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Robert Duval
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Professional Independent Trader, 16 years. Started as a equity index futures floor trader, now swing / intermediate trade, US stocks, international ETFs and stocks. Believe in correlation of markets, must understand all markets to trade one well. Self taught by studying myself and other... More
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  • INVESTING IN UNCERTAIN TIMES: CURRENCY WARS AND A "BARBELL" APPROACH

    I've had the unfortunate experience of fighting a nasty case of bronchitis for the last couple of weeks. I suppose it has been a mixed blessing, having slowed me down, I have toned down my natural aggressive trader tendencies.

    In short, for a period I have been both more patient, and more reflective of my current positions and the current investing situation we find ourselves in. I will attempt to convey my thoughts below, on a barbell strategy investors can consider at this time, partly including a healthy cash allocation.

    There is little doubt, there are major concerns on the deflation front, as expressed in numerous markets, starting in Japan, and manifesting in sluggish growth and falling inflation expectations in Europe. This is a serious, long term concern, and markets are expressing clearly, all is not right with the world, from a growth point of view:

    TLT -- US 20year + Long term bonds -- inexorably following the rest of the world towards zero? German 10 year bonds are already yielding a ridiculous 0.36%, and they aren't alone. A growing number of shorter term securities are sporting negative yields.

    TLT Chart

    TLT data by YCharts

    Copper, reflecting the overcapacity that exists, and slowing growth not only in Europe, Japan, the US, but China: (Copper ETF)

    JJC Chart

    JJC data by YCharts

    And now Oil; which seems unable to gain a bid, even nearing $45.00 for WTI: (Oil ETF)

    UCO Chart

    UCO data by YCharts

    Yet I am NOT short anything, (at this time) which might shock regular readers of my rambling thoughts. Why? Well -- as the ECB starts yet another QE program, both Canada and India cut rates, I am distracted from short selling opportunities by a rather pretty girl that keeps walking by. What??? Yes, she's a knockout, and her name is TINA. TINA keeps beguiling many investors, and her name stands for "There is No Alternative".

    With Risk Free rates continuing to decline, all else being equal, as long as the Junk and Corporate bond markets stay well behaved -- an important caveat -- it is difficult to see a major, long lasting selloff, as existing dividend yields provide floor to valuations. Dividend cuts from US multinationals -- would also invalidate this forecast.

    I am not short -- because I weigh the risk of a 2000 era; blow - off move higher in all US assets, in a massive US flight to safety -- at least as high as a sudden, serious correction. In short -- its a dangerous time to be too aggressive -- in either direction, even for the traders out there.

    One thing is clear -- Investors, regardless of current economic data or corporate layoffs, continue to respond to Central Bank action above all else. They love it! CB's continue to try to export their deflation to each other, via lower currencies, in a world with simply not enough growth to go around.

    I am cautiously constructive -- but IF and only IF the "Currency Wars" -- do NOT morph into outright "Trade Wars" with sanctions and overt threats. We don't know how things will develop. Monitor carefully. If the climate turns suddenly nasty, take defensive action with your portfolio.

    So what is an investor to do? I propose a barbell approach, along with a healthy cash allocation, to protect against the chance of major economic shocks, and a focus on the single best international growth story out there, with enormous potential:

    Part one of the Barbell -- allocation to India:

    EPI Chart

    EPI data by YCharts

    India has at least 5 powerful drivers for a long term secular bull market, in short, as I've wrote in detail in other posts:

    1. No deflation problem: India has just started what is likely a series of rate cuts, from the 8% level. A long way to "zero".

    2. Oil prices provide a massive tax and inflation cut. No one benefits more than India, as they are a massive importer.

    3. New pro growth government, with determination and serious credentials, to move India in the right direction, after a generation of stagnation. President Obama is about to visit India. Trade deals are a priority for both governments.

    4. A generational level of pent - up demand: India -- has the need for countless numbers of highways, rail lines, internet infrastructure, high - tech corridors, health care...the list is endless. The uber-bull case -- another China in the earliest stages, which makes an interesting early stage case for commodities.

    5. Lack of interest, from US investors: The comments and sentiment on this side of the pond to the Indian investment opportunity, so far is....apathy and disinterest. Most US investors...remain US centric.

