Are Markets Headed for an 800-Point Blow-Off Day? 25 comments
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Bob Howard, the editor of Positive Patterns (positivepatterns@prodigy.net) is a smart guy. He’s also experienced enough to know that nobody picks the market direction or amplitude consistently. Those of us who are honest and who have been to two goat ropes and a pig-wrestling contest know that the market will always do its best to confound even the most intelligent and savvy market professional.
You can listen to those touts who claim, “My last pick went up 184% in a month!” if you like. (After all, “a fool and his money are soon parted” is what these charlatans depend upon to keep their business growing and your net worth declining.)
Alternatively, you can try to identify those advisors who use common sense, a lifetime of experience, and discipline to make money more often than they lose it. Bob is one such advisor; a friend and competitor with whom I exchange newsletters and ideas. He’s also one of the few people I know who told his clients to sell everything in September of 2008 and to buy back in March 2009.
Like me, Bob believes this rally that has climbed 56% from 6,600 to 10,300 with hardly a breather is long in the tooth. Like me, he’d rather begin easing his clients nearer the exits even if it means they “miss” part of the continuing irrational exuberance. Unlike me, he believes it may end with a bang rather than a whimper.
I see more and more skeptics joining the party on every 200-point up day and think it pretty likely that, when the last skeptic bites their lower lip and reluctantly throws in the towel – along with their cash – that’s when the market will begin its correction. More buyers than sellers = an up market. Even one seller if there are no buyers left to buy = a down market.
Neither Bob nor I nor anyone else knows for sure what the market is going to do or when it is going to do it.
But Bob has posited one interesting possible scenario: that there are still enough uncommitted investors sitting in cash that if Wall Street manipulates sentiment and trading just right, they can suck in the last of those on the sidelines in one tumultuous day with buy orders that drive the market up 300 or so points, then watch as the public panics in that day and the next.
He figures if we see an 800 or so point up day it will be a clear signal to sell. After all, for every buyer there’s a seller, and you can bet when “everyone” is buying it will be Goldman (GS) and Morgan (MS) et al who are dumping their inventory onto an unsuspecting public.
How does Bob suggest positioning for such an event? Unlike me, Bob doesn’t play the short side so he wouldn’t buy the “downside insurance” puts on the market as I have done for clients, or buy inverse ETFs as I have done.
Where he and I violently agree, however, is that a correction in precious metals will also take place, but will be shorter-lived, and that gold and silver will be higher at year-end 2010 than at year-end 2009. We also agree that the US dollar will likely rally, but only in the short term. Our government’s piggish devotion to taxing workers (called by government, “the piggy bank”) and spending on giveaway programs ( properly called “breaking the piggy bank”) dooms the dollar in the intermediate and long term, so a dollar short is a good bet.
We also agree that, with a declining dollar, commodities like food, base metals and energy will rise in dollar terms, so high-income energy plays like gas and oil pipelines and other MLPs, as well as the best of the oil producers, make sense, as will quality apartment-rental and health-care REITs.
In his own words, from yesterday’s e-letter:
So where the HECK can we make money here?
Gold stocks should do well.
Energy stocks should do well.
Agriculture stocks should do well.
RR stocks should do well. Uncle Warren says that his BNI trains can haul 1 ton of coal 460 miles on one gallon of diesel. If you can convince yourself that he did NOT buy BNI for the coal angle - then you probably think OJ is innocent, and that the recent 3.5% GDP was real, and that elephant you see in the room of America is just a mirage and you can wish it away.
Bob’s projections at the macro level for where we stand today:
Stock Market Next Few Years? Sideways, back and forth - in a range - downside at most 30% - worst case 35% from here - or 10 to 15% upside from here - absolute tops - hard to get much above that.
Best Performing Index Next 5 Years? I would expect that to be the Nasdaq and... the Russell 2000.
Best Groups To Own For The Next Few Years? DEFENSIVE STOCKS THAT ARE ON OFFENSE!!! Tobacco, Food, Ag, Pipelines, Some Foreign/Big, Canadian Stocks, Gold Stocks, Energy, Apartments, Some Banks, Some selected asset plays, Internet Content Providers/Digital Sellers of VALUABLE Content, Water Plays, and a few special situations.
