Saturday, October 21, 2017

10/21/17 Trading the Parabola/ Almost Cut My Hair

What if 2017 goes down not just as a phenomenal year for global stocks, but also the year investors embrace the idea of a new era for the global economy?  Coincidentally (or not), Donald Trump's legacy may in retrospect be viewed in terms of 'the new kid hated by all his freshman year prior to quarterbacking a winning season three years later.' 

Almost cut my hair
Happened just the other day
It's gettin' kind of long
I could've said it was in my way

But I didn't and I wonder why
I feel like letting my freak flag fly
And I feel like I owe it to someone

The only way to participate in a parabolic move is to overcome our fear of heights.  The definition of a 'phenomenal' year (or two) for global stocks?  An endless stream of new highs.  Personally, I feel like letting this rogue rally run it's course.  

Sunday, October 8, 2017

10/8/17 I'm A Believer Part 2> The Year-End Rally

An unexpected (and unexpectedly strong) rally into year end?  I believe we'll see one.  I'll lay out the bull case.

(a) The global economy continues to grow.  Following one of the worst declines in global markets in 2008-9 + another brutal decline in emerging markets in 2014-16, growth has returned in a big way.  How do we know?  Global companies have been reporting strong earnings!

(b) Maximum frustration-> My sense is that most investors are under-invested and/or waiting for a pullback, and thus a melt-up will result in more pain than a sharp decline.

(c) CAPE reversal.  The widely-cited Shiller CAPE (cyclically-adjusted PE ratio) is based on a ten-year average of earnings, and will begin to look far more attractive as 2007-09 earnings begin to fall off the radar.  This will provide room for stock prices to climb without having to listen to media noise re an excessively high CAPE ratio.  I prefer listening to media noise re Cape Canaveral for the global stock market!

(d) (Speaking of earnings)- Earnings season begins in earnest later this week!  I expect a continuation of strong earnings reports, strong enough to fuel a substantial rally.

(e) It's that time of year!  October is the month to buy.  Technically, the time to buy (for those who sell in May) has traditionally been the end of October.  But 2017 has been anything but conventional.

Monday, October 2, 2017

10/2/17 I'm A Believer

Trading gets tricky for me here.  

The DJIA is up +137 points (+0.62%).  SPX +0.33%.  NDQ +0.23%.  VTI (total US market) +0.45%.  All at/ near all-time highs.

I'm inclined to avoid the US market.

What about emerging markets EEM currently +0.2% to 44.90.  More or less in line with the SPX.  However, EEM is trading -2.3% below its 52-wk high.
What about the the total world market?  VT currently +0.19% to 70.86, or about -0.3% below its 52-wk high.

What about bonds?  TLT (the long bond) currently +0.03% and hovering around a one-month low.

I think US indexes are nearing resistance points which will (hopefully) lead to some consolidation over the next few days.  My bet for the next few days: momentum will carry stock prices higher than most of us believe 'reasonable.'

(a) Emerging markets may play 'catch up.'  I foresee no more than a +1% upside.  VEIEX at the close.
(b) The long bond should see a dead cat bounce.  A smaller position in RYGBX at the close.
(c) RIG (Transocean).  I closed my last position on Friday @ 10.80.  Currently off -5% and reopening here @ 10.23.

Few people believe in this bull market, although I'm now seeing a few comments that point out the brutal bear market in emerging economies and commodities in the Winter of 2016 (let's call it the 2016 Bear).  I honestly think the 2016 Bear 'resets' the clock and allows us to consider the current Bull less than two years old.  One thing I'm pretty certain of-> the global markets are in no danger of an imminent crash.

Sunday, September 10, 2017

9/10/17 Point/ Counterpoint

Remember the closing debates between James Kilpatrick and Shana Alexander on 60 Minutes that aired in the Seventies?


1. Valuations are high.
2. We're way overdue for a correction. 
3. The current decade is unlikely to be the first without a recession.


1. Valuations may be high, but there are many approaches to valuation.  What matters (to me, anyway) is that there is demand for stocks at current levels.
2. I've seen countless examples of unexpectedly long stretches of odds-defying streaks at the craps table.
3. The global economy has rebounded slowly following the 2009 bear.  Hey-> rather than a recession, is it possible that we're about to see the rebound transition into a strong recovery?

Tuesday, August 22, 2017

8/22/17 July 11 Redux

I'm tempted to 'replay' my July 11 trade (opened July 11, closed July 27).  The 'set up' for July 11 is copied below:

On Tue, Jul 11, 2017 at 12:00 PM, R Chen <> wrote:
This bull market has probably perplexed more traders than any other.  (Of course, if you're in buy-and-hold mode there's no perplexity at all!).  Looking for reasonable (re)entry points with indexes near all-time highs is an exercise in frustration.  

I'm inclined to overweight energy (due to recent under-performance), financials (due to recent strength +/- Friday's earnings releases by banks), and/or emerging markets (a sector poised to continue climbing from multi-year lows).  The problem?  Short-term gyrations are likely to throw me off (as reflected in my last two trades).  So I'm better off not trying to predict which sectors will outperform at this point.  

Having captured good gains in emerging markets from the 2016 lows, it now makes more sense to retreat to a safer investing profile.  In other words, if I'm going to give back any gains, I want to 'mute' the losses via maximum diversification!

When I'm unable to decide on sectors, yet still bullish?  There's only one fallback position, which is the total stock market.  It's the closest I can come to preserving capital while remaining fully invested!  Opening positions in VT (Vanguard Total Stock Market etf) + VTWSX (Vanguard Total Stock Market mutual fund).     

At this point, I have a +2.67% 'buffer' in gains from the July trade, which makes it easier to accept the risk of a replay.  I plan to tweak the August trade using two small changes.

(a) VTWSX (Vanguard Total World Market) at the close.
(b) ASHR (China 'A' Shares) @ .  The recent gap to a 52-high puts it within striking range of levels last seen in 2015.  There's a good chance it breaches multi-year resistance.
(c) XLE (energy) is now -3% below it's July 11 level.  I'm now willing to place a few chips on a rebound.

Thursday, August 17, 2017

08/17/17 Breakdown

Going long was the wrong bet.  Heading into the close, all indexes are at the lows of the day.  DJIA -220 points.  SPX -1.3%.  Nasdaq -1.7%.  VT (global market) -1.2%.

I plan to close RYRSX (2x Russell 2000) end of day for a -2.8% hit.  The Russell 2000, which went straight up following Trump's election, has given up all of its out-performance and then some.  The YTD return on small caps is now 0%.  The energy sector, which also rallied hard post-election, is now off -20% since early January.
Investors accustomed to buying dips may try to bounce the numbers in the final minutes, but what I'm seeing is a clear breakdown in appetite for risk.  I don't think it's a buying opportunity. 

Tuesday, August 8, 2017

8/8/17 Anticipation

I've been waiting for a pullback since July 27.  Reading through financial media headlines the past few days, anticipating a pullback appears to be the 'odds on' bet.  I'm beginning to think it 'ain'a gonna happen!'  

Going long at the close, with a couple of kickers:

(a) VTWSX (total world stock market)
(b) VGENX (energy)
(c) X (US Steel)
(d) SNAP (the company formerly known as Snapchat)

Risk control will take the form of (i) diversification (via the world stock market), (ii) buying into a beaten-down sector (energy), and (iii) small positions in two stocks which have declined -50% but may be poised to rally on near-term catalysts.