    Barbell # 2 -- exposure to high quality Energy stocks. Clearly oil isn't going anywhere. However -- there has been a lot of bottom fishing here -- and I advocate caution in choosing only the strongest, fortress companies. One company I've done a fair bit of homework on is MEMP, which is a high - yielding MLP with strong hedges through 2019. In this sense, its a bit of a bond play, which makes some sense:

    MEMP Chart

    MEMP data by YCharts

    Barbell # 3 -- US Housing / Infrastructure plays. These would be a long term bet -- on future expansionary US policy --- and secondarily US household formation transmitting into expansion in the housing market. I would keep these bets small at this time.

    Barbell #4. -- A large allocation to cash and cash equivalents -- 25%. This could be allocated to shorter term Government bonds. I don't see a US rate hike in the near future. I think the Fed will take it very slow when push comes to shove. However, asset prices, outside commodities, ARE expensive relative to the growth out there. Hence a large cash buffer -- is essential.

    Charts to watch / Caveats: Junk and Corporates, and the Financial sector. Any major weakness in these areas are a warning sign, as would be markets ignoring the stimulus that QE provides. At this extended age of the US bull market, viligence is critical.

    HYG Chart

    HYG data by YCharts

    LQD Chart

    LQD data by YCharts

    To summarize, I think US markets may have a tough time advancing too much this year, and may be trapped in a range, awaiting more constructive fiscal policy, which would change the dynamic for TLT and all bond instruments. A "blow - off" move is also possible -- and would raise risks if it occurred, and would draw me into new short positions.

    Stay tuned.

    Disclosure: The author is long MEMP, EPI.

    Additional disclosure: Not investment advice. Consult your advisor.

    Tags: TLT, EPI, MEMP
    Jan 24 12:14 PM | Link | 7 Comments
  • Dec 6th Market Update, Positions, Charts And Targets

    As we move towards year end, I'd like to outline my positions, charts and targets moving into 2015. Note as I am an active trader, I do trade around positions, and I use tight stops. Positions may change at any time, however all of the following have a clear thesis and rationale.

    Certainly the large cap indexes remain persistent, although divergences remain from my previous instablog post, where I discuss these in detail. This post I will confine to my individual sector ideas.

    SHORTS. I continue to stay the course on shorting the most popular "high flyers", especially second tier names with limited to no GAPP profitability. Readers will notice I will rotate somewhat, if a name has a large selloff or sentiment becomes completely negative, I will cover and move to another name. Shorting is difficult of course, as we are in a extreme momentum driven market in the Nasdaq, and squeezes can develop at any time in this environment.

    I am currently up approximately 20% on total tradable assets on CLOSED positions -- which include some of the same names below. Below are OPEN positions as of Friday, a brief update, target, and current profit.

    (NASDAQ:GPRE) --Ethanol producer. Thesis relates to lower gasoline prices, along with Republicans winning the House and Senate, pressuring future ethanol mandate.

    Short from 27 area, + 2%. I was short this stock earlier from 35, covered 30, and have re-established as my only current energy short. Breaking 25 leads to considerably lower targets. GPRE Chart

    GPRE data by YCharts

    (NYSE:TCS) -- Specialty retailer. This name is a recent IPO that is coming down on valuation and unmet expectations. I covered the stock on its post earnings selloff to 16, and have reshorted on its big bounce. Now it is selling off again.

    Short from 22 avg, now 17.50, + 20% so far. Target double bottom of 15.50. TCS Chart

    TCS data by YCharts

    (NASDAQ:GPRO) -- Camera maker -- short via 2015 options. Special situation on this new IPO. Large lockup of stock ends late December and more in February. Currently have rolled January options into April as position needs more time. 70 is a key level, breaking this could lead to low 60's quickly. Currently offside about 30% on option position.

    GPRO Chart

    GPRO data by YCharts

    (NASDAQ:TSLA) -- certainly the most hotly debated stock on SA, is a core short. Thesis is opaque accounting, slowing North American growth, Lower Gasoline prices, and imminent high quality competition. A recent short.

    Stock is starting to sell off, facing a key test at the 218-220 level.

