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Phil's Stock World

Daily stock picks and option trades, market analysis, and investing strategies for investors and traders of all types.

Last Build Date: Thu, 08 Dec 2016 03:58:30 +0000


Will We Hold It Wednesday – Russell 1,350 Edition

Wed, 07 Dec 2016 13:39:47 +0000

I like this chart from Panamaorange at StockTwits:


I'm not a TA guy but I do know when things are overbought and oh boy are we overbought right now.  Volume on the S&P ETF (SPY) was 57M yesterday as we busted up to new highs – that's about 1/2 "normal" volume of 100M, which is already down from 150M last year.  Low volume means low conviction and we pair that with record ETF inflows (dumb money) of $56Bn and we know exactly what this rally is made of.  Small Caps, Financials and Industrials captured most of the flows while, as noted yesterday, money is fleeing from Emerging Markets and Emerging Market Debt – we're simply the "safe haven" – for now

(image) And, of course, money is flowing out of bonds, which are a very bad thing to hang onto when interest rates are rising and December is on pace to blow November's numbers out of the water and, like Richard Gere, that bond money has nowhere else to go except into equities – regardless of how ridiculously priced they are.

And, of course, a person dumb enough to put their money into 30-year notes at 2% isn't going to think twice about running into equities that have a p/e of 30 – that's more like a 3.3% return, at least!  That's also making dividend stocks extra expensive as the coupon clippers love dividend stocks and, as value investors, we're finding bargains very hard to find in that space but we're patient, we can wait for the correction.

Meanwhile, the Dow has climbed to the top of our target range already.  Back on 11/25, we put up a hedge against our Russell Futures (/TF) shorts (was 1,350 then too!) that would cover us for an $11,250 profit if the indexes refused to back down – at the time I said:

In fact, the Russell 2,000 is just under 1,350 and that's up 200 points since early November (not counting their spike down) and that is just shy of 15% so the Dow is MILES behind


Trumperific Tuesday – What Could Possibly Go Wrong?

Tue, 06 Dec 2016 13:13:00 +0000

(image) Everything is awesome!  

We did get some awesome Consumer Spending numbers yesterday but, as you can see from the chart, it's more of a reflection of inflation than of a confident consumer that's out shopping.  The cost of "essentials" has risen sharply since May, up 8% while discretionary spending has remained flat.  I imagine when the credit card data comes out – we'll see that a lot of this spending has been debt-financed – not the best kind of spending...

Still, the market hates nuance so YAY!!!  Speaking of nuances, did you know that Fitch, Moody's and the S&P have taken a record 1,971 negative ratings actions on emerging-market sovereign and government-related entities in 2016 – and the year isn't even over yet!  Isn't that awesome???  Not since 2007-2008 have we had this kind of uptick in negative ratings and back then the record was only 1,400 – we shattered that in September!


Now I'm not going to say this is a bad thing because NOTHING is a bad thing as far as this market is concerned but, it's kind of a bad thing.  26% of the 134 Sovereigns rated by Moody's still have a negative outlook – so things can get even worse.  When a sovereign defaults, there's a domino effect of companies, private and state-owned, that follow. For once, S&P, Moody's and Fitch may be giving investors early indications of what to expect. The message for now is clear: Developing nations are no longer doing that well.  

I'm not going to dwell on the negative, not when Bloomberg did such a good job of it in their "Pessimist's Guide to 2017".  

(image) We tried shorting yesterday and that failed, with our stops quickly broken to the upside but we're at is again today.   In yesterday's post, I said the Nikkei (/NKD) was my favorite short at 18,500 and we made a +$500 move down to 18,400 (now back to 18,450) but that was disappointing given the Dollars sharp fall back to 100 so today we're not into them but we do have 19,225 on the Dow Futures (/YM) and those components are very stretched and oil

Monday Madness – Renzi Resigns, Trump Declares War on China (Currency)

Mon, 05 Dec 2016 13:27:55 +0000

(image) Oh my God!  

Shame on any editor who pretends politics shouldn't be discussed in financial posts – their cowardice has led to the election of a man who doesn't even understand that China has been propping UP their currency,  at the insistence of the US and other nations, and have lately been REMOVING their supports and the devaluation of the Yuan is what the REAL market values are currently showing.  

In May of last year, in fact, the IMF officially stated the Yuan was no longer undervalued.  Since 2015, the People’s Bank of China, the central bank, hasn’t been keeping the currency cheap. Rather, it’s been defending the yuan, drawing down its foreign-exchange reserves in order to keep the value aloft. 

(image) Why would it do that, knowing that might hurt the export sector, which provides a huge share of jobs? In the last few years, demand for the yuan has come less and less from trade, and more from investment flowing into China to speculate on the currency’s appreciation against the dollar—a self-reinforcing phenomenon. Those inflows help prevent cash squeezes in the banking system, and push down borrowing costs. Letting the yuan’s value drop might drive that investment out of China, draining cash from the financial system dangerously fast.

Is it too political to point out that the President-Elect of the United States of America COMPLETELY WRONG in his currency statements.  Trump isn’t just wrong about what Beijing is doing, he’s wrong about the impact it might have. This year, even though the yuan depreciated against the dollar, Chinese exports have not picked up thanks to the weak global economy. “It has become less effective and unnecessary for Beijing to use a cheaper yuan to boost exports,” noted Shuli Ren of Barron’s recently, because “the pie is getting smaller and competitive easing can only get you so far.”

Recently, with China’s foreign currency reserves falling to the lowest since 2011, the Chinese central bank are believed to have sold the dollar to ease yuan’s decline, in an attempt to curb record capital outflows—doing exactly the opposite of what Trump claims.  Should I keep quite about this idiocy because this is a financial newsletter and Trump has armies of letter-writing fanatics that…

Non-Farm Friday – Is America Working?

Fri, 02 Dec 2016 12:46:42 +0000

(image) It's Non-Farm Payroll Day today. 

We should be around 160,000 jobs and this is Obama's last report card as we approach 15M jobs added since 2010.  This ranks Obama way behind Clinton, who created 22.9M jobs but still, it's a pretty good number.  Much more important than jobs, however, is hourly earnings and those have been rising steadily over the same period and that's the number we need to watch for signs of whether or not the economy is healthy.  

President Trump (get used to it) saved 800 jobs yesterday at a cost of just $7M in addition to continuing to provide United Technology (UTX) with $6 BILLION in defense contracts which make up a good portion of their $7.5Bn in profits.  UTX thanked the President by shipping 1,300 jobs overseas anyway and closing another plant in Indiana – the state whose taxpayers are on the hook for the $7M bailout of the hugely profitable corporation.

CNBC analyst Jim Pethokoukis said Trump's speech at Carrier yesterday was "absolutely the worst economic policy speech since Mondale" but that's not fair as Trump isn't actually President yet so we shouldn't count it – I'm sure he'll be able to top it once he's actually in office – there's no way Trump will let himself come in second to Walter Mondale!  

"The idea that American corporations are going to have to make business decisions, not based on the fact that we've created an ideal environment for economic growth in the United States, but out of fear of punitive actions based on who knows what criteria exactly from a presidential administration. I think that's absolutely chilling," he said in an interview with CNBC's "Closing Bell."

And that guy works for a CONSERVATIVE think tank!  

This is going to be a fun four years and I'm very excited by the trading environment, with Presidential tweets moving the market up and down regularly.  Meanwhile, China is wasting no time at all filling the Global leadership gap as President Xi headed straight to Latin America where he's set up a huge trade deal with Ecuador, raised the diplomatic status of Chile and initiated trade relations with Peru.  China already has a wall but