhelming narrative is going to become louder surrounding how much and how often the FED will need to raise rates because the economy is doing so well. Therefore, better earnings could lead to increased sell-side activity in the bonds, which could then cause fear to hit the financials and the broader markets this coming week.

We are just about dead center between the February bounce high, and the late March low; therefore, we have resistance above, and support below. So, while you can snag some great profits going short if you're nimble, it might be just a bit premature to go short and hold it for the long term. My guess is that with Friday's failure, we are going to see a lower market this week. But whether you go long or short, do NOT overstay your welcome in this atmosphere – because the reversals are too quick and too common. Happy Earth Day!

Top Equity Recommendations:

Marijuana stocks (HODL):

- Aurora (ACBFF),

- Cannabis Wheaton (CBWTF), and

- Canntrust Holdings (CNTTF).

Options:

- Microsoft (MSFT) – long calls into April 25^th(earnings),

- Facebook (FB) – long calls into April 25^thearnings,

- Gold (GLD) – long calls into December, 2018,

- HYG is the high-yield ETF for junk debt. If interest rates begin to move higher, then HYG will move to the downside fairly significantly, so either:

BUY the May 18^th+85 / -83 Put-Debit Spread for $0.26, or

SELL the May 18^th-85 / +86 Call-Credit Spread for $0.71.

Top Crypto Recommendations:

Cryptocurrencies (in general) are still down 40% year-to-date, butfunds that trade in arbitrage strategies have gained as much as 30% in the first quarter. This week Bitcoin accelerated over a threshold that (at least for the short-term) is showing a crypto-bottoming effect.

BTC/USD: Bitcoin broke above its 50-day moving average, and although it lacked the volume that I’d like – it’s still a cautiously bullish signal. The next upside target is $9,400, and if that level is crossed then all eyes will be on $10,000. If prices fail to hold above $8,600, it will be a bearish sign and prices can fall back to the first support level of $7,900.

ETH/USD: Ethereum also broke above its 50-day moving average on April 19 on nice volume and is leaning toward the $730 level. It’s moving with Bitcoin, and I recommend any fresh long positions to enter around the $570 area.

BCH/USD: Bitcoin Cash zoomed past it’s 50-day and quickly touched my first target objective of $1,114. If bullish sentiment continues, a fresh entry point would be the $1,000 level, and rally into $1,300 and then $1,600.

XRP/USD: Ripple easily crossed above my first target of $0.83. There is some small resistance at $0.9, but nothing major until the $1.08 level. The way it has rallied over the past 3 days shows me that the buyers are back. The moving averages are also close to a bullish crossover, which is another big plus.

XLM/USD: Stellar is holding support at the $0.36 level. The break out makes sense to continue toward $0.47. The moving averages have completed a bullish crossover, but this is unlikely to be a one-way move into new highs.

LTC/USD: Litecoin has found buying support at $141. It is currently attempting to break out of its 50-day moving average, and if successful could rally into $178. The logical stop loss for the trade is at $127, which doesn’t offer a good risk vs reward to me – so I’m sitting this one out.

NEO/USD: NEO hasfinally broken out of the 50-day SMA, but it will face stiff resistance at the $80 mark. If NEO can break above $80, it will become very bullish because the failure of a bearish pattern is a positive sign. After breaking out of the downtrend line, there is minor resistance at $92-$94, but could easily open the door to $140. So watch NEO above $80.

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

Please be safe out there!

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Sunday, April 15, 2018

This Week in Barrons: 4-15-2018

This Week in Barrons – 4-15-2018:

“Better call Saul”

On Friday, we got the earnings out of J.P. Morgan and of course they beat the estimates. But they’re not bragging about their credit card uncollectable delinquencies that are UP 18% year-over-year. JPM better call Saul.

On Wednesday the Fed indicated that rate hikes might be coming faster than previously thought on the strength of current economic growth. Unfortunately the FED missed the news that bankruptcies are also the highest they’ve been in 7 years. Let’s face it, the days of easy credit are over, and smaller companies are going to get squeezed. Small businesses better call Saul.

Child advocacy groups are asking the FTC to crack down on YouTube, and its parent company Google because it’s illegal to gather data on young kids without parental consent. Even though YouTube publicly discourages kids from using its platform, it collects their data and sells targeted ads because of it. YouTube, I think you better call Saul.

In 2011, Bitcoin crashed by 94%. In 2013, Bitcoin fell by 87%. In 2014, Bitcoin declined by 83%, and in 2018 Bitcoin slumped by 70%. The action we’re seeing in Bitcoin is just normal volatility, so there’s no need to call Saul.

