In December of 2009 I reviewed Brian Wesbury's book It's Not as Bad as You Think and gave it a five star rating, but didn't agree with what he was saying because he thought the market was going to rally in 2010 and into 2011. This was at a time when pessimism was rampant on Wall Street, and out of the two dozen or so finance and economics books I read during the latter part of 2009 and early part of 2010, he was the only author except for Steve Forbes that put a positive spin on the markets. Well, kudos to Mr. Wesbusry for being dead on with his assessment. In It's Not as Bad as You Think Wesbury states the DOW could reach 14,000 in the not too distant future. According to his blog First Trust Economy and watching him on CNBC, he is still bullish on the markets for 2011. If you would have taken his advice when he was the lone wolf out in the wilderness, you would have profited handsomely. I just wanted to give him a shout out for not only being right, but taking a gutsy stance.
I haven't been posting any updates to The Ithaca Experiment for a few months because I am still short the market and didn't want to be repetitive like Chicken Little chirping "the sky is falling" over and over again. The market had a very good 2010, especially since September when the rally seemed to have snowballed into a very nice year for those that are long equities. Do I regret being in leveraged short ETFs? No I don't because I still believe that there will be a day of reckoning with the massive debts that governments have accrued - especially in the "civilized" world.
This portfolio is a multi-year holding, just like most of my positions when I was long equities during the 80's and 90's and most of the double aughts. I don't like to sell for tax purposes, and statistics show frequent trading is not good for your bottom line. It is very difficult to time the market so I need to follow my gut instincts. As long as I don't panic and sell anything, all I have are paper losses. I have to be patient and wait it out as long as I remain solvent in my ETF holdings. My positions in ProShares Ultra Short S&P 500 (SDS) will be less of a problem of staying afloat than my holdings in the Direxion Small Cap Bear 3X Shares (TZA) because the former is double leveraged whereas the latter is triple leveraged. In fact, my allotment of shares in the Direxion Small Cap Bear 3X Shares (TZA) have already done one reverse split since I've owned them and may in fact do that again if the price falls to hat sizes once more. I have thought about selling them, but they are a small percentage of my portfolio, and, I believe they will get me to break even point eventually, or pretty close to it. I'm going to just let it ride as they say in the casinos.
Tuesday, December 28, 2010
Wednesday, September 1, 2010
September Song
The markets are roaring today. Up almost 250 points at this writing on better than expected manufacturing numbers, plus riding the coattails of upbeat sessions in Europe and Asia. Rick Santelli on CNBC was quick to point out that August had a terrific opening, too, up 209 points on day one, but you know what happened in August if you've been following the markets. They experienced their worst August performance in almost a decade. Dog days they certainly were if you were long the market. According the the Stock Trader's Almanac talking about September: "S&P opened strong 11 of the last 14 years but tends to close weak due to end-of-quarter mutual fund portfolio restructuring.". In fact, September tends to be the worst month for the markets. This does not mean that the markets can't go up for the month, because they have before, but the probability that they will decline is historically compelling.
Merger and Acquisition activity has been dominating the headlines in the Wall Street press the past month. The bulls believe this is an indicator that the market has reached rock bottom and that this is a good time to be buying. I take the bearish stance and say that increased M&A activity puts pressure on the markets primarily because consolidation of the two companies will have to take place and this means layoffs. Less jobs means less houses will be bought and even less iPads will be in stockings hung by the fireplace come Christmas time. There is also the argument that the company being scooped up may think that their stock has no place to go but down so these lofty prices they get by being bought out is the best thing that could happen to them. Let's not forget that with M&A the acquirer needs to bolster growth from outside the company because it can't grow organically. That to me is a sure sign that things are slowing down for these behemoth blue chips that are in vogue right now because of the dividends they pay out.
I've got nothing against dividends, but some buy-and-hold-forever stocks like General Electric (GE) and JP Morgan Chase (JPM) drastically slashed their dividends two years ago. I will grant you that their ticker prices have increased considerably since March of 2009, but you made money only if you bought them at the right time. It's just not that easy to time the market. If General Electric (GE) and JP Morgan Chase (JPM) don't make you shudder when you think about the dividend income lost, just consider other market stalwarts like General Motors and Lehman Brothers. That's a world of hurt if you banked on those widow and orphan enterprises. I really believe we are in only the second or third inning of the 'Great Recession' or whatever you want to call it. A year and a half is just not enough time to correct the biggest financial fiasco since the 1930's.
Merger and Acquisition activity has been dominating the headlines in the Wall Street press the past month. The bulls believe this is an indicator that the market has reached rock bottom and that this is a good time to be buying. I take the bearish stance and say that increased M&A activity puts pressure on the markets primarily because consolidation of the two companies will have to take place and this means layoffs. Less jobs means less houses will be bought and even less iPads will be in stockings hung by the fireplace come Christmas time. There is also the argument that the company being scooped up may think that their stock has no place to go but down so these lofty prices they get by being bought out is the best thing that could happen to them. Let's not forget that with M&A the acquirer needs to bolster growth from outside the company because it can't grow organically. That to me is a sure sign that things are slowing down for these behemoth blue chips that are in vogue right now because of the dividends they pay out.