Finally, regular readers already know my favorite picks in these sectors, and can review past articles at their leisure. But here are a few that Bob Howard recommends that I have not: Balchem Corp. (BCPC), Barclays Capital Convertible Bond ETF (CWB), Central Fund of Canada (CEF), Seaboard Corp. (SEB), Trustmark (TRMK), WebMD Health Corp. (WBMD), John Wiley (JW.A), Chicago Mercantile Exchange Holdings (CME), Elbit Systems (ESLT), EOG Resources (EOG), SunTrust Banks (STI), Teva Pharmaceuticals (TEVA), Nestle (NSRGY.PK), Philip Morris International (PM), Roche (RHHBY.PK), and Syngenta (SYT). I’m reviewing them currently and present them for your consideration, as well.
Personally, I hope Bob is right and that there might be / will be a whopper of a blowoff day. It would be a far clearer signal that it’s time to cool our jets for a while than the slow drifting-sideways end I fear may happen. And clarity is something we can all use a little more of in times like these…
Full Disclosure: Author is long inverse ETFs, market index puts, and a whole bunch of energy, agriculture, income, REITs, and MLPs, many of which Bob Howard and I independently concluded were excellent holdings. (See previous articles for specific equities.)
The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless –our Investors Edge ® Growth and Value Portfolio has beaten the S&P 500 for 10 years running but there is no guarantee that we will continue to do so.
It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.
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"Those of us who are honest and who have been to two goat ropes and a pig-wrestling contest know that the market will always do its best to confound even the most intelligent and savvy market professional." That's a nice line, but the fact is that the market is not a person, it is the result of thousands of decisions--rational and irrational--made every day by its participants. It does not have an agenda to "confound" anybody.
"Unlike me, he believes it may end with a bang rather than a whimper." That would be two contrasting opinions, no facts.
"Neither Bob nor I nor anyone else knows for sure what the market is going to do or when it is going to do it." Ahhh...an actual fact.
"More buyers than sellers = an up market." <-->"for every buyer there’s a seller" Well which is it? Both cannot be true.
"If-can-will-might-sho... All opinion words, unsupported by anything. Personally, I find opinion pieces backed up by facts and reasoning to be more useful than mere opinion pieces. Tell me why you believe as you do, not just what you believe.
Thus I sold most all my holdings today including SYT. A blowoff will hurt even overseas stocks and demand. When Congress and the Fed go to war don't expect the norm.
Tomorrow Dow will rise maybe 50 to 75 points, then the upward march to 14,000, punctuated by off days of no more that 100-200 points.
Don't get me wrong, I think the U.S.A. and the economy is a dead duck, but it is not in the G-20's interest to let the U.S.A. to fall into the abyss like a rock. I think what they'll do is a slow, but sure, decent into mass poverty for the U.S.A., perhaps for the next 20 to 30 years, unless a miracle comes along to save us.
I dedicate this song by Danzel to my good buddies, Ben and Tim:
"Pump It Up"
Don’t you know, pump it up,
You’ve got to pump it up,
Don’t you know pump it up,
You’ve got to pump it up.
Don’t you know pump it up,
You’ve got to pump it up.
Don’t you know pump it up,
You’ve got to pump it up.
It’s not so long ago, that the sound hit the nation.
Every saturday night, on your favorite radio.
The party’s jumpin’ yeah, and the vibe feels so strong.
Throw your hands in the air, lift your head up high,
You know you’ve got to sing along.
Don’t you know, pump it up,
You’ve got to pump it up,
Don’t you know pump it up,
You’ve got to pump it up.
Don’t you know pump it up,
You’ve got to pump it up.
Don’t you know pump it up,
You’ve got to pump it up.
It’s not so long ago, that the sound hit the nation.
Every saturday night, on your favorite radio.
The party’s jumpin’ yeah, and the vibe feels so strong.
