This Week in Barrons - 9-14-2014

This Week in Barrons – 9-14-2014:

“These are CNBC-type numbers…”

In August, CNBC reported that their average viewership declined by 30% (year over year) to just 28,000 adult viewers, from 25-54 years old, during the 9:30am to 5pm time period.  This was its lowest rated month in over two years.  These numbers are really bad.  Can that many people just not care about today’s financial climate?  Here are some other ‘really bad’ numbers:

-       Japan just announced that on an annualized basis their GDP FELL 7%.

-       JP Morgan just said that the amount of excess liquidity around the globe is at "extreme levels.”

-       Poland said that Gazprom (the Russian natural gas organization) shipped 40% less natural gas on Wednesday than Poland had requested.  (Note to Europe – you push Russia with sanctions – they push back.)  It also means that Putin will turn even more towards China for financing.

-       Last month mortgage applications fell 7%, and refinancing’s fell 10%.

-       51% of the U.S. population could not go 2 weeks without a paycheck, and has NO retirement savings.

-       Jim Reid of Deutche Bank said: “The stock bubble needs to continue in order to sustain the current global financial system".  So, we need to keep inflating, otherwise the wheels will come off.

-       The Chinese PPI missed estimates – showing that they are over-stocked with inventory, and are cutting prices in order to sell it.

-       The Labor Department reported that the initial jobless claims increased 11,000 to a seasonally adjusted 315,000 for the week ending on September 6th.  This is the highest level since June, and above economists’ forecasts of 300,000.  Combine this number with the actual, full-time employment measured by ADP, and you quickly realize that job growth remains paltry and there is still far too much stagnation.  The strongest growth in job creation continues to be in part-time work.

-       Businesses continue to seek revenue overseas, where consumers prosper, taxes are lower, and regulations are more business friendly.  We, as a nation, can decide to compete or we can punish those that decide to participate.  Our administration has chosen the later of these choices.

-       Last week a report was circulating that the FED (during their meeting this week) will remove the language suggesting that rates will stay low ‘for an extended period’.  If the easy money is going away, then things have dramatically changed.

The dollar continues strong, and that strength has an inverse relationship to all commodities priced in dollars.  I believe that the recent dollar rally is playing a bigger role in the decline of commodity prices than actual supply & demand issues.  Goldman this week set a target price of gold at $1,050 per ounce (down from $1,250 where it resides currently).  While the price of paper gold is under pressure, physical demand remains strong.  I would be a buyer down at $1,050 – if we can get there. 

The Market....

We are closing in on another monthly options expiration week.  This month’s roller coaster ride has been more volatile than normal.  We had the sharp selloff in the beginning of the month, the sharp rally in the middle of the month, and now more selling pressure.  If you look at a chart of the S&P 500, you will see that since July 23^rd we are currently in the same spot we were then.  However, the S&P started at 1,985 on July 23^rd, then dropped to 1,904, then ripped back up to 2,011, and then rolled back over to 1,985 – precisely where we started.  The S&P has made no progress, but the daily swings have added up to over 151 points.

Speaking of the market, it really looks like crap.  The IWM, (which are the small-cap stocks that led this market for so long) are looking horrible.  The S&P has pulled down and its trading proxy (the SPY) is sitting on a soft support zone.  Friday, which has a habit of being green for the weekend talk shows, was bright red.  This market has been red 6 out of 10 days.  The bounces seem to be one day events, and more like desperation moves rather than any real serious buying pressure.

To me, the market feels heavy, and almost like it's run out of gas.  Now, we've seen this set-up in the past, and they've stepped in to save the day.  But right this second; we are parked on the verge of a serious pull down.  Yes, they might save it, turn it around, and push us up.  But, if you look at the chart and the internals from Friday, you can only deduce that we're one small step away from a healthy fade.

I'm not willing to say the entire run is over.  But I have mentioned for two weeks that September has a habit of being an ugly month.  It’s being made more interesting by a triple witching options expiration this Friday, and a FED meeting this Wednesday.  After all, Ms. Yellen may decide to remove the words "keep rates low for an extended period", and then you would have the making of a real stock selloff. 

So for the beginning of this week, my guess is they try and hold us here sideways.  We could very well bounce all over the place.  The great news is that an increase in volatility could give the market some welcome volume.  Then if Yellen doesn't remove the happy talk, they will try and rescue us.  If however the FOMC says that they are on track to end QE in October, and removes the "keep rates low for an extended period" line – we are probably going down.  That could be our long lost 8 to 10% pullback.

Tips:

“Something wicked this way comes.”  Friday found large funds bailing out of positions.  Instead of selling 1M shares at a time, they were continuously selling blocks of 1,000 shares – over and over again.  This is the first day in a while where I've seen every asset class (U.S. dollar, stocks, bonds, oil, gold, yen, and the list continues) down on the day.  In theory, stocks should be rallying with all of the other asset classes down, but they aren't.  The $TICK readings have been constantly to the downside – telling me that there aren’t any buyers.  This doesn't mean we won't get a nice short covering rally into the FED meeting on Wednesday, but it does mean that it’s fine to err on the side of caution.  For me, my red flag is always the push below the 21 EMA on a daily chart.  When that happens, it just opens the door for much more downside.  On Friday, the S&P, DOW and Bonds all crossed below that level – with the NASDAQ staying barely above it.  Therefore, I liquidated some major portions of my holdings. 

I still hold a couple of the energy stocks, a couple cyber-security stocks, and I continue to sell 1+ standard deviation PCS’s (Put Credit Spreads) and CCS’s (Call Credit Spreads) on the NDX and SPX.  Obviously if I’m wrong – re-entry is just a commission away.  But if I’m right and this market even remotely begins to roll over early in the week – then we’re in for one heck of a FED-induced ride.  If we stabilize mid-week, I would look to get back into small caps such as: ANAC, IDTI, IG, LEJU, NLS, PANW, RARE, RFMD, SLCA, and TSRA.  I would also be looking to put options trades on the following list of candidates: RUT, SPXPM, CMG, PII, GS, AMGN, AAPL, and MON.

My current short-term holds are:

-       FEYE (Cyber-Sec) – in @ $28.76 – (currently $34.95),

-       KO (Beverage) – in @ $41.17 – (currently $41.46),

-       LNG (Energy) – in @ $57.40 – (currently $82.64), and  

-       GLD (ETF for Gold) – in at 158.28, (currently 118.38)

My Small Caps (earned 19.73% in the month of August):

-       LNGLF (Energy) – in @ $3.54 – (currently $3.90),

-       NEO – in @ $5.82 – (currently $5.99), and

-       VDSI (Cyber-Sec) – in @ $14.17 – (currently $17.49)

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

Please be safe out there!

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