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SPX SDS add to shorts with buy on stop at 39.33 for SDS. SPX last at 2646.5.
Oddlot
Agreed. Imho shorts should he considered tomorrow and Friday.
Oddlot
Re political opinions:
The conflict between Republicans and Democrats is a fact, and it will impact the ability of our President to achieve all or part of his agenda. The discussion of "values" that results in "should" or "should not" judgements is not the same as a discussion of the likelihood of something being done and the probable result.
The discussions of "values" is where civility can be lost, and that is what we must avoid. You won't change my mind, and I won't change yours. But even with different values, we can work together to achieve profitable trades.
Oddlot
Cue, imho there will be a "low" in mid Dec, and a 40-43week low mid Jan. The shooting opponents is between those points.
At this point anything under 2530 will put me into "terminal" mode. CCI65 for the 216 day cycle will give me a reversal in that condition, with stops somewhere under the low.
Oddlot
At this point anything under 2530 will put me into "terminal" mode. CCI65 for the 216 day cycle will give me a reversal in that condition, with stops somewhere under the low.
Oddlot
Cue-master: warning #1
Discussion of policy is good, if it relates to the economy. Disparagement of persons, alive or dead, posters or not, serve no purpose other than to publicize your agenda, whatever it may be.
This is NOT a political board. Take the overt political commentary elsewhere.
Oddlot
SPX trying to bounce. This is day27 from the last 36day low, and the rally is likely to end 6-8 days from last interim high, due to superposition of 9day cycle on the longer ones. This is day4 from the high, so 3 or more days from here and a high becomes likely.
Holding lots of shorts, looking for collapse into a low below 2530 and potentially to 2475. I hope to reverse after the low, and short again after sharp rally.
Oddlot
Long, but Important article:
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Why Another 50% Correction Is Possible
Profile picture for user Tyler Durden
by Tyler Durden
Mon, 12/10/2018 - 08:40
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Authored by Lance Roberts via RealInvestmentAdvice.com,
All of a sudden... volatility.
Well, that is what it seems like anyway after several years of a steady grind higher in the markets. However, despite the pickup in volatility, the breaks of previous bullish trends, and a reversal in Central Bank policy, it is still widely believed that bear markets have become a relic of the past.
Now, I am not talking about a 20% correction type bear market. I am talking about a devastating, blood-letting, retirement crushing, “I am never investing again,” type decline of 40%, 50%, or more.
I know. I know.
It’s the “doom-and-gloom” speech to try to scare investors into hiding in cash.
But that is NOT the point of this missive.
While we have been carrying a much higher weighting in cash over the last several months, we also still have a healthy dose of equity related investments.
Why? Because the longer-term trends still remain bullish as shown below. (Note: The market did break the bullish trend with a near 20% correction in 2016, but was bailed out by massive interventions from the ECB, BOE, and BOJ.)
Now, you will note that I keep saying a 20% “correction.” Of course, Wall Street classifies a bear market as a decline of 20% or more. However, as I noted recently:
“During a bull market, prices trade above the long-term moving average. However, when the trend changes to a bear market prices trade below that moving average. This is shown in the chart below which compares the market to the 75-week moving average. During ‘bullish trends’ the market tends to trade above the long-term moving average and below it during ‘bearish trends.’”
In other words, at least for me, it is the overall TREND of the market which determines a bull or bear market. Currently, that trend is still rising. But such will not always be the case, and we may be in the process of the “trend change” now.
The Collision Of Risks
Of course, after a decade of Central Bank interventions, it has become a commonly held belief the Fed will quickly jump in to forestall a market decline at every turn. While such may have indeed been the case previously, the problem for the Fed is their ability to “bail out” markets in the event of a “credit related” crisis. Take a look at the chart below.
In 2008, when the Fed launched into their “accommodative policy” emergency strategy to bail out the financial markets, the Fed’s balance sheet was only about $915 Billion. The Fed Funds rate was at 4.2%.
If the market fell into a recession tomorrow, the Fed would be starting with roughly a $4 Trillion dollar balance sheet with interest rates 2% lower than they were in 2009. In other words, the ability of the Fed to “bail out” the markets today, is much more limited than it was in 2008.
