Trading Topics

6/8/20 The Last Trade

2020-06-08T12:28:00.001-07:00

As of today, I'm transitioning to buy-and-hold. Positioning will take the form of 78% VT (ie, the world market, replicated using a 50/50 mix of VTSAX/ VTIAX) + 5.5% allocations in EEM (emerging markets)/ XLF (banks)/ XLI (industrials)/ XLE (energy). I may rebalance from time to time.

I have no interest in trying to time the decision, and I'm OK paying up (~1%) to open the positions today. After all, I skirted much of the damage on the way down, and also fully participated in last Friday's rally.

Moving on to other interests.

3/23/20 Out of the Blue and Into the Black

2020-03-23T07:38:00.003-07:00

A Neil Young classic recorded at the Cow Palace in 1978:

https://www.youtube.com/watch?v=i6RZY4Ar3fw

Trying to time the market based on fundamentals and/or technical signals has been next to impossible - which leaves us with sentiment as a rough road map.

Any upside reversal(s) into the black are likely to come out of the blue - as to when/ where it begins, well - your guess is as good as mine! I'm only able to opine that we're probably close in both time and space.

Still long (and wrong).

1/31/20 A Decent Pitch

2020-01-31T11:50:00.001-08:00

1. Put/ Call 112%.

2. Fear and Greed 45 (versus 97 not long ago).

3. Media accounts of the coronavirus appear to have switched from assurance to fear.

4. There are now headlines calling for a -10% correction.

I think it's time to buy.

12/10/19 Long At The Close

2019-12-10T16:36:00.000-08:00

Repositioned long the global markets at today's close.

I prefer in general to buy negativity and sell exuberance. The current environment is kind of a puzzle. On the one hand, there's a great deal of anxiety - as evidenced by relatively large cash positions (both retail and institutional). On the other hand, I sense optimism about the economy despite the anxiety.

Once in a while, the stock market will 'ride the upper Bollinger Band-' ie, prices will continue to rise on positive sentiment. Think back to 2017 - the market remained 'overbought' for a long time. I think we may be entering another period of persistent upside movement in prices. Call it what you want - climbing a wall of worry, riding the upper band, a rally against the odds. The fact is that it's happening - the market likes to defy expectations, and I think that's exactly what's going on.

12/6/19 Take Five/ Mercy

2019-12-06T16:52:00.003-08:00

I sat out today's rally.

https://www.youtube.com/watch?v=tT9Eh8wNMkw

While we're taking five, let's discuss the cognitive behavioral approach to a missed opp:

(a) What's the point of trading? Is it to nail every buying/selling opp? Of course not (if that's the goal, you won't last long - more on that later). No, the entire point of trading is to lower risk. I don't like taking big hits, and I'm willing to pay a price to avoid them. The price I pay takes the form of lower relative gains. (Once in a while, of course, the fact that I'm able to sidestep extended declines means that I'll outperform the market!)

(b) What's the cost of a missed opp? Some traders take the perspective of 'opportunity cost-' or as Peter Lynch once put it, 'Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves.' Hey, that's probably true - but that doesn't work for me. I have a big aversion to sitting through -50% market crashes. My reply to the question would be, 'Nothing.' Sure, I didn't make any money today watching from the sidelines, but neither did I lose any money.

(c) What's a good year? For me, +7% is a good year. I'm currently up +9.82% year-to-date. Of course, most indexes are up >+20%! So I'm way behind. On the other hand, I ended 2018 off just -1.36% - well ahead of most indexes. I matched the indexes with my own +20%+ year in 2017. I can't even recall 2016, but I think it was a killer year. Ultimately - who cares? When it comes to performance, luck plays a big role and I consider myself fortunate to be up +9.82% right now. A couple of months ago I was up just +6% and happy about it. Everything in life is relative.

So what happens when traders feel the need to nail every opp?

https://www.youtube.com/watch?v=s4rXEKtC8iY

10/3/19 Green Signals!

