Investor’s Edge: 02/04/2015
Just isolating one area this morning and that is the Biotechs. We have warned of the froth with all the “no sales” IPOs. We think this group, at the very least, is getting in trouble. Many names have broken down…some badly. Many of the “no sales” names are already in trouble. Remember, if we ever go into a bear market again, those companies’ stocks, based on precedent, could pay a stiff price. We will keep you up to date but as of this second…beware!
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First off, isn’t it thrilling to watch a President who claims we are practicing austerity while under his administration, another $7 trillion of debt has been created and now proposes a $4 trillion spending bill? Keep in mind, Clinton’s last budget was $1.8 trillion. Last I looked, we have not more than doubled the population to get to this point of $4 trillion. Almost speechless on this!
We wrote to you yesterday about the markets needing a goal line stand as they dropped down to what we called important support. Yesterday was a great case in point about the market defending itself at these important junctures as the market opened poorly and finished with a flurry to the upside. We don’t rationalize why. We only care about what happened. Continue to use yesterdays lows as your important support levels. Markets are now simply back into a nauseating trading range.
As far as our thoughts on oil and that last Friday’s action was a low for now, nothing has changed. Oil prices got a little more momentum yesterday leading into higher prices again this morning. Keep in mind, a rally was waaaaaay overdue and not sure yet we have seen a final low but one has to think $114 down to $44 could have been it.
Lastly, please make note of some of the main European markets now leading up as the ECB printing machine ratchets up. Remember, markets have loved printed money since the lows. There will definitely come a day where that is not the case but that day does not look like it is here yet.
You know our thoughts on central banks…that every time the bubbles they have created burst, they expand the next bubble with even more of the nonsense that created the first bubbles. This time though, we have never seen and cannot even fathom what lies ahead when central banks keep rates at 0% for 7 years and print trillions of dollars. And now we are just seeing others follow Mr. Bubble…thinking he is a hero.
You know our thoughts on the economic numbers…that if not for the asset bubble created, the numbers would be much less…and you know our thoughts on the fake unemployment headline number as the people in power conjured up a crash in the participation rate to make things better than they are.
You have known our thoughts on markets in that for many months, we have seen a 50-50 tape where half the market is bullish and half the market is bearish. You knew our thoughts into September when we told you the market was deteriorating enough to break down…but also noted the continued disclaimer that if Central Banks conjured up more funny money, the move could stave off the downside. We got that when in a coordinated effort, Japan and Europe both announced another trillion or two and China lowered rates even though China is doing so well. These moves stopped a deteriorating market to the second in mid-October.
Lastly, you know we have been using the dreaded words “trading range” in recent weeks to describe the major indices. We hate the words “trading range” but we call em as we see em.
The trading range is now buckling as the 50-50 market is now skewing towards 40-60 and even worse…as more and more sectors break down. Needless to say, Mr. Market needs a goal line stand…and soon. We think notwithstanding Yellen changing her tune and announcing QE4, odds favor a break which will invite technical selling. Here are the must-watch levels:
S&P 1988 and then 1972
NASDAQ 4563 and then 4547
The long list of sectors we have been bearish on has a couple of changes.
We think there is a chance oil prices put in a near-term low on Friday…which means we should continue with a counter-trend rally in the underlying stocks. This is only near term in thought as oil prices have done nothing but persistently gone done for months. And to be clear, there is enough noise and geopolitical crap going on to try and game oil prices…so careful out there. It could just turn tail and head lower if it wanted to. Oil is about as oversold we have seen in an asset in a very long time. Any potential move does not change the major trend.
We think gold and the underlying gold stocks will continue to emerge…especially if the major indices break down as gold seems to be the anti-market play.
Other areas that are now toppy, topping or recently topped are cruise lines,disk drives, hotels, medical products, semiconductors and hospitals. This is just in addition to our long list of yuck.
And lastly, the big financials continue to act like the Knicks…though they have been playing better as of late. It is never a good thing when financials are acting poorly.