Not the Time for Long Term Investing
{ Markets open with a dive on more Japan environmental/economic fears, Saudi trooper shooting, and the usual debt and inflation issues.
{ All sectors that benefitted from the liquidity flood had some of the gains taken from prices on Tuesday.
{ Inflation is, unfortunately, just one of the biggest problems facing the US, but it is inexorably tied to our currency woes.
{ New York PMI rises again, but prices are shooting higher.
{ Import prices show more inflation. Food prices show the greatest 12 month growth since 1977!
{ Indices take some major hits. SP500 is still a potential ABCD but the other indices have sustained damage and have to prove their merit.
{ Not the time for long term investing. Patience, smaller positions, watch risk/reward, and keep compiling the play lists.
MARKET SUMMARY
Each new day brings more fascinating events.
It seems like each morning when you turn on the news, it is an odyssey as to what will be the lead story. None of them seem to be good. There was more information on problems with Japan’s nuclear reactors with fires and radiation levels. That is an ongoing problem in Japan, and it is the one that seems to strike the most fear in everyone. People did not think we would be dealing with nuclear radiation anymore, although that may be a pollyanna view given the problems with terrorism and possible black-market nuclear weapons.
In any event, this brings it home once again to a generation that was shielded from all of this. Many of us grew up in the era of the Soviet Union with our nukes pointed at each other. We had nuclear fallout drills in schools. That is something lost on the new generation. They do not realize how bad things were. That is one reason it would be nice to teach that more readily in our school system. But I digress.
All these stories react with the market. Looking at the intraday chart of the SP500, there was a massive gap lower in futures when they opened. It was Japan, of course. There are still problems in the Middle East, in Bahrain. One of the Saudi Arabian troops that marched over to Bahrain was shot and killed. That is raising all kinds of tensions again in the Middle East.
There is Japan’s tragedy and the economic and environmental ramifications, and we have the Middle East with its ongoing protests. We also have Northern Africa in an out-and-out civil war. We also have the EU with its continuing debt problems. They cannot decide how they will change their austerity packages and their new bailout procedures. Of course here in the US we continue to have billions upon billions of budget shortfalls in each state, and then we have the US government with its trillions of dollars in debt.
For now, fortunately we have the reserve currency status. We can print money and other countries have to pretty much take it. We will lose that status, and it is happening right now as other countries start to divest and move into what they say is a more equally-balanced portfolio of currency. What they really want to do is cut the dollar out and get the US out of the picture. When that happens and we are no longer the reserve currency, we cannot continue to print money. Indeed, all the money we did print will come back and we will have hyperinflation as everyone dumps their dollars and sends them back home.
We have already sown the seeds of inflation with the trillions we have thrown at the debt crisis. We have stacked more debt on top of that with the healthcare law and the bailouts. We have more debt than we can possibly hope to pay. The only thing that allows us to print the money, stay afloat, and keep inflation at bay is the reserve currency status. Once that is gone, we automatically will have massive inflation.
Look at what happened to Great Britain, a world superpower. It did everything we are doing now. Overnight it devalued its currency 14%. That was the sterling. The sterling was ultimately dumped as the reserve currency and inflation skyrocketed in Great Britain. The 70′s were a horrific time, and Great Britain folded as far as a world superpower. We will do the same if we continue to not support our currency and then devalue it even further and lose our reserve currency status. It has happened again and again throughout history, although these other countries were not reserve currency countries, such as Germany. It did have a very important currency when it went through its troubles in the 30′s. It has happened in many South American countries as well. We are just looking at being the next, and it will be the most noteworthy because this will be the largest currency collapse in world history.
That is a gloomy way to start the report, but I had to start out with the gloomy morning. I did not mean to bring everyone down, but we have serious issues to address in this country. We are not really addressing them, but that is a little bit beyond the scope of the report. That was just a teaser on something to think about in the future, but I want to look at what exactly happened in the market on Tuesday.
There was big gap down. It was just continual worries and uncertainty with what is happening in Japan. The government does not have a lot of credibility, but the people are outstanding. They are stoic, standing in line, and they are cooperating and helping each other. They are trying to make things work as best they can. It is very heartening to see them so courageous in such a trying time. We need to do whatever we can to help them.
There were other issues that kept things down; it was a culmination of things. On Tuesday morning, everything that had been inflated by the easy money was getting killed. Gold was crushed to the downside, falling to the 50 day EMA. Oil was hammered as well. Notice that neither gold nor oil broke down. They are testing support levels. There was selling across the board, however, no matter what market you were in. On the contrary, the dollar and bonds were rising. The dollar did not hold its move, but bonds did. Lots of fear. Despite our trillions of dollars in debt and slowly losing the reserve currency status, people still come to US Treasury bonds when things get ugly. We are still the best place to put your money for now.
