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I have heard this saying a lot in recent weeks. It's funny because I don't remember hearing it quite so often before. "As January goes, so goes the year." I questioned this saying and pointed out to an esteemed colleague that January of 2014 was down but the year was up. His response to me was that there are occasional exceptions but that if I were to look at the historical data, I would see that it works. So I did!
Here is what I found going back to 2000. Feel free to scroll to the bottom for the results.
In 2000, January was down and the year was down.
In 2001, January was up but the year was down.
In 2002, January was up but the year was down.
In 2003, January was down but the year was up.
In 2004 January was up and so was the year.
In 2005, January was down but the year was up.
In 2006, January was up and so was the year.
In 2007, January was up but the year was down.
In 2008, January was down and so was the year. (But well...duh!)
In 2009, January was down but the year was up.
In 2010, January was down but the year was up.
In 2011, January was up but the year was down. (Although so slightly that I would be more likely to consider it a flat year.)
In 2012, January was up and so was the year.
In 2013, January was up and so was the year.
In 2014, January was down but the year was up.
Out of the last 15 years it has worked only 6 times. That's not very good historic odds in my opinion. So much for that theory.
It is impossible to say which direction markets will take from from here as SPY puts in a doji below the 8 ema. Tomorrow's action will set the direction.
Indices reacted strongly today to lower than expected economy numbers. The extent of the initial drop seemed overdone and saw dip buyers on the scene. The dramatic reaction at the open showed us that our investment base is still fearful and keeping volatility at higher than normal levels.
The positions in my port fared well though. CIEN and NCLH have both recaptured the 8 ema and TNP is working to do so as well. Currently, TNP is the only position in my port below the 8 ema and it is only below by a few pennies and on low volume.
Tomorrow we have the FOMC and I suspect that today's reaction may be fodder for Ms. Janet to come out and tell the world that she has no intentions of raising rates....ever. Here is the SPY chart.
Thank you to BTFD.tv for providing the venue for this show. I apologize again for some technical difficulties. We will get there.
I must apologize for my relative absence from the blog-o-sphere. It has been rather easy to communicate with my subscribers via email and the chat room while forgetting about all you followers out there wondering what my current view is. The BTFD shows that I will be doing weekly (Thursdays for now) will certainly help but I have not taken the time to write a post for the sake of it in a while, so here it is.
Markets have been correcting this month with some whipsaw action in a range. As such, my market timer turned red early in the month, then turned green for a day and promptly back to red. This has put most of my trading on hold since I recognize that the underlying trend is still up and that the market is not broken by any means. But the shorter term downtrend still needs to be broken and upside action needs to confirm. Until that time, I am staying mostly on the sidelines since neither going long or short here is prudent.
Today's action on the heels of the past couple of days does seem to be an improvement with candlesticks presenting a bullish doji sandwich. Earnings are bringing in some buyers but many investors are waiting to find out exactly what the EU will be doing with QE. I am never one to put on risk unless the market is being supportive, so for now, I am waiting it out. Here are charts of the SPY from a longer term and shorter term perspective.
I will be doing a weekly stock chat show. This is the first one which I did yesterday. I apologize for technical difficulties. I will get them worked out going forward.
This market has pretty wobbly legs and has completely negated last week's buy signal, turning my market timer back to red. My port is red too and I have my hatchet ready to chop the majority of my positions that are putting in sell signals. Oil continues to descend heavily making new lows which is keeping volatility high. I suspect this will continue as we wait to find out how companies fare with the lower cost of oil. Some will feel that pain and others will benefit but the fear of deflation is definitely wearing that emotion on Mr. Market's sleeve.
Metals seem to be a safe haven for money in the interim and I have joined this sentiment with a position in silver name PAAS. Folks have been trying to call a bottom in the metals for several years now. Those same people are now trying to call the bottom in oil, so perhaps metals will actually find bottom now that the focus is no longer on them to do so. We shall see. I will not speculate. Like all trades, I know that I have a 50/50 chance of being correct so I will continue to work to keep the odds in my favor making the best decisions I can.
The volatility trade which has veritably gone the wrong way for me is one I will hold onto because I continue to believe in the basic concept that fear can only stay high for so long and I see no reason to take a big loss on it.
The good news is that SPY is currently holding a strong level of support that was resistance in September and has strong volume at price there so it's a spot where buyers come in. I will not presume that the market will go up or down from here as I can see both possibilities. The overall trend is up and we are consolidating. The chart could be toppling over in line for a deeper correction or it could be making higher lows in line to continue it's uptrend Here is the SPY chart.
