This Week in Barrons – 3-27-2016:
Thoughts:
Ms. Yellen – 2
Things on Easter:
Happy Easter. Easter is one of those holidays that emphasize:
“Things are not always what they seem.”
On Tuesday, ISIS struck
the Brussels airport and metro station. By
noon, it was estimated that 30 people had died, and 200 were injured. The
natural reaction was a ‘sealing of borders’, and a labeling of the refugees as a
‘Jihad Invasion force’. After all, 72%
of the refugees are male, between the ages of 19 and 35, and presumably leaving
their wives and children behind for a better life. In fact, just this week Victor Orban (the
Prime minister of Hungary) stated: “Europe
is no longer free because freedom begins with speaking the truth. Today in Europe:
-
It is forbidden to say that those arriving are not refugees, but an
invasion that brings crime and terror to our countries.
-
It is forbidden to point out that this is not an accidental chain of
consequences, but a preplanned and orchestrated operation.
-
It is forbidden to say that in Brussels they are scheming to transport their
foreigners over here as quickly as possible.
-
It is forbidden to point out that the purpose of settling people here
is to reshape the religious and cultural landscape of Europe, to reengineer its
ethnic foundations, and to eliminate the final barrier to internationalism.
-
It is time for us in Europe to wake up to the lies, and to take back our
individual nations.”
All of this violence and
rhetoric beg question: Who’s paying for all of this? If we think that it’s ISIS – then let’s freeze
their bank accounts and cut off their source of funds (presumably oil) before
we have another Brussels on our hands. Heck
if we can break into an iPhone – we can … oops, sorry we can’t do that
yet. Well, I did ask a couple computer
guys I know, and they gave me directions.
And then I asked Siri and she told me: “(a) tap
the Emergency Call button on the lock screen, (b) then, enter "####",
(c) as soon as you enter "####" tap the dial button, (d) immediately,
press the lock button which is on top of the iPhone, (e) now you are back into
your iPhone – enjoy.” But that all
seems too easy, what am I missing?
In another equally ‘weird’
turn of events, the Wall Street Journal reported (http://www.wsj.com/articles/navinder-sarao-faces-u-s-extradition-1458738749)
that Mr. Navinder Sarao could face extradition to the U.S. Mr. Sarao was the trader who (from his parents'
home in west London) has been accused of stock market manipulation. Presumably he (single-handedly) caused an
$800B stock market flash-crash in the fall of 2010. Mr. Sarao (37 years old) faces 22 counts of
wire fraud, commodities fraud, spoofing (buying or selling with the intent of
cancelling the transaction), and general market manipulation. These charges carry a maximum sentence of 380
years in prison. If these actions of a
single individual (Mr. Sarao) sound ‘astonishing’ and ‘outlandish’ to you –
they do to SF and myself as well. Putting
aside the gentleman’s guilt or innocence for a moment – I am being asked to
believe that:
- Mr. Sarao amassed
an individual fortune (of over $50M in 5 years) - trading stocks on a computer
in his parents’ house – under a Heathrow flight path.
- This 37-year
old traded remotely (and without relationships) on an exchange that he had
never seen.
- He
single-handedly out-smarted one of the most highly computerized exchanges in the
world. On this exchange, ‘High-Frequency
Programs’ (HFPs) pick up
the slightest movement in price – jump in front of the trade – and take
advantage (millions of times) of these small price differences.
So they’re asking me to
believe that one gentleman, operating from his parents’ house in west London –
with at most $50M at his disposal – caused an $800B flash crash. That seems like a stretch – even on
Easter. Which begs the question: Who’s
benefiting by Mr. Sarao’s indictment?
What am I missing?
Ms. Yellen,
it’s holidays like Easter where we get
to ‘pull back’ and remember that ‘rich’ and ‘wealthy’ are just outcomes, describing
different behaviors that require different journeys. ‘Wealthy’ describes a process that can be diligently
learned and followed. ‘Rich’ describes a
more personal journey – often involving loved ones. ‘Rich’ often encompasses taking some time for
yourself and ‘smelling the roses’. As
the old adage says, when you DO look back – it WON’T be that one great trade you’ll
remember. Happy Easter – celebrate the
day.
The Market:
Yesterday was the lowest
volume day of the year. The 2nd
lowest volume day occurred the day before yesterday, and the 3rd
lowest was the day before that. Last
week (if you take out Friday’s options expiration), we had more ‘low volume’ days
due to corporations being forbidden from buying back their own stock – 5 weeks
ahead of their earnings announcement.
Yet this market has held up remarkably well. That’s because it’s actually easier for
‘them’ to hold up the market when the volume is low, because ‘they’ can goose
the market higher by buying relatively few shares, or with a few well-timed
futures buys.
In fact, on
Thursday the market was in a foul mood
with the DOW down over 100 points and the S&P quickly falling toward its
200-day moving average. But ‘they’ were NOT going to let us take that
feeling into a 3-day weekend. Sure
enough, things started inching higher, and by the closing bell the DOW was
GREEN by 13.
So we just had our first RED
week out of the last 6. Does it mean
anything, or was that just some profit-taking after one of the biggest short
squeeze run-ups in years? Frankly, it
doesn't mean anything. While this market
belongs thousands of points lower, seeing it dip a bit after a massive run-up
means nothing. What we need to ask is:
Will it hold at these levels? The 200-day moving average on the S&P
is at 2016. The S&P closed on
Thursday at 2035. So, as long as we
remain above that 200-day moving average, we can feel reasonably sure we will
trade sideways and choppy. If however
the S&P were to go below that 2016 level, it could start a significant
amount of short selling and push us lower.
At this point, our entire
economy is geared toward pushing the markets higher. Wall Street loves it. Central Banks require it. And people enjoy it. But when markets rise for the wrong reasons,
they always end up with a sharp and painful correction or crash. This market (in particular) has risen for the
wrong reason, and each day brings us one step closer to that inevitable rug
pull.
I think that this week, we
trade sideways and choppy as they try and defend that 200-day moving average
level. Remember, without the help of
sustained, stock buy-backs, we could ultimately fail the 2016 level on the
S&P, and see a series of tests lower. When we fail 2016 on the S&P, the next
stop would be the S&P 2000 level.
TIPS:
I am:
-
Long various mining stocks: AG, AUY, EGO, GFI, IAG, and FFMGF,
-
Long an oil supplier: REN @ $0.56,
-
Long GLD – Apr – Call Debit Spread – 118 / 123,
-
Long NKE – Apr – Call – 67.5,
-
Long POT – Stock & Apr – Call 20,
-
Long SBUX – Apr – Call – 55,
-
Sold SPX – Apr1 – Call Credit Spread – 2055 / 2060,
-
Sold TEX – Apr – Put Credit Spread – 19 / 20
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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