September 27, 2017
Throughout this year, beginning with the “China Crisis” in January, then “Sell in May”, and then the “Brexit Crisis”, the overwhelming majority of Wall Street geniuses have been telling you , “Sell Stocks. Don’t Buy”….FOR MY PART, I HAVE BEEN NOTHING BUT EXTREMELY BULLISH STOCKS…AND THE ECONOMY… SINCE THE BEGINNING OF THIS YEAR…AND REALLY…FOR YEARS BEFORE.
Now those same geniuses are telling you: “Because cautious here”, or “A correction is coming”, or “The markets don’t like the uncertainty of the election ahead”, or “The economy is beginning to show signs of slowing”, etc., etc. etc…Just the same inane nonsense and analytic garbage they are forever spewing.
The Dow, S&P 500 and NASDAQ have made new all time highs during the past few months, with the NASDAQ (representing the technology of the planet, which, to put it mildly, is somewhat of an important sector don’t you think?) having done so just last week…to almost NO fanfare I would add.
Take a good look at what the stock indices actually look like…and again, IGNORE, those idiots who DID tell you, “Sell in January” , “Sell in May’, and “Sell Brexit”…and decide for yourself…just based on what you see…if you think STOCKS GOING HIGHER looks at all likely.
On a technical note, I would add…and this is my own observation after 36 years drawing lines…. that the highest probability bullish chart I know is a large sideways move, followed by new historical highs, then followed by a slight small consolidation pause occurs just above the old highs...with the highest probability being that the next thing you see is a SHARP upward move…AND THAT IS EXACTLY WHAT I SEE IN THOSE THREE STOCK MARKET INDICES. Nothing says it has to happen, but irrespective of anything I think about “why” the market is going higher, in my purely technical opinion, the odds DO absolutely favor a sizeable move to the upside.
FOLKS…AS I HAVE BEEN SAYING ALL YEAR, OPEN YOUR EYES AND BE AWARE THAT THE ECONOMY IS IN AN ACCELERATION MODE…AND SO TOO IS THE STOCK MARKET…If you want to believe the nonsense that 4.9% unemployment “isn’t good enough”, or that “we’re not creating the right kind of jobs” (2.5 million in the past 12 months), or that record vehicle sales, or SOLIDLY rising housing values (new and old), or construction going on EVERYWHERE, or that the roads full of cars and trucks, or jam-packed airports and malls are all indicative of a “weak economy”, I can only assume that you must honestly trust the opinion of the forever wrong brokerage house and internet nitwits…or…that you are possibly letting your political opinion cloud your ability to objectively judge what is going on all around you…THE ECONOMY IS POPPING. PERIOD.
So okay, this next chart is just one chart…but in my book, this one is just about as important as it gets…
I ABSOLUTELY BELIEVE THE USA IS IN HIGH GEAR…I THINK THEY ODDS HAVE GONE THROUGH THE ROOF THAT THE STOCK MARKET IS ABOUT TO ERUPT HIGHER…AND YES, I THINK IT IS READY TO DO SO IN THE FACE OF WALL STREET’S GIBBERISH ABOUT “ELECTION UNCERTAINTY”, OR “SLOWING ECONOMIC NUMBERS.”
Which now brings me around to the interest rate markets…and my ongoing recommendation to short Treasury Bonds, and most lately, and very loudly, Eurodollars.
