With conflicting economic data overseas and ashore along with weak Q3 earnings giving investors vertigo of late, this week will most likely provide an answer to the question - Go or No Go?
Before getting airborne in my F/A-18 Hornet off the flight deck of an aircraft carrier I had to make sure that my systems, weapons, aircraft and I were FMC, or fully mission capable. With a single thumbs up to my plane captain followed by a salute to the catapult officer I signaled my ability to carry out my mission.
This week we will see if the market is a 'Go' or a 'No Go' for launch. But before we take an operational and then tactical look at the U.S. we must first take a look strategically at the financial battlefield and how this helps shape our neutral with a bearish slant strategic mindset.
The United State's banker, China, reported GDP 2 weeks ago. Any numbers out of China that involve government hands are of course suspect. China's head of state declared a month ago at the World Economic Forum that they will hit their annual goal of 7.5% GDP for 2013. Period. He can say that. China can say whatever they want and put up whatever numbers they want. Kind of like our government and monthly unemployment claims the month before an election.
CPI numbers out of Big Red for September were in line with expectations but the Producer Price Index (wholesale) fell, a bigger retreat in fact than August. Add in the once a decade change of command in the leadership next month and China is a significant contact on our radar.
Europe has done a nice job of taking Greece off the front page, attempting to get the markets to price in the eventual 'Grexit', or the Greece exit from the Euro Zone. Spain's borrowing costs have eased somewhat, but other than that Mrs. Lincoln, how was the play? The country faces systemic pressures from banks, government institutions, and the people. Spain is viewed as too proud to request a bailout as ECB President Dragi acts like Jack Nicholson's character in A Few Good Men when asked for the all important tower logs - His response? "You have to ask me nicely".
The request might not happen and if it does it may be too late. With borrowing costs on their 10 year bonds hovering over 7% for a couple weeks last month the country only slid further under the waves.
A front page story in today's Wall Street Journal reports that Catalonia may seek independence from Spain. Why? Known as 'the factory of Spain', the region has tired of powering the nation's economic engine while others sit on their hands and live off the fruits of their northern neighbor. Sound familiar? Any way we can boot Kalifornia and Illinois from the Union? Or maybe Texas and Florida will declare independence… Texas did it once and after living in the Republic for 7 years I can tell you they would have no problem doing it again. For good.
The Middle East continues to be a bubbling cauldron as the administration plays 'Who's on First' with their not so subtle cover up of the 9/11 attacks that, again, killed Americans. Syria continues to thumb their nose at the international community, with big brothers China and Russia laughing at a weakened United States. And of course Iran continues spinning away, looking forward to the day in the immediate future where they can destroy Israel.
Operationally here in the U.S. we've seen weak Q3 numbers from a majority of companies. At Top Gun Options we focus on revenue - not earnings. Why? Simple. Earnings can be manipulated and anything that can be manipulated by the street will be. Can you say 'Libor'?
Even stocks that tend to sandbag, like Apple (NASDAQ:AAPL), are having a hard time hitting the ball over the net…that they had previously lowered.
This of course is causing us to already start focusing on Q4 earnings, along with the impending fiscal cliff and sequestration. At least the 2008 tsunami was somewhat a surprise (not really). We have known about this fiscal cliff for over a year and no one has done a thing to stop it. Our bearish positions on SPX, along with positions in SH, SDS and VIX have been performing as designed and have been profiting nicely as the sleeping giant wakes up and sees a recession occurring on 2 January. Not our words, but words from the independent Congressional Budget Office (CBO).
At Top Gun Options we remain market neutral to bearish until after the elections when we will see if anyone in Washington intends on doing the job they're getting paid to do. We will continue to hold our bearish positions while looking at potential bullish trades in Jan/Feb in case the brain trust in Washington kicks the can down the road and the market experiences a relief rally.
Market Schedule -
Mon - Commerce reports personal income/spending
Tues - S&P/Case Shiller 20 market housing index, Conference Board reports consumer confidence
Wed - Q3 employment cost index
Thurs - Auto and retail sales numbers, October ISM, ADP private payroll numbers, weekly jobless claims, construction spending and business productivity
Fri - Commerce releases October jobs numbers, look for an increase to 7.9%, unless of course the administration plays with the numbers again…