August 29, 2012

Still Buying Stock Indices

In spite of all the UNCEASING BAD, BAD, BAD NEWS as to how the world is about to fold up and die, THE STOCK MARKET IS AT 5 YEAR HIGHS.

Right up front, I think the Stock Market is still a buy and continue to believe any given day---ANY---can be the beginning of a roaring upside move that will take the Dow quickly (as in 3-6 weeks) up to the 15000 level. I firmly expect to see the recent “crawl” higher turn into an explosion.

The way the markets work is forever amazing to me…and as I always feel compelled to state: The markets are a giant mob psychology game, to which I would add, obviously heavily influenced (negatively) by the lemming like forever wrong opinions presented by the media...

As evidence, just take a look at SOME of these excerpts and headlines I’ve collected in the last 2-3 weeks, while the market has been cranking steadily higher…and keep in mind, what you see here is same the sort of “don’t buy it” mentality that has been everywhere for the past 2000 points (and more) in the Dow.

 More....

You get the picture? Is it any different than it ever is? All you’ve heard, from people who supposedly “know” or “understand” the markets, is, “You are an idiot if you believe it’s gonna keep going”. Yet it has…and, in my old hack opinion, IT WILL.

Here’s a chart of the Mini-Dow contract…again, dead on its high…IF all those same headline generators were screaming “Buy it!” , I would be nervous. But they are NOT…Think about it…Again, we are on the highs. DO you hear a whole bunch of supposed experts (or even a few) all excited and telling you, “You NEED to be in there! It’s going to (even) 14,000”? And, unless I am media deaf or something, the answer is “No”. All I see is doubt, caution, and fear…same as it has been for every day of this BULL MARKET (a term, incidentally, and meaningfully, I never see used to describe the stock market).

 Still think the Euro is an incredible buy…

Yes. I am still buying the Eurocurrency…and still making the point I see this as one of the most one sided opinions I have ever seen in this business…that the speculative community is ALL over the short side of this market,  as denoted by their having the largest short position in Eurocurrency history, and I cannot imagine who is left to short this market.

I firmly believe Europe and the Euro are NOT going under…and think a 10-15 point, 2-3 month rally in the Euro would be no surprise at all…

Here’s the picture I keep showing you…and take note of the following:

 Even with all the LOUD AND CLEAR “Euro will DIE” press, this currency is right where it has been for the past 4 months.

 Meanwhile, with the market going nowhere, the short spec position has gotten bigger and bigger.

In my mind (warped as it is), something has got to give…and I think all those people who are short---AFTER a 30 point sell off---are about to get it handed to them. This IS a piece of paper. Its value IS nothing more than a matter of perception. This IS a game…and in this game, “short covering” rallies can be vicious…especially, I would say, when you are talking record historical shorts…

I TRULY BELIEVE WE COULD SEE THE EURO AT 1.35 TO 1.40 BEFORE WE GET TO YEAR END.

Still Buying Soybeans and Corn

I am still long both Corn and Soybeans…but in the interest of getting this newsletter out, I am only going to address the Soybeans…which is also where I think the greatest leverage currently is…

Soybeans ARE at record prices…and while I certainly do not know what is going to happen, I am still going with the idea this market can turn into a rocket…

I have always considered the Soybean market to be the real “King” when it came to big commodity moves…and I still think this is the case…beyond anything that happens in Gold, Silver, Crude or any other market. BIG, BIG moves occasionally take place in Soybeans, and if you can catch one, there is no other ride that compares…It should go without saying, but I definitely need to say so, that if you are wrong, those same big moves can take your shirt, shoes and underwear...so this is not a market for the faint at heart, and risk management is a  major necessity.

I’m kind of tired (in spite of a recent small vacation, the recent market volatility is somewhat draining) so I’m going to throw the rest of this down pretty quickly and just send it out…

All I ever try to do here is give it to you exactly as I see it…and my feeling is, there is NO telling how high we might get in Soybeans. Yes, we may be dead on the high tick this afternoon, and I am an idiot to still be long…and still buying…but my sense is there are still PLENTY of people who doubt there is much more upside, plenty of people who think all the weather has been accounted for, plenty of people who are only thinking, “Should I get short here?”, or “When do I short them?” and the like…And until I hear “plenty” of “It’s going to the moon!”, I’m staying on the buy side…There is definitely more to my opinion than this simple estimate of crowd sentiment, but again, I still say it’s more about psychology than anything else…

A note to myself this morning was: It is easy to NOT be long Soybeans here. The “hard” thing is to be a buyer.

Again, I don’t know where this market is headed but I do think it could easily be in the low to mid 20’s…And No, wherever it’s going, if anywhere further at all, I doubt it will stay there for long at all…Straight UP. Then straight DOWN…but I think there are going to be ton of people, between now and when November goes off the board, who try to pick the top in Soybeans…and lose. As I have stated in previous newsletters, the last 5 years have taught me (the hard way) there are billions of dollars of speculative funds on the planet, and when that “hot” money gets behind a market, there IS no telling how crazy it can get…And here, with this market, the KING of commodities, my bet is therefore STILL on the upside.

here are all sorts of approaches here…using futures (full size and mini), options (Oct or Nov or Dec)…so give me a call if you want to look at possibilities. I would point out this is NOT a long term trade…Beans could trade up (or down) $3 in the next month, then reverse and do the opposite. Taking this into consideration, I don’t see the need to be taking positions with 3 or 4 months of time…

Here’s one using October options, based on the November contract, with 23 days to expiration. In other words, with this position, you will either win or lose in the next 3 weeks…

Here’s the same option with an extra month of time…

Or, buy futures with puts as defense…or buy November calls with October puts as defense…Lots of ways to go…

What I don’t think we now see is sideways…that this thing either truly takes off or I will look like an idiot as it now falls apart…both of which make a strong case for using the both sides approach in options.

Give me a call if you want to know more…

Thanks,

Bill

And I am still short the Treasury Bond market but will cover it in my next newsletter.

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