Markets are taking a pause today after turning my timer back to green. Strong unemployment numbers yesterday helped to boost indices after the Fed confirmed it would hold rates low as long as necessary. But markets needed an excuse to slow their ascent today and lack of wage inflation gave them the catalyst to do so.
SPY dropped to a level of support and has since bounced back above the 8 ema. The stocks in my port that I purchased yesterday are all slightly red but as long as charts hold up, I will give them room to move. Here is the current SPY chart.
I am a patient Wife, but I must admit that I had not intended to hold my volatility trade into 2015. I believed a good Santa season would allow volatility to come in enough for me to get out but the continued descent in oil has left fear running amok in the markets. But is this fear rational?
Folks who are selling their 401k's in fear of another 2008 market crash that ensued as a result of the housing bubble pop should take a deep breath. There is a large difference between the bubble in housing and the bubble in oil.
When housing built its bubble, it did so by growing its investment base. Lower and middle income Americans bought houses with sub-prime loans inflating prices to well beyond what they could actually afford. All the while inflating house prices faster than income inflation.
According to U.S. census, the median U.S. income was $10,394 in 1975 while the median house price was $35k. This equates to 3.36 times annual salary to purchase a home. In 2005, however, the median income was $46,326 while the median house price was $220,000 or about 4.79 times the annual salary. Add sub-prime mortgages to this disparity and now you have people buying outside of their means by even larger percentages. In other words, the person with an income of $46k in 2005 was not buying a $220k house, he was likely buying a $300-400k house because banks were giving him the loan to do so and the average Joe was led to believe that this was his guide to future wealth. After all, most of us were told by our parents that property is the best investment we can make. I remember when the housing bubble was inflating. I was living in the San Francisco Bay Area and I would hear people say that we should all go out and buy the most expensive house that a lender would allow because this is the best investment we could make.
Fast forward a few years and everyone is invested to the hilt in housing. The rich and the poor alike were owning houses, along with banks and entire towns and counties. Entrepreneurs were popping up with small lending companies; bankers with a sketchy sense of ethics were creating derivatives of derivatives based on housing investments. When that bubble crashed, it hurt a huge number of investors from Joe the Plumber to the Too Big to Fail banks.
Crude Oil, on the other hand, has a relatively small investment base. That base consists of those who extract and sell oil, i.e., drillers and suppliers, funds that are largely invested in oil as well as banks who have made oil loans. Virtually everyone else stands to benefit from low oil prices. You and I benefit from low gas prices, enough to really make a difference at this point; retailers like Amazon (AMZN) benefit from lower shipping costs; importers and exporters, airlines, refiners all benefit from lower oil. The likelihood that a bubble pop in the price of oil will crash the entire economy is relatively low. The current reaction in equity markets to lower energy prices is largely fear based.
I don't believe that commodity demand is in a deflationary period overall. Demand is merely shifting. We are becoming more energy efficient, certainly, better gas mileage as well as other forms of energy like solar and wind means we use less oil. And the increase in production by Arab countries trying to keep up their market share is only adding fuel to the oil fire. But what about other commodities?
The backlash of Moms around the country at high fructose corn syrup amid terrifying reports of increased health issues has lowered the demand for the overgrowth of corn. Widespread reports of diseased livestock that are commercially raised, residual pesticides in the Dirty Dozen and now GMO's have families shifting to pasture raised meats and organic produce. The farm to table concept is gaining momentum as folks get tired of being fed what the U.S. Dept of Agriculture wants to force down their throats like so many fatty geese that have been banned from the state of California. And with lower oil, those folks have more money to spend on better food.
At some point in the near future folks will come to terms with the idea that low oil does not necessarily equate to another Great Recession as the housing crash did. That in fact, low oil can stimulate the economy. Once earnings reports start coming out in a few weeks, this point should become more clear. When market makers exhale, volatility will collapse. I am a patient enough Wife to wait for it.
The following post appeared today on the Ibankcoin website. To go directly to the original post, click here.
Go buy some semis, boys!
I think I am a terrible trader even after all this time. Luckily, it mostly works out for me as fundamentals do eventually assert some influence on equities after an indeterminate amount of time. But sometimes I don’t have the patience or interest in waiting for my view of the world to cycle around.