Throw your hands in the air, lift your head up high,
You know you’ve got to sing along.
Don’t you know, pump it up,
You’ve got to pump it up,
Don’t you know pump it up,
You’ve got to pump it up.
Don’t you know pump it up,
You’ve got to pump it up.
Don’t you know pump it up,
You’ve got to pump it up.
Got to feel it, what’s the name of the jam.
Say : “ I can feel it “, you know you can.
I’ve got my groove on, and I’m ready to go.
Check out my ride girl, but don’t touch my radio!
Don’t you know, pump it up,
You’ve got to pump it up,
Don’t you know pump it up,
You’ve got to pump it up.
Don’t you know pump it up,
You’ve got to pump it up.
Don’t you know pump it up,
You’ve got to pump it up.
And make me feel good, feel so good
And make me feel good, feel so good
"for every buyer there’s a seller"
"Well which is it? Both cannot be true."
Actually both are true in a way....
For every buyer there is a market maker
For every seller there is a market maker
More buyers than sellers = market maker pushes up the bid/ask
...and in most cases these days the market maker is just a big ass computer even though somehow the majority of the public still thinks somehow they are dealing with a human being
On Nov 12 11:07 AM David Van Knapp wrote:
> I'm a pretty careful reader. Is there an actual fact somewhere in
> here that I missed?
>
> "Those of us who are honest and who have been to two goat ropes and
> a pig-wrestling contest know that the market will always do its best
> to confound even the most intelligent and savvy market professional."
> That's a nice line, but the fact is that the market is not a person,
> it is the result of thousands of decisions--rational and irrational--made
> every day by its participants. It does not have an agenda to "confound"
> anybody.
>
> "Unlike me, he believes it may end with a bang rather than a whimper."
> That would be two contrasting opinions, no facts.
>
> "Neither Bob nor I nor anyone else knows for sure what the market
> is going to do or when it is going to do it." Ahhh...an actual fact.
>
>
> "More buyers than sellers = an up market." <-->"for every buyer there’s
> a seller" Well which is it? Both cannot be true.
>
> "If-can-will-might-sho... All opinion words, unsupported by anything.
> Personally, I find opinion pieces backed up by facts and reasoning
> to be more useful than mere opinion pieces. Tell me why you believe
> as you do, not just what you believe.
Plus, today his strategy paid a handsome amount!
On Nov 12 08:48 AM Maxe Paul wrote:
> My advice is do the opposite of the madhedgefundtrader, and you wont
> go wrong.
When earnings season is complete it is going to be interesting to see the updated profit projections for 2010. I suspect given results thus far that we'll find the market isn't really overpriced nor underpriced. Which will allow bulls and bears to continue to believe they are correct.
Buying solid companies with good dividends is always a good choice. Others can try for 10 baggers, I'll take RBI singles all day long. If we are somewhere near "fairly priced" then we should start to see more differentiation between companies within sectors - something that seems to have been somewhat missing thus far.
Good Luck.
On Nov 12 08:28 AM bottoms-up wrote:
> I really don't think that Ben and Tim would ever let something like
> this happen. They would burn up the money presses first, dumping
> $$$trillions into the market.
On Nov 12 11:07 AM David Van Knapp wrote:
> I'm a pretty careful reader. Is there an actual fact somewhere in
> here that I missed?
>
> "Those of us who are honest and who have been to two goat ropes and
> a pig-wrestling contest know that the market will always do its best
> to confound even the most intelligent and savvy market professional."
> That's a nice line, but the fact is that the market is not a person,
> it is the result of thousands of decisions--rational and irrational--made
> every day by its participants. It does not have an agenda to "confound"
> anybody.
>
> "Unlike me, he believes it may end with a bang rather than a whimper."
> That would be two contrasting opinions, no facts.
>
> "Neither Bob nor I nor anyone else knows for sure what the market
> is going to do or when it is going to do it." Ahhh...an actual fact.
>
>
> "More buyers than sellers = an up market." <-->"for every buyer there’s
> a seller" Well which is it? Both cannot be true.
>
> "If-can-will-might-sho... All opinion words, unsupported by anything.
