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re: There are some major issues lurking in the US financial markets
Posted on 1/3/19 at 5:44 pm to LSUtoOmaha
Posted on 1/3/19 at 5:44 pm to LSUtoOmaha
I don't think it makes the bounce-and-plunge scenario any less likely. It does however make the wait-for-the-bounce short-selling strategy much less efficacious.
I tried to play it safe before Powell's remarks on 12/19/2018, and I missed a lot of profit as a result. Then just over the past day or two, we've gotten very bearish news (and the yield curve inversions to go along with it) about China's PMI, Chinese auto sales, the U.S. ISM, Tesla, Apple, Netflix, Ford, Delta, etc.
So the timing of this stuff doesn't suit my strategy very well, but I suppose I can take some solace in noting (A) that it was about risk-reduction, not just maximizing profits (if it were the latter, I should have just maintained all my short positions full bore), (B) the vast majority of opportunities for bear profits still exist, and (C) even more will exist if this last damn bump finally occurs.
I'm still waiting to see some bullish news tomorrow and over the weekend. Either way though, I think next week will likely be a good time to get out of cash and start taking short positions.
I tried to play it safe before Powell's remarks on 12/19/2018, and I missed a lot of profit as a result. Then just over the past day or two, we've gotten very bearish news (and the yield curve inversions to go along with it) about China's PMI, Chinese auto sales, the U.S. ISM, Tesla, Apple, Netflix, Ford, Delta, etc.
So the timing of this stuff doesn't suit my strategy very well, but I suppose I can take some solace in noting (A) that it was about risk-reduction, not just maximizing profits (if it were the latter, I should have just maintained all my short positions full bore), (B) the vast majority of opportunities for bear profits still exist, and (C) even more will exist if this last damn bump finally occurs.
I'm still waiting to see some bullish news tomorrow and over the weekend. Either way though, I think next week will likely be a good time to get out of cash and start taking short positions.
2
Posted on 1/3/19 at 9:34 pm to Doc Fenton
Disagree somewhat with your first statement.
Also
at the downvotes
Also
at the downvotes 
Posted on 1/3/19 at 9:55 pm to Doc Fenton
quote:
Either way though, I think next week will likely be a good time to get out of cash and start taking short positions.
What you’re saying, I’m hearing from most market technicians. It almost makes me want to be contrarian against the “big brains” but I think technical outcomes do tend to occur, whether self fulfilling or not. Not always, but often.
Do you really believe this is fundamentally based, or is it much more likely that it’s a technical selloff which is likely to correct itself during the year? I don’t buy the former, just buying stocks.
Posted on 1/3/19 at 10:54 pm to LSUcam7
Are utilities a safe haven right now? No exposure to China.
This post was edited on 1/3/19 at 10:57 pm
Posted on 1/4/19 at 4:48 am to LSUcam7
quote:
Do you really believe this is fundamentally based, or is it much more likely that it’s a technical selloff which is likely to correct itself during the year?
There are multiple aspects and layers of analysis converging at the same time. Let's break it down.
Fundamental Layer
The primary reason for being bearish is definitely fundamentally based. This is long term indicator type of stuff that shows historically awful projections for 10-12-year nominal returns on your investment in U.S. equities.
Intermediate Layer
But then you might ask: How do we know if a bear market has already started? We know based on intermediate term signals (such as 9-month momentum, yield inversions, etc.) that are statistically solid investment factors, but which I wouldn't necessarily call either fundamental or technical. Heck, the 6-month yield on UST just inverted with the 7-year yield yesterday. Right now, the 1-month yield on UST just inverted with the 5-year yield. It's silly at this point to assert that a recession isn't coming. Of course it's coming. It's only a matter of arguing about whether it's a big recession or a tiny recession, and whether it's 2019 or 2020.
Technical Layer
I am usually uninterested in the dark arts of technical analysis, but I'm making an exception right now, because the long term and intermediate signals are already very bearish, and because I think it's extremely probable that the bear market has already begun. Thus, we turn to T.A. to look for any advantage we can for actually implementing a shorting strategy and executing trades. Does this stuff actually work? I'm still not sold on it, to be honest, but if somebody tells me there is a classic pattern to how bear markets begin, and he's been right about all the fundamental stuff so far, then I'm going to give him the benefit of the doubt.