2019-10-03T16:43:00.001-07:00

Evidence that a short-term bottom was put in this morning at SPX 2856:

(a) Put/Call ratio 137% (even higher @ 154% earlier in the day).

(b) ETF Put/Call ratio 201%.

(d) AAII Bulls decline to 21.37. Bears rise to 39.44.

If you don't like numbers, here's what it comes down to:

The market rallied on bad news (ISM) to pull off a Staubach come-from-behind win.

9/4/19 The Beginning of the End

2019-09-04T06:20:00.002-07:00

The +1000-point rally in the Hang Seng may be the shot that signals a reversal in trend for emerging markets - the beginning of the end of a long down trend (which in my opinion began in January 2018).

Emerging markets tend to lead the global stock market.

I will probably begin scaling back into emerging markets, with a longer time horizon. Unlike recent buy/sell alerts, it probably won't matter whether you buy in today, tomorrow or next week (recall the 't+5' study).

Not having bought back in last night? I don't view it as a 'missed buying opportunity.' First of all, none of us participated in the recent down draft. Secondly, it's appropriate to wait for a catalyst before making a trade - we open positions only on high(er) probability bets.

8/13/19 Bullish on Emerging Markets

2019-08-13T12:53:00.002-07:00

I like today's action in EEM (emerging markets). The ETF retested the August 5 closing low of 39.05, then quickly rallied >+1% above it on high volume.

I plan to reopen VEMAX (Vanguard Emerging Markets) at the close.

Also opened a small position in EWH (Hong Kong).

Addendum:

What happened today?

No capitulation, no panic. No complicated technical indicators.

In my opinion, what happened was much better! Institutional fund managers apparently decided valuations in the EM sector were compelling and started buying.

We can't know ahead of time when the buying starts. In fact, expecting a continuation of the downtrend I closed a position in EEM this morning way below the highs of the day. Instead, we close with bullish 'outside days' on high volume in EEM/ VWO/ IEMG, all of which closed up > +1.2%.

There was no point front-running the trade last night - last night it would have been a high-risk gamble. Paying up for the trade today? Not a problem - it's now an attractive play, and we can consider the higher price an insurance premium. (I had a bit of luck at the close - VEMAX [Vanguard Emerging Markets] closed up just +0.48%, and I reopened the position at a -4.6% discount to my last exit in late July.)

8/4/19 Correction Ahead

2019-08-04T09:46:00.004-07:00

It's my opinion the markets will experience a correction of -10% to -15%. In fact, to throw everyone off it may even (finally) retest last December's lows, in which case we're talking about a -20% correction for the SPX. As you know, my opinions are often wrong, and subject to change at a moment's notice- however, whenever I post an opinion it's an honest reflection of my current take.

Even a -10% correction would wipe out my current ytd gain of +9%. My baseline position will be cash. My plan is to play the counter-trend rallies that always occur- in fact, it's my favorite play.

I'm waiting to hear China's response to the renewed threat of tariffs. Best guess for Monday is a gap-down open followed by a relief rally. In order to control risk/maximize flexibility I plan to trade only ETFs or (in the case of accounts limited to trading mutual funds) Rydex funds that trade twice daily (1030 am/ 345 pm est). No plans to trade either inverse or leveraged Rydex funds.

As always, I'm open to being completely wrong. In which case I'll change my strategy.

7/21/19 The Devil Lies In The Details

2019-07-21T16:20:00.000-07:00

I finally got around to reading the Milton Berg interview:

https://www.marketwatch.com/story/investor-who-nailed-the-1987-crash-ditches-stocks-and-bonds-and-heres-why-2019-07-12

Which has me turning bullish. Why? Read it carefully. The devil often lies in the details. The 'one thing that doesn't quite add up' (which I take to mean the two indicators out of 100 that remain inconsistent with levels seen at prior market tops) - that has me thinking Bert is front-running his model. Maybe it's nothing - or maybe it's everything.

