Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
Buyandhold
I did not say I didn't participate in the rally. I participated in the large majority of it. I am a bit of a contrarian by nature and was all over the bull side when stocks started to base and QE was unveiled.
I was a very firm believer in the FED and honestly expected them to produce significant inflation. They haven't done so and as excess reserves continued to climb it became obvious the FED was pushing on a string. I turned bearish at 1475 - a long way from the 670 lows so your statement above is wrong.
We have made 3 trips to the top and 2 trips to the bottom since 2000 and we find ourselves today right back where we were in 2000. 13 years and we have gone nowhere.
Buy and hold works in a secular bull market - not is a secular bear market.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
John
As others have stated UVXY is a dangerous instrument and perhaps not the best vehicle for the unsophisitcated. Vix is an oscillator that measures the put/call ratio and that ratio can shift very rapidly and without much of a signal.
I can't tell you how I intend to trade the UVXY or the levered ETF's as there are considerations that one must take into account that don't apply for a stock or index play. It is a trade that I will have to monitor and see how the sell off evolves.
For instance, we could get a very sharp break and the VIX could soar. But if the market hits support and starts to consolidate the VIX can give all the gain back in very short order as the fear subsides and the puts are lifted. In other words VIX doesn't necessarily trend with the market and it is very unpredictable.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
B CFA
Is there anywhere in this article where I recommend using leveraged ETF's? Anywhere at all? The answer - no.
It is the way I intend to play the market but I don't offer advice to others on what instruments to use in the body of an article or in the comments.
That said the value destruction of leveraged ETF's is well known to all and it is a fact in a sideways market. The truth though is that value destruciton occurs in any stock in that situation and the leverage just amplifies the value destruction.
In a sideways market you will lose more with a leveraged ETF. In a market that trends against you the same applies. In a market with a strong trend in your favor the gains far exceed the unleveraged trade.
Leverage is a dangerous tool but very lucrative if properly employed. Even the best of traders get hurt using leverage at times so it is not for the unsophisticated.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
New
The leveraged ETF's merely amplify what the underlying is doing.
If you have a $10 stock that moves up, then down, then up and then down by 10% each day you will lose value in that stock even though it would seem you should be right back where you started.
Here's the math: Day 1 =$11.00; Day 2 = $9.90; Day 3 = $10.89 and Day 4 = $9.80.
That is what happens in a sidways market to any stock - not just levered ETF's. The leverage just magnifies the loss.
However, in a trending market where you have an up, a down, an up and an up this is what happens to the stock: Day 1 = $11.00; Day 2 = $9.90; Day 3 = $10.89 and Day 4 = $11.98
Now using the same math on the 3X in a trending market here is what happens: Day 1 = $13.00; Day 2 = $9.10; Day 3 = $11.83 and Day 4 = $15.38.
The point is any stock will lose value if the daily percent gain is equal and the up and down days alternate as in a sidways market making the 1X a safer play than the 3X. However, in a trending market the 3X will be a very profitable play - much more that the 1X.
The point is you pick the vehicle that will work to maximize gain if you see a strong trend as I do in this instance. The 3X won't underperform and will in fact over perfrom dramatically in a trending market.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
rod
I think bonds will have an upside bias in the scenario I envision. In spite of the systems liquidity the tendency will be to hang on to cash and the dollar will rise much further than present levels. As a precautionary measure sovereigns will grab for dollar assets, ie., treasuries.
In fact a recession could provide an excellent cover for the Fed to unwind their balance sheet as bond demand should be high enough to allow it without a sharp spike in interest rates - at least in the short term.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
Thomas
You can look at Doug Shorts excellent long term secular bull/bear chart for a long range view. Doug does a great job of explaining secular bull and bear markets. We are currently in a secular bear and will need to do a lot more work and move much higher to confirm a move to a secular bull.
The 13 years reflected in the chart above reflects the range of the secular bear - in other words a long term sideways market with cyclical bull and bear moves within the secular bear market.
That said, I am not calling the top based on the chart exclusively. It is entirely possible for the market to move into a secular bull and keep moving higher with minor corrections but the fundamentals don't support such an occurence in my mind.
If we remain in a secular bear as I think we will then my call is probably pretty close based on the chart but keep in mind as I noted above the chart hasn't given me a sell signal yet.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
wordsmith
VIX is a volatility index that measures put/call ratio - it is an oscillator. Vix futures are futures contracts on the Vix. UVXY is a leveraged ETF and it's value is based on the NAV of the futures contracts held.
