Global Market Comments
June 9, 2023
Fiat Lux
Featured Trades:
(JUNE 7 BIWEEKLY STRATEGY WEBINAR Q&A),
($VIX), (TSLA), (TLT), (FCX), (RUT), (COIN), (AAPL),
(ROM), (AMZN), (PYPL), (NVDA), (COPX), (FXI)
CLICK HERE to download today's position sheet.
Global Market Comments
October 18, 2019
Fiat Lux
Featured Trade:
(OCTOBER 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (C), (GM), (IWM), ($RUT), (FB),
(INTC), (AA), (BBY), (M), (RTN), (FCX), GLD)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 16 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: How do you think the S&P 500 (SPX) will behave with the China trade negotiations going on?
A: Nobody really knows; no one has any advantage here and logic or rationality doesn’t seem to apply anymore. It suffices to say it will continue to be up and down, depending on the trade headline of the day. It’s what I call a “close your eyes and trade” market. If it’s down, buy it; if it’s, upsell it.
Q: How long can Trump keep kicking the can down the road?
A: Indefinitely, unless he wants to fold completely. It looks like he was bested in the latest round of negotiations because the Chinese agreed to buy $50 billion worth of food they were going to buy anyway in exchange for a tariff freeze. Of course, you really don’t get a trade deal unless you get a tariff roll back to where they were two years ago.
Q: Did I miss the update on the Citigroup (C) trade?
A: Yes, we came out of Citigroup a week ago for a small profit or a break-even. You should always check our website where we post our trading position sheet every day as a backstop to any trade alerts you’re getting by email. Occasionally emails just go completely missing, swallowed up by the ether. To find it go to www.madhedgefundtrader.com , log in, go to My Account, Global Trading Dispatch, then Current Positions. You can also find my newly updated long-term portfolio here.
Q: How much pain will General Motors (GM) incur from this standoff, and will they ever reach a compromise?
A: Yes, the union somewhat blew it in striking GM when they had incredibly high inventories which the company is desperate to get rid of ahead of a recession. If you wonder where all those great car deals are coming from, that's the reason. All of the car companies want to go into a recession with as little inventory as possible. It's not just GM, it’s everybody with the same problem.
Q: When does the New Daily Position Sheet get posted?
A: About every hour after the close each day. We need time to process our trades, update all the position sheets before getting it posted.
Q: What do you think about Bitcoin?
A: We hate it and don’t want to touch it. It’s unanalyzable, and only the insiders are making money.
Q: Are you predicting a repeat of Fall 2018 going into the end of this year to close at the lows?
A: No, I’m not. A year ago, we were looking at four interest rate increases to come. This year we’re looking at 1 or 2 more interest rate cuts. It’s nowhere near the situation we saw a year ago. The most we’re going to get is a 7% selloff rather than a 20% selloff and if anything, stocks will rise into the yearend then fall.
Q: Why are we trading the Russell 200 (IWM) instead of the ($RUT) Small Cap Index? We pay less commissions to brokers.
A: There's more liquidity in the (IWM). You have to remember that the combined buying power of the trade alert service is about $1 billion. And that’s harder to do with smaller illiquid ETFs like the ($RUT), especially the options.
Q: If this is a “Don’t fight the Fed” rally for investors, where else is there to go but stocks?
A: Nowhere. But it’s happening in the face of an oncoming recession, so it’s not exactly a great investment opportunity, just a trading one. 2009 was a great time not to fight the Fed.
Q: Do you want to buy Facebook (FB) even though there are so many threats of government scrutiny and antitrust breakups?
A: The anti-trust breakups are never going to happen; the government can't even define what Facebook does. There may be more requirements on disclosures, which means nothing because nobody really cares about disclosures—they just click the box and agree to anything. I was actually looking at this as a buy when we had the big selloff at the end of September and instead, I bought four other Tech stocks and (FB) had moved too far when we got around to it. I think there’s upside potential for Facebook, especially if we can move out of this current range.