SF writes: 10 years ago our U.S. debt to income ratio was 40%, and last week the CBO projected that in 10 years our ratio will be 100%. This is due to our Congress’ inability to control spending on defense, healthcare, social security, and pensions. It’s not a matter of IF the U.S. becomes insolvent, but rather WHEN. Our FED lead us out of the 2008 financial debacle by simply creating cheap capital for a decade rather than addressing the debt issue. Our continued deficit spending will collapse our fiat currency system. Ah, so that’s why Bitcoin matters. FED, you really should have called Saul.

Check your tour dates to see when the Facebook ‘Apology Tour’ is coming to your area. Last week Mark Zuckerberg (CEO of Facebook) testified in front of Congress about the policies that led to a political consulting firm getting access to 87m Facebook (FB) users' data. Also, about how Russians used the platform to troll the 2016 U.S. election. It’s clear to me that Facebook’s back end is designed to be complex. It’s designed to make it possible for Zuckerberg to avoid tough questions, because the interviewers lacked the technical knowledge to mount an effective challenge. Except, when Congressman Ben Luján (Democrat from New Mexico) stepped up to the plate. The following ensued:

LUJÁN: Is it true that you (up until last week) had a search feature that allowed people to scrape and gather large amounts of information on other people?

ZUCKERBERG: Congressman, I’m not familiar with that.

LUJÁN: Does Facebook keep detailed profiles on people who have never signed up for Facebook?

ZUCKERBERG: Congressman, in general we collect data from people who have not signed up for Facebook for security purposes – to prevent the kind of scraping that you were just referring to.

LUJÁN: These scrapes are called shadow profiles - yes?

ZUCKERBERG: Congressman, I’m not familiar with that term.

LUJÁN: On average, how many data points does Facebook collect on each Facebook user?

ZUCKERBERG: Congressman, I do not know that off the top of my head

LUJÁN: It’s been reported that Facebook has as many as 29,000 data points on the average user. How many data points does Facebook collect on the average non-Facebook user?

ZUCKERBERG: Congressman, I do not know. But I can have my team get back to you if you wish.

LUJÁN: Can someone who does NOT have a Facebook account opt out of Facebook’s involuntary data collection?

ZUCKERBERG: Anyone can turn off and opt out of any data collection for ads, whether they use our services or not. But in order to prevent people from scraping public information, we need to know when someone is trying to repeatedly access our services.

LUJÁN:You’ve said everyone controls their own data, but you’re collecting data on people that are NOT even Facebook users, and have never signed a consent or a privacy agreement. It may surprise you to learn that for a non-Facebook user to download and turn-off your data collection on them – they need to become a Facebook user.

Congressman Luján succeeded in digging into an issue that nearly every other politician had been unable to verbalize: FB’s data practices as they relate to non-Facebook users. Ultimately, this comes down to FB’s business model. It collects everyone’s data, and then funnels it into one of the most powerful advertising platforms the world has ever seen.

What followed were a few apologies from Mr. Zuckerberg, some earnest-sounding promises to do better, and a couple superficial changes to FB that will fail to address the underlying structural problems. This is nothing new. After each scandal, FB expresses regret, announces cosmetic fixes, and then works like mad to scuttle any legislation that may have an impact on their core model.

Honestly, merely saying that individuals own their own data just isn’t enough. Companies will continue to persuade people to part with their own data in ways that may seem to make sense at the individual level, but could work in the aggregate to create a far different outcome. For example, getting paid for your own health information might seem beneficial – but any company that holds health information on a billion people can end up in a compromising position that they would have never foreseen.

On Saturday, two senators introduced legislation that would require online platforms (such as Facebook) to explicitly get consent from users to use, share, or sell any of their personal info. Facebook, you better put Saul on speed-dial.

The Markets:

The DOW gained 1.8% last week while the Nasdaq and S&P booked gains of 2.8% and 2% respectively. It’s the beginning of earnings season, which is normally a bright spot for Wall Street and investors. Lately, trading has been cautious because of U.S.-China trade war tensions, and the conflict in Syria. On Friday, J.P. Morgan, Citibank, and Wells Fargo took center stage to report their first-quarter earnings. Hopes were high because the banking sector should be benefitting from tax cuts, rising interest rates, and a generally positive outlook for economic growth. Unfortunately, the financials fell 1.6%, and were the worst-performing sector going into the weekend.

Friday evening President Trump announced that a U.S. lead coalition conducted precision missile strikes against the Syrian government’s chemical weapons depots. The objective was to: "Establish a strong deterrent against the production, spread, and use of chemical weapons." Every time the U.S. goes on a military offensive, shares of defense companies outperform the broader market. A company like Raytheon (RTN) benefits because firing their Tomahawk missiles from an aircraft carrier or destroyer – eliminates the possibility of our fighter jets being hit by anti-aircraft fire.