I've got nothing against dividends, but some buy-and-hold-forever stocks like General Electric (GE) and JP Morgan Chase (JPM) drastically slashed their dividends two years ago. I will grant you that their ticker prices have increased considerably since March of 2009, but you made money only if you bought them at the right time. It's just not that easy to time the market. If General Electric (GE) and JP Morgan Chase (JPM) don't make you shudder when you think about the dividend income lost, just consider other market stalwarts like General Motors and Lehman Brothers. That's a world of hurt if you banked on those widow and orphan enterprises. I really believe we are in only the second or third inning of the 'Great Recession' or whatever you want to call it. A year and a half is just not enough time to correct the biggest financial fiasco since the 1930's.
Wednesday, August 18, 2010
The Hindenburg Omen
There was a major blip on most traders radar screens this weekend in that a Hindenburg Omen observation occurred last Thursday, August 12th. The financial blogosphere was lit up with articles and posts about the occurrence, but if you want a detailed account of what I consider to be the best article on the subject, go no further than Robert McHugh's "The Recent Hindenburg Omen Observation" at http://www.safehaven.com/. In order not to poach too much of Mr. McHugh's material, I'll keep my descriptions brief and liberally quote him, so here goes his explanation of what exactly is a Hindenburg Omen: "It is the alignment of several technical factors that measure the underlying condition of the stock market - specifically the NYSE - such that the probability that a stock market crash occurs is higher than normal, and that the probability of a severe decline is quite high."
According to Wikipedia, the criteria for a Hindenburg Omen: "...are calculated daily using Wall Street Journal figures for consistency.". The criteria are: "1)The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows are both greater than 2.2 percent of total NYSE issues traded that day. Based on approximately 3100 NYSE issues, the 2.2% threshold is 69. 2) The NYSE 10 Week moving average is rising. 3) The McClellan Oscillator is negative on the same day. 4) New 52 Week Highs cannot be more than twice the new 52 Week Lows (though new 52 Week Lows may be more than double new highs).".
How high of a probability is there that a crash will happen? First, there has to be more than one Hindenburg Omen occurrence in 36 days for there to be considered a real possibility of a retreat in the market, swiftly or gradually. But if there is, McHugh points out: "there is a 30 percent probability that a stock market crash - the big one - will occur if we get a confirmed (more than one in a cluster) Hindenburg Omen. There is a 40.8 percent probability that at least a panic sell-off will occur. There is a 55.6 percent probability that a sharp decline greater than 8% will occur and there is a 77.8 percent probability that a stock market decline of at least 5% will occur. Only one out of roughly 13 times will this signal fail."
Both The Wall Street Journal and Art Cashin on CNBC had pieces on the Hindenburg Omen this week, so it's not really a far flung notion that a few lunatic fringe traders are drumming up on bulletin boards at the major financial Web sites. As Cashin stated on Monday, "We've never had a heavy sell-off without a Hindenburg Omen, but we've had Hindenburg Omen's without a sell-off.". With this August being a particularly light on volume, even for August when most professional traders are vacationing, it's difficult to tell what will happen, but it does signal caution because market internals are deteriorating. I won't have to keep too close of an eye on this because if we do get a confirmed Hindenburg Omen, it will be all over the financial blogoshpere, not to mentioned the mainstream financial press. This could be another catalyst for the downturn I've been looking for that will surely turbo charge my portfolio.
According to Wikipedia, the criteria for a Hindenburg Omen: "...are calculated daily using Wall Street Journal figures for consistency.". The criteria are: "1)The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows are both greater than 2.2 percent of total NYSE issues traded that day. Based on approximately 3100 NYSE issues, the 2.2% threshold is 69. 2) The NYSE 10 Week moving average is rising. 3) The McClellan Oscillator is negative on the same day. 4) New 52 Week Highs cannot be more than twice the new 52 Week Lows (though new 52 Week Lows may be more than double new highs).".
How high of a probability is there that a crash will happen? First, there has to be more than one Hindenburg Omen occurrence in 36 days for there to be considered a real possibility of a retreat in the market, swiftly or gradually. But if there is, McHugh points out: "there is a 30 percent probability that a stock market crash - the big one - will occur if we get a confirmed (more than one in a cluster) Hindenburg Omen. There is a 40.8 percent probability that at least a panic sell-off will occur. There is a 55.6 percent probability that a sharp decline greater than 8% will occur and there is a 77.8 percent probability that a stock market decline of at least 5% will occur. Only one out of roughly 13 times will this signal fail."
Both The Wall Street Journal and Art Cashin on CNBC had pieces on the Hindenburg Omen this week, so it's not really a far flung notion that a few lunatic fringe traders are drumming up on bulletin boards at the major financial Web sites. As Cashin stated on Monday, "We've never had a heavy sell-off without a Hindenburg Omen, but we've had Hindenburg Omen's without a sell-off.". With this August being a particularly light on volume, even for August when most professional traders are vacationing, it's difficult to tell what will happen, but it does signal caution because market internals are deteriorating. I won't have to keep too close of an eye on this because if we do get a confirmed Hindenburg Omen, it will be all over the financial blogoshpere, not to mentioned the mainstream financial press. This could be another catalyst for the downturn I've been looking for that will surely turbo charge my portfolio.
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