Global Market Comments
February 13, 2015
Fiat Lux
Featured Trade:
(FEBRUARY 18 GLOBAL STRATEGY WEBINAR),
(THE CASE FOR EUROPE),
(FXE), (HEDJ), (RSX), (GREK), (GLD), (TLT), (SPY)
(OPTIONS FOR THE BEGINNER)
CurrencyShares Euro ETF (FXE)
WisdomTree Europe Hedged Equity ETF (HEDJ)
Market Vectors Russia ETF (RSX)
Global X FTSE Greece 20 ETF (GREK)
SPDR Gold Shares (GLD)
iShares 20+ Year Treasury Bond (TLT)
SPDR S&P 500 ETF (SPY)
Global Market Comments
February 12, 2015
Fiat Lux
Featured Trade:
(HITTING TWO HOME RUNS IN ONE DAY),
(FXY), (GILD),
(THE NEW COLD WAR),
(THE HISTORY OF TECHNOLOGY)
CurrencyShares Japanese Yen ETF (FXY)
Gilead Sciences Inc. (GILD)
Those of you who are paid subscribers have the good fortune of waking up to a bounty of riches this morning.
Both Gilead Sciences (GILD) and the Japanese yen (FXY) have made gap moves in your favor overnight. Your long position in (GILD) saw a nice little $2 pop to the upside, and your short in the (FXY) just got whacked in the knees, down a full $1.
As a result, the Trade Alert model-trading portfolio is now up +4% on the year. It?s not exactly knocking the ball out of the park, but should be enough to keep you in fine Chardonnay for the rest of the year. And compared to most other suffering, money losing hedge fund traders, it is more than adequate.
If you followed my advice, your existing positions in these two securities are now close to their maximum expiration value. However, as is so often the case with deep in the money options with only days to expiration, they have become highly illiquid.
For example, the February (FXY) $87 puts are trading at $6.00-$6.90 on the screen, against an intrinsic value of $6.22 ($87 - $80.78 in the cash market = $6.22). So a market order to sell would most likely wipe out your entire profit.
So I am going to run my positions into expiration, given that we only have six trading days to go. These are my last two positions, so I also have an excess of dormant, unused cash.
I am trying to maintain some discipline here and restrict myself to only buying low and selling high. I know this sounds revolutionary, but it should work. Like you, I am not paid according to the volume of Trade Alerts I issue, only on their end results.
However, this market has shown a pronounced tendency to Giveth, and then abruptly Taketh Away. So, if you don?t want to wait until next week to collect your winnings and free up margin, you can put in some high limit orders to sell.
The Gilead Sciences (GILD) February, 2015 $35-$37 in-the-money bear put spread has an intrinsic value here of $5.00, so you can probably get a $4.95 offer done.
The Currency Shares Japanese Yen Trust (FXY) February, 2015 $84-$87 in-the-money vertical bear put spread has an intrinsic of $3.00, so $2.97 probably gets executed. If it doesn?t just re-enter the order tomorrow and try again, or lower your limit by a penny.
Congratulations, and on to the next one.
For me that is going to be an opportunistic short term long position in the S&P 500 (SPY) February 20 expiring options.
It?s rare to see an options spread with only six trading days to expiration offering so much money. But with the Volatility Index (VIX) holding in at a lofty 17.70%, we can take in a nearly 2% profit with a near strike that is a full 2% out of the money.
That means the S&P 500 (SPY) has to drop a hefty $4.60 by Friday next week for you to lose money on this position.
I know that?s not impossible in this uncertain environment. But I think that we are in nothing more than a long, sideways correction in a major long-term major uptrend, so this should work.
Traders are confused and disoriented, thanks to the massive one-way moves in oil and bonds in recent months. Many long tested models have blown up.
So rather than continue to hemorrhage money, they are giving up. The large intraday moves and sky-high volatility may continue. But I don?t expect any large sustainable net moves in the near future.
You are going to have to be especially vigilant with your stop loss on this (SPY) position, which I shall put at $202, as there is so little time left to expiration.
