SeeTheLight

Wednesday Outlook: Commodities, Global Markets

Although there is a high inverse correlation between Gold and the USD (for the obvious reason that Gold is most commonly quoted in the dollar), if we see a significant pullback here you could see both rise in a "flight to safety" as the goldbugs go to their preferred bunker and the institutional investors search for safety by buying treasuries.

Personally I believe a pullback is inevitable, already China is turning down the stimulus spigot (in the form of credit tightening) and its only a matter of time before the US is forced to dial back its own largesse. Anyone that believes that the stimulus has been successful in jump starting the economy is likely blinding themselves to the fact that nothing really has been repaired, and once the punch bowl is removed the economic engine will likely sputter and died.

But the question is when. You mentioned that we are seeing a reversal in behavior as good news is being sold off. We are seeing another battle between the momentum bulls and the fundamentalist bears. The bulls could win another battle here, but the war will inevitably favor the bears in my opinion, since all this stimulus has accomplish is a redistribution of wealth, not any ongoing growth.

Personally I am being very careful in any equity longs I have remaining, with moderate positions in UUP and in CEF (Gold / Silver), which represent good risk/reward to me. The rest remains in cash in the expectation of a return to deflation or low inflation for the next 12-18 months. I'm also considering moving a bit into TLT but its risk / reward is less compelling to me than the other two.

Good Luck all

Thursday Outlook: Commodities, Global Markets

Hi Dave,

Yesterday I asked you a question if you are aware of any short ETFs that do not have the decay that results of tracking daily performance. I am getting pretty bearish on the market and I am looking at what I can purchase to profit from a long drawn out down trend. My first consideration was SH (1x inverse S&P 500), but of course you can quickly see by looking at a 1 year comparison chart that even though the S&P 500 is down about 10% YoY, SH is down 20% YoY. Its worse with the leveraged instruments.

I am considering buying UUP (Bullish US Dollar ETF) since I expect the dollar to rally if the bear returns. But I was wondering if there was anything else you would recommend as an investment for a long slow down trend (similar to a 1930 - 1932 scenario).

I will caveat my above statements that I do not necessarily believe that these things will come to pass, but I see bad portents and I want to be able to position myself appropriately in my accounts when the time comes. Until then I am slowly cashing in my longs as the rally continues, which I feel is prudent from a risk reward standpoint.

Good Luck all

Wednesday Outlook: Commodities, Global Markets

Hey Dave,

A question for you. Any ETF that seeks to track the daily performance of an index suffers from decay if you hold the ETF long term. These effects are exacerbated when the ETF results are leveraged. This is generally understood by experienced traders, but poorly understood by retail investors, which is the reason for much of the angst towards these instruments.

Of course, for 1x Long performance you can always purchase a spider like SPY to avoid this decay. But if you were wanting a short version, do there exist any ETFs which do not have this decay?

If so, that might be preferable to shorting which requires margin and has the risk of unlimited loss, whereas an ETF limits the risk to your investment.

Thanks!

Thursday Outlook: Commodities, Global Markets

I've started to take profits on my longs that have skyrocketed, and I continue to hold on to any laggard longs with the belief that people will realize, hey, they've been left behind and that is unacceptable, everything must be overvalued, good, bad or ugly.

It amazes me that despite the ho hum news we continue to rally well above 200 MAs. I guess I could be leaving the icing on the table but I've already had my cake.

The big concern I have is that no one is talking about Back to School nor Christmas yet. Back to School is going to be especially hard compares since the consumer really didn't get hit by the recession until 4Q. If that impossible situation can be spun positively, well, then we will truly be living on Fantasy Island.

You add in the fact that oil is back over 70, commodity prices are skyrocketing - that is taking more money out of the consumers pocketbooks. The market can remain irrational longer than one can remain solvent but euphoric panic buying, short capitulation and even GS's HFT can not buoy this rally indefinitely. The NYSE McClellan Index and NYSE Summation Index charts are especially telling.

Good Luck all

Tuesday Outlook: Commodities, Global Markets

Seven more bank failures last week, GS automated trading program stolen ... allegedly, Biden says Obama administration misread the economy, the list goes on and on. And yet some how we are holding technically to the neckline on the HS pattern on the S&P 500 and mirrored on many other charts you posted.

Smart money is apparently getting defensive (and as always manipulative) and the retail investors are apparently rushing in still to catch the rally that they missed thinking that they can get in on the recent dip. Does anyone see any strength here? I don't. The downside risk seems palpable and the upside potential muted to me. Looks very reminiscent of a bull trap here. Of course the powers that be always seem to push for one more last gasp so I am placing my bets all over this market roulette table.

I suspect everyone is waiting for earnings to signal the direction and I wonder if "better than expected" will no longer be good enough. My intuition favors the affirmative as the rally was based on an expectation that the recovery would be V-shaped and not L-shaped.

Good Luck all.