Last Friday after the geopolitical mini hysteria on Thursday I noted how I refused to buy any bearishness on the stock market during a negative flash point that had absolutely nothing to do with market fundamentals. The charts had remained unbroken and sure enough Friday was positive, yesterday was nothing and today the US market is green pre-open.
All this with end of the world headlines cranked out by the MSM. Today that changes a bit (clicking the graphic yields the article, which I have not read yet since the headline is what this post is concerned with)…
I’d be pissed had I shorted on Thursday. Indeed, after starting out the year having my best gains come from the short side it has been a long stretch to the current moment where any shorting done has eroded overall gains.
Going forward NFTRH has two options going…
Much like you do not buy gold on geopolitical flash points, you don’t short stocks either. At least that is what I was telling myself all day yesterday as the news and the selling got worse but the market held unbroken status amidst the risk ‘OFF’ indicators.
‘At the least’ said I to myself, ‘wait until tomorrow’.
Now it is tomorrow, stocks are up (and surprise, gold is down) and I am in no hurry to do much of anything just yet. We’ll see how things progress.
Just one little tale from one little lowly market participant.
One reason I think that the next correction – if it’s not a bull killer – will be a big one is because of the bullish pressure building from the dumb money, while at the same time forensic indicators like junk bond to investment grade and T bond spreads show smarter money creeping out of the markets.
Nominal HYG is at a trend line, fine. It’ll probably hold for a while. But HYG vs. LQD and TLT has been declining all year. This is a market sponsored by the dumbest of money.
Here is but one more view among many out there that I could post…
Guest Post by Doug Noland
Action at the “periphery of the periphery.”
“The job of an economist, among many other duties, is to put things into perspective. So, because I am an economist, among other duties, here is a little perspective on the recent turmoil in the stock and bond markets. First, when the story of this turbulence is reported, the usual explanation mainly has to do with some new loss in the subprime mortgage world… Here is the first instance in which proportion tells us that something is out of whack: The total mortgage market in the United States is roughly $10.4 trillion. Of that, a little over 13%, or about $1.35 trillion, is subprime — certainly a large sum. Of this, nearly 14% is delinquent, meaning late in payment or in foreclosure. Of this amount, about 5% is actually in foreclosure, or about $67 billion. Of this amount, according to my friends in real estate, at least about half will be recovered in foreclosure. So now we are down to losses of about $33 billion to $34 billion… The total wealth of the United States is about $70 trillion. The value of the stocks listed in the United States is very roughly $15 trillion to $20 trillion. The bond market is even larger… This economy is extremely strong. Profits are superb. The world economy is exploding with growth. To be sure, terrible problems lurk in the future: a slow-motion dollar crisis, huge Medicare deficits and energy shortages. But for now, the sell-off seems extreme, not to say nutty. Some smart, brave people will make a fortune buying in these days, and then we’ll all wonder what the scare was about.” Ben Stein, “Chicken Little’s Brethren, on the Trading Floor,” New York Times, August 12, 2007
Guest Post by Wim Grommen
The Dow Jones Industrial Average (DJIA) Index is the only stock market index that covers both the second and the third industrial revolution. Calculating share indexes such as the Dow Jones Industrial Average and showing this index in a historical graph is a useful way to show which phase the industrial revolution is in. Changes in the DJIA shares basket, changes in the formula and stock splits during the take-off phase and acceleration phase of industrial revolutions are perfect transition-indicators. The similarities of these indicators during the last two revolutions are fascinating, but also a reason for concern. In fact the graph of the DJIA is a classic example of fictional truth, a fata morgana.
Some thoughts nearly 2 hours into a fairly eventful day…
All of my regular stocks are green or flat. That includes NFTRH+ standout Intel. One that was red was Lattice Semi, a fellow NFTRH+ which was sold at a loss. I personally jumped the gun on the buy but the actual ‘+’ buy target has not even been reached yet. So it’s back on watch. Also sold was the SOXS Semi sector short that was guarding LSCC. It was sold for a profit, although it did not offset the LSCC loss. That’s show biz.
I have by the way had more losses than gains trying to poke the market short lately. I am currently holding one short, against big tech. But that is because I hold big tech long. If the market makes some more southerly hints, I’ll consider increasing shorts.
Here is a chart that people should pay attention to. It is junk debt vs. supposed quality debt (HYG-TLT ratio).
Market players should not be chasing prices around (as in, is today’s Portugal inspired drop a shake out or something more; do I ba ba ba… buy or do I stand pat?). Players should be looking at macro charts like the above and asking questions like ‘is that black arrow going to denote another bull trap and eventually turn red like the other 3 arrows or not?’
Well the media always need to have a reason and this morning the reason for the hard down in the stock market is apparently second thoughts by investors on the Fed Minutes and QE tapering (with a side of Portugal/European problems).
What is actually happening is that it was time for a summer disturbance (at best) due to the factors we noted in the NFTRH excerpt on Monday. At worst the bull market is ending, but the favored plan is for a significant – possibly scary – drop that refuels the bull for one more thrust.
But that preference does not have a lot of conviction behind it. The only conviction I have right now is that the market is/was due for a July breather and this could be it.
People should have been prepared for this.
As for the bullish, Michael Sincere’s article entitled…
If ever the stock market flashed a ‘sell’ signal, it’s now
As for what’s bearish? All the funny comments after the article tearing the author a new one for being a perma bear. Bulls taunting bears, backed by going on 6 years of bull. Hmmm… brave.
Guest Post by Tom McClellan
July 04, 2014
The Nasdaq 100 Index is making new multi-year highs, levels not seen since the weeks just after the 2000 Internet Bubble top. But it is interesting for us to see that the average component stock in that index is down 7% from its trailing 52-week high.
Guest Post by Tom McClellan
June 27, 2014
A: Probably not, MarktWatch, if you keep putting headlines like this on page 1 every time the market takes a hiccup. Click the graphic for the article.
It would be totally normal – even expected – for the market to get a good drubbing into the July time frame. But much though I abhor the policy that has created and sustained this thing, said drubbing might only quiet down the interest rate hike talk and cement an even longer run for ZIRP.
We just don’t know. Meanwhile, the market has not even decided yet on the answer to its ‘manic melt up and termination or hard correction prior to new highs?’ question. Here is the daily SOX (our leading index gauge) for perspective…