It's always fun on days when Janet speaks.
Our FOMC chairwoman speaks TWICE today in Philadelphia (again at 2pm), so all sorts of fun this afternoon. You know our game plan - we're short the S&P Futures (/ES) below the 2,100 line. They are now 2,101.50 after hitting 2,082.50 on Friday, before the spectacular recovery and it's yet another example of why you need to have Futures Trading as part of your market tool-belt as we had a FANTASTIC time collecting money on our shorts off the Non-Farm Payroll disaster but only the very, very quick were able to profit from the action once the market opened.
There was certainly nothing in Friday's data that made me change my mind about 2,100 being a top, along with 17,850 on the Dow (/YM), 4,525 on the Nasdaq (/NQ), 1,160 on the Russell (/TF) and 17,200 on the Nikkei (/NKD) and we're over a couple and under a couple and we use a 3 of 5 rule to set direction and the direction should be down this morning and I don't see how Yellen is going to reverse that since she either stays the course, which is tightening by summer or she flip-flops based on a single jobs report and appears weak in her convictions - it's a lose-lose.
By the way, I don't want to come across as a perma-bear - we're just being cautious into the summer, where we expect a correction but then we'll be happy to buy again. In fact, we just reviewed our Top Trade Alerts for the months of March and April and only one trade idea was bearish (CVX) and it turned out to be one of our only two misses for the period against 16 winning trades. That would be impressive but it actually bought our average down as we were 16 for 16 in January and February!
As I noted to our Top Trade Members at the end of the review:
Bear in mind we are NOT encouraging holding a lot of open trades at the moment as we expect a sell-off in the summer. If you take anything away from these reviews it should be that you should have no fear of going to CASH!!! when the market is uncertain as we ALWAYS find new things to trade with our cash (or the old things when they cycle down) and, on the whole, we're pretty darned good at it because we know how to Be the House – NOT the Gambler!
Who would buy stocks in this era of central bank lies and deceit?
Pension Funds? Maybe.
Hedge Funds? Not likely given the appalling low volume.
Central Banks are simply scratching each other’s backs is my belief. There are plenty of non-public tools they can use to keep everyone in the dark. And, that’s just where they (administration and the Fed) want you.
Since they’re all playing the same game they support each other’s actions. Is there proof? Sure. Japan admits its buying shares; so too is Switzerland and other European central banks.
The ECB is buying corporate bonds and they won’t stop at just that and China has been propping their stock markets with no apology.
Today’s dreadful economic data, led by the horrific Employment Report was bought, not sold like one would think, was the cherry atop a cake of “bad news is good” nonsense.
If you’re going to make a living in markets, you’ll have to accept the current craziness even with the upside down action. For a trend-follower like ourselves either retire or, go with the trends to survive.
Market action in the U.S. Friday was a shocker, but markets sagged only slightly. And when the “bad news is good” pimps seized the tape many shorts were squeezed and stocks rallied sharply off their lows.
The laughably weak Employment Report fell to only 38K new jobs vs 158K expected with the prior revised from 160K to only a pathetic 123K. And, the BLS didn’t stop there, the Unemployment Rate fell to 4.7% from 4.9%. Further, the participation rate fell once again to 62.6%The disconnect in the numbers from the Treasury to the BLS reveals who’s lying and and/or manipulating numbers. Please, no administration victory parade here.
But that’s not all. The International Trade deficit dove to -37B vs prior -35B; PMI Services fell to 51.3 vs prior 52.8; ISM Services fell to 52.9 vs prior 55.5; and Factory Orders were weak remaining flat at 1.9% vs prior 1.7%.
It now seems likely the Fed will not raise interest rates at June’s meeting and July’s opportunity is probably off the table.
Meanwhile, the Dollar is still very weak at the 94 line after Friday's jobs shocker and that, for the moment is supportive of stocks and commodities (but not the Nikkei, which needs a strong Dollar). Aside from our jubilant indexes, we have oil back near $50 (nice short with tight stops above on /CL) and gold at $1,250 (/YM) and silver at $16.50 (/SI), which will also be a good short if the Dollar goes higher but, overall, we're bullish on metals as things begin to hit the fan.
Brexit fans had a great weekend as the LEAVE camp pulled ahead over the weekend despite Prime Minister Cameron ramping up the fear by saying (and I kid you not) that "An EU exit would put a bomb under our economy." Well, if the Prime Minister is already pulling out the nuclear option for Project Fear with more than two weeks to go, I can't imagine what new horrors they will be predicting as we get closer to the event (June 23rd).
Undermining the PM's credibility is the discovery that, despite the EU holding off their 2016 Budget Review until after the Brexit referendum, it's been discovered that there's a $3Bn bill outstanding to the UK that has been hidden by the Government - as it clearly makes the Leave Campaign's case that staying in the EU is far more expensive than getting out. They argued that Britain will be forced to contribute to the European Financial Stabilization Mechanism to pay bridging finance to Greece which was set up in 2015, despite promises it would be excluded and, after Greece, Italy, Portugal, Spain... Speaking ahead of a rally today, the former London Mayor, Mr Johnson said: "The risks of remain are massive," saying:
"Not only do we hand over more than £350 million a week to the EU, but if we vote to stay the British people will be on the hook for even more cash.
Certainly the risks to the market are massive and that's why we're going to spend the next couple of weeks being very, VERY cautious and mostly watching from the sidelines, safely sitting on our large piles of CASH!!! while our remaining bullish positions are extremely well-hedged.
It's not that we're not finding things - in Friday's Live Member Chat Room we took a short on the 20-Year Bond ETF (TLT) at $133 but we liked Macy's (M) long at $34.40 and the Oil Service ETF (OIH) long at $27.89 and earlier in the week we took Pearson (PSO) long at $12.25 in our Institutional Newsletter and we picked up Ford (F) as it dropped to $13, Freeport-McMoRan (FCX) at $10.50, Caterpillar (CAT) at $72.50, Disney (DIS) at $98, Baker-Hughes (BHI) at $46, Barrick Gold (ABX) at $16.75.
All that came AFTER we added more S&P Ultra-Shorts (SDS) at $18 on Tuesday in this still-playable hedge:
SDS – Those were more emergency protection, leftover long leg of an old spread (2/18) so, logically, we'd want to pick up the Sept $17 ($1.55)/20 (0.70) bull call spread for 0.85 so 100 of those is $8,500 and SDS is at $18 so worth $10,000 and the only way you lose money is if the S&P is higher than it is today and that would be GOOD for your long-term positions. Let's officially add that to the STP!
Having a nice, leveraged hedge like that gives us the confidence to go bargain-hunting and, of course, we are following our "Be the House" strategy as well as our strategies for buying stocks for a 20% discount and other income-producing strategies with our new positions. The positions themselves are well-hedged using the various option strategies we teach our Members and all are small enough that we will be THRILLED to add more if the market does give us a 20% drop over the summer.
Once we get past the 23rd, we will only have China, Japan, Brazil and Venezuela to worry about - so maybe we'll be in more of a shopping mood then but 9 excellent long-term bargains were discovered in a 4-day week, so we're very comfortable - as I noted in our Top Trade Review - with our large amount of sideline cash, as we will ALWAYS be able to find something else to trade.