Q: Would you sell short European banks? It seems like they’re cutting jobs right and left.
A: I always get this question after big market meltdowns. European banks have been underpricing risks for decades and now the chickens are coming home to roost. Some of these things are down 80-90% so it’s too late to sell short. The next financial crisis is going to be in Europe, not here.
Q: Is it time to short Best Buy (BBY) due to the China deal?
A: No, like Macys (M), Best Buy is heavily dependent on imports from China, and the stock has gotten so low it’s hard to short. And the problem for the whole market in general is all the best sectors to short are already destroyed, down 80-90%. There really is nothing left to short, now that all the bad sectors have been going down for nearly two years. There has been a massive bear market in large chunks of the market which no one has really noticed. So, that might be another reason the market is going up—that we’ve run out of things to short.
Q: Do you like Intel (INTC)?
A: Yes, for the long term. Short term it still could face some headwinds from the China negotiations, where they have a huge business.
Q: Would you buy American Airlines (AA) on the return of Boeing 737 MAX to the fleet?
A: Absolutely, yes. The big American buyers of those planes are really suffering from a shortage of planes. A return of the 737 MAX to the assembly line is great news for the entire industry.
Q: Do you like Raytheon (RTN)?
A: No, Trump has been the defense industry’s best friend. If he exits in the picture, defense will get slaughtered—it will be the first on the chopping block under a future democratic administration. And, if you’re doing nothing but retreating from your allies, you don't need weapons anyway.
Q: Will Freeport McMoRan (FCX) benefit from a trade war resolution?
A: Yes, the fact that it isn't moving now is an indication that a trade war resolution has not been reached. (FCX) has huge exposure to traditional metal bashing industries like they still have in China.
Q: Would you go long or short gold (GLD) here?
A: No, I'm waiting for a bigger dip. If you can get in close to the 200-day moving average at $129.50, that would be the sweet spot. Longer term I still like gold and it is a great recession hedge.
Good Luck and Good Trading!
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
I?ll take the home run, thank you very much. Ten handles in the (SPY) on the downside in ten days totally works for me. We have milked this trade for all it?s worth, so it?s hasta la vista baby! Thank you Vladimir Putin!
This is not a bad place to de-risk on the short side in stocks. Take a look at the charts below, and you will see a convergence of 100 day and 200 day support levels across several asset classes.
Check out the rock solid support level in the (SPY) at $191, and all of a sudden, buying back shorts here at $191.50 looks like a stroke of brilliance.
It is also interesting to see the suddenly despised junk bond ETF (HYG) hold at the 200 day moving average. Stocks and junk bond price movements are very highly correlated. It makes sense that after showing the most bubbleicious price action, high yield corporate debt led the change on the downside.
By the way, this could also mean that Treasury bonds are about to take a big dump off this morning?s 2.43% yield for the ten year, which is why I?m hanging on to all my short positions there.
We could still see more pain in risk assets. My favorite downside target in the (SPY) is the 200 day moving average at $186. That would give us a top to bottom correction of 6.5% in this cycle, in line with the pullback we saw earlier this year.
That?s where you want to load the boat one more time. When the BSD?s come back from their summer vacations in the Hamptons, Cannes or Portofino, they are going to quickly realize that stocks have been falling, while earnings have been rising.
That means they are going to be cheaper than they have been at any time in 2014. In a world where there is little else to buy, that is a big deal.
We have just entered a period when the seasonals strongly favor investment in equities. That sets up a yearend rally in the indexes that will not be as big as the melt up we saw in 2013, but will be just as welcome. My 2014 (SPY) target of $210, or $2,100 in the (SPX), may not be so Mad after all.
Yes, I know that geopolitics is still a factor. But it looks like both sides in the Gaza conflict have depleted their stockpiles of stupidity for the time being, so things are about to go quiet there.