In terms of Biotech, Cowen analysts released a note saying, “With so few clean, growth-oriented, earnings-driven names to choose from, generalist interest in biotech may be at a low point. Given seasonal headwinds, expectations for biotech earnings are modest.” Lately, healthcare and biotech funds have seen 3 consecutive weeks of outflows and are down $2.4B thus far in 2018.

For the first time since March, the price of Bitcoin (BTC) jumped higher by 14%, and ended the week above the $8,000 level. It registered a high of $8,225 on Friday, and could soon be moving up to the $8,500 mark. With total trading volume increasing in all exchanges, volume analysts are quick to suggest the rally is here to stay. If BTC can break through resistance at $8,500, the next stop would be the 50-day moving average of $8,620. A minor pullback to $7,600 cannot be counted out as Bitcoin looks to be slightly overbought at current levels. A daily close below $7,000 would stop the bullish view.

The concerns over higher tariff proposals will again be present next week, but the negotiations being worked out by the United States and China should cushion the effect on Wall Street. The broader market will feel the effects only when the tariffs take effect. What could negate the impact of the tariffs would be evidence of improving earnings growth. More than 10% of the S&P 500 companies will be reporting their first-quarter results next week. As for the brewing military conflict in Syria, the U.N. Security Council will convene on Saturday to discuss the matter. It’s a grim development for Wall Street if things escalate into a full-blown war.

Over the years, I've mentioned many times that when markets get incredibly choppy, the existing trend is normally ready for a reversal. Well, the trend for the past 9 years has been straight up. That trend is no longer in place, and we've entered no man's land – where daily 400+ point swings have become the norm. Even if you're a very experienced trader, the movement lately has been hard to catch profitably. There are trades to be made, but you have to be very selective, and holding too long will eat up your profits. In the big picture, we remain locked between the 200 and 50-day moving averages. As long as we remain there, we will continue to pop and drop depending on the headline, the tweet, or the mood of the market. Markets don’t trade ‘sideways’ forever, and whether it breaks out or breaks down – it’s going to be a large move. I'm siding with the downside, but I won't be totally surprised to see new highs.

For traders who like to fade market trends, a ‘tone change’ is welcome; however, only a predictor of a recession 30% of the time. Still, you can sense something has changed. The volatility sellers, the ‘buy-the-dippers’, and the FANG lovers are either gone or worried. Passive investors have the yips. Any time that the market enters year-to-date negative territory, the asset gathering world starts to panic and circle the wagons in order to try and preserve their annuitized fees. Negative returns for stocks and bonds mean that self-directed strategists have an advantage, and this could signal a decade when the bull market sales geniuses are forced to develop some real trading chops.

I’ll be the first to tell you that I truly have no idea what Monday is going to bring. The U.S. has tossed 105 missiles at chemical weapons depots in Syria. There's a lot of chatter about escalation, but the U.S. has said their job is complete. The market did not go out on the lows on Friday, and that's encouraging for the bulls. It's the start of earnings season, and we're about to hear 1,000 stories – some glorious and some sad. I'd suggest that as long as the S&P and the DOW are under their 50-day moving averages – proceed with caution. Recently, we've seen our markets pop higher out of the gate for 300+ points – only to have it end the day down 150. I think this week will bring even more of that same volatility.

Top Equity Recommendations:

Marijuana stocks (HODL):

- Aurora (ACBFF),

- Cannabis Wheaton (CBWTF), and

- Canntrust Holdings (CNTTF).

Options:

- Northrup Grummon (NOC) – long into April 26^th(earnings), and

- Raytheon (RTN) – long into April 26^thearnings.

Top Crypto Recommendations:

- Bitcoin (BTC):Last week, it broke above a key bearish trend line with resistance at $7,600. The price settled above the 61.8% Fib retracement level from the last $9,025 swing high to $6,450 swing low. However, it’s facing a monster hurdle on the upside near $8,500. If BTC buyers succeed in pushing the price above the $8,500 level, they could then test the last swing high near $9,025.

o 4-hr MACD – Showing positive signs

o 4-hr RSI (Relative Strength Index) – Well above the 60 level

o Major Support Level – $7,500

o Major Resistance Level – $8,500

- Ethereum (ETH):An important reversal signal formed from the ETH $388 pivot. The price started an upside move and broke a few key barriers such as $450 and $500. It traded as high as $530.62, and is now trading well above its $480 pivot and the 100-day simple moving average – all positive signs.