But it isn’t just the issue of the Fed’s toolbox. It is the combination of other issues which have all coalesced which present the biggest risk to a substantial decline in the markets.
Valuations
One of the most important issues overhanging the market is simply that of valuations. As Goldman Sachs pointed out recently, the market is pushing the 89% percentile or higher in 6 out of 7 valuation metrics.
So, just how big of a correction would be required to revert valuations back to long-term means? Michael Lebowitz recently did some analysis for RIA PRO:
“Since 1877 there are 1654 monthly measurements of Cyclically Adjusted Price -to- Earnings (CAPE 10). Of these 82, only about 5%, have been the same or greater than current CAPE levels (30.5). Other than a few instances over the last two years and two others which occurred in 1929, the rest occurred during the late 1990’s tech boom. The graph below charts the percentage of time the market has traded at various ranges of CAPE levels.”
Given that valuations are at 30.5x earnings, and that profit growth tracks closely with economic growth, a reversion in valuations would entail a decline in asset prices from current levels to somewhere between 1350 and 1650 on the S&P (See table below). From the recent market highs, such would entail a 54% to 44% decline respectively. To learn how to use the table below to create your own S&P 500 forecast give RIA Pro a 14-day free trial run.
This also corresponds with the currently elevated “Price to Revenue” levels which are currently higher than at any point in previous market history. Given that the longer-term norm for the S&P 500 price/sales ratio is roughly 1.0, a retreat back towards those levels, as was seen in 2000 and 2008, each required a price decline of 50% or more.
Demographics
One of the bigger concerns for the market going forward is the simple function of demographics. Famed demographer, Harry Dent, discussed the impact of the trends within the economy as the mass wave of “baby boomers” become net-distributors from the financial markets (most importantly draining underfunded pension funds) in the future. To wit:
“At heart, I’m a cycle guy. Demographics just happens to be the most important cycle in this modern era since the middle class only formed recently — its only been since World War 2 that the everyday person mattered so much; because now they have $50,000-$60,000 in income and can buy homes over 30 years and borrow a lot of money. This was not the case before the Great Depression and World War 2.
And based on demographics, we predicted that the U.S. Baby Boom wouldn’t peak until 2007, and then our economy will weaken — as both did in 2008. We’ve lived off of QE ever since.”
The issue with the demographics is that they have only gotten markedly worse. Furthermore, the strain on pension funds has only mounted as required returns to sustain their viability have failed to appear. As I discussed previously:
“An April 2016 Moody’s analysis pegged the total 75-year unfunded liability for all state and local pension plans at $3.5 trillion. That’s the amount not covered by current fund assets, future expected contributions, and investment returns at assumed rates ranging from 3.7% to 4.1%. Another calculation from the American Enterprise Institute comes up with $5.2 trillion, presuming that long-term bond yields average 2.6%.
With employee contribution requirements extremely low, averaging about 15% of payroll, the need to stretch for higher rates of return have put pensions in a precarious position and increases the underfunded status of pensions.”
“With pension funds already wrestling with largely underfunded liabilities, the shifting demographics are further complicating funding problems.”
George Will summed it up best:
“The problems of state and local pensions are cumulatively huge. The problems of Social Security and Medicare are each huge, but in 2016 neither candidate addressed them, and today’s White House chief of staff vows that the administration will not ‘meddle’ with either program. Demography, however, is destiny for entitlements, so arithmetic will do the meddling.”
Leverage
Of course, what fuels corrections is not just a change in investor sentiment, but an ignition of the leverage that exists through the extension of debt. Currently, leverage is near the highest levels on record which is the equivalent of a tank of gasoline waiting on a match. As I discussed last week:
“What is immediately recognizable is that reversions of negative ‘free cash’ balances have led to serious implications for the stock market. With negative free cash balances still at historically high levels, a full mean reverting event would coincide with a potentially disastrous decline in asset prices as investors are forced to liquidate holdings to meet ‘margin calls.’”
Of course, the key ingredient is ownership. High valuations, bullish sentiment, and leverage are completely meaningless if there is no ownership of the underlying equities. The two charts below show both household and corporate levels of equity ownership relative to previous points in history.