    Short from 238, + 6% so far. TSLA Chart

    TSLA data by YCharts

    (NYSE:TWTR) Core short position. Company is in disarray, with insider selling, management instability, and a confused vision. Stock is gradually breaking lower below 39 support, after multiple attempts to rally, big target is post IPO lows at 30, where I would substantially cover. Short Avg. from 39.50, + 2.5%

    TWTR Chart

    TWTR data by YCharts

    (NYSE:YELP) -- I actually am a bit surprised by this one -- as thought the last EPS report wasn't that bad. However I am listening to the market -- and after trimming, increased my position on Fridays' break below recent support. Short from avg. 55.20, + 2.5% Target -- $50.00 -- below that is a lot of "air" for lower prices. YELP Chart

    YELP data by YCharts

    (NASDAQ:QQQ) options. I have a good position in March 100 put options on the QQQ, expecting a healthy pullback. The QQQ hit 90 briefly on the October pullback, even 95 would make this a nice trade. The QQQ is extremely overbought currently, a number of its key components have topped out, including (NASDAQ:AAPL) on an interim basis at least. The key sector here is the semiconductors to watch (NYSEARCA:SMH) -- which has gone absolutely parabolic. When -- not if -- this uptrend breaks, so will the QQQ's. I am offside currently 25% on this option position. Note option positions are both multiples more volatile, and therefore I hold a fraction of the size of a stock position.

    QQQ Chart

    QQQ data by YCharts

    AAPL Chart

    AAPL data by YCharts

    SMH Chart

    SMH data by YCharts

    LONGS --

    (NYSEARCA:EPI) (NYSEARCA:SCIF) (NYSE:TTM) (NYSE:HDB) ---all India positions -- and (NYSEARCA:EPHE) -- Phillipines. I am flat on the whole group, (Less than 0.1%), as they have gone quiet near recent highs for some time. This has been extensively discussed as a long term macro theme, next catalyst would be an Indian CB rate cut next year, which should occur with lower oil prices.

    EPI Chart

    EPI data by YCharts

    SCIF Chart

    SCIF data by YCharts

    Gold positions. (NYSEARCA:GDXJ) Silver (NYSE:SLW) --- to me I am impressed with the resiliency of both Gold and Silver off of the post - Swiss Vote lows, both hold near important resistance, even with a runaway US dollar. An Indian Rate cut may be a catalyst here. (India is a large buyer) Above 1240 -- Gold -- and 17 -- Silver -- are key levels.

    SLW -- I am flat with a 24 entry. (GDXJ) has been disappointing so far, my entry is 28 area for a 12% open loss so far.

    SLW Chart

    SLW data by YCharts

    GDXJ Chart

    GDXJ data by YCharts

    Norboard (NDB.TO) -- is my longer term housing play -- this 10% yielder is bought for the Divy, and is trying to break out against long term resistance above 24-25. One day housing will come back in the US, this is a conservative play. Long 24.60, - 2.5%

    NBD Chart

    NBD data by YCharts

    Best wishes to all investors in 2015. I don't expect any major movement in December, these positions are set up for next year. (although it would be a bonus if there was).

    Regretfully there is open disbelief in some quarters than making profitable short trades by mortal human beings is impossible. That this is the case, should be a cautionary sign in itself, about the one - sided sentiment out there.

    To that end I post a few charts from my last series of trades, now closed, in which one can observe if by holding positions for any length of time in the recent past, a profitable result would have occurred:

    P Chart

    P data by YCharts

    ANGI Chart

    ANGI data by YCharts

    WPRT Chart

    WPRT data by YCharts

    CLF Chart

    CLF data by YCharts

    Disclosure: The author is short GPRE, GPRO, TWTR, YELP, TSLA, TCS.

    Additional disclosure: Author has multiple positions, which can change at any time. This is not financial advice and Author is not an advisor. Do your own Due Diligence.

    Tags: QQQ, EPI, GDXJ
    Dec 06 12:18 PM | Link | 34 Comments
  • Trends And Developments: Checking Under The Hood Of A Powerful Bull Market

    It has certainly been a powerful Bull Market rally from the brief October correction. And make no mistake; lets call this market what it is: A Secular Bull; which it has been since breaking the 2007 highs last year.

    It has been a learning experience for me as a trader; who used to focus on the indexes from my floor trader beginnings, and gradually and incrementally have developed something approaching competence in individual stocks.

    I am learning --- and investors / traders always learn through losing money -- that I am better off with a relatively agnostic attitude and positioning in the major indexes, to maintain focus on a select and changing group of sectors and individual stocks.

