January 18, 2018
What about Stocks?
The chart below notes every recommendation I have made regarding the stock market since August, 2010. During these past 7 years, I have essentially been FIRMLY bullish stocks and the economy...84 times to be exact...and especially so during the past two years. I would also say that even on those 7 occasions when I issued "Sells", it was with the stipulation that while I was expecting a minor pullback in stocks, I still continued to expect an ever expanding VIBRANT USA economy.
As for Stocks right now, though I am now beginning to anticipate a PAUSE in this bull run, I do not think we are there yet…I CONTINUE TO SEE STOCKS MOVING HIGHER.
That being said…
I THINK THE TWO GIANT TRADES IN 2018 WILL BE
SHORT TREASURY BONDS AND SHORT GOLD.
Believe me, there is not a single Fed governor who expected to see the Dow go up 30% in the past 12 months.
Believe me, there is not a single Fed governor who expected to see the Dow go up 12% in the past 2 months.
Believe me, there is not a single Fed governor who expected to see the Dow go up 5% in the first two weeks of 2018.
And believe me, there is not a single one of those guys who is not now looking at stocks and the STRONG economic data that is rolling in…and NEW HIGHS in stocks being made all over the planet…and wondering if they have perhaps been too lax in returning to more NORMAL rates…I mean, let’s face it, getting their Fed Funds Rate up to a measly 1.25% has not even begun to slow ANYTHING in the economy…And as I have maintained for over a year now, THE FED WILL, AT SOME POINT, AGGRESSIVELY SPEED UP THE PROCESS OF TAKING RATES HIGHER…and I think that point is precisely NOW…Really, NOBODY on Wall Street, which also includes everybody at the Fed, has come even close to predicting what stocks and the economy have done for the past few years…and when you get down to it, to repeat: Nothing is slowing anywhere in the economy. Quite the contrary.
My point is, in much the same way it has happened during the four rate raising campaigns since 1980, I believe the Fed has gotten behind the curve, and there are about to start hitting the brakes HARD…and often…and rates will be going up MUCH faster than all the New York geniuses, and more importantly, the Eurodollar and Treasury Bond markets are anticipating.
AFTER A 30 POINT DOWN MOVE IN 2016, FOLLOWED BY AN ALMOST YEAR LONG CONSOLIDATION, I THINK THE BOND MARKET IS NOW ABOUT TO DROP SHARPLY…AGAIN.
A few pictures…
This IS where you make the trade…while it’s here on the lows and hung out here to dry…Lots of different ways to do it…Here is one option I like here.
My primary focus on new positions is now in the Treasury Bond market,
but I am still holding & buying puts in Eurodollars….
I think my long held target 97.50 will be hit before we get to the June expiration, which would mean about another 45 points over the course of the next 5 months. We are still holding puts with much higher strike prices (9850’s, 9837’s & 9825’s), but from here forward my only interest would be in the leverage of the 9787’s shown below…
with a target back near $1000…this year
Gold has had a nice rally since mid-December…but STILL remains in a consolidation dating back to the Brexit inspired “panic highs” of July, 2016. If you remember, Wall Street’s geniuses started that year by scaring tons of investors into this market with absurd fears of a meltdown in China, and then REALLY trapped everybody into buying the highs with the equally absurd idea that the July Brexit vote was going to bring down the whole of Europe…and the rest of the world with it.
Now here we are 1 ½ years later and none of the various fears that were promoted as the “logic” to own this “safe haven” commodity that ONLY will make you money if it goes higher (and you take the profit), also pays you no interest, and then actually COSTS you to own if you have a serious position involving gold bars…Plain and simple, in this investing GAME, Gold primarily goes up and down on EMOTION, and in a sense represents the epitome of my long standing belief that the values of all of the stocks and commodities we trade are more a function of mob psychology than anything else…In the end, it’s all about the old cliché of fear and greed…of speculators chasing profits…and later fleeing from losses.
So, in the interest of getting this out quickly, I’ll spare you a long harangue and just say this: From my solo listening post out here in Kennesaw, I will offer that ALL of the rhetoric I hear regarding Gold is totally toward the buy side…that while I am sure there are some lone voices who might be slightly bearish (of the “It’s overbought here” ilk), my perception is that there is virtually ZERO opinion that even comes close to considering the idea of Gold going DOWN…and not up.
Guys….This is a very stale trade that almost EVERY brokerage house in the world was LOUDLY recommending back at $1800-$1900, and have continued to do so for the past few years (with everybody holding losses)…and I therefore say that this market is still LOADED with losing positions…who, on the next trip lower are going to find themselves giving up on the idea with BIG (and getting bigger) losses as they, along with 1000’s of other investors, sell this market down through $1000 an ounce.
I think Short Gold is every bit as big a trade as Short Treasury Bonds…and I therefore strongly recommend owning puts in both of them.
Here’s the big picture…
You know how the markets work…Ask yourself: What would surprise Gold market traders the most?
And here’s one way to take the position…
I think this is a killer…Really…ALL I hear is “gold break out” talk…and like I keep saying, NOTHING about the down side.
And, finally…I have to say this…If you gave up on the Eurodollar idea back in September…which was precisely when the move got going again…I urge you do something with at least one of these ideas…This game does involve being right and wrong, winning and losing…but as one of my wall reminders says: ONE GOOD TRADE IS ALL IT TAKES…To me, futures are not about incremental gains. I am in it for big hits…and I absolutely believe these are both GREAT trades with definite big dollar potential…Maybe they will be losers…but I am solidly in both of them.
Happy New Year.
Call if you want to talk…about this stuff…or anything.
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: Treasury Bonds, Eurodollars, Gold.