It suffers from contango which is a situation where front months are cheaper than distant months for the reason that the ETF must roll forward into the higher priced contracts as the old contracts expire. The contango can have a very negative impact on UVXY.
With a spike in volatility based on the Vix put/call shift the futures could see backwardation which reverses the negative impact of the roll up.
UVXY is a highly volatile instrument as is VIX. A bull market kills the Vix as we have seen in recent months. On the other hand the upside will be substantial if the right market scenario develops - much more than Vix itself.
My near term projection for UVXY is 26. Another analyst I know sees mid 50's soon and possibly 200 if we sell off to the 2009 lows. It is not a good vehicle except in the event we see the sell off I foresee. If we do it will explode in a parabolic rise. If not it will continue to erode.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
nj
I don't think you are crazy at all and it does feel unreal.
I move back and forth between assuming they will try to prevent a sell off at all costs to wondering if the Fed is finally backing off now that they have achieved their objective which seems to be to get the markets back to post recession highs.
No corner on a market has ever worked and that is what this has been - an attempt tp corner a market. Just remember this - the Fed was on the job in 2000 and in 2008 and they didn't prevent those crashes.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
southagent
Consumer expenditures are easily the most positve component of GDP. The other components are in recession territory the last I looked. Furthermore, I don't think consumer spending is sustainable as we did go over the "fiscal cliff" - at least most of the way. We did get sequester and tax hikes if you will recall.
Top line sales peaked early last year as did profits suggesting a problem. Inflation is moving to disinflation and probably to deflation soon. PCE is a big deal as it represents about 70% of GDP but I don't see it gaining momentum.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
southgent
I am not basing my call on a model. I am basing my call on what I understand about economics, monetary and fiscal policy. It is my field of expertise for what it's worth.
I wrote a few rather lengthy comments here that explain my views and the basis for them. Maybe you could read them and tell me where you find the conclusions flawed.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
MT
The daily chart I use is about 18 months in duration but I also do a shorter version just to enhance the detail of the chart. My longer version gets a little cluttered.
As to the calculations I go back 90 days and capture the OHLC to calculate the mean and the same data points to calculate the standard deviation.
My 18 month chart and my shorter version both use the same data values as they are both drawn from the same table.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
Captain
I'm afraid you misunderstood my point. I have nothing against the Europeans and have no negative view of them at all. In fact, I don't have a negative view of the citizens of any country.
My point is that we have a flawed monetary system. It is a complex subject to be sure but the flaw with the euro is that the system is at a decided disadvantage to Japan and the US.
For instance, in the US we can use monetary policy in an attempt to expand liquidity and monetize debt through inflation by expanding reserves through QE. The Japanese can do the same thing.
How does Greece expand money supply? Or Italy or France? The way that is done is through the purchase of government bonds from the banks. That injects cash or liquidity into the banking system. The LTRO's did something similar to that but on a very limited basis.
The problem is that you have a group of countries operating with a single monetary system and multiple fiscal systems and it just hasn't worked. In the US and in Japan the sovereign issues the debt and the central bank buys it but in the EU the debt is of such diverse quality relative to risk that it poses a real problem.
Draghi has continued to promise that he will do whatever it takes but he hasn't done anything at all and his hands are tied. All he has is rhetoric. It is a flawed system.
That said, our global monetary system is flawed as well, We need to follow Keynes advice and Triffin's advice and create a single non-sovereign central bank and a non -sovereign reserve currency and the EU needs to be re-invented or dismantled.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
MT
On a daily chart I use the 90 day mean and SD calculation. In fact that is almost always what I trade off of but I used the monthly chart above to illustrate the point that we remain in a secular bear market and that the longer term multi year cycles are caputured by the chart.
It also helps to define the magnitude of the downside to look at the longer range monthly charts and also to define the time line. You can't see that on the daily charts. My 90 day chart shows the low in the low 1400's but that is based on a much shorter time line and I wanted to reflect the longer term picture.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
hopslover
You and others have made this comment repeatedly. I will ask once again - what do you think these etf's will do if the market has a rapid and steep descent - let's say to 1100 on the S&P in a month or two?