    With this I confess to having no idea where the SPX and other averages will be heading through the remainder of the year and into 2015, other than markets are (always) akeen to a bucking bronco attempting to kick participants off.

    However; the recognition of a powerful bull does not invalidate short side opportunities and observation of divergences; I discuss some of these, below.

    First I find it interesting, as the FED has concluded tapering, foreign central banks have ramped up action -- the BOJ and PBOC in quick succession, along with ever increasing chatter, if little meaningful assertive action, from the ECB. For all of this --- the US market response -- as measured by the "average" US stock, not the (SPX) -- has been tepid: Note the (NYSEARCA:IWM) has been quite flat, and was rejected from a double - top on Friday in the 118 area:

    IWM Chart

    IWM data by YCharts

    Supporting this somewhat -- is I have had a net short position, of varying degrees in various energy stocks (now covered) and Nasdaq high priced momentum stocks (more or less maintained) for the last number of months, and I am finding these to be profitable positions even during this powerful SPX rally. This may be an indication -- that in spite of very positive US data, the rally may be growing more defensive in nature: (see SPX, and Utilities charts)

    ^SPX Chart

    ^SPX data by YCharts

    XLU Chart

    XLU data by YCharts

    Please see below the following charts, I am short this group of momentum leaders. NFLX, TSLA; and PCLN, which are disappointing on profitability and facing higher costs and competitive inroads: (from leaders like AMZN and AUDI, which has announced a serious competitor in development to the Tesla S model)

    The key issue -- high margin business's ALWAYS attract quality competition. In a healthy market for these stocks -- competitive pressures would be ignored. The market always makes the news relevant, so there has been a sea change, in this environment; at least for this group:

    NFLX Chart

    NFLX data by YCharts

    TSLA Chart

    TSLA data by YCharts

    PCLN Chart

    PCLN data by YCharts

    TWTR -- on the other hand --I see as a expensive social media company without a clear vision, and with heavy insider selling.

    TWTR Chart

    TWTR data by YCharts

    And a poster child for over- valuation, Gopro, which is selling substantial stock through founding shareholders, and has run from it's IPO at 24 to recent highs in the 90 area. This is a camera company -- that would market itself as an internet content company. In my view, it isn't, and will be revalued:

    GPRO Chart

    GPRO data by YCharts

    In addition to this group of stocks; I am noticing, in spite again of that wonderful US data -- long bonds represented here by (NYSEARCA:TLT) are not only not forming a bear trend as widely anticipated, but look to be forming a rounding base:

    TLT Chart

    TLT data by YCharts

    And now to Gold:

    Gold is moving higher; and particularly the Gold Miners as represented by (NYSEARCA:GDXJ), which tend to be a leading indicator for gold prices themselves. There are possible catalysts here for a sustained move higher in gold. First, sentiment is quite washed out and most former gold bulls have "given up" on gold as an asset class for the time being.

    More importantly is the upcoming Swiss referendum on November 30th; which would require large purchases of gold to back the Swiss Franc. The Swiss central Bank has been printing enormous quantities of Francs to support a Euro peg to the Franc at 1.20 Euros to Francs.

    I believe the upcoming vote is an expression by some in their society that this form of currency devaluation has gone too far; and is a desire to impose discipline.

    I think this particular vote, which I expect to fail and cause a gold selloff, is less important than perhaps Switzerland as a potential leading indicator for other countries, and future push back against the unrestrained currency wars all over the planet.

    The bottom line, is Gold is becoming very interesting to me as a longer term asset class -- and more so; if the US dollar tops out -- which is a good possibility, at least on an intermediate basis.

    How will I trade it near term? I am long a healthy position in (GDXJ) and a few other stocks; if gold runs up sharply into the Swiss vote, (on short covering) I will reduce exposure, but be looking to re-establish exposure on dips. In other words, at this juncture, nimbleness is required -- at least until Gold's trend is proven:

    GLD Chart

    GLD data by YCharts

    GDXJ:

    GDXJ Chart

    GDXJ data by YCharts

    All in all -- there are some interesting trends under the surface of this amazing bull market in US equities.

    Best wishes to all investors.

    Disclosure: The author is short NFLX, TSLA, PCLN, TWTR.

    Additional disclosure: Consult your financial advisor. This is not financial advice.

    Nov 22 12:09 PM | Link | 24 Comments
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