The latest “conventional wisdom” in the markets, even cited by Donald Trump last night, is “the Fed won’t raise rates until after the election.”, or, “the Fed will only raise rates once this year (or maybe not at all)’, but I will repeat what I have said for months (and have also observed for years), THE INTEREST RATE MARKETS WILL MOVE RATES HIGHER…AND THE FED WILL THEN FOLLOW…and I am sure this statement is now falling deaf in your ears, but that IS how it generally works. Throughout history, the Fed has, OVER AND OVER AND OVER, found themselves behind the curve, or terribly late in understanding what was actually happening in the marketplace…and then been forced to play HEAVY HANDED catch up…Just as ONE example, NOBODY AT THE FED SAW THE GREAT RECESSION COMING…which, when you get down to it, was about the worst “miss” in the past 50 years…AND…I assure you, that was neither the first time, nor the last, when they were unquestionably TOTALLY WRONG in their assessment of economic conditions…And believe me, this is not a knock on the Fed (they have a tough job, predicting the future) but simply to emphasize that this IS the way it has worked as long as I have been in this business, that JUST BECAUSE EVERY TALKING HEAD ON THE PLANET IS YAPPING ABOUT “RATES STAYING LOW” DOES NOT MEAN THEY WILL…NOT FOR EVEN ONE “MINUTE” MORE.
In the interest of brevity, I will sum it up as…
THE STOCK MARKET IS GOING UP. I DO THINK IT CAN IMMEDIATELY BE LIFTING OFF FROM HERE.
THE ECONOMY WILL CONTINUE TO HEAT UP…AND THE IDEA IT IS “OVERHEATING” IS PROBABLY NOT THAT FAR OFF IN THE FUTURE.
AND INTEREST RATES WILL CONTINUE, IMMEDIATELY SO, TO MOVE HIGHER…AS, PLAIN AND SIMPLE, THERE IS NO LONGER ANY NEED FOR RATES TO REMAIN AT CURRENT LEVELS.
This following chart says it all…and leads me to one clear cut conclusion; IF THE STOCK MARKET IS GOING HIGHER, SHORT TERM INTEREST RATES ARE ALSO GOING HIGHER…MEANING EURODOLLARS ARE GOING LOWER…AND I THINK A LOT LOWER.
With that in mind, this is what I really want you to see…
Imagine it’s a month or two from now and the Dow is 1000-1500 points higher. Do you really think interest rates will STILL be where they are today? In trading the markets you DO have to be anticipatory. You can’t sit and wait for the headlines to declare what usually has already happened…Can you be early? For sure…but I will also assure you that every market we trade can change DRAMATICALLY, literally, from one day to the next…or certainly, from one week to the next…How many times, for example, have you suddenly seen the media blaring headlines about a move up or down in the stock market?…Where, all is quiet…but then a week later, you’re seeing that the Dow has just moved 1100 points in the last 8 trading days? THE POINT IS, IN TRADING, YOU HAVE TO ANTICIPATE. YOU’RE NOT GOING TO MAKE THE GUESS THAT “TOMORROW’S THE DAY IT REALLY STARTS”. YOU HAVE TO BE THERE BEFORE THE FIREWORKS START….AND THAT IS WHY I AM BUYING EURODOLLAR PUTS OUT TO NEXT JUNE…WITH TEN MONTHS OF TIME…
As much as anything I ever know in this business, I do KNOW that rates are going up…and I also KNOW the action can crank up any day or week now…Obviously, this is MY opinion, and I may be dead wrong, but any of you reading this do keep reading my stuff because over the past 36 years you have seen me NAIL it at times…especially in the interest rates markets…And in just about every single case where I did get it right, it was TOTALLY, TOTALLY contrary to what all the analytic masses were calling for… And again, this does NOT mean I will be right here…but I HAVE NO FEAR OF LOOKING STUPID WHEN I SAY, ONE MORE TIME, I HAVE NEVER SEEN A TRADE LIKE THIS IN MY ENTIRE CAREER.
Here’s the trade…Since last week’s Fed meeting, the idea (mistaken I believe) that rates will be going up soon, or much at all, has all but disappeared in the trading world…and put options…bets that this market will go down…have become what I would call INSANELY CHEAP.
Virtually NO ONE seems to believe this is at all possible…which blows my mind…But I understand it…This IS a mob psychology game. If people were jumping all over me saying, “Yeah, Yeah, Bill. I agree! Let’s go!”, quite honestly, it would scare the shit out of me…But that is NOT the response I am getting…
Thanks for reading this far…
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Eurodollars