5/3/19 A Different Take On China

2019-05-03T16:18:00.002-07:00

Interesting opinion piece written over a year ago.

https://carnegieendowment.org/2018/03/13/china-s-economy-is-not-normal.-it-doesn-t-have-to-be-pub-75796

Excerpts:

China has never been a normal economy. It experienced an average of nearly 10 percent growth rates for almost four decades, a record; it is the first developing nation to become a great power. So why couldn’t it keep defying expectations?

What some take to be the Chinese economy’s weaknesses have, in fact, been strengths. Unbalanced growth isn’t evidence of a looming risk so much as a sign of successful industrialization. Surging debt levels are a marker of financial deepening rather than profligate spending. Corruption has spurred, not stalled, growth.

Centralized authoritarian power has its benefits, including the ability for those who have it, at least in theory, to correct course rapidly. This has allowed China’s leaders to put the economy on a more sustainable growth path in recent years. The gross domestic product growth rate rebounded last year. Foreign reserves are back up as well. Wages have increased. The recent abolition of term limits for the president and vice-president’s terms gives President Xi Jinping more time and leeway to promote his vision of a more prosperous, modern and powerful China, and with the help of trusted advisers: His former corruption czar, Wang Qishan, is expected to be named vice-president and Liu He vice-premier in charge of the economy.

4/7/19 A New Bull

2019-04-07T11:23:00.001-07:00

I reread Mark Hulbert's take on a new bull market this morning:

https://www.marketwatch.com/story/this-bull-market-is-10-years-old-try-three-months-2019-03-07?mod=mark-hulbert

I agree with his opinions re bear markets in 2011 and 2015. In addition, I've always felt that US investors ignored the devastating bear in emerging markets that ran from January 2016 through mid-2017.

Are we now experiencing one of the quickest recoveries from a bear that began last December? I'm not fully convinced - but that's exactly why it's likely to be the case.

If it turns out to be a new bull, then US indexes are likely to see double-digit returns between now and December 31.

3/19/19 Disengage

2019-03-19T06:54:00.003-07:00

I've always said that when we near retirement age, it's time to leave the playing field and think about coaching instead. I plan to slow down my involvement in the capital markets.

Currently about +13.5% ytd, closer to +17% off the December 24 lows, and at an all-time high. Those are decent gains for a three-month period, and given the fact that I closed 2018 off just -1.36% - well I don't feel the need to push for anything more at this point. I'll wait for a decent pullback.

2/3/19 The Outer Limits

2019-02-03T15:52:00.002-08:00

'The Outer Limits' was a great Sixties TV series that always opened with the voice-over 'There is nothing wrong with your television set.'

We're now hearing (from Urban Carmel) that the recent +15% uncorrected gain in the global markets places the current rally in the outer limits of what is realistically achievable.

That's a positive. The fact is that homo sapiens love to set new records, and I think they're ready to bid prices higher.

12/9/18 Still Bullish After All These Years

2018-12-09T08:39:00.001-08:00

After the straight-up move in 2017, it appears the market has decided on a pretty mean year-long reversion to the mean in 2018.

My portfolio balance has whipsawed between a decline of -2.5% (at least four times) to +6% (once or twice) - a relatively narrow range. However, I've been able to trade 'successfully' (due to pure luck). Relative to my benchmark (the global index, which I track using VT/VTWSX), I'm currently ahead by +7% - ie, the portfolio is up +0.5%. (In January [during the parabolic move up in global markets], I was trailing my benchmark by -7% - so being ahead by the same percentage is a big deal.)

As of last Friday's close, I moved to cash. I made the decision despite having made optimistic comments earlier in the day.

[12/7/18 @ 1117 am pst:

It's been a brutal few weeks for global markets. All part and parcel of markets. Sometimes they go down.

I try to avoid the news, as it's the nature of news reporting to generate an emotional reaction. The recent meeting between Trump and Xi, followed by the arrest of Huawei executive Wanzhou makes for good stories and volatile short-term moves. But what's the real story? If you're an investor, it comes down to recognizing that both Trump and Xi have made tactical moves that will eventually result in a compromise. It's the way business has been conducted for thousands of years.