We had serious issues on the day, and we still have serious issues to face. The market did manage to come back as can tell from the SP500′s intraday chart. Almost from the open it started to come back, moving its way slowly but surely, stepping up the stairs back to the gapdown point on the SP500. At that point it stopped its movement on the day and slid a bit into the close, but it was an amazing comeback for stocks that were down 3%.
NASDAQ, -1.25%; SP500, -1.1%; Dow -1.15%; SP600, -0.9%; SOX, -1.25%; NASDAQ 100, -1.36%. Another tail kicking. Looking at the SP500, it shows a nice reversal off the low intraday. Maybe we have some buying here, but the other indices are not as pretty. They have a lot of work to do.
There will be more important data. There are housing starts and building permits for February. The PPI is getting to be so important with the food and energy components as I discussed in the economy section. They will try to tell you everything is okay with the core, but it is not the core that is causing the price hikes. Like apples, we do not eat the core PPI or the core CPI. I have a bad feeling we will be eating these higher inflation rates to come. It could be pernicious. Then we have the current account balance and crude inventories. Crude inventories have an import once again because oil is on the ropes and getting knocked back with some of that liquidity taken out of the system.
What do we do at this point? The SP500 looks as if it could still recover, and then you have NASDAQ looking like it could still roll over and fall even further. You have to be patient, and you have to watch this bounce and see how it plays out. The textbook move is that it rallies back up to these prior peaks X maybe the January and late-February/early-March peak and stalls out. That gives you a clear signal. Or it breaks through and then rolls over. That is another clear signal.
Given the action and the look of the chart, you would have to be dubious about it making a new high and making it stick. We are concerned, and we will view any bounce at this point to the upside as more of a relief bounce that is for a trade. This is not a time for long-term investing. It is a time of transition. After a good run, the market is dealing with a lot of negatives. We have to see if it can pull it off and continue the run higher after this consolidation (which could take several weeks) or whether it rallies up and rolls over.
There is so much coming to a head right now, and the market is having trouble digesting it X thus the choppy action. Have patience. We will pick good upside plays that we think we can ride for near-term gains. The SPY may still prove to be a vehicle that we can ride to the upside. There are other stocks, as I chronicled in the leadership section, that are still in excellent shape and can bounce and give nice moves. Just realize we will not likely be able to hold them for months on end.
We were taking nice gain off the table as the market sold and started to bounce. We will look for other downside plays to set up. Again, I would like to see that candy-hop action where we get a rally back up into this prior peak level, then it shows a lower MACD and rolls over again. That is a candy-hop to the downside, but it is not guaranteed right now.
The Fed is still adding to the liquidity. If the market is able to absorb all the negatives out there, it may be able to continue its run and put together a third leg to the upside. You just have to be patient. I know it is a difficult thing to be patient for any trader, investor, or combination thereof. Just take smaller positions and have smaller expectations.
Do not foolishly cut off runs. If the pattern is there and you would normally expect it to run to a level, make that your target. Be willing to adapt, however, as Bill Murray and his buddy claimed to be in Stripes. They said they were not homosexual, but they were willing to experiment. I hope no one takes that the wrong way, I was just trying to make a point: Be adaptable. This is a time in the market where many things are happening. You have to be adaptable and realize you are not going to marry any stock for any period of time. Just shorten the horizons. Still look for bounces and downside. Play what is there, and take what the market gives, knowing that we do not want to put all of our money to work.
We have been taking money off the table for a long time now, and putting new on X recycling it but taking smaller positions. We do not want to put a lot of money to work right now. We just want to have strategic moves we can take advantage of and then make a little increment on the side. We do not want anything to hurt us. Take it easy with your positions, whether stock or options. Be happy with smaller gains and be happy keeping your money. Then stay on top of it.
As soon as you get complacent and say you will come back later, something happens and you miss a great move. It always happens that way; trust me. Stay on top of it. We are going to keep active and keep trading on these because we are still making money. When we take a loss, it is much smaller because we are not putting that big of a position in. We are focusing on the risk/reward. We want much more chance for upside than we do for any downside move against us.
Do not let this stuff get you down. Look at it and study it, and be somewhat fascinated by it. These are unreal events happening. Unfortunately, we are in the kind of times that people may not want to be in over the next 10 years. No one wants to live through those periods, but you have to make the best of the time you are given. Understand what is going on and try to still be fascinated and somewhat amazing at how we handle our issues. That makes some spice for life. I hate to be pollyanna-ish, but it will be something to tell your great-grandkids that they can pass on. Hopefully we will say, “We were worried that our reign as a superpower was over, but we did the right things. We woke up, did the right things, and we got out of it. That is why you enjoy such a great standard of living today.” I hope that is the case.