So far we have:
Fundamental Layer -- VERY BEARISH
Intermediate Layer -- VERY BEARISH
Technical Layer -- unclear (expecting a small bounce before a big plunge??)
But I'm not pulled out of my short positions just because I'm relying on some chartist voodoo that T.A. people are trying to show me. Mostly I'm expecting a small bounce based on logical reasoning and my own understanding about what Jerome Powell is likely to say later today, and what President Trump is likely to do going into the U.S.-China trade talks. This is the most speculative part of the analysis, of course, and I don't have a high confidence that any of these short-term projections are very meaningful, but I follow them just enough to alter/delay my execution timing for shorting the market by a few weeks.
Posted on 1/4/19 at 9:07 am to Doc Fenton
quote:
This is the most speculative part of the analysis, of course, and I don't have a high confidence that any of these short-term projections are very meaningful, but I follow them just enough to alter/delay my execution timing for shorting the market by a few weeks.
Trump and Powell are making it tough to navigate short exposure right now in equities. My only idea is to have longer dated options so you have time on your side.
But just IMO, we all know the fundamentals in the bond market aren't pretty. Technically, most charts are atrocious, I mean check out Google about to fall off a cliff at 13x earnings. The only uncertain factor right now is how Powell will handle rates and balance sheet run off. Those are powerful tools that could rip your face off if your balls deep in puts.
Doc, have you thought about what happens if this trade dispute gets resolved? I believe that it would change nothing in the underlying weakness in China. What are your thoughts on that?
Posted on 1/4/19 at 9:32 am to Doc Fenton
Powell just did his part in his remarks about 5-10 minutes ago.
CNBC: " Powell says Fed ‘will be patient’ with monetary policy as it watches how economy performs"
But Kudlow isn't yet ready to give us his patented "Kudlow bounce" just yet.
CNBC: " White House advisor Kudlow says Apple technology may have been ‘picked off’ by China"
This is likely part of the 'art of the deal' being orchestrated by the administration. We'll probably get a Kudlow bounce going into Monday.
In the meantime, "there's nothing to see here" regarding a possible recession...
CNBC: " Larry Kudlow says December jobs data shows ‘there’s no recession in sight’"
Now I'm just waiting on Don Luskin, David Malpass, and Brian Wesbury to buttress Kudlow's economic forecasts.
CNBC: " Powell says Fed ‘will be patient’ with monetary policy as it watches how economy performs"
But Kudlow isn't yet ready to give us his patented "Kudlow bounce" just yet.
CNBC: " White House advisor Kudlow says Apple technology may have been ‘picked off’ by China"
This is likely part of the 'art of the deal' being orchestrated by the administration. We'll probably get a Kudlow bounce going into Monday.
In the meantime, "there's nothing to see here" regarding a possible recession...
CNBC: " Larry Kudlow says December jobs data shows ‘there’s no recession in sight’"
Now I'm just waiting on Don Luskin, David Malpass, and Brian Wesbury to buttress Kudlow's economic forecasts.
Posted on 1/4/19 at 9:41 am to wutangfinancial
quote:
My only idea is to have longer dated options so you have time on your side.
Or just wait a week or so. But yeah, I hear you.
quote:
The only uncertain factor right now is how Powell will handle rates and balance sheet run off. Those are powerful tools that could rip your face off if your balls deep in puts.
Once the bear rout gets started, I think the Fed will mostly be helpless to stop it.
quote:
Doc, have you thought about what happens if this trade dispute gets resolved? I believe that it would change nothing in the underlying weakness in China. What are your thoughts on that?
I agree. I have already factored in an assumption that the trade dispute will get resolved, with cosmetic changes to show to a political base, but with the status quo ante mostly unchanged. I mean, we may see more substantive changes than what we saw with NAFTA, but I think the Trump Administration wants to get a deal done even more than China does. We'll see some promises from China to buy more U.S. imports, to open up various sectors to foreign investment and competition, and to clamp down on IP violations.
