Market Stages Biggest Rally of 2019!
As usual markets never announce themselves, they just happen. Following all of the gloom and doom in May when equities got hammered for six straight weeks, someone forgot to tell the Bears that the Bulls still had some ammo left. Last week, the Bulls pulled out some that dough and were relentless, something that the Bears didn’t expect. The unexpected barrage moved the market to its best week in six months. The DJIA rocketed up 1,170 points with all of the components advancing at least 2%. The DJIA was up by 4.7% for the week.
How did this happen? The new jobs numbers were a major disappointment missing the mark by over 100,000. But what never ceases to amaze me is the psychological aspect known as “market expectation”. Although the street said that the numbers were a major disappointment, they expressed their real feelings in the equity markets moving the DJIA up over 1% for the day.
The explanation given was that they feel the FED is going to cut interest rates in either the June or the July meeting. The futures market put the chances at 20% for June and 70% for July. To me this doesn’t seem to be a positive. It should be viewed as a negative. We are at 50-year lows in unemployment, a 50 year high in average income and the economy shows no sign of slowing down. If the FED cuts now and we hit the recession button how are they going to be able to do another QE? Go negative like the EU? Time will tell how this one will play out.
Thursday marked the 75th anniversary of D-Day which was truly the day that turned the world around. All of the leaders of the world’s Western powers were in attendance for the show except President for life, Vladimir Putin. He wasn’t invited and maintains it was no big deal. He said that the invasion did little to change the tide of the war and that the Russians were responsible for the victory. Either this guy is a complete nut case, or he has dementia. Without the U.S. economic aid in the days after the invasion of Russia in the summer of 1941, the country would have been completely overwhelmed and destroyed. I guess the cold war has never ended.
Mr. Trump and Miss Pelosi are back in town now so it should be another circus starting in Washington. It should be fun to watch how this new chapter of impeachment turns out. I personally think Trump would love an impeachment. Odds say he can’t lose and this could blow up on the Democrats. Life in the nation’s capital is never boring.
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.
What is a collar and how does it protect my portfolio?
Answer: A collar can be used in many ways. It can be used to avoid paying taxes in the current period on a stock position that has a large profit in it. However, it can also be used for any purpose where you want to keep the stock and have no market risk. The collar is put in place by selling a call above the current market price of the stock and buying a put below the price. As an example, you own 100 shares of TSLA that you bought last year at $150. The stock is now trading $300 but you don’t want to sell it. To put the collar in place, you would sell the $305 call and buy the $295 put. They both will have the same amount of premium so whatever you lose in the call you make in the put and vice versa. You have collared the stock and locked in its value at $300. When you want the stock to trade freely again you can either let the options expire if they are both out of the money or you can buy back the collar if one or the other is in the money. In either case you have protected your investment for the time involved with the option serial that you used.
The Wise Guy Report: The View From The Floor
Each week I talk about what I think the Wise Guys (floor traders) are up to with the Big Three commodity contracts: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). I also track the Market Edge (www.marketedge.com) ‘Market Posture’ which has a twenty-six year record of forecasting the intermediate-term direction of the stock market as measure by the DJIA with around 70% accuracy.
T-Notes
Even though the equity market had its best week of the year it did not dent the ten year bond. There seems to be a disconnect here. When the market went into its six week tailspin, it had little effect on the ten year. There was a brief flight to quality when the world came to an end two weeks ago but since then the price has remined steady. Traders are betting the Fed will cut rates in the next two months, but with the yield approaching 2% it will be a tough sell to keep the price gain going.
Crude Oil
Oil is appearing to look more like a blow off bottom. Two months ago, it was back to a market that could only go up, but the glut of oil on the worldwide market is now taking its toll. Many U.S. Frackers are not making any money and they are exhausting the streets patience. They are going to have to go to more creative financing to keep the losses under control. That means selling equity and getting into the junk bond market. Personally, I think that if it hits significant support it is time to reenter this market from the long side. As for now we will observe the price action looking for meaningful support. The only mistake here would be to get short. If you are short you should be looking for a spot to lock in your profit.
Gold
This market woke up in a hurry. It seemed that suddenly the world is worried. It has been a tough trade, but it was never able to take out support so we hung in there and now we may get rewarded. The big gap higher on Friday to a double top may have been the market highs but it is my experience that we should probably get a continuation move next week. Although we are at long term resistance it is my feeling to wait to see if the market can break thru to the upside and make new 2019 highs. If it can’t, then we will take profit and get short.
| The Big Three Commodities Contracts
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| Market Timing Models | Current Reading | Prior Week | Connotation | ||||
| Cyclical Trend Index (CTI): | 2 | 2 | Positive | ||||
| Momentum Index: | 5 | 3 | Positive | ||||
| Sentiment Index: | 0 | 0 | Neutral | ||||
| Strength Index – DJIA (DIA): | 26.7 | 27.6 | Negative | ||||
| Strength Index – NASDAQ 100 (QQQ): | 17.6 | 18.6 | Negative | ||||
| Strength Index – S&P 100 (OEX): | 18.6 | 20.8 | Negative | ||||
The Market Edge ‘Market Posture’, which has been Bullish since the week ending 04/18/2019 (DJIA 26559.54) remains Bullish at this time.
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