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.

Friday, July 14, 2017

7/14/17 You Can't Always Get What You Want

In the words of the people's philosopher Mick Jagger-> 'but if you try, sometimes you might find you get what you need!'

We're at a tough juncture in the markets.  

VT/ VTWSX (total world stock market) will close up around +2% since my reentry at Tuesday's close-> that is a remarkable 3-day gain.  EEM (emerging markets) is up +5.5% this week alone!   Normally, I would consider both developments to be unsustainable.  But these are not normal times!

My thoughts:

(a) There is no doubt that shorts are driving much of this week's rally.  I don't think shorts are done covering.

(b) President's Trump unexpected election night win, together with the enormous chaos (both in Washington and in the media) created by his Administration since taking office has probably constructed the 'Mother of All Walls of Worry.'

(c) Chaos itself is the mother of all real change.  I believe we will begin to see real changes in the American economy (infrastructure, manufacturing, and tax reform) over the next few years.  No one really 'wants' Donald Trump for President.  But I think he'll deliver what America needs.

(d) Markets will often climb longer and higher than anyone believes possible.  Emerging markets rallied +5.5% this week to a six-year high?  Who's to say the rest of the world won't catch up?

(e) 2017 is not 1987, nor is it 1999.  The media loves to make comparisons!  Today's markets are a long way from either the euphoria or the kinds of valuations seen in 1987 or 1999.

As second-quarter earnings get underway, it's not unrealistic to set our sights on DJIA 22,000 and SPX 2500.

Tuesday, July 11, 2017

7/11/17 The Stalemate Chess Move/ VT + VTWSX

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).      

Thursday, July 6, 2017

7/6/17 Can't Find My Way Home-> All Positions Off!

Closing positions in EEM (emerging markets), FXI (China 'A' Shares), EWZ (Brazil), RSX (Russia), and XLE (Energy).  Will do the same with positions in VEIEX (Vanguard Emerging Markets) and VGENX (Vanguard Energy).

Why?  A few of my thoughts:

(a) Since (re)opening all of the above positions on June 12, prices have dipped below my basis points twice and then bounced.  Prices are about to dip below for the third time today.  Being a guy who tries to 'listen' to the markets, that's a pretty strong message.  (It may also be another fake-out decline that launches the next leg, but that's not how I'm leaning.)

(b) The only way I can outperform markets is to keep my accounts near YTD highs.  By selling today, I'll be maintaining balances near those levels.  With the exception of assets in XLE and VGENX, all positions have been closed/ will be closed near their June 12 prints.  On the bright side, I was also able to capitalize on end-of-June dividend payouts in most cases.

(c) I could continue rationalizing today's sales, but the bottom line is my 'gut feel' is signaling a sell.

Monday, July 3, 2017

7/3/17 It Don't Come Easy

My favorite Ringo Starr performance.

Global markets push higher.  The DJIA +200
points to a new all-time high
!  XLE (energy) + 2%.  

But let's look beneath the surface.  The
Naz is red.  Emerging markets are up, but lagging at +0.5%.  Markets
close early today, and trading volume is thin.

Every 'smart' veteran trader I follow is cautious.  The
main driver?  After setting a new high on June 8, the Naz is down -5%.
Which has generally been followed by at least a -3% in the SPX.  A
notable exception was 2013.  An additional significant (at
least to me) 'statistic' is the maximum decline in the the SPX
year-to-date-> -2.8%.  Reminiscent of 1995, where the max
drawdown for the entire year was even smaller.  

I think it's 50/50 whether we continue higher without a
significant decline.  One of those nasty decision points where: if I
sell-> markets continue higher, if I hold-> markets decline.

In the end, it comes down to this:
(a) The pain of being left behind (as markets continue to gap
up) exceeds the pain of taking a hit (should markets sell off).
(b) It makes sense to bet on the 'exception' here (ie, a
recurrence of 1995 or 2013).
(c) 'Smart' guys are generally correct, but they don't bat
1.000 and it can pay off to fade the 'smart' consensus.

I'll stick with all positions and take the hit if/ when it

Saturday, July 1, 2017

7/1/17 'Disruptive Innovation'/ Ventura Highway

My Dad moved our family from the Bay Area to Ann Arbor in 1971. A painful relocation for the kids! We ultimately put down new roots in the Midwest, and after beginning college my dreams of returning to San Francisco faded along with adolescence.

Then around 1985 I casually pulled a book off the New Arrivals rack at the public library. An engrossing story about the Cal students and researchers working on President Reagan's Strategic Defense Initiative (aka 'Star Wars') program at the Lawrence Livermore National Laboratory. There was a passage about driving along the foothills of 580 at night, with a warm breeze outside + non-stop ideas inside which took me right back to nights with the top down along 280. In 1970 'disruptive innovation' (at least for a teen!) was all about music. Today? The article above puts it this way-> 'Perhaps more so than any other region in the world, the Bay Area produces new companies that disrupt and redefine entire industries. Think Google (Alphabet), Intuit, Netflix, eBay, Tesla Motors, Cisco Systems and others.'

We live in an iconic corner of the world. The Bay Area unreservedly supports innovation, which in turn attracts the most talented innovators in the world. That's not about to change anytime soon. We're fortunate to live here. Stop to take it all in the next time you drive down the Junipero Serra. Despite its esoteric lyrics, America's 'Ventura Highway' (no such stretch) perfectly captures a drive down 280 in 1970 (and probably any other year as well).