Best First Half In 22 Years – So What?
The first half of the year is now in the books and it is one to remember. It was the best semiannual performance since the Spring of 1997. I am sure many investors don’t remember that because they were in grade school then, and that is what bothers me. After a ten-year bull run many of todays traders have forgotten that bear markets still exist.
Why did the S&P rise 17% in the first half of 2019? Well there a number of reasons. We have the tensions in the Middle East with Iran, we have a looming trade war with China. We have the fears of an economic slowdown in the US as new jobs have begun to slow down and we have tension on the political front. All of those are good reasons for the equity markets not to turn in their best performance in 22 years. My point is it doesn’t matter what is happening. The market goes thru cycles and we have been in an upcycle.
But what happens if things actually return to normal. We see unemployment rise as we stop adding new jobs at a record pace. Minority ownership and wages start to decline. Student and auto loans start to default. Who is going to bail out the banks this time? The Fed’s balance sheet is already full and if outside investors decide not to buy our debt what is going to happen?
If you follow social media they don’t talk about the unprecedented wealth that America is now enjoying. They would rather concentrate on the Mueller report on July 17. They are not concerned about this unprecedented winning streak. In short, they don’t have a clue about what it is like when the bear comes back for its visit. I hope they don’t have to learn the hard reality of that part of the economic cycle!
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: What is the best way to initiate a credit spread?
Answer: Getting the spread on correctly is important. Novice traders can blow themselves up trying to get the “edge” on the market makers. Forget about that strategy. It won’t work. You are not going to be able to out execute the market makers. There are a couple of choices that will work getting the spread in place. First you can “leg” the spread on by buying the long side of the trade first and selling the short leg second. I use this strategy when I have a preference in market direction. I get my limited risk leg on first and then try to sell the credit side with more premium. Second you can set your browser on the site you are using to find out where the spread is trading in the live market. You should be able to get filled within a few cents either way once you know where the spread is trading. The third way, which is always wrong is to leg the spread on by selling the short option leg first. This is selling a naked option and will eventually cause a big loser. You are not going to beat the wise guys at their game. Eventually, the impossible will happen and as soon as you sell the naked option Houston will get 50 inches of rain, and you will take a possible risk of $280 and turn it into $3000. You will then email me and tell me that I don’t know what I am doing, and the risk is much greater than I claim it is. Remember bulls and bears make money in the market, pigs get slaughtered! Don’t be a pig. There is plenty of money to be made doing it the right way.
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 three-weeks of the year it did not dent the ten-year bond market. The Fed is determined to cut rates at its next meeting in July. There doesn’t seem to be much left in this market until the Fed makes a decision. I am still long but will take profits if the near-term support doesn’t hold.
Crude Oil
Crude finally had some upside this week. I took a long position on the close Friday at 56.65 and so far, it has paid off as oil rallied almost three bucks. U.S. Frackers continue to shut down rigs and I think that they are close to the end of the slowdown. They can get the rigs up and running quickly. It could possible put some pressure on prices, but I will use the yearly low as my stop out.
Gold
After the big rally last week, gold spent most of last week trading in a tight range on fairly low volume. I still believe the market is in a blow off phase. I will now be looking for a spot to get short this market, or if it goes back to support, I will get long again. Right now, I will be on the sidelines.
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The Market Edge – ‘Market Posture’
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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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