It's all positive. Relax. Ignore the news and the volatility.]

[12/7/18 @ 1258 pm pst:

All positions off the table end of day.

How do I reconcile the above decision with my advice to relax? The majority of you are long-term investors. I think the global markets will do fine, and that here and now is actually a good time to buy and hold. Closing my positions here and now is a short-term trading decision based entirely on risk management. (Keep in mind that I am +7% above benchmark, and will be flat for the year end of day. I'm simply not interested in heading underwater again.)]

So it came down to having experienced four declines of -2.5% in 2018 and wanting to avoid a fifth.

But what's my perspective on the market here?

(a) Negativity hasn't worked well lately. Despite multiple signs of capitulation, traders continue to sell the rallies.

(b) It's been a long nine-year bull market. Economic signals are basically all good - but that's exactly when bull markets end.

But what do I really think?

(a) Sometimes negativity will persist for a long time.

(b) The current bull market in global equities began in 2016 (following a brutal bear in almost all indexes outside the US).

(c) US indexes have experienced two significant corrections in 2018. FAANG stocks are in a bear market. I would even go out on a limb and say that the majority of US stocks are currently in a bear market.

If I were a long-term fund manager, my strategy today would be as follows:

(a) The current environment is confusing for the same reason(s) the capital markets are always confusing. It's the nature of the game.

(b) It's probably a good time to buy.

So what's the bottom line?

Given a choice, it's my opinion that global markets will rip higher. The ultimate contrarian stance here is to do our best to find the eye of the storm, remain calm, and treat the current decline is an opportunity.

When the price diverges from the news...

2018-12-08T14:36:00.000-08:00

The negative market action last week was a clear and unexpected divergence from the positive news the week before (Powell's comment on the interest rates being close to neutral and an apparent tariff deal). There is a trading wisdom that states "if the price diverges from the news -- the price is right".

This all reminds me of September 2008, when TARP was passed, but after a one-day rally the market sold off... I wouldn't be surprised if the SPY support is broken next week...

10/26/18 Mr. Toad/ Green Close

2018-10-26T09:21:00.001-07:00

Beautiful whipsaw by Mr. Market, a close cousin of Mr. Toad in the sense both love to surprise and to spring traps.

This is good action. It serves to shake out recent buyers, both those who bought yesterday and those who bought the day before.

In my opinion, there's a decent chance we close green today.

If I were Joe Namath, I'd go out on a limb and guarantee a green close.

4/22/18 The Next Cyclical Boom

2018-04-22T08:34:00.000-07:00

One advantage of sticking to my own view of the markets is that it allows me to tune out the noise, and there's plenty of noise to tune out.

Are markets really extended either in terms of time or valuation? I don't think so. If we use January 2016 (rather than March 2009) as the beginning of the current bull, then we're still in the early innings. Valuations in the US may be somewhat extended, but the valuation of global markets (as a whole) is not.

In my opinion, the world economy is still in expansion mode, with its 'boom' period still ahead. Sitting out the remainder of the current cycle (easy to do if we read media headlines re an imminent global trade war, an inverted yield curve, or predictions of the next crash) may turn out to be an expensive mistake.

April 22, 2018? I think it's a great time to be long the global market!

3/16/2018 Buy The Changeup

2018-03-16T12:30:00.003-07:00

I'm not really sure what to make of today's market action. Another strong open that weakens into the close (the Nasdaq in particular). Still bullish, and my conviction is strongest with regard to Emerging Markets. Here's an interesting comparison-> over the past five years, the SPX is up +79%, the world index (VT) is up +47%, yet Emerging Markets (VWO) is up just +13%. That's due to a brutal bear in both commodities and emerging economies in 2015/2016.

The pitch is still good, but perhaps it's time to view it as a changeup-> one that appears to be a fastball but arrives more slowly to the plate.