Vladimir Putin is also likely to back down in the Ukraine because of that throbbing he is increasingly feeling in his pocketbook. The growing leverage and rising costs in the Russian oil industry mean that the recent $11, or 10%, drop in the price of crude cuts Russia?s revenues by 25%. The recession this will eventually bring could be bad enough to lose a future election.
In the end, that is what this is really all about.
I am already starting to draw up short lists to buy on the next turnaround. I?ll shoot out the Trade Alerts when I think the time is right.
Jim Parker! Get your ass back from Rome, per favore! The gelato can?t be that good!
Thank You Mr. Putin
The stock markets are on the verge of a small correction, perhaps less than 5%, which should unfold over the next six weeks.
There is just not enough juice in a mini crisis triggered by one lousy Portuguese bank, the Banco Espiritu Santo, to take us any further. Bonds globally should put in their highs for the year during this period.
After that, it will be off to the races with a major year-end rally that could take us up another 10%. Both old tech and new tech, plus biotech and social media will be the front runners in this next leg of the bull market. Fixed income products will suffer across the board.
These were the results of the exhaustive research Jim undertakes every quarter using his proprietary analytical system. His goal is to define the best long and short opportunities across all asset classes.
Ignore him at your peril. Last year Jim?s system delivered a gob smacking trading return of over 300%.
Jim, a 40-year veteran of the trading pits in Chicago, would tell you all this himself. But as he is a product of the Windy City?s lamentable school district, the task of translating his pivot points, swing counts, and support and resistance levels into simple ?BUYS? and ?SELLS? falls to me.
What else can I say?
By the way, a pivot point is a number Jim?s system serves up once a quarter dictating the tone of the market for individual securities. Trade above the pivot, and we are in ?RISK ON? mode. Trade below it, and we need to take a decidedly ?RISK OFF? posture.
Swing counts then project the distance a security should travel once the directional call has been determined. Think of it as your own private inertial navigation system for your trading approach.
Equities
With that said, Jim?s pivot for the S&P 500 for Q3 is 1,970. As we are well below that now, you can expect some further work to be done on the downside, possibly as low at the 1,875-1,895 range over the next six weeks.?That would then be a sweet spot to initiate new longs.
The NASDAQ 100 has a pivot of 3,811 for Q3, a few percent above here. Jump back into the technology arena with a tight stop in the 3,700-3,725 neighborhood, or down some 5%, which works out to around $90 for ETF (QQQ) players.
Among foreign markets, Jim likes Japan?s Nikkei (DXJ), is wary of the German DAX, and is neutral on Australia (EWA).
Point a gun to his head, and Jim will opt for the Wisdom Tree Europe Hedged Equity Fund (HEDJ), a customized long European equity/short Euro ETF that effectively prices these stocks in US dollars. Think of it as a (DXJ) with a French accent.
?Bonds
Jim sees a rare, generational opportunity, to sell bonds setting up for August. They could grind up until then off the back of today?s news from Europe, but not by much. Use $137.00 as the pivot point for the 30-year bonds futures.
The market?s Focus will remain on the SPX/Bond spread, as it has all year. When the Equity Indices go into profit taking mode, bonds are the only place to park money, taking prices northward.
Long term, he favors the short side of the bond market, when conditions allow.?His game plan remains to sell bonds at these levels, with tight stops, until proven wrong.
My own strategy of buying out of the money (TLT) put spreads on a monthly basis also works perfectly in this scenario. Use every three-point rally as an opportunity to get in.
We are on the threshold of a more normalized interest rate environment, with a long awaited reversion to the mean in rates imminent. Jim says that the entire bond world is about to roll over.
Foreign Currencies
Jim isn?t getting too excited about foreign currencies these days, which appear to have fallen into a bottomless volatility trap. He doesn?t see any big moves unless a serious risk off trend develops in the equity markets, which is unlikely.
Use the Australian dollar (FXA) as your lead currency with which to make directional calls for the entire asset class. The pivot there is $94.60 in the cash market. As we are now at $93.68, stand aside.