The 50 day moving average at $204 should give us plenty of support on the downside, and enough time to make it to expiration and get out whole.
Since this is a big contract and fairly close to the money, there should be plenty of liquidity right up to the last day, if we have to stop out.
Time for another Dose of Gilead Sciences
It?s All Over for the YenGlobal Market Comments
February 11, 2015
Fiat Lux
Featured Trade:
(WHO THE GRAND NICARAGUA CANAL HAS WORRIED),
(SCAM OF THE MONTH)
Global Market Comments
February 10, 2015
Fiat Lux
Featured Trade:
(WHY THE JANUARY NONFARM PAYROLL WAS A BIG DEAL),
(IWM), (DXJ), (HEDJ), (FXE), (FXY),
(THE BIPOLAR ECONOMY),
(TESTIMONIAL)
iShares Russell 2000 (IWM)
WisdomTree Japan Hedged Equity ETF (DXJ)
WisdomTree Europe Hedged Equity ETF (HEDJ)
CurrencyShares Euro ETF (FXE)
CurrencyShares Japanese Yen ETF (FXY)
Economists were blown away by the January nonfarm payroll numbers, announced on Friday.
Some 257,000 jobs were added the previous month, holding the headline unemployment figure at 5.7%. Far more important were the revisions for earlier months, which saw December increased to a robust 329,000 and November bumped up to a breathtaking 423,000.
These numbers are almost back to ?normal.? Are ?normal? interest rates to follow?
All told, the January report, the revisions and the additions to the work force means that 703,000 jobs were added to the economy, taking the year on year increase to a positively boom time 3 million. The last quarter has seen the fastest jobs growth rate since 1997. Yikes!
A major part of the new jobs were in retail, proof that our windfall tax cut in the form of falling gasoline prices is finally kicking in.
Needless to say, this is all a bit of a game changer.
It totally vindicates the high-end forecasts for the US economy of 3% plus I made in my New Year forecasts (click here for my ?2015 Annual Asset Class Review?).
The data confirms my thesis that investors are substantially underestimating the strength of the US economy. Furthermore, they have yet to understand the enormously positive impact of cheap energy prices.
It also means that the bull market in stocks is alive and well. It is only resting.
To understand why, let me highlight the major points brought to the fore by the Bureau of Labor Statistics report.
1) The US Economy Has Entered a Self Sustaining Recovery
The trend line for many economic data points are now moving so convincingly upward that they can no longer be treated as statistical anomalies. Nor can they be ascribed to temporary artificial overstimulation by the Federal Reserve in the form of quantitative easing.
Count on Treasury Secretary, Jack Lew, to announce ?mission accomplished? when he address congress later on this week (click here for my one-on-one with Jack, ?Riding With the Treasury Secretary?).
My bet is that this is not our last blockbuster revision. Next to come will be the Q4 GDP, from the just reported flaccid 2.6% annual rate back towards the red hot 5% seen in Q3.
2) The Date for the Next Fed Rate Hike has Been Moved Up
The bond market certainly believed this last week, giving up 9 full points in a couple of days, taking yields from 2.62% to 2.92% in a heartbeat.
I still think this is a 2016 story. The pernicious effects of deflation are still advancing, not retreating, and are not exactly an argument for raising interest rates. But there is no doubt that the desire among the Fed governors to return rates to normal levels is growing, especially if the impact on the economy will be minimal. So call the next rate rise an early, rather than a later, 2016 eventuality.
3) The Strong Dollar is Becoming a Factor With Earnings
The Euro (FXE) has depreciated 31% against the dollar from its 2008 peak, and the yen (FXY) 38% from its 2011 apex. Yet the impact on corporate earnings so far has been marginal at best.
Where will it really start to hurt?
When these currencies approach my final targets of 87 cents and 150, or down another 22% and 18%. It is safe to say that a strong dollar will command an increasing amount of our attention going forward.
This is the argument for investing in small cap US stocks (IWM), where the currency exposure is minimal. Hedge European (HEDJ) and Japanese (DXJ) stocks start to look pretty good too.
