Sunday, December 3, 2017

12/3/17 December Blueprint

No certainties in the market, for sure.  But it helps to have a rough idea re what lies ahead (based on historical precedent and/or recent precedent).  My best composite take (after reading through the stuff I follow):

(a) Likely to rally hard next week.  I don't believe tax reform has been priced in.  Now that the Senate has voted to pass a tax overhaul bill, both chambers will vote next week on a motion to 'go to conference' on working out the details.  It's estimated that passage will add +10% to corporate profits next year (or the year after, depending on when the bill takes effect).  Michael Flynn?  I have no idea re market reaction to Flynn's plea deal, but hey-> traders who have bet against Trump on any number of issues have been wrong for over a year.

(b) Pullback mid-December.  December tends to start out strong, stall mid-month, then rally hard into year end.  Paul Ryan is saying he'll keep Congress in session beyond its December 15 adjournment if necessary to pass tax reform this year.  We can count on the usual last-minute political drama taking the vote down to at least December 15.  Perhaps as good a catalyst as any for the pullback.

(c) +7% into January 2018.  7% is probably conservative.  A strong outlook for 2018 will become even stronger as investors begin to seriously weigh the effects of tax reform on global growth.

(d) Sharp rebound in emerging markets.  You may recall the cover story in Barron's last Sunday, which can be summarized as 'Barron's likes EEM!'  Thus no surprise that EEM declined -4% last week.  As you know, I believe it was a buying opp.


  1. Strange to see USO down 1.5% and XES up 1.4%. Took this opportunity to cover at $0.05 December $15-strike puts on XES that I sold at $0.70 in early November.

  2. Is the new tax bill bad for ORCL?

  3. BDI is ripping higher, while NMM is still below its 6-month highs. Just bought some NMM at $2.10.

  4. Hong Kong's Hang Seng declined -600 points overnight, on top of a -300-point decline on Tuesday. Because of my positioning (overweight China/ Emerging Markets), price action is generating a potential sell signal.

    (a) BABA (Alibaba) off at the opening bell @ 170.7x for a -2.3% loss.
    (b) EWZ (Brazil) off @ 39.8x for +2.1% gain.
    (c) ASHR (China 'A' Shares) off @ 30.5x for a +0.5% gain.

    FXI (China 'H' Shares) currently trading off -2.68%. I'll keep an eye on it.

    50/50 chance I will opt to close VEIEX (emerging markets)/ VTWSX (world market) end of day. It's all about the close. EEM/ VT currently off -1.58%/ -0.37%.

  5. GDX is close to it's 1-year support level of $21. Just sold some Jan $21 puts on GDX at $0.41.

  6. My last few trades were purely based on momentum (as opposed to valuation). It's not completely clear that momentum has dried up, but I have to respect the price action.

    It feels like a bull trap here-> traders are trying to rally the markets into the close, and to some extent they're succeeding: EEM (emerging markets) -1.23%, FXI -2.2%, EWZ (Brazil) +1.29% to 40.08, BABA (Alibaba) +2.12% to 172.48-> all at intraday highs. What's missing is the aggressive buying that we've seen all year.

    When it comes to momentum trades, it's all about confidence. Once traders lose confidence in the pattern, it's over.

    The key to outperforming the market is to maintain account balances near all-time highs. My last trade took the account down about -1%, and I'm now facing an additional -1% hit.

    I'm going to remove risk until there's more clarity in (short term) market direction. Closing FXI (China 'H' Shares) here for a -2.2% loss (FXI closed up yesterday despite the selloff in Hong Kong, which seemed bullish at the time). I plan to exit VEIEX/ VTWSX at the close.

  7. Glad that I covered my short XES puts on Monday. :) And I feel lucky to have ridden XES from $15.50 to $16.44 last week!

    USO might have a decent pullback here, say to the late-September highs of $10.50. XES is taking it on the chin today, dropping well below those late September highs. With oil stocks being so weak, more declines in USO will probably follow. If XES drops to $15 and stalls, then I'll be very tempted to re-enter.