Then there’s The Wife and her astute technical analysis, skipping happily along and saying “What’s your issue, Lotto Boy? Why do you fight so hard?” All the while booking seemingly easy gains in a good tape and laughing at me from the sidelines when I’m fighting a difficult tape. The Lao Tsu of trading, she seems to be, and I cannot argue with the results.
I have found peace in the world by following the herd with technicals while also peeing my pants in excitement when fundamentals and technicals line up nicely. This makes my life less drama prone and allows me to focus on more important things like “Just how hot is Racer X vs Racer 5?” “Why do they call it a drought?” and my personal favorite “Just who are these people who have invaded my California?” These are much easier to digest on a daily basis than “Why is TSLA going higher when units are OBVIOUSLY stagnating?” (That was a Feb 2014 argument I had with myself. I did not win, which is a problem when you are arguing with yourself.)
Which brings us back to semis. The fine folks at ISI recently gave us this:
“The SOX is just now emerging from a 14-year base. The decisive breakout from a well-defined 100 point trading range bounded roughly by $550 on the low end and $650 on the high end projects measured upside to $750. This is where moves begin, not where they end.” Moreover, “with January the best month historically for Nasdaq performance, we don’t see why this breakout wouldn’t work into the new year.”
Here is ISI’s chart of the idea:
The below charts are The Wife’s take on the SOX breakout:
Meanwhile, INTC keeps poking 37 and AMAT claws toward 25. You mean we go higher?!? How on God’s green earth is that possible? My initial response is to scoff, guffaw, and generally whine about the obvious inanity of the comment “This is where moves begin, not where they end.”
Unfortunately for me, such grumbling usually leaves me in the king chair watching the little lines draw themselves further up and to the right. Luckily, The Wife sets me straight, stuffs a sock in my mouth and pushes the buy button anyway. (I chewed through the red rubber ball like a dog, so we are on to tougher and more pliable toys – like I said, the Lao Tsu of…oh, nevermind…)
Let’s give ISI the credit and assume the SOX not only goes higher but does so with gusto in January. How will this happen?
The SOX is the aggregation of multiple other stocks, a derivative as it were. We are drawing lines on a chart of a derivative and saying this means the components go higher as a result, as opposed to drawing lines on a chart of certain stocks and saying the SOX goes higher. The tail wags the dog? My bloods bubble a little just considering the idea.
There is indeed only one way the SOX goes higher: its component stocks must go higher. Let’s look at those components. The chart at the bottom breaks down the SOX into its components with market cap quotes after the Dec 12 close when the SOX was at 671.
- The Top 3 are INTC, QCOM and TSM. I get it and this makes sense to me. These guys are 48% of the SOX. My personal feeling is that INTC and TSM go flat and QCOM goes lower into January. It is hard for me to believe the SOX goes higher without at least stability from these three, and I think these “three” go lower as QCOM goes lower.
- The Top 5 includes TXN and ASML who add 13% of the SOX. How ASML made it up here is beyond me, but the lunatics who bid the thing up in the first place likely don’t give up until end-2015 at the earliest; the SOX could get a boost from ASML.
- MU, AMAT, AVGO, BRCM and SNDK are the next five and add another 16% of the SOX. The Top 10 comprise 77% of the SOX. I am most definitely bearish on MU and SNDK which means they go higher just to piss me off. These can be offset by AVGO and BRCM. AMAT likely goes sideways.
It is impossible for the SOX to go higher without these Top 10 stocks also going higher. That’s a problem for me. But, if the SOX goes higher, my guess is that ASML, MU, AVGO, BRCM and SNDK make the push.
Well that was fun. Did you know CREE is still in the SOX at #29? And why is FSL or NXPI in the SOX? Nevermind, I am sure I can look that up later. If FSL and NXPI can be added, surely we can remove MCHP simply because of its idiotic CEO. I need to go have a talk with the guys in Philly.
So there we have it: the chart of a derivative says it is not just going higher but 15% higher (per ISI), and my personal view is that the components of SOX go lower through January.
I know how this ends. I’ll be hopping around the house with a scowl on my face simply because I am short some stocks. Meanwhile, the SOX will go higher simply because the chart says so as QCOM, ASML, MU, AVGO, BRCM and SNDK add ~$100bln to the SOX. The Wife will yell at me to “Settle down and quit scaring the dog!” I will go sulk in the corner king chair to watch the stocks and her portfolio go higher.
So do yourselves a favor and go buy some semis. Don’t fight it. And let The Wife show you how to do it stress free.