The Japanese yen (FXY) has done its best impression of a Kansas horizon this year of any financial asset. It will continue to flat line as long as the jury is out on Prime Minister Shinzo Abe?s ?third arrow? economic and reform strategy. The yen will eventually weaken against the greenback, but it could be a long wait. Until then, use 101.33 as a pivot.
If you have to hate a currency in 2014, make it the Euro (FXE), with a pivot of $139.50. Sell every rally against this figure until the cows come home. The fundamentals for a weaker continental currency are building by the day. But we won?t see real fireworks until we close below $135.50. Then we?ll be targeting $127.50.
Commodities
Jim likes the precious metals (GLD), (SLV) and thinks the recent bottom will last for some time. This is further confirmed by the miners (GDX), which appear to have staged a major turnaround.
Bond market rallies have been highly correlated to metals rallies this year, at least for over the short term. So follow the sparkly stuff along with a bond rally into August. Lower rates will be price positive the metals. Use $1,265-$1,275 as your pivot for gold going forward. For silver use $19.70.
Copper (CU) is a bit of a conundrum, as it is stuck, in the middle of one-year range, so don?t chase recent rally. Use $2.95 as the pivot there. It?s not going anywhere until China decides what to do with its economy.
Don?t buy into the upside breakout school of thought for oil (USO) until we close over 104.70-105.30 (last qtr's high). That?s where you can count on the buy stops to kick in. At the current $102, we are firmly in bear territory. Talk to Jim when oil breaks this quarter?s resistance and upside momentum level at 107.50.
Infrastructures plays are still the best way to participate in any move in the natural gas (UNG) market. At the top of the list is Mad Hedge Fund Trader long time favorite, Cheniere Energy (LNG), up from $6 to $74.??(LNG) should be on your shopping list on any big equity index sell-off.?This week may see a low, and then a substantial rally when July futures expire.
The Ags
Agricultural commodities (CORN), (SOYB), (WEAT), (DBA) have been the major disaster area of 2014, thanks to the best growing conditions in history. Not only has the weather been perfect, the US Department of Agriculture keeps ?finding? new stockpiles. Conditions have been improving in major export markets abroad, as well.
Farmers may get a break this week when multiple futures contracts expire. At the very least, we should get a dead cat bounce. After that, it?s up to Mother Nature.
By the way, Jim Parker?s Mad Day Trader service has attracted a substantial following over the past year. If you are not already getting Jim?s dynamite short term ?BUY? and ?SELL? calls, please get yourself the unfair advantage you deserve.
Just email Nancy in customer support at support@madhedgefundtrader.com and ask for the $1,500 a year upgrade from your existing Global Trading Dispatch service to Mad Hedge Fund Trader PRO. The service includes Jim?s timely Trade Alerts, a running daily market commentary, and the daily morning webinar, The Opening Bell with Jim Parker.
The Quarterly Calls Are In
I spoke to the best traders I know in the market Thursday night, and to a man they said the market looked terrible. Although prices were high, the momentum was totally gone and volume was shrinking.
Worse, these conditions prevail as we head into May, the onset of the traditional ?RISK OFF? season (click here for ?The Hard Numbers Behind Selling in May?).
Best case, it continues to grind sideways in a narrow range. Worst case, our long awaited 10% correction is finally here.
The big ?tell? would be how stocks responded to the Friday nonfarm payroll. If it turned into a ?buy the rumor, sell the news,? or made a marginal new high and then sells off hard, then it would herald the onset of a new correction.
That was exactly what we got.
You knew immediately that things were heading south, even though the Dow opened up $44. The big momentum like Tesla (TSLA), Facebook (FB), Netflix (NFLX), and Amazon (AMZN) rolled over like the Bismarck right out of the gate. Bonds (TLT) also took off like a bat out of hell, not exactly what you want to see when you own stocks.
I spent Thursday night writing up Trade Alerts to sell short the (IWM), the (SPY), and the (QQQ). You only had about 30 minutes when the market waffled indecisively to get these off. As it turned out, I could only get the first two done before the market fell away like a house of cards.
