Thursday, May 11, 2017

5/11/7 What's Going Down?



What bothers me about this market?  There are so many smart minds trading the market these days that it's taken the game up another level.  One post getting a lot of 'play' this morning:

http://themacrotourist.com/macro/the-vix-article-no-one-will-like

A very smart take on the VIX to be sure.  And the reference to a 1999 melt-up in 2017 probably 'rings true' to many market veterans who know how often the 'pain trade' plays out (in this case, dishing out max pain to both bears and under-invested funds).  However, we know that hedge funds have been decimated by an uncooperative market over the past few years.  In addition, if that many 'smart' people are talking up a 1999 end game, I don't think it stands a chance.

Instead, it may be time to start paying attention to John Hussman.  Why pay attention to John Hussman?  After all, the Hussman Strategic Growth Fund has rewarded investors with a -50% return during one of the longest bull markets on record!  (A 5-year-chart of HSGFX resembles a ski slope: https://finance.yahoo.com/quote/HSGFX?p=HSGFX.  Hussman could have capitulated any given week over the past five years and done better!)  He's worth listening to because common sense tells me its time to listen.

There's more than one way for the market to frustrate investors.  One scenario that trumps 1999 is 1987. With investors conditioned to buy each and every dip, I can see them backing up the truck after a -5% to -8% decline.  Max pain then becomes an additional -25% drop.  Everyone thinks they'll be able to get out before that happens.

81 comments:

  1. EMES hit my sell limit at $13.80 for the shares I purchased at $12.80. Also, I just sold another small batch "flat" at $14.25. Now I am down to my original "core" position purchased at $14.25.

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    1. Placed a buy limit order at $13.25 to start reloading EMES.

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  2. Bought NMM at $1.64 and placed sell limits at $1.74 and $1.84, each for 1/2 of this purchase.

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  3. Trying GWPH @ 100.18. Medical Pot play via Harrison.

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  4. Interesting thoughts. So are you thinking there's too many bulls or too many people that are complacent?

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  5. EMES hit my buy limit at $13.25, reloading 2/3 of all the shares I sold yesterday at $13.80 and $14.25.

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    Replies
    1. Placed a sell limit at $14.25 for this lot.

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    2. Placed a buy limit for more EMES at $12.25

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  6. Futures dropping. Nice call so far 2nd.

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  7. The drop in CBMX has once again stopped at 5.55 today. So it looks like if I want to start reloading my trading position, I need to raise my buy limit to 5.60, which I just did.

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    Replies
    1. Rushed it a little... The order got filled at 5.60, but would have also been filled at 5.50...
      It's OK, I'll just place the sell limit a bit higher (at 6.10), to get the same trading profit. :)

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  8. 2nd - I just wanted to say thanks for this note. I had been thinking for a little while that the market is just on this easy path higher and I started getting nervous when the VIX started moving down toward 10 and under. So your note was just what I needed to get my to take action. I sold out of a good chunk of CBMX the past few days and out of EXPE the past few days. I sold the majority today so timing could have been better. Has been a great ride this year and figured its now time to sit tight. I bought NUGT and am mainly in cash.

    I've been thinking there's probably a decent chance for a sizable drop...say to under 2,000.

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    Replies
    1. Our timing can always be better. Personally, I'm getting better at doing nothing.

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  9. To everything (turn, turn, turn)
    There is a season (turn, turn, turn)
    And a time to every purpose, under heaven
    A time to be born, a time to die
    A time to plant, a time to reap
    A time to kill, a time to heal
    A time to laugh, a time to weep
    To everything (turn, turn, turn)
    There is a season (turn, turn, turn)
    And a time to every purpose, under heaven
    A time to build up, a time to break down
    A time to dance, a time to mourn
    A time to cast away stones, a time to gather stones together
    To everything (turn, turn, turn)
    There is a season (turn, turn, turn)
    And a time to every purpose, under heaven
    A time of love, a time of hate
    A time of war, a time of peace
    A time you may embrace, a time to refrain from embracing
    To everything (turn, turn, turn)
    There is a season (turn, turn, turn)
    And a time to every purpose, under heaven
    A time to gain, a time to lose
    A time to rend, a time to sew
    A time for love, a time for hate
    A time for peace, I swear it's not too late

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  10. EMES hit my buy limit at $12.25 near the close. Placed a sell limit at $13.25. If the market takes a sizable drop, then it might take a while before this sell limit is hit...

