A Little Weekend Perspective: Icebergs, Elections, The Fed, iPads and Jobs
I posted two video recaps this weekend (and last), on You Tube under "phxpeh" channel and under "DontTakeLosses". The DontTakeLosses (my universal screen name and number one investing rule) will be the main channel going forward.
The main points of these two videos, and the theme of this weekends analysis:
1) The stock markets are at crunch time. We have seemingly broken the downtrend of the last 3 months only to find ourselves bouncing, for 10 days, towards resistance from June @ $SPX 1130. Every 10 points or so we find a new technical "barrier" that shorty uses to roil us. The day traders, hedge funds and HFT algorithms and program traders use these levels to make sausage of the weak hands.
2) But this technical resistance is special. Because if we clear SPX 1130, it may be off to the races into clear sky. Sure, the shorts will make noise @ 1150 and 1200, but far less convincingly than the grind to get back to here from $SPX 1010.
3) What if we fail here? What if we don't puncture SPX 1130 decisively? We could revisit 1010, or fall to Fibonacci retracements to SPX 998, 980 or 943. We look both ways, got to know your downside risk. But as you know, we DontTakeLosses, so we only look down to see where we get back in after being stopped out much higher.
4) What is the likelihood of going up vs. down? Which way am I leaning, and why? Well, we are @ resistance, but we seem to have a bid under the market. The bulls keep buying the dips, or the day traders keep buying at the bottom of these little channels. But as this process goes on, we are moving up, no? I wrote a number of times that when Big $$ decides they will be invested and long(er) despite the lousy jobs numbers, when the market does not collapse on horrible jobs numbers but instead rallies, then we go back up. That is kind of what happened Friday. We made a precipitous drop, to support @ the bottom trendline on an ascending triangle, but bounced, with what looks like a bullish dragon fly dogi! I love that kind of talk;) Think traders don't have an eye out for the Fed this week per the lousy job numbers? I went 80% long at the close, longer in my trading account than I've been in weeks on a weekend.
6) Other than technical action what is going on? First, I watch the technicals because of the program and algorithmic guys incorporate these charts and patterns into their software programs/black boxes. Notice the headline this weekend that the hedgies and quants did not do well in June, or was it July? Because there is a tug of war. The technicals matter until fundamentals become clearer or more important to Big $$. As described in my videos, Institutional Money Managers, Mutual Funds, Pension Funds etc ... aka Big $$ owns 75% of the market cap, using round and estimated numbers. Retail investors in taxable accounts and self directed IRA investors (us, the tail of the dog) have maybe, for discussion purposes 10%. So, we're like a toy boat in the bath tub…tsunami waves can flush us. Well, it's not just us. When Big $$ fundamentally decides to rotate from defense to offense, it can crush the shorts and quants that are leaning the wrong way.
7) But what about Bonds? You know, Big $$ is so big it hedges, can be conservative, bide its time. It can have big Treasury holdings, corporate bonds and use derivatives, like Options, Futures, Volatility to round off their risk. This is the Iceberg. It sure seems to me that there are large pools of CASH (in Bonds) waiting to get in the game, capital waiting to be used, loaned etc. The numbers I use are representative, never intended as exact representations. I'm not about precise statistics, sentiment and trend is far more important to me. And not my sentiment, that of Big $$. You know the Bond market capitalization is 10 times that of the stock market. And you know 10 year T-bills are paying under 3%. You know that US companies have roughly $1.8 Trillion in CASH? You know US households are saving @ a 6% rate?? You know Banks have over $1 Trillion in capital that could be leant??? How much in the 10x sized Bond market might come into stocks??
8) You know we have an election in less than 90 days. You know the market is forward looking and a discounting mechanism (allegedly 6 monthsJ). You know Missouri voters went to the polls and voted 71% against the Obama Health Care mandate to buy health care insurance?? You know that most if not virtually all of those voters actually have health care insurance, they just don't like government telling them what to do (and we know it was really just a straw vote). You know that 67% nationwide support the AZ Immigration law? You know that Jeffrey Immelt got toasted in Italy and told the truth about Obama and his relationship with business in the US.
9) I may be early, but that ascending triangle is a squeeze and maybe it squeezes up. If the market starts to rally, it could be powerful. Bonds get sold, Big $$ rolls into the market anticipating November and boom, we're off to the races. For now, I expect more sausage and a slow melt up for awhile, but I'm going to be in my small cap low PEG ratio growth stocks in my IRA along with my emerging market eating Materials stocks. Maybe we squeeze some more as we get closer to November, but that will just make for a bigger move…up, or down. But the Big Gusher is capped, the Dems are on the political ropes with -131K jobs in June, and gridlock in DC, a stock investor's dream seems likely, no?
10) One more, final, point about this Great Recession: It ain't a Depression. Period. My parents who graduated college in 1931 or 1932 made us understand what that was like. This Is not it. Yes, we will have 10% to 15% real unemployment for an extended period. That is not 25% unemployed and 25% to 35% underemployed for a decade + . The vast majority of our employed still own homes with some equity, still drive late model cars, have Blackberrys, iPads, multiple HD lcd TVs, eat out regularly (ok, maybe at Chipotle...its good and fresh;). It was GRIM in 1933, almost until the war. Those who were employed, the vast majority, did not have "wealth" or 201k accounts (yes, our 401ks have rebounded from 101ks to 201ks) , they did not have income any where near the relative magnitude middle class America enjoys even in this "recessed" environment. Folks, it ain't even close. And, we have what, $1.8 Trillion in CASH on hand at corporations with great balance sheets, we have Banks well capitalized with $1 Trillion to lend, we have a HUGE sum in Treasures and Bonds waiting to nudge over into equities and we have the retail investor scared out by the May 6 Flash Crash watching, waiting. We have China growing @ 8-9%, my metaphor for the emerging markets. Finally, we have the greatest Agricultural year in US history upon us, in part due to the drought elsewhere. Coiled spring, baby.
IRA Plan, the Bottom Line: Stay the course. We bought back in with 35% CASH @ SPX 1010 and are holding, 92% long. We have 37 stocks there, listed in prior posts. Notably, 8 stock are up more than 25%, 12 others are up more than 10%, 6 up more than 5%, 8 are even to up 3%, 2 are down 1% and 1 is a remnant down 9% (its 25 shares of V just to track). That is it. No losers. Of those 10 flat to up 3% , my stops are within 2% to 6%. If we drop hard, they will be cashed in. Those above +10%, the stops are 5% to 8%; for those above that, the stops are @ 8% to 10% (even VMW up 64%, FFIV up 75%, and PCLN, half of which I (tweeted about) sold up 88 points in less than 1 month, up 59.92%).
The moral, I let the winners run and sell the losers with impunity. But once a winner sells off, I stop out with most of my gains. My stop may be for 75% to 50 % of my total position size. When I get stopped on any, I've got CASH to buy on these brutally down days on ones I've waited on. So, DontTakeLosses is not literally true, but its my goal, my golden rule and my saving rule.
Go Cards, NFC West Defending Champs;)
Disclosure: long all mentioned