I have already received ecstatic emails from nimble traders who got into the (IWM) August, 2014 $113 puts as low as $3.65 and then saw them soar to $5.25, an instant profit of 44%. This also boosts my year to date performance back to double digits, a welcome development
I have a number of cross hedges going on now in my model portfolio which I should explain, just to show you there is a method to my Madness. The May (SPY) $193-$196 put spread is a short volatility trade that balances out the long volatility and time decay in the (IWM) August $113 puts.
I am long the higher beta (IWM) puts and short the lower beta (SPY) puts. The 35% ?RISK OFF? position I have in the (SPY), (IWM), and the (VXX) will also offset lost profits in my one 10% ?RISK ON? position in the Japanese yen (FXY) put spread. This balancing of multiple risks is what a real live hedge fund trading book looks like.
Fasten your seat belts. This could be the big one.
Fasten Your Seatbelt, This Could Be the Big One
Remember the $2 trillion US corporate cash mountain that you have heard so much about? Well, it is finally starting to shrink. Have they started reinvesting profits in America? Are they hiring more people? Did they finally get those tax breaks they were begging for? Have they dramatically increased dividends and share buy backs or returned to acquisitions to boost earnings?
Well, not exactly. The cash mountain is shrinking, but for all the wrong reasons. They are just not earning as much money as they used to. According to data released by S&P Capital IQ, US corporate cash flow turned negative in Q1, 2012 for the first time since 2008. It almost certainly worsened in Q2.
The harsh truth is that earnings are falling because of collapsing revenues, which at the rate reported so far in this season look to come in at about 1% YOY. Adjust for inflation, and these figures turn negative. This means that the 5.4% YOY earnings growth we are seeing, which I predicted all the way back in my January annual asset revue, are being achieved through aggressive cost cutting.
Managers aren?t hiring more, they?re firing more, which explains our stubbornly high headline 8.2% unemployment rate. This can?t last. You can only eat your seed corn for so long before you go hungry.
This deterioration, which has been under reported and unappreciated, has economists slashing their forecasts for US GDP growth. It is clear that consumers are returning to their bomb shelters. I recently chopped my own forecast from 2% to 1.5%, and even that could start to look high in a matter of weeks. All of this sets up the scenario which I have been pounding the table about in my strategy seminars in Chicago, New York, London, Paris, Frankfurt, and Zermatt, which I have entitled ?The Crash of 2013?.
None of this makes a convincing case for buying equities right now. It makes the current 14 multiple for the S&P 500 look positively pricey. If there was ever a case for selling rips in the indexes it is now. Keep your fastest finger on your mouse ready to buy puts on the (SPX), (IWM), and (QQQ), and the bear ETF (SDS), and (SH).
US Companies are Eating Their Seed Corn ?
It?s always nice when intelligent people agree with you. That was my feeling after the Federal Reserve gave notice today that it was downgrading its forecast of US economic growth for 2012 from 2.6% to 2.15%. That is a major step down from the 3% and higher predictions they were hanging on to earlier.
The news came in the written statement that followed the Fed?s somewhat disappointing decision today. As I expected, there will no QE3. The Fed needs to keep dry powder in case we get another market crash, possibly as early as this summer. Operation ?twist? was renewed for another year, but wasn?t extended to include mortgage backed securities. It was about as conservative of a conclusion one could have expected from the Fed, given the rapidly deteriorating economic data flow that I chronicle daily in these pages.
It brings the August panel of respected central bankers in line with my own 2% expectation, which I have been posting since January. Here?s a good rule of thumb from a four decade long Fed watcher: they are always behind the curve, sometimes way behind, often by a year or more.
The problem for you is that 2% is not my forecast anymore. As of today, I am ratcheting it down to 1.5%. Without a QE3 it is really hard to see where additional growth is going to come from this year. US corporations are producing record profits and sitting on mountains of cash, so they have absolutely no incentive to stick their necks out whatsoever. Additional government spending is hamstrung by an election year and a gridlocked congress.