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  11. EWZ (Brazil) -17.6% from 39.14 to 32.25 in pre-market trading on reports of another scandal. Which has EEM (emerging markets) trading down another -2.27% to 40.04.

    DJIA futures off another -111 points.

    My take is that Brazil is a buy. Emerging markets are a short-term buy. US indexes are a short-term buy. But I also think it's likely that the Market, having conditioned traders to 'hurry up and buy any pullback,' will this time disappoint them.

    In a nutshell-> I think we rally off the intraday lows, but the bounce will be short-lived.

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    Replies
    1. Amazing drop. And amazing similarity to the scandals with Trump. Both guys didn't actually do anything other than recommend something allegedly.

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  12. "Amazingly every question I got was "should I sell?", not "should I buy?"" - Jeff Saut's daily tack from today.

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  13. Grabbed some PBR and EWZ today

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    1. PBR CEO commented that he thinks they could pay their first dividend this year in 3 years.

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    2. I wasn't planning to post the following until I read yours. We really do think alike!

      7 am pst:

      Restarting a position in EWZ (Brazil) @ 32.35. Not at the intraday low, but well off the intraday high. About -15% below my exit in mid-March. Also reopening PBR (Petrobras) @ 8.58 on the -17% discount from Wednesday's close. It will be no surprise to anyone who follows me that I'm usually early. But we all need to take a stand somewhere.

      1130 am pst:

      (a) EWZ (Brazil) closed in two aliquots (33.90 + 34.40) for an overall gain of +5.6%.

      (b) PBR (Petrobras) closed @ 8.92 for a one-day of +3.9%.

      (c) A position in RYWVX (Rydex 2x Emerging Markets) opened at the 1030 est window will be 'closed' via opening an equivalent position in RYWYX (Rydex -2x Inverse Emerging Markets) at end of day. Based on current indication, probably for a minimal of gain of <1%.

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    3. May open FGBFX at the close. Sticking with my morning outlook-> ie, a failed bounce.

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  14. Here is what I got from Zacks yesterday:

    "After the Housing Starts and Industrial Production reports Tuesday the Atlanta Fed calculated that Q2 GDP is looking like +4.1%. Yes, I know that seems a bit too robust which is why I then checked the Blue Chip Economists panel where they are expecting still impressive +3.1% growth.

    Either way, it appears that GDP is taking a big leap forward from the tame +0.7% pace for Q1. Thus, there is little wonder why stocks closed above 2400 for the second straight day. This increases the odds that a breakout is under way with more stock gains soon to roll in.

    Investors should grab the reigns of this bull and ride it to new heights."

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    Replies
    1. Earnings will need to ramp up significantly to get the market to be reasonably valued. Right now 25x EPS is really high.

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    2. Not saying it won't, just that risk is getting higher and higher up here.

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    3. Agree re the level of risk. It feels pretty crowded at the craps table.

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  15. EMES hit my sell limit today at $13.25 for the shares I purchased on Wednesday at $12.25. NMM hit my sell limits at $1.74 and $1.84 for the shares I purchased on Monday at $1.64.

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    Replies
    1. At some point the strategy of buying pullbacks will stop working...

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  16. I was wrong about market direction (which happens all the time). Traders (or maybe it's the computer algos) have managed another 'V' recovery. Amazing.

    DJIA +160 points, EEM (emerging markets) +2%. I don't chase momentum, so for me today's rally will go down as a missed opportunity.

    It would surprise me to see stocks bounce all the way back to all-time highs, but that may be the path of maximum pain.

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  17. It's my opinion (no one really knows) that today's action is driven by panic, not so much a short-squeeze but mainly on the part of latecomers to the global rally. They may have been left behind by the tremendous +25% to +100% gains in the sector and/or Brazil since January 2016, and given today's action are saddled with regret at not having jumped in yesterday. They will chase the sector for the next few days, at which point the real decline will begin. Just a gut feeling, and all speculation on my part.