VT (world index) currently +0.11%, VWO (emerging markets) -0.33%. Both sectors have given back between 74% and 78% of their gains since the breakout on March 9. I plan to swing for the fences at the close by reopening VEIEX (Vanguard Emerging Markets).

1/28/18 Catch Up Trading

2018-01-28T12:34:00.005-08:00

2018 thus far is 2017 on steroids. Currently running behind, at around half the YTD average for my benchmarks. There is an alternative benchmark-> the 60/40 (60% stocks, 40% bonds), for which FASMX (Fidelity Asset Manager) acts as proxy. FASMX currently also up +3.5% YTD, compared to +7.37% for VTWSX (world market).

According to The Fat Pitch-> (i) January 2018 ranks tenth in out-of-the-gate performance. So not unprecedented. (ii) In addition, eight of the previous nine January rockets ended the full year higher. So also not unsustainable.

I need to keep the above in mind when planning my catch up trading.

1/12/18 Stealth Rally Underway in Gold

2018-01-12T12:50:00.003-08:00

I'm now sensing a breakout in commodities and miners (along with a breakdown in the $USD).

(a) Spot gold currently 1338-> I think it may quickly head to 1390.

(b) $USD spiking down to a one-year low.

(d) Traders are overly-focused on stock indexes, bitcoin and cannabis. Absolutely no one is looking at gold/miners.

Despite today's +2.4% move in GDX, I think it's the beginning of a serious leg up.

If there's one sector that can run on a breakout, it's miners. Reopening RYPMX (Rydex Precious Metals) at the close.

12/29/17 Late Session Take-Down/ The Cymbal Crash

2017-12-30T09:53:00.002-08:00

Each day of my senior in high school ended with Music Appreciation, taught by a talented guy who also directed the school's Jazz Band. We spent a great deal of time analyzing compositions from the late Nineteenth/ early Twentieth centuries (Dvorak, Prokofiev, Copland). Quizzes would be given every Friday, which included an essay question that he would announce on the spot. I can't recall the composer (probably Dvorak) or the symphony, but one essay question asked us to compare and contrast the first and second movements. I focused on the transition between the movements, which took the form of a single cymbal crash (either at the end of the first or the beginning of the second). In fact, I spent the entire essay bullshitting about the brilliance of using a single percussive note to simultaneously end the 'adagio' feel of the first and set up the 'largo' tone of the more somber second. (He not only gave me an 'A,' he read the entire essay to the class on Monday- haha!).

So what's the point? In my opinion, the Market hit that percussive note in the final five minutes of Friday's trading. I may be entirely wrong (as I am about 50% of the time). But it sure sounded that way to me. In the end, it's all good. The third movements of most symphonies are generally pretty upbeat!

12/15/17-> Raging Bull!

2017-12-15T12:15:00.001-08:00

The overnight bump in futures apparently presaged Marco Rubio's 'No'->'Yes' turnaround on the tax bill. It's amazing how quickly markets price in these types of things.

http://thehill.com/homenews/senate/365147-rubio-now-a-yes-on-the-gop-tax-bill

That's a game changer, one which I don't think the subsequent +160-point rally in the DJIA fully prices in. Sure, it's possible the relatively tame reaction means the market has incorporated a 'sell the news' effect into tax reform, but the effect of tax reform (and deregulation) is vastly understated. Here's a great WSJ opinion piece penned by Maria Bartiromo last night:

Here's the correct link to the Maria Bartiromo article:

https://www.wsj.com/articles/dow-24000-and-the-trump-boom-1513294061

A thoughtful and though-provoking argument re the Trump effect on markets. Here's the paragraph I like most (note the last sentence!):

Year One has been nothing short of excellent from an economic standpoint. Corporate earnings have risen and corporate behavior has changed, measured in greater capital investment. Business people tell me that a new approach to regulation is a big factor. During President Obama’s final year in office the Federal Register, which contains new and proposed rules and regulations, ran to 95,894 pages, according to a Competitive Enterprise Institute report. This was the highest level in its history and 19% higher than the previous year’s 80,260 pages. The American Action Forum estimates the last administration burdened the economy with 549 million hours of compliance, averaging nearly five hours of paperwork for every full-time employee.