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
I did not say I didn't participate in the rally. I participated in the large majority of it. I am a bit of a contrarian by nature and was all over the bull side when stocks started to base and QE was unveiled.
I was a very firm believer in the FED and honestly expected them to produce significant inflation. They haven't done so and as excess reserves continued to climb it became obvious the FED was pushing on a string. I turned bearish at 1475 - a long way from the 670 lows so your statement above is wrong.
We have made 3 trips to the top and 2 trips to the bottom since 2000 and we find ourselves today right back where we were in 2000. 13 years and we have gone nowhere.
Buy and hold works in a secular bull market - not is a secular bear market.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
As others have stated UVXY is a dangerous instrument and perhaps not the best vehicle for the unsophisitcated. Vix is an oscillator that measures the put/call ratio and that ratio can shift very rapidly and without much of a signal.
I can't tell you how I intend to trade the UVXY or the levered ETF's as there are considerations that one must take into account that don't apply for a stock or index play. It is a trade that I will have to monitor and see how the sell off evolves.
For instance, we could get a very sharp break and the VIX could soar. But if the market hits support and starts to consolidate the VIX can give all the gain back in very short order as the fear subsides and the puts are lifted. In other words VIX doesn't necessarily trend with the market and it is very unpredictable.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
Is there anywhere in this article where I recommend using leveraged ETF's? Anywhere at all? The answer - no.
It is the way I intend to play the market but I don't offer advice to others on what instruments to use in the body of an article or in the comments.
That said the value destruction of leveraged ETF's is well known to all and it is a fact in a sideways market. The truth though is that value destruciton occurs in any stock in that situation and the leverage just amplifies the value destruction.
In a sideways market you will lose more with a leveraged ETF. In a market that trends against you the same applies. In a market with a strong trend in your favor the gains far exceed the unleveraged trade.
Leverage is a dangerous tool but very lucrative if properly employed. Even the best of traders get hurt using leverage at times so it is not for the unsophisticated.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
The leveraged ETF's merely amplify what the underlying is doing.
If you have a $10 stock that moves up, then down, then up and then down by 10% each day you will lose value in that stock even though it would seem you should be right back where you started.
Here's the math: Day 1 =$11.00; Day 2 = $9.90; Day 3 = $10.89 and Day 4 = $9.80.
That is what happens in a sidways market to any stock - not just levered ETF's. The leverage just magnifies the loss.
However, in a trending market where you have an up, a down, an up and an up this is what happens to the stock: Day 1 = $11.00; Day 2 = $9.90; Day 3 = $10.89 and Day 4 = $11.98
Now using the same math on the 3X in a trending market here is what happens: Day 1 = $13.00; Day 2 = $9.10; Day 3 = $11.83 and Day 4 = $15.38.
The point is any stock will lose value if the daily percent gain is equal and the up and down days alternate as in a sidways market making the 1X a safer play than the 3X. However, in a trending market the 3X will be a very profitable play - much more that the 1X.
The point is you pick the vehicle that will work to maximize gain if you see a strong trend as I do in this instance. The 3X won't underperform and will in fact over perfrom dramatically in a trending market.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
I increase my position as I am not hedging but playing for a large bear move - a dollar cost average in reverse.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
I think bonds will have an upside bias in the scenario I envision. In spite of the systems liquidity the tendency will be to hang on to cash and the dollar will rise much further than present levels. As a precautionary measure sovereigns will grab for dollar assets, ie., treasuries.
In fact a recession could provide an excellent cover for the Fed to unwind their balance sheet as bond demand should be high enough to allow it without a sharp spike in interest rates - at least in the short term.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
You can look at Doug Shorts excellent long term secular bull/bear chart for a long range view. Doug does a great job of explaining secular bull and bear markets. We are currently in a secular bear and will need to do a lot more work and move much higher to confirm a move to a secular bull.
The 13 years reflected in the chart above reflects the range of the secular bear - in other words a long term sideways market with cyclical bull and bear moves within the secular bear market.
That said, I am not calling the top based on the chart exclusively. It is entirely possible for the market to move into a secular bull and keep moving higher with minor corrections but the fundamentals don't support such an occurence in my mind.
