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
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.
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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