Somehow we ended up bullish yesterday.
I already sent out a morning Alert to Members reiterating a buy on oil futures at $72 (already hit our first target at $72.50, which now becomes our stop line) and we took a longer-term bullish play on USO yesterday as oil came back down from $75. We got out of our day-trades right at the top in the afternoon so that dip into the close became just another buying opportunity for us where things got so crazy that we actually bought OIH at $91.04 as that is just RIDICULOUS. Of course we leveraged it with an option play for our Members but people ask for stock picks, so there’s one I like a whole lot!
We were looking for the sell-off as I had put up a chart of the major indexes for Members at 12:27 that indicated a down-trending channel and I predicted a re-test of last Wednesday’s lows "tomorrow," which is now today, of course and the indexes dove straight for our 1% line into the close so we will be thrilled if we just hold it together here and form a proper base to move up from.
That 1% line also happens to be the -5% line for the year to date so we expect at least a weak bounce off that level (which held nicely in early Feb) and is up 5% from last November’s sell-off. The most disturbing things we need to watch is the incredible weakness of the NYSE, which is below it’s lows of last November and dangerously close to a major breakdown at 6,500. That and copper below $3 are going to be our major indicators of BIG TROUBLE. SOX 350 was a very disappointing loss yesterday and we need to hold the 200 DMA at 340 or we are DOOMED.
So, other than that, we’re very enthusiastic about our prospects going forward – not so much because things are great over here but because things are so very, very scary everywhere else that US equities seem safe by comparison.
Japan’s Prime Minister resigned last night after just 8 months in office and the Yen is actually lower now (91.9) than it was at 3am (91.6) blowing our "sure thing" play in Forex for the first time in ages.
CDS rates are so out of control in Europe that they closed the bond market over there and no companies issued bonds in the US either as investors flee to the safety (???) of government bonds. Costs to protect European lenders’ bonds from default rose to the highest in more than three weeks. The Markit iTraxx Financial Index of credit-default swaps on 25 European banks and insurers climbed 3.5 basis points to 177 basis points as of 11:10 a.m. in London this morning.
Also of grave concern (and giving us our entry on OIH), Standard & Poor’s said it will review all companies with operations in the Gulf of Mexico following the U.S. Department of the Interior’s extension of the moratorium on drilling permits. Some 35 companies may be reviewed, S&P said. Catastrophe bonds also jumed 10% already in anticipation of a severe hurricane season. “What the markets are saying is that global warming is causing more uncertainty and has caused modelers to adjust their models to reflect those warmer waters and higher hurricane frequency,” said John Brynjolfsson, chief investment officer at Armored Wolf LLC. Gee, I guess bond traders didn’t get the memo that Global warming is a myth…
Palestinian activists are sending another ship to run the blockade in the Gaza and Hillary calls the situation "unsustainable and unacceptable," which sounds like we’re taking a tough stance until you realize that Nixon also called the Middle East Situation "unsustainable and (expletive deleted) unacceptable" as did Eisenhower, Kennedy, Johnson, Ford, Carter, Reagan, Clinton and two Bushes so forgive me if I’m not too impressed by Hillary’s tough talk….
So, Europe bad, Japan bad, Middle East bad, commodities bad… How about China? Well, Nomura Holdings says China bad too – warning that "Investors should remain cautious on China’s stocks as they face “further downside” risk. Nothwithstanding the share-price declines to date, sentiment has not yet turned to revulsion,” the Nomura analysts wrote. “A-share equities have certainly become inexpensive relative to history but they are not significantly undervalued. On this measure, there may be further downside." Not yet turned to revulsion? I guess they don’t have Mad Money over there…
China’s stocks hit a 13-month low today, on concern banks’ capital raising and a slowdown in European manufacturing growth will sap investor demand for existing equities and hurt earnings. Bank of China Ltd. tumbled the most since October 2008 as the lender began a 40 billion yuan ($5.9 billion) convertible bond sale, while Industrial Bank Co. slumped 7.1 percent after a rights offer. Jiangxi Copper Co. and PetroChina Co. paced declines among resource producers as metal and oil prices slumped. SAIC Motor Corp. rose 0.4 percent after the government said it will subsidize purchases of alternative-energy cars. “Investors are concerned about fundraising, which increases the number of shares outstanding and dilutes earnings,” said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai.
What else can we do with our money but invest in equities? You can buy a 10-year note for 3% and hope that $134.39 buys you as much in 2020 as it does in 2010… Sorry, I had to pause to catch my breath from laughing so hard… or, you can put your money into companies that make stuff AND make profits AND pay dividends, many much higher than 3%. That’s our 10-year plan!
