Dan’s on a plane heading back east right now but did a overview of the market that you won’t wan to miss. (October 10, 2018)
AMZN MSFT DJ-30 DJ-20 DJ-30 DJ-20 SP-500 TNX--X DJUSBK XLF TNX--X JPM GS BAC WFC DJUSBK XRT DJUSBK SP-500 MDY IWM MDY AMZN MSFT FB AAPL NFLX GOOGL SMH SP-500 AMZN MSFT SMH VIX--X SQQQ VIX--X SMH AMZN
I am looking at Amazon ( NASDAQ: AMZN) and this is a pretty key tell for the market. Microsoft ( NASDAQ: MSFT ) is the other one. Amazon ( NASDAQ: AMZN) has been having trouble for a while but I have what I call a modified Dow Theory. Where typically the deal on the Dow Theory is, if the Dow Industrials ( INDEXDJX: .DJI ) hits a new high we need to see the Transports ( INDEXDJX: DJT ) hit a new high. If it doesn’t do it, that’s a problem. It hasn’t done it; the last time the Dow got up here the Industrials ( INDEXDJX: .DJI ), the Transports ( INDEXDJX: DJT ), not even close.
That gave us kind of an early warning sign and that’s fine. But I look at other things to get a better sense of what the broader market is doing than just the Industrials ( INDEXDJX: .DJI ) and the Transports ( INDEXDJX: DJT ). These two indexes were made like 90 bazillion years ago when people still carried sixguns around their waist. The market has changed a bit and so I kind of change with it. Instead of even really looking much at the Dow, I will look at the Transports ( INDEXDJX: DJT ) but I want to see what large-caps are doing.
Up until recently the S&P ( INDEXSP: .INX ) was doing okay but I am looking then a Treasuries ( INDEXCBOE: TNX ) and the Yields have been up, that’s not a good thing when other things aren’t working. However, with Yields going up, if that is a good thing, if people are selling bonds in order to buy stocks, when the sale of bonds goes down the yields go up, they are selling bonds in order to buy stocks, that’s one thing. If they are selling bonds simply because they think that inflation is around the corner and that is going to hit their income so they are just demanding higher prices, you know higher Yields, that is another thing entirely.
Banks should be doing well in a rising environment; they’re not. XLF ( NYSEARCA: XLF ), which is more than banks. XLF ( NYSEARCA: XLF ) is also not doing well. It’s not doing bad but not doing well. And when you are seeing a breakout in Yields the Banks should absolutely smoking. JP Morgan ( NYSE: JPM ) , Goldman Sachs ( NYSE: GS ), Bank of America ( NYSE: BAC ) , Citigroup ( NYSE: C ) , Wells Fargo ( NYSE: WFC ), they are not doing what you want them to do. So when we look at the Banking Index that’s a bad thing.
I also look at the Retail Market ( NYSEARCA: XRT ), and by the way, I was CNBC last week talking about this. Josh Brown was saying that he thinks the market is ready for higher rates and all that and I disagreed, I don’t think it is. Whether the market is ready for rates or not is really beside the point. What is to the point is, what is the market actually doing? We are seeing Retail ( NYSEARCA: XRT ) off. Banks ( INDEXDJX: DJUSBK ) not doing well. The S&P ( INDEXSP: .INX ) not doing well. Mid-caps are absolutely getting crushed. Small-caps are getting crushed.
By the way, Mid Caps and particularly small-caps do horribly in a rising rate environment simply because the poorly capitalized companies need money. They tend to have higher debt and so when the price of money goes up their profits go down. It becomes tougher to make money; they have less in capital expenditures because they don’t have enough money so these stocks go down. So I am looking at this, and yes, stocks do trade below their 200-day moving average. Mid-caps do trade below their 200-day moving average.
Back to Amazon ( NASDAQ: AMZN), it will ultimately touch the 200-day moving average. Now, if it were to do it today it would be at 1650.00 but the way the 200-day moving average is moving that’s really what you are looking at. I could see Amazon ( NASDAQ: AMZN) ultimately doing that. And by the way, if it does that, if it touches the 200 does that mean the rally is over? No; there is seriously nothing wrong with the uptrend in Amazon ( NASDAQ: AMZN). It just means that this was a pretty steep correction.
When I look at stocks like Amazon ( NASDAQ: AMZN); I look at stocks like Microsoft ( NASDAQ: MSFT ), which has been a real bellwether, it hasn’t really been talked about like the old FANG stocks. I look at Facebook ( NASDAQ: FB ), which hasn’t worked in quite a while, thereby lending credit to the idea that karma is truly a witch (with a ‘b’). Apple ( NASDAQ: AAPL ) is still hanging in there okay. Netflix ( NASDAQ: NFLX ) is not doing well but it is probably going to bounce off the 200-day moving average, but still, this is a negative thing. And then of course Google ( NASDAQ: GOOG ) is down below the 200-day moving average.