4) Wages May Finally Be Rising
The biggest structural impediment facing the US economy has been wage inequality, where virtually all of the benefits of growth accrue to the risk investors of the 1% at the expense of the working class. Hyper accelerating technology and dreadfully imbalanced tax policies are to blame.
January brought us an increase in wages that was miniscule, incremental and modest at best, but it was an increase nonetheless. Average hourly earnings fell by 5 cents in December and then rose by 12 cents the following month.
If this continues, consumer spending will see a big revival, giving us yet another leg to a rising stock market, and creating a win-win situation for all.
One can only hope.
5) More Americans Are Looking for Work
The really amazing thing about the January numbers that they occurred in the face of a large increase in the work force. The participation rate, which has been plummeting for a decade, rose smartly. Long-term U-6 unemployment stayed high, but is down a quarter from peak levels.
To me, this is all a warm up for my ?Golden Age? in the 2020?s. The best is yet to come.
Suddenly, the Line is Getting ShorterGlobal Market Comments
February 9, 2015
Fiat Lux
Featured Trade:
(THE 12 NEW TRADING RULES FOR 2015),
(AN ENVIRONMENTAL ACTIVISTS TAKE ON THE MARKETS),
(DBA), (MOO), (PHO), (FIW)
(FRIDAY, APRIL 3 HONOLULU, HAWAII STRATEGY LUNCHEON)
PowerShares DB Agriculture ETF (DBA)
Market Vectors Agribusiness ETF (MOO)
PowerShares Water Resources ETF (PHO)
First Trust ISE Water ETF (FIW)
1) Dump all hubris, pretentions and stubbornness. It will only cost you money.
2) The market is always right, even if all the prices appear wrong.
3) Only buy the puke outs and sell the euphoria. Do anything in the middle, and you will get whipsawed.
4) Outright calls and puts are offering a better risk/reward right now than bull and bear vertical call and put spreads, which have a built in short volatility element. It is also better to buy stocks and ETF?s outright with a tight stop loss. This won?t last forever.
5) If you do trade spreads, you can no longer run them into expiration. If you have a nice profit take it, don?t hang on to the last 30 basis points, even if it means paying more commission. The world could end three times, and then recover three times, before the monthly expiration date rolls around.
6) Tighten up your stop loss limits. Not losing money is the key to winning in this market. There is nothing worse than having to dig yourself out of a hole. Don?t run hemorrhaging losses, like the (TBT) from $57.56 down to $43.11. It will get easy again some day.
7) Buy every foreign crisis and sell every recovery. It really makes no difference to assets here in the US.
8) Several asset classes are becoming untradeable for long periods (bonds, oil, ags). Stay away and stick to the asset classes that are working (stocks, foreign exchange).
9) Keep positions small. The doubled volatility will make up for your reduced risk. This is not the time to get greedy and bet the ranch.
10) Turn off the TV and just look at your screens and data. Public entertainers have no idea what the market is going to do, especially if their last job was sports reporting. Their job is to get you to watch the ads for General Motors and TD Ameritrade.
11) As the bull market in stocks enters its sixth year, too many traders, analysts and strategists have become complacent. You are going to have to work for your crust of bread this year. This is an earnings, technology and productivity driven bull, not a QE driven one.
12) It is clear that more money was allocated to high frequency traders this year. That is driving the new, breakneck volatility, increasing stop outs. A sneeze now generates a 250-point intraday move. It is no coincidence that they announced this week the end of pit trading in Chicago. The traders all retired, or went off to programming school. Get used it.
Better change your password to, from 12345 to DKFGGIDKFOKBJGELXPEVJBKDLKFBBJFCJCKVLBKGTY69!, and hope that the 69 doesn?t give you away.
?Most inventions fail because the timing is wrong. Inventing is a lot like surfing. You have to anticipate and catch the wave just at the right moment,? said computer scientist and futurologist, Ray Kurzweil.
Global Market Comments
February 6, 2015
Fiat Lux
Featured Trade:
(SHOPPING FOR A NEW BROKER)