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    1. I don't have a high level of conviction re a decline on Monday (and oversold bounces can persist for longer than we think possible), but I'm placing a red chip (a small bet commensurate with conviction level) on 'Don't Come' (RYWYX in this case). My way of saying I think today's rally is a load of buffalo chips.

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  18. The GDXJ puts that I sold a month ago were assigned to me, and I purchased the corresponding GDXJ shares. After accounting for the price of these puts, my cost basis for this purchase was $34.80. I am pretty sure GDXJ will soon rise above that level. If the broad market does take a dive, then my GDXJ position might save my ass (as it will hopefully move counter to SPY).

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  19. The one month chart for NMM shows that it made a double bottom and now have risen above the highest point between two bottoms. Is its recent pullback over? I got lucky with this pullback because it came so abrupt that I "missed the chance" of making many purchases on the way down and instead was able to buy it at the bottom...

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  20. Do any of you use an online backup service that automatically stores your files on cloud servers? I'm tired of having external hard drives failing on me.

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    Replies
    1. I just use two external drives that store identical data. If one of them fails, I'll buy a new one and copy the data to it from the other one...

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  21. Placed a buy limit for EMES at $12.30. Wash, rinse, and repeat until it gets clean! :)

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    1. The intraday decline of EMES has flattened out -- raised my buy limit to $12.40.

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    2. Had to raise to 12.50 to get it filled.

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    3. Placed a sell limit at $13.50.

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  22. Looks like EWZ is on the path of slowly pushing higher. Placed a buy stop limit order at $35/35.10.

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    1. The order was triggered at $35.10. Placed a sell limit stop below today's low at $34.90/$34.85 -- let's see how quickly it can rise back to pre-crash level. :)

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  23. Replies
    1. Buy EWZ, place a sell stop below the recent lows, and enjoy the ride higher! :)

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  24. (a) Closed RYWYX yesterday morning for about a -0.5% loss.

    (b) The narrow trading range in most indexes are making it hard to spot opportunities, but there are three assets on my radar.

    It's my humble opinion that the selling (including retests of lows) in US Steel (X), gold miners (GDX, RYPMX), and the energy sector (XLE, RYEIX) has been sufficiently intense and protracted (ie, anyone who wants to sell is likely to have already sold) that low(er) risk entries are possible.

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  25. Got stopped out of EWZ at $34.90 for a minor loss.

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  26. Today's drop in XES (and all my related holdings, such as EMES and HLX) is pretty impressive. I don't have any cash remaining to buy, though, so will wait and see what happens...

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    Replies
    1. Actually, I found a little cash, and so in order to generate a decent exposure, I decided to buy Dec 2017 $16 strike calls on XES at $1.85.

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  27. I know why oil crashed today! Yesterday, Mark said that he was bored, and so in order to spice up his day, the market gods decided to generate some action. :)

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  28. All three of the assets/ asset classes that I thought were done going down? All three sold off further today. This tells me it's really not my kind of market right now. It's been a tough grind for most traders since mid-March. Personally, I'm not interested in placing the blame on computerized trading programs (which supposedly take much of the emotion out of trading decisions and drive down volatility). We've seen long stretches of low volatility in the past. The character of the market will change at some point to an environment that better suits my trading style. I'll just have to wait it out.

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  29. It is interesting to note that USO closed today a little above its May 12 close, but XES closed significantly lower, setting a new 52-week low. Does it mean stock traders are expecting further declines in oil?

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  30. WTF? Oil rebounds by more than 2%, but XES does not rebound at all! Did E&P companies all the sudden figure out how to extract oil without any external help from servicing companies?

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  31. While the oil chart sucks in 2017 (lower lows and lower highs), the GLD chart, actually, looks great, with higher lows and higher highs. So I decided to use today's pullback in GDX as an opportunity to buy back at $0.47 the calls I sold a couple of weeks ago at $0.63.

    I see a pattern here -- I always make money when I sell options, and I always lose money when I buy them. :)

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    Replies
    1. "I see a pattern here" -- I meant here that trades that start with "buy to open" are usually losing trades, while those that start with "sell to open" are usually winning ones...

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  32. NMM is back to what seems like a support level. Decided to reload at $1.62 the shares I sold recently at $1.84. Placed a sell limit at $1.72, to speed up the turn-around process. :)

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  33. No position, but holding RH must be a nightmare.