But there is a lot of damage that's already been done, and the Chinese economy is about to hit that wall similar to what Japan hit in 1990 (although it will have some notable differences, given that China's GDP per capita is still middle-range).
And even that's not really the point when it comes to U.S. equities. The coming falloff in Chinese demand will hit the FAANG stocks hard and trigger huge bear rips in the stock market, but the asset bubble is about a lot more than just China.
Posted on 1/4/19 at 10:10 am to Doc Fenton
Doc do you follow Jin Seo on twitter? If not look him up, I think you will enjoy.
Posted on 1/4/19 at 10:52 am to Doc Fenton
I used to think TA was a load of crap but if enough traders use it then it basically becomes a self fulfilling prophecy so to speak.
The key to it is being able to admit to yourself when you are wrong and cutting losses short because the market is never wrong and will always let you know.
With all that being said, so far we have a perfect A-B-C correction (yes technically the IWM and the QQQs hit the 20%'+ threshold for a bear market but could climb back out quickly) instead of a 5 wave primary downtrend like in 2008 (But still possible if what we saw the day after Christmas was the start of primary wave 2 back up to retrace 50-75% of this entire move down off the highs). This last big wave down was acting like the powerful wave 3 at first but if it was really the primary trend then we would not have had the huge rally the day after Christmas nor this huge rally today. Wave 3's down are vicious and unrelenting pain with the VIX skyrocketing. VIX would have been in the 40s and 50s and instead has been crushed off the highs.
The key to it is being able to admit to yourself when you are wrong and cutting losses short because the market is never wrong and will always let you know.
With all that being said, so far we have a perfect A-B-C correction (yes technically the IWM and the QQQs hit the 20%'+ threshold for a bear market but could climb back out quickly) instead of a 5 wave primary downtrend like in 2008 (But still possible if what we saw the day after Christmas was the start of primary wave 2 back up to retrace 50-75% of this entire move down off the highs). This last big wave down was acting like the powerful wave 3 at first but if it was really the primary trend then we would not have had the huge rally the day after Christmas nor this huge rally today. Wave 3's down are vicious and unrelenting pain with the VIX skyrocketing. VIX would have been in the 40s and 50s and instead has been crushed off the highs.
Posted on 1/4/19 at 10:59 am to Hussss
If it works, it works.
I'm mostly happy with where we are now on the bounce, even if I'm still going to wait until the White House gives a positive news release on a U.S.-China trade breakthrough before re-entering into short positions. If President Trump wants to bump the S&P 500 above 2600, then I'm going to get out of his way before he does it.
P.S. -- I have never heard of Jin Seo before, but will check him out.
I'm mostly happy with where we are now on the bounce, even if I'm still going to wait until the White House gives a positive news release on a U.S.-China trade breakthrough before re-entering into short positions. If President Trump wants to bump the S&P 500 above 2600, then I'm going to get out of his way before he does it.
P.S. -- I have never heard of Jin Seo before, but will check him out.
Posted on 1/4/19 at 11:09 am to Doc Fenton
Yeah, I agree
The first big area to get through is SPX 2525-2550. Next is 2650 and 2700. I'm telling ya right now, we get through those, we are heading for a double top minimum with new highs possible. So the market will tell us what to do. Keep an eye on the VIX before you start getting short. Once it stops going down, especially with the market advancing, then put those shorts on. VIX only being up 9% yesterday with the markets getting crushed plus IWM outperforming was a huge tell this rally was coming quickly.
The first big area to get through is SPX 2525-2550. Next is 2650 and 2700. I'm telling ya right now, we get through those, we are heading for a double top minimum with new highs possible. So the market will tell us what to do. Keep an eye on the VIX before you start getting short. Once it stops going down, especially with the market advancing, then put those shorts on. VIX only being up 9% yesterday with the markets getting crushed plus IWM outperforming was a huge tell this rally was coming quickly.
This post was edited on 1/4/19 at 11:10 am
Posted on 1/4/19 at 11:16 am to Hussss
quote:
Keep an eye on the VIX before you start getting short. Once it stops going down, especially with the market advancing, then put those shorts on.
Noted.
Posted on 1/4/19 at 11:18 am to Doc Fenton
Posted on 1/6/19 at 1:18 pm to LSUtoOmaha
Do you follow Jesse Felder?
