Goodbye, Dow 16,000?
The industrials were sliding lower Tuesday and lost their 20-day moving average for the first time since September.
Well, that didn't last long.
After inching above the 16,000 level two weeks ago to great fanfare, the Dow Jones industrials ($INDU) were sliding lower Tuesday as they lost their 20-day moving average for the first time since September.
Technically, this isn't all that unexpected. Last week featured multiple "hammer" candlestick patterns -- indicated by intra-day rallies that were reversed into the closing bell -- that are representative of buying exhaustion. Breadth also has been disappointing, with the percentage of NYSE stocks above their 50-day moving average at just 60% now versus 85% in October.
So the Dow Jones' push above 16,000 was on relatively narrow support that is petering out quickly.
Can the bulls quickly recapture that level? Or will the selling pressure persist? Two things have me concerned that this is the start of a more protracted pullback.
For one, the "yen carry trade" that has supported the rise through Dow 16,000 is starting to unravel. This is the persistent weakness in the Japanese yen, as the Bank of Japan gets increasingly desperate to weaken the yen to boost export competitiveness as so-called "Abenomics" loses its verve, which hedge fund types sell short to fund speculations in stocks.
For it to work, the yen must weaken -- mainly against the euro, but also the dollar.
But Tuesday, the yen bounced off of support from its May low. If the rebound continues, the hedge funds will be forced to unwind the trades, selling stocks, euros and dollars to buy yen. The unwinding will precipitate more unwinding and more stock selling, as it did back in May and June.
For now, I've recommend clients book the profits we earned in the ProShares UltraShort Yen (YCS) over the last few weeks in anticipation of this.
The second dynamic that has me worried is the rise in crude oil amid rising tensions in places like Libya, Lebanon and Egypt, as well as a general disappointment with the Iran nuclear deal that was penned last week. Crude oil, as represented by the U.S. Oil Fund (USO), is posting its first significant upside breakout since July.
That's a problem since higher energy prices will not only weigh on consumer confidence during the crucial holiday shopping season -- which has gotten off to an inauspicious start with shopper traffic down 4% over the Black Friday weekend, according to Shoppertrak -- but higher inflation expectations will also limit the Federal Reserve's ability to forestall tapering its ongoing $85 billion-a-month bond purchase stimulus.
That's a big deal, since low inflation has been one the key reasons the Fed has kept its cheap-money morphine drip going for so long.
Long story short, I'm not a buyer on this dip yet. So, what should investors do for now?
For now, I continue to recommend my clients profit from the turbulence via the VelocityShares Daily 2x VIX Short-Term ETN (TVIX), which is surging higher as options traders pile into put option protection against additional losses.
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As of this writing, Anthony Mirhaydari has recommended TVIX and long crude oil to his clients.
Profit taking today. Investor will buy back with the money from prifit and principle.
The stock will go up again tomorrow. The same pattern for so many years.
Nothing new or different.
Real test is coming next year when the Federal Reserve has to go into high gear and announce a QE4 which will pump $125 billion a month into the US bond and stock market to keep it afloat.
With 10,000,000 babyboomers retiring each year the Fed is going to have to go into over time next year just to keep the bubble afloat.
We are going to crash and burn of course by Sept 2015 but the only question is will it be a slow let out of the ballon or a quick burst of the bubble??
Knowing the Fed it will be a quick burst of the bubble to allow there friends time to get out of the dollar assests (happening now) and not allow anyone else to escape the total collapse.
Now is the time to hit the panic button and dump bonds, dump stocks and above all dump dollars and get into yuan or yen or yes even Mexican pesos. Yep there I have said it even the Mexican peso will be more stable than the dollar by Sept 2015.
Save your assets and move them now before it's too late.
- "The market" dropped because it was afraid that the Fed might slow down its stimulus program;
- Slowing down the stimulus program is a sure sign of an improving economy;
- Therefore, "the market" is afraid of an improving economy.
Isn't an improving economy supposed to be GOOD for business? WHY would "the market" be AFRAID of it?
Aren't we coming up on another government shutdown deadline? That should take a few points off of the indexes. The media loves doing stories about potential government shutdown, not sure why. They even have "so many days until shutdown" clocks and everything. They really get off on it.
How about that new oil pipeline coming online next month? Gotta love it.
And Seattle has clinched the first playoff spot in the NFL. Curiouser and curiouser.
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As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
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