Market Notes

Stock Markets

Interesting developments in the markets this morning.  Apparently momentum-fueled markets are getting knocked down by some hype from China pertaining to authorities allowing shorting of Chinese stocks.  That is not fundamental to anything, but it is a shot across the bow to over confident bullish momentum players the world over.  In true momo fashion, they are knee jerk selling in response.

The markets have needed correction.  Let’s see if something comes of this.

European stock markets are following through on yesterday’s downside and US indexes are in the red in pre-market.  Here are graphic snapshots of US/European stock markets and Asian stock markets at 6:36 US Eastern Time…

us.europe

asia

We have been noting that the global vs. US stock market bias play is over until such time as leadership items correct to significant support areas (ex. Euro STOXX 50 came to target at 3800 and has strong support at 3300).

We have also been noting that the S&P 500 could (should?) take a correction to 2000 or even 1900, which would refresh the bull (if supports hold) or end it (if supports fail).  Yet momentum items have proceeded to rise and/or levitate.

But given the widespread red you see above, and that Europe, which was all but ignored 6 months ago is THE big play (outside of China) on the macro now and came to measured targets… and given that China is dangerous in its momentum… and given that we have noted a renewed over bullishness in US stock markets… well, the default is and has been CASH.

I held my SPY short despite charts trying to tell me not to and it was in large part for the reasons noted directly above.

I cannot tell others how to manage their accounts (I consider such activity to be unethical) because we all have different situations and investment orientations.  But I can tell you that despite my cash levels being high the whole time, I will not tolerate any kind of significant correction without selling anything that either looks suspect or simply gives me a profit that I want to book.  NFTRH is not a stock sponsor of any kind.

Most items held (with the exception of an initial buy of GE on this week’s decline and INDY, which I just cannot seem to get a decent handle on) are solidly profitable, and ‘swing’ trading remains the mode in this market.  I am always open to profit taking (and limited loss taking as well) when in ‘swing’ mode.  That could include any position held, NFTRH+ or otherwise.

Shorting activity could be increased against longs as well.  I have not fully figured out my own personal situation.  So again I ask you to follow the macro market analysis, not so much what one lowly market participant is doing on a weekly basis.

The default position is and has been CASH when probabilities are not able to be focused with respect to bullish or bearish, as has generally been the case in the ‘swing’ market.  Speaking personally, collective profits gained thus far generally will not be given back, even to a temporary correction.  That is not how I manage accounts.  I will watch the charts of individual stocks however, and consider holding items on which the charts don’t give me reason to sell.

Precious Metals & Commodities

The US dollar is down vs. major currencies (including notably, the ‘commodity currencies’ CAD  & AUD) and we have a minimum downside target of 94 on the USD index.

usd

In yesterday’s update we noted more interest in precious metals (and commodities on the short-term) relative to stocks.

That is because precious metals and commodities have not participated in any bullish activity while confidence in the Fed has been bullet proof (as reflected by the strong USD).  When the herd finds out the Fed (and its fellows around the globe) are not so completely in control, we will enter a new phase.

Gold is the counter weight to the global confidence game going on now.

Depending on what gold vs. stock markets does and on what yield curves do, we will refine the plan on the go.  As noted after the poor US March Payrolls report (joining other negative economic indicators), it is time to be paying attention for potential changes.  On a counter cycle, it would be the gold stock sector that would stand out in a new macro phase.

Bottom Line

  • We continue to manage a correction in USD within its bull trend.
  • The view of stock markets (still in major up trends, mind you) is of caution on the short-term.  Default = Cash.
  • Commodities could continue to bounce, but are bearish on the big picture until big resistance levels are taken out (ex. Copper @ 3/lb).  Remember, commodities are generally positively correlated to economies on the big picture.
  • Precious metals can bounce, but of more importance would be a coming cyclical phase where gold and gold stocks could stand out due to their counter cyclical nature.  We will manage as needed to identify if/when the gold sector makes notable technical moves.  It remains in a bear market, technically.
  • The China news is hype.  But insofar as it is hype aimed against bullish momentum, maybe it could spark a global market correction.  Those defaulting to high cash levels can comfortably let it play out and make sensible determinations as to what comes next.

On that note, see you Sunday with NFTRH 339.