My favorite is still John Hussman, but Jesse Felder tweets and retweets some really great updates/charts that encapsulate the main point about what's happening in the markets. So even though I don't necessarily agree with his big picture ideas about finance or politics (he's sort of an anti-tech, rural Oregon hippie), he's a great follow on Twitter.
He also gives out very concise reports for the hedge fund he manages. He recently retweeted one of his reports from Oct 2017 that hearkens back to the bubbly days of Sun Microsystems, and is relevant on the subject of tech stocks such as Nvidia and Facebook.
My favorite is still John Hussman, but Jesse Felder tweets and retweets some really great updates/charts that encapsulate the main point about what's happening in the markets. So even though I don't necessarily agree with his big picture ideas about finance or politics (he's sort of an anti-tech, rural Oregon hippie), he's a great follow on Twitter.
He also gives out very concise reports for the hedge fund he manages. He recently retweeted one of his reports from Oct 2017 that hearkens back to the bubbly days of Sun Microsystems, and is relevant on the subject of tech stocks such as Nvidia and Facebook.
quote:
My friend Eric recently shared an iconic quote from the dotcom mania that is especially relevant to the equity market today. Scott McNeely was the CEO of Sun Microsystems, one of the darlings of that bubble. At its peak his stock hit valuation of ten-times revenues. A couple of years afterward he had this to say about that time (via Bloomberg):
quote:
At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?
Below is a chart of Sun Micro from 1996 to 2006. It started around $5 ran up to that $64 Scott mentions and then fell right back to $5. And you would think this might serve as a cautionary tale for investors today.
quote:
Interestingly, there were 29 stocks within the S&P 500 that traded above ten times revenues at the peak of the dotcom mania (though that number did surge higher after prices had already peaked). Today, there are 28.
quote:
Facebook is one of those 28 and actually trades at over fifteen times revenues, more than 50% higher than Sun Micro did at its peak. Ironically, Facebook now resides at Sun’s old headquarters.
This post was edited on 1/6/19 at 1:25 pm
Posted on 1/6/19 at 1:22 pm to Doc Fenton
Hussman is a favorite of mine as well. I also like John Mauldin a lot along with Sven Henrich who mixes macro and technicals quite well:
LINK /
LINK /
This post was edited on 1/6/19 at 1:24 pm
Posted on 1/6/19 at 2:57 pm to Doc Fenton
quote:
And you would think this might serve as a cautionary tale for investors today.
This time it’s different.
Signed-
Everyone when history starts to repeat itself. Again.
It really shouldn’t come as a shock. Just look at all of the poor sobs left holding the bag after the crypto roller coaster finished its ride. Just look at the ‘08 housing crash. Just look at the 80’s farm crisis.
If a sucker is born every minute it should come as no surprise that there is always a steady supply of fresh meat ready for slaughter.
Posted on 1/6/19 at 6:00 pm to Hussss
quote:
The first big area to get through is SPX 2525-2550. Next is 2650 and 2700. I'm telling ya right now, we get through those, we are heading for a double top minimum with new highs possible
So now you think this market has the potential to go to new highs?
Posted on 1/6/19 at 7:22 pm to CajunTiger92
Two parts to your question:
1) If it makes it back up through the 200 day ma on the daily chart (2742 at the moment but will be lower by the time if / when we test it as it is sloping downward) yes
2) Do I think it will get through there? Absolutely not.
For the record once again, I'm long stocks (short term) until the market tells me not to be. I never hold stocks long term unless all moving averages are lined up bullishly.
Short term bullish, long term (2 year timeframe) bearish.
1) If it makes it back up through the 200 day ma on the daily chart (2742 at the moment but will be lower by the time if / when we test it as it is sloping downward) yes
2) Do I think it will get through there? Absolutely not.
For the record once again, I'm long stocks (short term) until the market tells me not to be. I never hold stocks long term unless all moving averages are lined up bullishly.
Short term bullish, long term (2 year timeframe) bearish.
This post was edited on 1/6/19 at 7:35 pm
Posted on 1/6/19 at 7:35 pm to Doc Fenton
I do not. And the 10x revenues stat is awesome
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