January Best Start For Stocks In 30 Years!
If only you had known on Christmas Eve that on many occasions Santa gets delayed, as he has a lot of places to visit in such a small time period. So it was this year as he was getting his sleigh overhauled and put a new turbo charger in his reindeers that more than made up for his faux pas. January turned out to be the best start to a year since 1989. While all of the talking heads were lamenting the government shutdown, problems with trade in China and focusing on AAPL’s stumble, the investment community saw opportunity and bought in with both hands.
The government shutdown was a nonevent as the horror predicted by the press didn’t occur. There were some minor disruptions because the workers didn’t draw their usual salary but in the scheme of things they got a one month paid vacation. When they went back to work they got all of their pay back. As I predicted, and the markets agreed, it was a non-event. So we will go back to work for three weeks and Mr. Trump will give his state of the union address on February 5th. The Republicans will laud it as land mark in U.S. history. The Democrats will maintain it is full of half-truths at best and will give no funding for the wall. There will be a new shutdown and the leaders of the opposite parties will act like little children again.
The Maduro threat of breaking off diplomatic ties and not sending us oil had no effect on the energy market. You talk about a guy that is full of hot air, this is your boy. He is an idiot. Somehow he thinks this is still 1973 but the U.S. no longer cares about his oil. We are a net exporter so in effect he is creating competition in an area that he is struggling to meet his quota’s to China and other nations that buy his product. Currently the military is still backing him but there have been a few cracks as some attaches to the U.S. are considering that maybe the bus driver needs to go. So, where do we go from here?
Most companies reporting earnings have met reduced expectations and it is not like the major tech companies are going broke. It is a little like crying because you expected 100 presents and you only got 98. The housing market was due for a cool down and if it continues it could be a problem. Debt with student loans and other bad lending could cause a problem. The Fed is telling us that they may have raised rates as far as they feel is necessary to offset inflation. This is tough for me to figure out because it is always deflation that causes the panic. If prices rise gradually even if wages fall slightly behind Americans are still going to spend their money.
2019 now starts the election cycle. A jillion Democrats want a shot at Mr. Trump in 2020 and one of them may emerge as the new political star. The markets will go up and down and try to sort out the mess. As always stay tuned as 2019 looks to be an interesting year!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
Question: Why is it when I buy options on earnings releases and I am right as to the price direction, I still lose money?
Answer: I addressed this question last week, but with the turmoil that has occurred in some of the big tech stocks I thought I would address it again. It is because the other side of the trade that sold you your option has priced in movement that would not normally be expected. If you are trading ABC stock and it has a normal range of +/- 4.00 a week, it is not uncommon for the stock to have its range increased by 50% to 100% just before the earnings are released. Over my thirty-five years of trading options I have seen hundreds of times when the earnings release is as expected, and the stock barely budges. When that happens all of the options go down in value, it doesn’t matter which one you own.
My advice is that if you want to trade earnings never buy naked options, especially the expiring straddle or strangle. On Friday, 01/01/19. AMZN released their earnings which met their earnings expectations! In fact, AMZN made the more money than it has in any quarter since its inception but guess what happened. The stock collapsed and was down nearly 5%, but the real damage happened in the option market. Had you bought some out of the money (OTM) puts on Thursday hoping that AMZN would not meet expectations, when you woke up in the morning and the talking heads were discussing the stock’s collapse, you could not wait to see how much money your account had made. Much to your dismay when you checked, you found out you got killed on the OTM puts you bought. How is this possible? AMZN was down almost $80 dollars and the puts were down on the day. Had you bought the straddle in the expiring month it was as if you bought a $100 stock and it is opened at zero!
This is exactly what I addressed last week. DON’T BUY NAKED OPTIONS! If you want to play this game you should spread the premium. Either sell vertical or horizontal spreads. You might not hit a home run, but you will hit a lot of singles and doubles and will have very few strike outs!
The Wise Guy Report: The View from The Electronic Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover MSS which is the Mister Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis. This week Let’s look at how the equities markets have performed since the start of 2019.
Equities Trending (Bullish)
Market Edge’s ‘Market Posture’ changed from Bullish to Bearish last September. As it turned out, it was a tough fall and December was nasty. The final low was in the last week of December as Santa forgot to show up. January of 2019 turned out to be the best start to a year since 1989. On average equities gained over 7%. Market Edge’s model predicted the turnaround and it was right, which it has been for over 70% of the time since 1992. This is earnings season, and most of the reporting companies are in line with diminished expectations. We feel confident that the upswing should continue for the rest of the quarter.
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