So all of these things combined, again, the Retails ( NYSEARCA: XRT ), the Banks ( INDEXDJX: DJUSBK ), and then also let’s not forget the semiconductors; in fact, I had mentioned on CNBC that the semiconductors were the one thing that was kind of hanging together. They have traded sideways for most of the year and my point was, if the semis can hang on, that’s a good thing. However, if they breakdown that is kind of like the linchpin that is keeping us from reaching much lower prices. Well, you can see, they are breaking down.
My point is, I am not calling a top in the market I just think that is for liars and idiots to do. Tops are processes; how are you going to call a top in the semiconductor market, for example? This could be the top but it may not be. And by the way, what is your definition of a top? This was the top as well because after all we did get a 10 percent correction. Oh, well this is the top. Why? Well, we got a 12 percent. The point is, it doesn’t matter. What matters is whether you are making money. And right now in the topping process and some would say the market has been in a topping process since this blow off in January. It doesn’t matter. What matters is whether you are making money. What I am telling you is, in this environment, when I see Amazon ( NASDAQ: AMZN) doing this. When I see Microsoft ( NASDAQ: MSFT ) doing this. When I see the semis doing that, this is not a market that you want to mess around with. It is not a market that you want to be long.
I will tell you this, in my trading account, in our pension fund and this and that, we can’t exactly just go to cash whenever I start getting an itch on the back of my neck. But in my trading account I am completely flat. Shorting stocks right now is a little problematic just because earnings are so close and the market is just pretty volatile. You look at the VIX ( INDEXCBOE: VIX ), this looks like it is kind of breaking out. The SQQQ ( NASDAQ: SQQQ ), the Ultra Short Nasdaq is like about the best thing going in my view. What I am saying is, right now I am totally flat. And it hasn’t been so much because I am saying, “Oh, I need to get to cash because the market is rolling over.” It is because of what you could say is forced displacement.
What I mean is, I will closeout a position, maybe it is for a profit, maybe it is for a loss, whatever, it doesn’t matter. I will close out a position so I have money from that stock position and now I am looking to put it to work and I simply can’t find anything that I want to buy. And then, oh, another one of my positions, I need to close that out. I am getting stopped out. Or, okay, well it has reached my profit target. It has reached a point where I really need to book profits because I am happy with it so I will close that out. Now where am I going to put that money? I can’t find anything.
So ultimately what has happened is I have gotten more and more cash on the sidelines and I just can’t find any good entries. And so for me, aside from all these different charts that I have shown you, for me the ultimate determinate of whether I am in the market or not is just whether I can find something that is compelling to buy. Amazon ( NASDAQ: AMZN) for example, oh, I want to buy it at 1800.00, it used to be at 2050.00 so this is my buying opportunity. Why, on the Lord’s green earth, would I want to do that? Sure it could bounce off of 1800.00, but you know what? Frankly, this thing has probably a better chance of hitting 1700.00 than it does 1900.00. Why? Because the trend is down and selling pressure predominates.
Think about it this way, why do you want to buy something where you need to go to the store and get some Rolaids or some Tagamet, why buy heartburn? So my point for telling you all this is, I don’t want you to lose money. I am telling you specifically, I am not saying the market is topping, I don’t have the brain power to figure that out. The secret is that nobody else does either but that doesn’t stop people from pretending they do. I don’t have that power but I will tell you this, I am looking for lower prices. I think that once earnings start next week and certainly the week after that then we are going to get a better sense of what is happening.
We are also going to have some opportunity to make some really good trades, shorter-term trades. Do you think the way Amazon ( NASDAQ: AMZN) is trading, you think that October 25th is not going to be a pretty interesting day, certainly October 26th, the day after they report earnings? It’s the same thing with these other stocks. My point is, I am totally happy to have cash right now. Because I know that opportunities are coming they are just not coming right now. We are going to get opportunities in the next week or two or three to make a lot of money. And I just want to make sure, and you should too, that the money that I make in a few weeks, a couple weeks, whenever it is, I want to make sure the money that I make is not just making up for the losses that I take between now and then.
So be conservative, don’t be overtrading; I know a lot of people do; I know you do. Don’t be overtrading. Learn that one of the most valuable things that any good trader understands is that there is a time to sit on his hands; I call it getting numb hands. You can do that in the desert as well as in a blizzard, that’s where I think you should be right now.
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