Monday, October 24, 2016

10/24/16 Ain't No Sunshine

(a) AAII Sentiment Survey for the week ending 10/19/16 shows 23.74% bulls:  According to Charlie Bilello of Pension Partners, that reading ranks in the 7th percentile.  

(b) Global fund managers' cash levels (according to Bank of America Merrill Lynch) currently average around 5.8%.  According to blogger Urban Carmel, this level equals the post-Brexit high, is higher than levels seen during the 2008-09 crash, and is at its highest level since November 2011 (shortly after the 9/11/01 terrorist attacks).

(c) Everyone's worried about the election, and apparently sidelined 'til it's over.

(d) Emerging markets have outperformed since the January lows, and fund managers have increased exposure to the sector.  The correct contrarian response in a typical year might be to sell at this point.  However, I don't believe it's a typical year.

In my opinion, all of the above paints an extremely bullish picture.  

Friday, September 30, 2016

9/30/16 When Jupiter Aligns with Mars

What's lining up this morning?

(a) The ES (SPX futures) printed an overnight low of 2135 (now changing hands at 2143).  Not quite 2124, but perhaps 'close enough.'
(b) An elevated put/call ratio.
(c) A -1600 tick was recorded on Thursday, 'the lowest since September 9 and equal to the one on May 18.'
(d) The Deutsche Bank crisis resembles (and may be remembered as) the Fall 2016 equivalent of the summer Brexit crisis.

I would say it all looks good, and expect the markets to rally over the next two weeks.

Thursday, September 22, 2016

9/22/16 Get Shorty-> Get Short

It's not often my sixth sense signals an outright short, but it's kicking in this evening.  If I were to play it, I would play it safe using very liquid inverse ETFs such as SDS (2x inverse SPX).  My time horizon would be no longer than 2-3 days at a time.

The 2-day post-Fed rally feels like a bull trap, a short-covering rally that lures sidelined investors into buying, only to rise a few days later to a gap down that leaves all positions underwater.

Monday, September 19, 2016

9/19/16 Chips Off the Table/ Sell Alert

The DJIA is up +112 points.  EEM (emerging markets) +1.5%.  RSX (Russia) +1.4%.  EWZ (Brazil) +2%.  ASHR (China 'A' Shares) +0.32%.  FXI (China 'H' Shares) +0.93%.  VT (Vanguard Total World Stock Market) +1%.

It all looks good this morning.  I'm selling into it.

It's been a good run, almost eight months since January 21.

My take (and it's just my take) is that I'll be able to 'reload' at lower prices prior to year end.  It's kind of like walking away from the craps table near the tail end of a long streak-> it's likely to continue for awhile, but I no longer like the odds.

Tuesday, September 6, 2016

9/6/16 The 2016 Global Rally/ This Masquerade

The late, great Esbjorn Svensson constructs (as was his wont) a perfect piano solo!  

New 52-wk highs today include: EWZ (Brazil) +1.72%, RSX (Russia) +2.53%, EEM (emerging markets) +2.11%, VT (total world stock market) +0.63%.

The media appears preoccupied with the length of the current rally.  By their count, it's over 7 years since the March 2009 low.  

I would offer an alternative take.

In my opinion, the market has constructed (as is its wont) a perfect masquerade.  It's certainly true that large-cap US stocks never really entered bear market territory over the past seven years.  Less apparent was the resounding bear market in almost any other sector.  Energy + commodities + emerging markets (heavily weighted in both energy and commodities) + micro/ small/ mid- cap stocks were pounded for up to -90% losses between 2014 and early 2016.  If that isn't a bear market, what is?  You will recall that I moved the entire portfolio into a version of the global stock market (weighted towards the suddenly out-of-favor BRIC stocks) on January 21, 2016.  It's enjoyed a pretty decent run.  Would it be prudent to pare back?  I don't think so.  Sure- if we look only at the US indexes, 'the market' appears overdue for a correction.  However, if we look at the total world stock market, it's really just 'early days' for the current rally.   

Friday, August 26, 2016

8/26/16 Get Shorty

Have you noticed the number of high-profile investors (most notably George Soros + the Goldman Sachs team) calling for a market downturn?  The right question to ask is why.  In my opinion, they sold out earlier (in Soros' case, hedged with SPY puts) and are hoping to reenter at lower prices.

This morning, Janet Yellen is signaling an increase in interest rates.  The DJIA promptly responded by rallying +120 points.  So a rate hike was already priced in.

I still believe we're overdue for a sharp dive, but for the time being a combination of skepticism (record high cash positions reported by global funds, all the more remarkable as US indexes set new highs) + short bets has placed a 'floor' under the markets.  

My best guess?  The S&P500 (currently trading around 2184) will rise another 4-5% before we take a nosedive.  Of course, it's only a guess and we may well spiral down before Labor Day!

Sunday, July 31, 2016

7/31/16 The First Day in August

DJs dusting off this beautiful Carole King ballad often signals the onset of 'the season of volatility' in the markets.  Investors who choose to board (or continue on) in August and September expect turbulence.  My take can be summarized as follows:

(a) Very short term.  New highs for US indexes.

(b) Short term.  Up to a -5% retracement, which is likely to include at least one 'nose dive' to discourage travelers.

(c) Longer term.  Ascent to new 52-wk highs for most/all global indexes.