Virtually the entire international arena is slowing, in some cases dramatically so. China is about to bust through the bottom of its target growth range at 7%, down from 13% a few years ago. Tsunami reconstruction spending in Japan has just about run its course. Europe is clearly in a major recession. Even powerhouse, Germany, is shrinking from 2% growth to 1% because of weakness in its major export markets.
The market implications of this lower growth rate are many. It means that the recent 100 point rally in the S&P 500 was built on so much hot air and false hope. It was never driven by more than a round of furious short covering and profit taking. Let the permabulls enjoy a few more days of summer, possibly taking the index as high as 1,400 by month end.
It also means that another round of pain for the Euro (FXE) (EUO) is not far off. The best case for Treasury bonds (TLT) is that they churn sideways until the next Fed meeting in six weeks. In the worst case, the spike up to challenge the old highs, taking yields up to 1.42% for the ten year once more.
The lows for the year haven?t been put in yet, but they are about to. Before, we had a 4% GDP stock market and a 2% GDP economy. Now we have a 4% GDP stock market and a 1.5% GDP real economy. Watch out below. The only question is whether 1,250 in the (SPX) holds this time, or whether we have to plumb the depths of 1,200 before the penance is paid for our hubris.
Sorry Guys, No QE3 Today
The abject failure of the equity indexes to breach even the first line of upside resistance does not bode well for the ?RISK ON? trade at all. Only a week ago I predicted that the markets would be challenged to top 1,340 in the (SPX) and $78 for the Russell 2000 (IWM). In fact, we made it up only to 1,335 and $77.90 respectively.
To see the melt down resume ahead of the month end window dressing is particularly concerning. That?s the one day a month that investors really try to pretend that everything is alright. People just can?t wait to sell.
Blame Europe again, which saw Spanish bond yields reach a 6.6% yield on the ten year and the Italian bond market roll over like the ?Roma? (a WWII battleship sunk by the Germans while trying to surrender to the Allies). Facebook didn?t help, knocking another $8 billion off its market capitalization, further souring sentiment.
Urging traders to head for the exits was confirming weakness across the entire asset class universe. The Euro is in free fall. Copper took a dive. Oil is plumbing new 2012 lows. Treasury bond prices rocketed, taking ten year yields to new all-time lows at 1.65%. It all adds up to a big giant ?SELL!?
It is just a matter of days before we revisit the (SPX) 200 day moving average at 1,280. Thereafter, the big Fibonacci level at 1,250 kicks in. It is also exactly one half the move off of the October 2011 low, and unchanged on the year for 2012.
I am not looking for a major crash here a la 2011. There is just not enough leverage and hot long positions in the system to take us down to 1,060. It will be a case of thrice burned, four times warned. And remember, last year?s 1,060 is this year?s 1,100, thanks to the earnings growth we have seen since then. With 56% of all S&P 500 stocks now yielding more than the ten year Treasury bond, you don?t want to be as aggressive on the short side as in past years, when bond yields were 4 or higher.
By adding on a short in the (SPY) here, I am also hedging my ?RISK ON? exposure in the deep in-the-money call spreads in (AAPL), (HPQ), and (JPM), and my (FXY) puts. The delta on these out-of-the-money?s are so low that I can hedge the lot with one small 5% position in the at-the-money (SPY) puts.
If the (SPX) hits 1,280, the (SPY) puts will add 2.25% to our year to date performance. At 1,250 we pick up 4.00% and at 1,200 we earn 7.00%. I now have the option to come out at any of these points if the opportunity presents itself, depending on how the rapidly changing global macro situation unfolds. If we get another pop from here back up to the 1,340-1,360 range, I will double up the position and swing for the fences. There?s no way we are taking a run at new highs for the year from here.