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  34. OT: 2nd, you may like thi

    Yuja Wang - Tchaikovsky Piano Concerto No. 1, Op. 23

    https://www.youtube.com/watch?v=Yue6Cb5OULM

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  35. When a 6-month chart has higher lows and higher highs (GLD), good things tend to happen. I am glad that I bought back (at a small profit!) the GDX calls I sold earlier. :) Trying hard to sit on my hands and not take profits in GDX/GDXJ today. GLD has just made another higher high, and its momentum can continue for a few days now, before pulling back to another higher low. Or maybe GLD/GDX will just power up like in 1H 2016 and leave everyone behind...

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  36. The 6-month chart for CBMX also looks great, incidentally, and I decided to buy even more of it at $5.40 now. Placed a sell limit order at $5.90.

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  37. Really, really like that GDX / GLD chart David.

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    1. As far as fundamentals, you could probably paint several bullish scenarios...but one I keep thinking about is India demand. Their economy is cranking right now and they love gold.

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    2. But I think the bigger deal is bitcoin. If that is rallying like it is I would be shocked if gold doesn't go significantly higher. Maybe all of the gold bulls were right and their timing was off a bit. There was a shit load of money thrown at the system the past 8 years and its going to end up showing up somewhere.

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  38. Mike, does CBMX chart inspire you too? Now seems like a good time to reload the large position you sold recently...

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    Replies
    1. Yeah, it looks good. I'm having a tough time buying back into it though.

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  39. The gold miners index looks similar to the index back in 2001 when it was bottoming out. Could be in the process of a new bull market here. As long as GDX holds above $20.9 it seems like its in good shape. I'm looking to buy on weakness.

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    Replies
    1. Here is the chart from back then:
      http://stockcharts.com/h-sc/ui?s=%24GDM&p=D&st=2000-06-01&en=2003-12-01&id=p03868024111

      Look at the consolidation phase in the 2nd half of 2001...not identical but similar setup now...we could be in the December 2001 period:
      http://stockcharts.com/h-sc/ui?s=%24GDM&p=D&yr=5&mn=0&dy=0&id=p43955158342

      Fundamentals seems pretty good with gold up so much and a lot of the miners having cut costs significantly. I've noticed there have been several buyouts over the past 6 months or so at significant premiums so the big players are seeing value which is a good sign.

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  40. Replies
    1. Got stopped out. Was hoping to see some sort of a base building here, might still see it, but thinking a better entry is ahead.

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  41. I'm thinking about buying a gold stock or 2 as well. Industry reserves have been declining for a few years, so seems like the overinvestment from last decade is out of the system. Plus, prices may have bottomed like you suggest and stocks are relatively cheap.

    Any thoughts on the Gold/Oil ratio which is near its highs for the last 80 years or so?

    http://www.macrotrends.net/1380/gold-to-oil-ratio-historical-chart

    Implies either gold is too high or oil too low, but markets are going the other way.

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  42. By the way, heard a Michael from California on Cramer last night asking about YELP....

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  43. BDI is positive for a second day in a row. This might be a start of a long uptrend. Just bought more NMM at $1.56 and placed a sell limit at $1.82.

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  44. Looks like X and AKS have bottomed out (on a 1-year chart). If any of you have any dry powder left, you may give it a shot...

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    1. I just bought a bunch of December 2017 $3 calls at $3.36. Paid an 8c premium :), but then got a 50% leverage. :)

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    2. Placed a sell limit on these calls at $4.40.

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  45. NMM hit my sell limit at $1.72 for the shares I purchased last week at $1.62. Recycled that money into CBMX at $5.15. If its pattern of higher lows and higher highs (established over the past 6 months) were to continue, then it should be pretty close to its low and it should start working to its next higher high soon.

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    Replies
    1. Added today's shares of CBMX to my sell limit at $5.90

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  46. Reloaded NMM at $1.63. Placed a sell limit at $1.73.

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  47. Dryships just announced its 7th reverse split in a year and a half. (1:5, 1:7, 1:4, 1:8, 1:15, 1:4, 1:25) $DRYS
    Post split, the stock's split adjusted all time high will be $212,817,275.10.

    >> Long way back to even....

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