Back to leaning bullish. That's why they call it a market dance-> I'll make as many U-turns as necessary based on crowd behavior/ price action, which can change on a dime multiple times within short periods of time.

(a) Reopened both FXI ('H' Shares) and ASHR ('A' Shares) on the news, at approximately -1% discounts to Thursday's exits.

(b) The harder decision is reopening VEIEX/ VTWSX at the close. Based on current prices for EEM/ VT, my reentry price for VEIEX will still lie below Wednesday's exit, but there's no question I'll be buying back into VTWSX at a premium (also no question that having exited on Wednesday rather than Thursday makes it easier, as the premium over Wednesday's close may be less than 0.2%.

Investors will digest the news over the weekend. I think they'll return on Monday to drive prices much higher.

12/3/17 December Blueprint

2017-12-03T15:07:00.002-08:00

No certainties in the market, for sure. But it helps to have a rough idea re what lies ahead (based on historical precedent and/or recent precedent). My best composite take (after reading through the stuff I follow):

(a) Likely to rally hard next week. I don't believe tax reform has been priced in. Now that the Senate has voted to pass a tax overhaul bill, both chambers will vote next week on a motion to 'go to conference' on working out the details. It's estimated that passage will add +10% to corporate profits next year (or the year after, depending on when the bill takes effect). Michael Flynn? I have no idea re market reaction to Flynn's plea deal, but hey-> traders who have bet against Trump on any number of issues have been wrong for over a year.

(b) Pullback mid-December. December tends to start out strong, stall mid-month, then rally hard into year end. Paul Ryan is saying he'll keep Congress in session beyond its December 15 adjournment if necessary to pass tax reform this year. We can count on the usual last-minute political drama taking the vote down to at least December 15. Perhaps as good a catalyst as any for the pullback.

(c) +7% into January 2018. 7% is probably conservative. A strong outlook for 2018 will become even stronger as investors begin to seriously weigh the effects of tax reform on global growth.

(d) Sharp rebound in emerging markets. You may recall the cover story in Barron's last Sunday, which can be summarized as 'Barron's likes EEM!' Thus no surprise that EEM declined -4% last week. As you know, I believe it was a buying opp.

11/5/17 The Other Side of the Parabola

2017-11-05T12:59:00.006-08:00

This morning my attention is drawn to a number of bullish headlines. A good example: https://www.marketwatch.com/story/five-important-reasons-why-a-stampede-into-stocks-may-be-just-getting-started-2017-11-04.

It's really not a good thing, in my opinion. As you know, I'm always trying to front-run the crowd in terms of sentiment. So let's lay out the bear case.

(a) Ten-year government bond yields are at 2.33%: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us. That's undoubtedly a multi-year high. When it crests 3%, it will become a real headwind for stock prices.

(b) Also at a multi-year high is margin debt: https://www.advisorperspectives.com/dshort/updates/2017/10/27/a-look-at-nyse-margin-debt-and-the-market. Margin debt is the equivalent of pressing one's bet at the craps table.

(c) Market valuation. Jill Mislinski offers compelling scatter graphs that compare valuations to both bond yields and inflation: https://www.advisorperspectives.com/dshort/updates/2017/10/27/a-look-at-nyse-margin-debt-and-the-market. Whether we view current valuations as 'excessive' depends a great deal on how 'exceptional' we think current market conditions are.

(d) Lots of anecdotal data. I'm not hearing much from short-sellers on Twitter (instead, I'm hearing a great deal from momentum traders). I don't have access to real time data on short interest in the broad indexes, but I'm betting it's at multi-year lows. Volatility (VIX) not only at all-time lows, but at record-setting stretches of all-time lows. Bitcoin prices.

Not saying the market can't go higher. In fact, I think it does. Just advising that we should temper our expectations.