> Personally, I find opinion pieces backed up by facts and reasoning
> to be more useful than mere opinion pieces. Tell me why you believe
> as you do, not just what you believe.
Let me see now...
The actual Dow close today on November 13, 2009?
UP 73.00
Looks like I was right in the zone, but I know some of you don´t want to hear it!
My prediction yesterday:
On Nov 12 03:43 PM bottoms-up wrote:
> Today we see a typical "Ben and Tim" doing their usual "pump and
> dump" scam.
>
> Tomorrow Dow will rise maybe 50 to 75 points, then the upward march
> to 14,000, punctuated by off days of no more that 100-200 points.
>
>
> Don't get me wrong, I think the U.S.A. and the economy is a dead
> duck, but it is not in the G-20's interest to let the U.S.A. to fall
> into the abyss like a rock. I think what they'll do is a slow, but
> sure, decent into mass poverty for the U.S.A., perhaps for the next
> 20 to 30 years, unless a miracle comes along to save us.
Now Buffett is a bull and spent $34 Billion on a clear play on commodities. I got out of the market in 2008 and went to cash when I heard him say two words "Pearl Harbor". I have done well over the years watching what he says and observing what he does. He is the greatest financial mind who has ever lived and we are blessed to have him around. I hope he makes it to 100!
Inflation has to come back, but not yet. The U.S. dollar has no chance of going up over the long run for the simple reason of supply and demand. The treasury is working 24/7 printing money that no one is buying, so we have oversupply vs. zero demand, which is the worst of all worlds.
The equity markets and commodity markets are the only way to play the next 3 to 5 years as the dollar will continue to tank. People will see no value in real estate or bonds as they will be over taxed by municipalities in real estate and their principal on their bonds will drop like a rock once interest start to rise.
Companies have become lean and mean and are ready for the return of inflation. When it does I will put my clients in commodity plays and just sit back and enjoy the ride. That I will do only when I see the Fed raise rates. Until that day comes I will not invest in them as oil could go way down before it goes up as we have oversupply and little demand in commodity markets currently.
That will change when the Fed raises. As for the U.S.A dollar, which is now a sad story, will eventually become a nightmare. But not for us but for the next generation that will follow. I have a feeling that this generation will be looked down upon by history and generations that will come after us will scorn us as they attempt to pay down our debt. There are no free rides in this business but top quality equities are the only place to be.
On Nov 12 08:06 AM Mad Hedge Fund Trader wrote:
> mnc If I’ve told you once, I’ve told you a thousand times, stay out
> of those crummy neighborhoods, where the street corners are crowded
> with high priced stocks of dubious moral character wearing stiletto
> heels, fishnet stockings, miniskirts, and shoulder handbags. Sure,
> I know you young traders have needs, think with your hormones, and
> believe you can live forever. But if you absolutely have to go slumming,
> at least use some cheap protection. I noticed today that the January
> 1030 S&P 500 puts were selling at a bargain $19 today. That means
> for a mere $950 you can buy some decent downside protection for a
> $55,000 portfolio that takes you all the way out to January 15, 2010.
> That is bang on the support level that held in the last sell off.
> If you double top here on the charts and go down for a retest, you
> double you money. If yearend profit taking causes us to sell off
> going into the holidays, and we break that support, you make more.
> If the market melts down the day after we flip the calendar page
> to 2010, a distinct possibility, then you hit a home run. If the
> lemmings keep driving this market up every day for two more months,
> then you lose $900, or 1.72% of your portfolio, pennies, really,
> against the huge returns you have booked so far this year. It’s a
> win, win, win, lose pennies trader. I know that the pros that have
> done for a long time put these trades on without even thinking about
> it. It’s all about risk control. Since I am a cheapskate, I only
> like strapping on trades that have a risk/reward ratio overwhelmingly
> in my favor, and with the volatility index today a bargain 23%, this
> fits the bill nicely. Buy your storm insurance when the sun is shining.
"whopper of a blowoff day"??????????????????... presume the "author" is some sort of masochist?