Market Plan for Next Week

[DarterBlue]

1 hour ago, dan in daytona said:

.....and all the while enjoying with family a relaxing hard earned get away. Mr BlueDarter, you are a complicated individual, my friend. I toast you, on this Independence Day with a bottled import (Fuck Trump), and may your ship rise and float all of our boats. Peace  

I could use some of that good stuff right now. Hope you're having a great 4th!

[DarterBlue]

Thursday's Market Action: Stocks had a genuinely good day today. Perhaps this reflected the belief that there may be a last minute reprieve from the tariff war with China, or perhaps the market feels that the effects of such war have been priced into the market with the weakness over the past two and a half weeks. But there is no denying the fact that all indices were in gear and the breadth and volume were fine. My portfolio reflected the strength as I was up over $3,500 on the day.

My Situation: In a recent post, I stated I was leaning to at least sell some of my positions before going off to Texas for two weeks. Specifically, I named BABA (due to its China connection) and the NASDAQ 100 Options, due to their expiration in late September as the prime sell candidates. Well, I did not sell and have no excuse, as the market gave me a grand opportunity to exit. Why did I not take the opportunity? Perhaps it reflects my Achilles heel which at times has been a penchant to gamble. For make no mistake about it, to leave open positions in a scenario where I have no plan of tending to them for two weeks is as bad as buying a stock the day before earnings release. It is a rank gamble, given the instability of the current occupant of 1600 Pennsylvania. As I type this, the piper may begin to get paid as soon as the morn as DJT has gone on record after the close to state that the first round on $34  billion worth of goods begins at the stroke of midnight. 

I will assess the situation tomorrow and reserve the right to still exit if I think it's warranted. Otherwise, I will have to trust that my son will exercise the due diligence pops would. Now that's a scary thought!

[DarterBlue]

23 hours ago, DarterBlue said:

Thursday's Market Action: Stocks had a genuinely good day today. Perhaps this reflected the belief that there may be a last minute reprieve from the tariff war with China, or perhaps the market feels that the effects of such war have been priced into the market with the weakness over the past two and a half weeks. But there is no denying the fact that all indices were in gear and the breadth and volume were fine. My portfolio reflected the strength as I was up over $3,500 on the day.

My Situation: In a recent post, I stated I was leaning to at least sell some of my positions before going off to Texas for two weeks. Specifically, I named BABA (due to its China connection) and the NASDAQ 100 Options, due to their expiration in late September as the prime sell candidates. Well, I did not sell and have no excuse, as the market gave me a grand opportunity to exit. Why did I not take the opportunity? Perhaps it reflects my Achilles heel which at times has been a penchant to gamble. For make no mistake about it, to leave open positions in a scenario where I have no plan of tending to them for two weeks is as bad as buying a stock the day before earnings release. It is a rank gamble, given the instability of the current occupant of 1600 Pennsylvania. As I type this, the piper may begin to get paid as soon as the morn as DJT has gone on record after the close to state that the first round on $34  billion worth of goods begins at the stroke of midnight. 

I will assess the situation tomorrow and reserve the right to still exit if I think it's warranted. Otherwise, I will have to trust that my son will exercise the due diligence pops would. Now that's a scary thought!

Friday: Stocks closed out the week with a second positive day Friday. As such, the holiday shortened week was one of our best since early May. Despite the first round of Chinese tariffs going into effect with tit for tat retaliation from Beijing, stocks shrugged this off opening higher and closing near day highs. The reaction to the tariffs appears, for now, to have been: sell on the announcement and rally on the enactment. Clearly, Wall Street must believe that this first round will not be followed up with the additional tariffs on an additional $400 billion of Chinese goods, as if that were implemented with compensatory Chinese retaliation ( they don't buy enough from us to close the gap but can implement punitive actions on US companies doing business there), in the short to intermediate term we would most certainly have inflation and a recession. Is Wall Street correct? With this Administration it's anybodies guess. Personally, I am leaning to the point of view that Wall Street is underestimating the resolve of Trump, and that his actions will probably end the current bull market. But this is in the future; and it will probably be the end of August if not September before this all plays out. For now, it seems that once again the weakest indices have held and we are back in rally mode, however, temporary this may prove to be. 

Personal Portfolio: I kept all the positions and have instructed my son to act on my behalf in my two week absence. My own point of view is that the next week or so will continue up. Whether this holds till I return is another matter altogether. Thus, I am taking something of a gamble. Maybe I have been emboldened by the fact that I have recouped about 40% of the losses sustained during the last two weeks of June. With today's performance I was up over $8,300 on the week thereby regaining a chunk of the profits given up over the last two weeks of June. All positions were up today with BABA and the Options position (the two that I was most inclined to sell), doing best. So for at least one day, I was right in not closing them out Thursday. Of course, this could all change on Monday of next week. The one thing I can say about the current Administration, is that there will be no dull moments in the waning days of this bull market from hereon.  

[DarterBlue]

More Thoughts on the Market: So as of today's close, the NASDAQ, NASDAQ 100 and Russell 2000 are up nicely on the year (at or around 10% which would be decent for an annual gain, let alone a gain in just over six months). On the other hand, the DOW, NYSE Composite and S&P are either slightly down for the year or barely up. As such, we have a divergent market. Usually (nine times out of ten), markets don't remain divergent for long.

The lagging indices either join the leading ones, or the leading ones eventually break down. In thinking about the likely outcome this time around, my thoughts turned to the 1994 market. That year, the averages topped out in mid January (this year it was late January), and spent the better part of the next 11 months going nowhere. However, the going nowhere was, as is the case today, accomplished with a lot of volatility and no pronounced trend. At the outset of 1994, we were at the beginning of a bull market that had begun in January 1991 (the Desert Storm rally). Thus, the then bull market had been in effect for three years when the weakness began. 

The 1994 going nowhere market was resolved shortly after Thanksgiving 1994 and from there, the market went up almost uninterrupted (there were very brief bear markets in the late summer/fall of 1997 and 1998, caused by turmoil in the developing Asian Tiger countries and the meltdown of Long Term Capital Management) till early 2000 when the bad bear market (bursting of the Dot Com bubble) in which the NASDAQ lost over 80% of its value through December 2002 began. 

The burning question is: will this current going nowhere market follow the 1994 pattern and resolve itself to the upside? Or will it rollover finally and kick off a long absent bear market?

The case for this being just a consolidation to be followed by another leg up in the bull is simple. Corporations have benefited mightily from the Trump corporate tax cuts; the economy now over nine years in expansion remains strong with growth over the last couple quarters showing signs of accelerating. 

On the other hand, the case for it rolling over is equally compelling. The market is the second or third most overvalued in in US market history; this is now the longest bull market on record and due for a significant drop; and, not to be overlooked, markets are a leading indicator of future economic health, and we have not had an economic contraction since the end of the 2007/2009 Great Recession. 

My own point of view is that we are due for a bear market. However, each time the market has sold off, it has found support at critical levels (50 and 200 day moving averages, prior lows, etc.). This tells me that the old bull may not be dead yet. I feel that the resolution will probably be determined by DJT. Should we get into a full fledged trade war with China, our European allies, and Canada/Mexico, it will resolve itself to the downside. Mr. Trump is a volatile man and I certainly don't know what he will end up doing (it's not clear to me whether he himself knows). So far the first shots have been fired with the most recent being the imposition of tariffs on $34 billion worth of imports from China. China immediately reciprocated. However, the market can withstand this first round. The concern is that cooler heads will not prevail and we will have subsequent rounds which almost certainly be both inflationary and contractionary.

For now, the bull must be given the benefit of the doubt. However, it's foundation is weak!