Below, find today?s charts from my friends at www.StockCharts.com with appropriate support and resistance levels outlined. If I may make another observation, when you see the technicals work as well as they have done recently, it is only because the real long term end investors have fled. There are not enough cash flows in the market to overwhelm even the nearest pivot points. That leaves hedge fund, day, and high frequency traders to key off of the obvious turning points in the market. That also is not good for the rest of us.
It?s a good thing that I?m not greedy. If I had sold short a near money call spread for the (TLT) on May 23, I would be in a world of hurt right now. Instead, I went six point out of the money. So when we get dramatic moves like we saw today that take bond yields to all-time lows, I can just sit back and say, ?Isn?t that interesting.? This spread expired in six trading days, which should be enough time to digest the big move today and expire safely out of the money and worthless. What?s better, I can then renew the trade at better strikes after expiration into the July?s and take in more money.
If you are wondering why I am not doubling up on the short Treasury bond ETF (TBT) down here, it?s because it doesn?t have enough leverage. In these conditions you need to go for instruments that can generate immediate and large profits, such as through the options market. The topping process for the Treasury market could go on for another month or two. Until that ends, I am happy to use price spikes like today?s to sell short limited risk (TLT) call spreads 6-8 points out of the money, which can handle a 20 basis point drop in yields and still make you money.
If you own the (TBT) and are willing to take a multi month view, you should be doubling up here. This ETF will have its day in the sun, it is just not today. We could see the $20 handle again and maybe even $30 within the next year. That makes it a potential ten bagger off of today?s close.
I don?t want to touch gold (GLD) or silver here. The barbarous relic is clearly trying to base at $1,500 an ounce. If it fails, it will probably only go down to only $1,450 before major Asian central bank buying kicks in. Better to admire it from afar, or limit your activity to early Christmas shopping for your significant other. We are months away from the next major rally in the yellow metal.
The Roma
Time to Puke Out Again
All eyes will be focused on the weekly jobless claims to be released by the Department of Labor at 8:30 AM EST on Thursday.
You may recall that investors did not exactly run the last two weekly reports up the flagpole and salute them, which showed sharp increases in unemployment claims. At this point the bulls are being comfortably complacent, blaming the bad numbers on? ?random noise? and short term statistical anomalies. This was the final data series to turn negative, and the last of a recent plethora of downshifting economic reports.
Get two more high or higher jobless numbers, and the four week moving average will turn up. That will be enough to set the cat among the equity holding pigeons, and turn a modest 5% correction into a much scarier one that is 15% or greater. All of a sudden it is d?j? vu all over again, with 2012 turning into a carbon copy of 2011, 2010, and 2009, and a big summer sell off in the cards.
I have been warning about the likelihood of such a development all year. After every company in the US hired one person, they again slammed on the brakes and quit returning e-mails. Corporate management these days are playing defense, and don?t see any increase in consumer spending as sustainable. Why add overhead in front of the next slowdown? There are also not a lot of companies that want to expand the workforce going into the summer, which normally sees a seasonal slowdown.
This sudden downgrade of one of the most important data streams is occurring just as a whole flock of black swans are getting clearance for landing. The French elections are signaling that we have at least two more weeks of ?RISK OFF? on the table until the run off on May 6, and possibly much more. Last night, the HSBC Chinese purchasing managers index came in at 49.1 for April, below the crucial boom/bust level of 50 for a sixth month. That means a Chinese hard landing is still on the table, although I think that it is unlikely.
The timing of all this couldn?t be worse, or better, if you happen to be short, as I am. The charts for virtually every risk asset, from Apple (AAPL), to the (SPX), (IWM), (USO), (CU), (FXY), (FXE), (GLD), and (SLV), are either showing textbook head and shoulder tops, or are already in clear down trends. I include an ample sampling below.
Anyone who believes that the ?RISK ON/RISK OFF? model is dead works in a profession where they can be consistently wrong and still stay in business, like in journalism. Give it two more weeks, and expect the media to start wringing hands about ?double dip? or ?triple dip? recession. Last year risk assets peaked on April 29. This year, April 29 came early, on April 2.
The Black Swans Have Been Cleared for Landing