  8. USO is up today. It might have made another higher low on the 6-month chart. I just bought some XES at $15.57 and placed a sell stop limit at $15.30/$15.25.

  9. Dip buyers aren't displaying much conviction. Mid-day spikes in DJIA/ EEM (emerging markets)/ QQQ (Nasdaq 100) have been retraced. EWZ (Brazil) having trouble holding above 39. HIMX (Himax) now down to 11.09.

    The stock market is tough to game at this juncture, but I'm leaning bullish. My reasons:

    (a) I think tax reform will rally the indexes several more times before investors fully price it in. Any rallies are likely to be fast and furious-> impossible to play.

    (b) Seasonality. It's hard to remain bearish in December. Obviously, trying to time moves within the month isn't working well, so I'll have to opt for 'sometime this month.'

    (c) EEM successfully retested 45.06 this morning (close enough to the lower Bollinger @ 44.98).

    (d) VT (world market) likewise successfully retested 72.74 this morning (around the 10-day moving average).

    Making the following trades:

    (a) Reopening ASHR (China 'A' Shares) @ 30.1x (a -0.86% discount to yesterday's exit).

    (b) Reopening a partial position in FXI (China 'H' Shares) @ 44.7x (a -0.15% discount to Wednesday's exit).

    (c) Reopened EWZ (Brazil) this morning around 38.5x.

    (d) Reopened a position in HIMX (Himax) this morning around 11.5x (currently 11.10!).

    (e) Will reopen VEIEX/ VTWSX at the close, probably at an average of a +0.25% premium to Wednesday's exits. Offset by better-timed reentries in EWZ/ASHR. Not the best-timed of trades, but that's the way it is (especially with funds that only trade once a day).

  10. Nice reversals in Asia overnight. Early indications are good:

    Hang Seng +1.2%, Nikkei +1.4% (almost entirely reversing its two-day slide), German DAX +1.2%, Brazil's iBovespa +1%.

    Premarket bids-> EEM (emerging markets) +1.1%, EWZ (Brazil) +1.7%, FXI (China 'H' Shares) +1.5%. ASHR (China 'A' Shares) +1.26%, HIMX (Himax) +3.4%.

  11. So *now* ORCL likes the tax bill -- what a joke...

  12. Moving up my sell stop limit on XES just below last week lows, to 15.45/15.40.

  13. USO is down today, and its 3-month chart shows that it might have made another lower high. So I just sold at $16.26 the XES shares I purchased last week at $15.58. Yet another lucky ride off the $15.50 support level.

  14. Also, just sold at $2.34 the NMM I picked up last week at $2.10. I am on vacation right now, and I figured I'd pay for half of it with these sales. :)

  15. Lucky timing in my two sales yesterday. :)

  16. If NMM does not decline tomorrow but instead takes out yesterday's high, then it will likely go much higher. Placed a buy stop limit on it at $2.35/$2.40.

  17. After rallying hard for a week (since reentry December 7), most indexes appear to be losing momentum. In my opinion, the best setup for a year-end rally is a correction over the next few trading days. It's also my opinion that a correction will occur.

    (a) Despite pullbacks of about -0.5% in EEM (emerging markets)/ FXI ('H' Shares)/ ASHR,('A' Shares). I have an overall gain of ~+1.6% in these ETFs. Gains I want to protect! All were sold this morning.

    (b) I also have significant losses in EWZ (Brazil)/ HIMX (Himax)/ BABA (Alibaba). Losses were taken this morning.

    (c) I closed VEIEX (emerging markets) and VTWSX (world market) yesterday for gains of +1.6% and +1.1% from December 7 entries.

    Overall gain for the portfolio will be about +0.7%, which although respectable for a one-week trade also tells me momentum is slowing. There is some news right now interjecting some uncertainty into passage of the tax reform bill. I don't know if it's enough to kill momentum, but a pullback is what the rally needs to continue.

  18. XES has pulled back noticeably from my last sale a few days ago. But BTE has pulled back even more from it's recent peak. Just bought some BTE at $2.86.