If we remain in a secular bear as I think we will then my call is probably pretty close based on the chart but keep in mind as I noted above the chart hasn't given me a sell signal yet.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
VIX is a volatility index that measures put/call ratio - it is an oscillator. Vix futures are futures contracts on the Vix. UVXY is a leveraged ETF and it's value is based on the NAV of the futures contracts held.
It suffers from contango which is a situation where front months are cheaper than distant months for the reason that the ETF must roll forward into the higher priced contracts as the old contracts expire. The contango can have a very negative impact on UVXY.
With a spike in volatility based on the Vix put/call shift the futures could see backwardation which reverses the negative impact of the roll up.
UVXY is a highly volatile instrument as is VIX. A bull market kills the Vix as we have seen in recent months. On the other hand the upside will be substantial if the right market scenario develops - much more than Vix itself.
My near term projection for UVXY is 26. Another analyst I know sees mid 50's soon and possibly 200 if we sell off to the 2009 lows. It is not a good vehicle except in the event we see the sell off I foresee. If we do it will explode in a parabolic rise. If not it will continue to erode.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
I don't think you are crazy at all and it does feel unreal.
I move back and forth between assuming they will try to prevent a sell off at all costs to wondering if the Fed is finally backing off now that they have achieved their objective which seems to be to get the markets back to post recession highs.
No corner on a market has ever worked and that is what this has been - an attempt tp corner a market. Just remember this - the Fed was on the job in 2000 and in 2008 and they didn't prevent those crashes.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
Consumer expenditures are easily the most positve component of GDP. The other components are in recession territory the last I looked. Furthermore, I don't think consumer spending is sustainable as we did go over the "fiscal cliff" - at least most of the way. We did get sequester and tax hikes if you will recall.
Top line sales peaked early last year as did profits suggesting a problem. Inflation is moving to disinflation and probably to deflation soon. PCE is a big deal as it represents about 70% of GDP but I don't see it gaining momentum.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
I am not basing my call on a model. I am basing my call on what I understand about economics, monetary and fiscal policy. It is my field of expertise for what it's worth.
I wrote a few rather lengthy comments here that explain my views and the basis for them. Maybe you could read them and tell me where you find the conclusions flawed.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
The daily chart I use is about 18 months in duration but I also do a shorter version just to enhance the detail of the chart. My longer version gets a little cluttered.
As to the calculations I go back 90 days and capture the OHLC to calculate the mean and the same data points to calculate the standard deviation.
My 18 month chart and my shorter version both use the same data values as they are both drawn from the same table.
Is that what you needed to know?
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
I'm afraid you misunderstood my point. I have nothing against the Europeans and have no negative view of them at all. In fact, I don't have a negative view of the citizens of any country.
My point is that we have a flawed monetary system. It is a complex subject to be sure but the flaw with the euro is that the system is at a decided disadvantage to Japan and the US.
For instance, in the US we can use monetary policy in an attempt to expand liquidity and monetize debt through inflation by expanding reserves through QE. The Japanese can do the same thing.
How does Greece expand money supply? Or Italy or France? The way that is done is through the purchase of government bonds from the banks. That injects cash or liquidity into the banking system. The LTRO's did something similar to that but on a very limited basis.
The problem is that you have a group of countries operating with a single monetary system and multiple fiscal systems and it just hasn't worked. In the US and in Japan the sovereign issues the debt and the central bank buys it but in the EU the debt is of such diverse quality relative to risk that it poses a real problem.
Draghi has continued to promise that he will do whatever it takes but he hasn't done anything at all and his hands are tied. All he has is rhetoric. It is a flawed system.
That said, our global monetary system is flawed as well, We need to follow Keynes advice and Triffin's advice and create a single non-sovereign central bank and a non -sovereign reserve currency and the EU needs to be re-invented or dismantled.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
On a daily chart I use the 90 day mean and SD calculation. In fact that is almost always what I trade off of but I used the monthly chart above to illustrate the point that we remain in a secular bear market and that the longer term multi year cycles are caputured by the chart.
It also helps to define the magnitude of the downside to look at the longer range monthly charts and also to define the time line. You can't see that on the daily charts. My 90 day chart shows the low in the low 1400's but that is based on a much shorter time line and I wanted to reflect the longer term picture.
I hope all that made sense - if not let me know.
JS
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
You and others have made this comment repeatedly. I will ask once again - what do you think these etf's will do if the market has a rapid and steep descent - let's say to 1100 on the S&P in a month or two?
JS