After last week’s nonstop torrent of dramatic developments, I definitely feel like I’ve been on an E-ticket ride at Disneyland, but with a turbocharger.
House Speaker Paul Ryan hinted that tax reform may take longer than expected.
Then, the US launched a surprise air attack against Syria.
Barely noticed was a terrorist attack in Sweden.
I received three emails and Facebook posts from former girlfriends in Stockholm telling me they were all right.
Did I ever tell you than I was a part owner in a fashion model agency there during my bachelor days in the 1990s?
Not that I’m expecting Scandinavian dinner invitations anytime soon.
Any one of these black swans would have knocked the Dow Average down 1,000 points in a normal market.
But this is anything but a normal market.
It is an indestructible, Teflon, or even a titanium market.
Nothing sticks to it, and it is inherently unbreakable.
It appears that in the modern age there are no consequences for anything.
This is what happens when most institutions, including your own pension fund or retirement plan, are underweight risk assets in general, and equities specifically.
Money managers can’t sell on pain of death.
But they don’t want to buy either, until the vast number of promises made by the new administration come close to fruition, even in greatly watered down form.
Until then, they are happy to wait. And it could be a really, really long wait, possibly into 2018.
All this is happening against the backdrop of a seriously deteriorating technical backdrop in the market.
Two weeks ago, 332 companies saw their shares hit new all time highs. Last week it was only 72.
Leadership is becoming increasing narrowed, always a topping sign.
If you don’t own Amazon (AMZN), Facebook (FB), or Netflix (NFLX), you have basically been out of the market for the past month.
Certainly the bond market thinks so, which has become my new rich uncle.
It has been trapped in one of the narrowest ranges in history since the presidential election, driving technicians to distraction.
I have been aggressively trading the iShares 20+ Year Treasury Bond ETF (TLT) from the long ANDthe short tide this year, using my proprietary Mad Hedge Profit Predictor Market Timing Indexto do the heavy lifting for me.
In this wacky world we live in, trading bonds is far easier than trading stocks.
With no net movement in the major share indexes, at best you’ll catch a sector rotation, and that’s a definite maybe.
So I am comfortably ensconced in a SPY short strangle, betting that the market goes absolutely nowhere for the next ten days.
It’s a position that makes money when the market goes up or down small, or nowhere.
In other words, I get to have my cake and eat it too.
My short position in the Utilities Sector Select SPDR ETF (XLU), a bet that utility stocks will fall, is working nicely.
It also helped that I bought the Volatility Index (VXX) ONE CENT above its low for the week, and then saw it rally by a robust 15% by the end of the day.
Yes, the harder I work, the luckier I get, and after a half century, this stuff gets easy.
This all leaves me with a trailing one year return for my Trade Alert service of 46.29%, and a 2017 year-to-date return of 23.12%.
Life is good.
The closely watched March Nonfarm Payroll Report was supposed to provide the spark to at least give us a rally to another marginal all time high.
It was not to be.
The figure came in at a heart stopping 98,000, versus a consensus of 175,000. January and February were revised down by a disappointing 38,000.
The unemployment rate dipped to a new decade low of 4.5%.
Business and professional services were up by 56,000 jobs, mining was up 11,000, and health care gained 14,000.
The real shocker was that retail lost 30,000 jobs as the industry fades into the dustbin of history. It was the worst two months for retail jobs since the 2008 financial crash.
For more on this, read my recent piece “The Continuing Death of Retail”.
The U-6 long-term structural unemployment plunged by 0.3% to 8.9%.
Again, where was the panic selling? It lasted about 15 minutes, and mostly took place in the overnight markets.
Weather, weather, weather was the explanation.
I know many of you in the Midwest think I’m an aging, Birkenstock wearing California hippy. If you remember the sixties, you weren’t there.
But I actually approve of the attack.
I received a quickie briefing from the Pentagon the next morning, and it was clear that it has Defense Secretary Jim Mattis and National Security Advisor Chairman H.R. McMaster’s fingerprints all over it. (You’ve got to read his Vietnam book, “Dereliction of Duty”).
It had all the ‘i’s” dotted and the “t’s” crossed.
And it sent the right message to our pals, the North Koreans and the Russians.
Go for the asymmetric outcome, with low risk and high reward, much like a tactical hedge fund manager would.
This attack was in fact planned out four years ago, the last time Syria used chemical weapons. Then Assad dodged the bullet by agreeing to destroy his then existing sticks of sarin gas.
That’s how the response was executed so quickly.
The US military in fact is prepared to execute thousands of potential contingencies like this at any time day or night, already have the resources in place, and the intelligence gathering spy satellites overhead.
You are much safer than you realize.
Besides, those Tomahawk missiles were getting old anyway. The 30-year-old weapon was originally designed to carry nuclear weapons 1,500 miles into the old Soviet Union in WWIII.
Better to use them before their expiration date.
Starting from next week, trading will be dominated by the Q1 earnings reports, which are universally expected to be good, up 9.9% YOY, the best in three years.
I have a feeling that traders are going to be fading every rally.
Remember that “Sell in May” thing? It is only three weeks away.
On Monday, April 10, at 10:00 AM the first report of the week is the March Labor Market Conditions Index, which recently has been running incredibly positive.
On Tuesday, April 11 at 10:00 AM EST we receive more jobs data with the March JOLTS Report.
On Wednesday, April 12, at 10:00 AM EST we learn the Atlanta Fed Business Inflation Expectations.
The weekly EIA Petroleum Status Report is out at 10:30 AM.
Thursday, April 13, at 8:30 AM we learn the Weekly Jobless Claims. Last week’s number showed a big jump. At 10:00 AM the soft University of Michigan Consumer Sentiment Index comes out, which lately have been wildly ebullient.
On Friday, April 14 at 8:30 AM, we learn the March Consumer Price Index, giving us the latest read on inflation, which has been moderately rising.
Wrapping up the week at 1:00 PM is the Baker-Hughes Rig Count, which has been up for most of the last year, boding ill for oil prices.
As for me, I’m going to spend this weekend watching the movie “Wag the Dog”, a 1990s political comedy about a president who takes the nation to war against Albania to distract he public from unending domestic scandals.
Good luck and good trading.
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