When markets start to change character as they are right now, its wise to revisit and possibly change your perspective. I’ve been outright bearish for quite a while but long term data suggests that the type of strength we’re seeing in US equities could be the start of something substantial.
My belief is that investors are coming to grips that we are not about to plunge into recession soon and that stock prices had built into their values a full fledged recession. Hence stocks are adjusting to valuations of slow growth. In addition many measures of sentiment were down at March of 2009 lows…..need I say more?
There no room for ego here and discipline trumps conviction. My TZA was closed out today at $39.75 for a loss of $6. However in its place we are reasserting our customized portfolios for what will hopefully be at least an intermediate termed rally. My expectations are a rally into January.
Stock selections include:
TESS
CLUB
HIT
CRD.B
DK
NTL
FRP
SUSS
IEP
Long all positions
Brad
Nonfarm payrolls increased by 103,000 versus consensus of 60,000. Private sector hirings increased by 137,000. August payrolls were revised higher by 57,000 and July was revised higher by 42,000. Despite these readings the unemployment rate remains at 9.1%. But in the bigger picture it would appear that we are almost certainly NOT in a recession since a peak in employment is a necessary element.
How does this affect our investment posture? It makes me reevaluate our bearish TZA holding as the bottom is clearly not falling out of the economy. Investor sentiment is horrid (which is a good thing), it would appear that the majority consensus is of the thinking parallel to Nouriel Roubini aka Dr. Doom. Corporate earnings are still coming down but not at a pace that would imply recession. Its still not a good time for individual stocks for longer term investors but the recent data may mean a sideways moving market is to be expected with occasional whacks from Europe.
Long TZA
Small cap stocks have been decimated in this Bear Market and the TZA has been good to us when the timing is right. Oscillators are back to prime position to return to the TZA. I’ve added them to client accounts in prices ranging from $46 to $45 this morning.
Will this trade work as well as the last three? Who can say, but the trend continues of sideways action with a downward bias. In the last month the SP 500 has made three successive lower highs and three successive lower bottoms. Is there a possibility of a 4th? All we need is some bad new out of Europe to be back in the teeth of the Bear.
Long TZA
I’m selling off our shares of BGU that we bought a few days ago between 44 and 42 for $49.12. I believe we will have a trendless market for the next several months and that in this environment trading individual stocks is far too difficult. Indexes are the way to go when you have a reliable trading system.
With the trend of the market down I don’t have quite the patience for a bullish trade like the BGU so I’m happy to take the profit and look to go short again in the near future. Making money on a short term bounce is terrific but one must be extra cautious since the prevailing trend is against you.
Like many of you I was saddened by the death of Steve Jobs (reading from Twitter on my Ipad), he has been a true titan of American industry and ingenuity since the time I was in college. I’d have to rank him along with Edison, Ford, Rockefeller…but with a heart. Will Bill Gates, when his time comes be remembered with such appreciation? He had such a unique life made especially extraordinary due his being adopted and the realization he had a sister in his mid 20’s, I can certainly relate.
MNF finally gets some sense and cancels Hank Williams Jr and his “Are you ready for some football?!” What a tired act that was
Sold BGU
If it isn’t enough to bear after hearing the news that Ashton Kutcher no longer follows Demi on Twitter the esteemed Economic Cycle Research Institute says we’re in a recession. Surprisingly this has met some very intelligent opposition in none other than Doug Kass who believes the current data does not support the case.
To be a good investor IMO means that we should be realists and face our reality and consider that hope is a four letter word.
With current earnings estimates for the S&P 500 for 2012 at $110, a stagnant low growth economy could bring them to $97-$100 range and its my view that if that is the case then the markets will likely make further lows.
According to Sentimenttrader.com the average peak to trough for the S&P 500 is 23.9% while our current loss is 17.9%. If we get real particular and factor in only recession induced bear markets within the painful confines of secular bear markets then the average loss drops to over 40%.
Personally, I don’t know if we’ll drop another 20% but I think its likelier that John Lackey shows composure on the mound and regains his old winning ways than the S&P 500 holding its August lows.
Looks like we’ll be trading on the Darkside for the downside for a while to come.
Long Terry Francona
Short John Lackey
We are still holding the TZA which is now at $52.9 in most client accounts, for a very nice $8 gain in just a few days. At present I’ve entered a stop order to sell at $52.5 to preserve our gain in case the markets give up like the Red Sox in the 9th inning.
The current trading environment is very similar in nature to what we experienced in 1987 and 2008 post crash. Back then we experienced a sawtooth trading environment with weekly whipsaws reflecting economic news changed daily, not a place for long term investors to add new positions. Markets need time to heal and its very very rare for them to simply bounce back up after a significant selloff.
I’ve been very hesitant to talk about individual stocks for a couple of months since we have very few full positions for client accounts. As the recent TZA trade reveals, the last two best trades I’ve made have been in Inverse Exchange Traded funds. Stocks still seem heavy to me and our investment models are still bearish, earnings are still coming down and in my opinion still have a much greater downside.
In the meantime I’m quite content to make money with Inverse ETF’s while the 11000 – 12000 trading range continues for the SP 500 index.
TZA sold just now at $52.5 nice
Formerly long TZA
Short Red Sox
Long San Francisco