As can be clearly seen, leverage fuels both halves of the full market cycle. On the way up, increases in leverage provide the capital necessary for accelerated share buybacks and increased speculation in the markets. Leverage, like gasoline, is inert until a catalyst is applied. It is the unwinding of that leverage that accelerates the liquidation of assets in the markets causes prices to plunge faster and further than most can possibly imagine.
It has only happened twice already since the turn of the century, and both reversions of that leverage resulted in 50% declines. Yet, less than a decade from the last crash, with margin debt at near historic records, investors have once again fallen prey to excessive exuberance and the belief that somehow this time will most assuredly be different.
Momentum
Another key ingredient to rising asset prices is momentum. As prices rise, demand for rising assets also rises which creates a further demand on a limited supply of assets increasing prices of those assets at a faster pace. Rising momentum is supportive of higher asset prices in the short-term. However, the opposite is also true.
The chart below shows the real price of the S&P 500 index versus its long-term Bollinger-bands, valuations, relative-strength, and its deviation above the 3-year moving average. The red vertical lines show where the peaks in these measures were historically located.
The Fed’s Got It Under Control
This “Utopian” belief of infinite stability within the financial markets is due to ongoing Central Bank interventions and is a most dangerous concept. This is particularly the case given the structural and economic shifts in the economy due to the rise in debt which has derailed the efficient allocation of capital. As shown below, the economy is currently mired at the lowest average annual growth rate since 1790. (Data courtesy of Measuring Worth)
As a portfolio strategist, what concerns me most is NOT what could cause the markets rise, as we are still somewhat invested, but what could lead to a sharp decline that would negatively impact investment capital.
[Important Note: It is worth remembering that winning the long-term investment game has more to do with avoidance of losses than the capturing of gains. It is a function of math.]
What causes the next correction is always unknown until after the fact. However, there are ample warnings that suggest the current cycle may be closer to its inevitable conclusion than many currently believe. There are many factors that can, and will, contribute to the eventual correction which will “feed” on the unwinding of excessive exuberance, valuations, leverage, and deviations from long-term averages.
The biggest risk to investors currently is the magnitude of the next retracement. As shown below the range of potential reversions runs from 36% to more than 54%.
That can’t happen you say?
It’s happened twice before in the last 20 years and with less debt, less leverage, and better funded pension plans.
More importantly, notice all three previous corrections, including the 2015-2016 correction which was stopped short by Central Banks, all started from deviations above the long-term exponential trend line. The current deviation above that long-term trend is the largest in history which suggests that a mean reversion will be large as well.
It is unlikely that a 50-61.8% correction would happen outside of the onset of a recession. But considering we are already pushing the longest economic growth cycle in modern American history, such a risk which should not be ignored.
There is one important truth that is indisputable, irrefutable, and absolutely undeniable: “mean reversions” are the only constant in the financial markets over time. The problem is that the next “mean reverting” event will remove most, if not all, of the gains investors have made over the last five years.
Still don’t think it can happen?
“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as they have predicted. I expect to see the stock market a good deal higher within a few months.” – Dr. Irving Fisher, Economist at Yale University 1929
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Goldman Sachs GS target for low of 6.6yr cycle created last week at $100. Somewhat incredible, but if realized would mean horrible credit losses and scenarios reminiscent of Lehmann and BearStearns.
Goldman Sachs GS target for low of 6.6yr cycle created last week at $100. Somewhat incredible, but if realized would mean horrible credit losses and scenarios reminiscent of Lehmann and BearStearns.
Goldman Sachs GS target for low of 6.6yr cycle created last week at $100. Somewhat incredible, but if realized would mean horrible credit losses and scenarios reminiscent of Lehmann and BearStearns.
Glen, at this point anything under 2530 will put me into "terminal" mode. CCI65 for the 216 day cycle will give me a reversal in that condition, with stops somewhere under the low.
Take care.
Oddlot
SPX re 3.3yr low at 22week2019.
The 40week low in Jan-Feb, and again late in year, may produce a double bottom situation.
FLR near lows for multiple years. Practical low in 2008-2009 25-28. Aside from being major construction company and govt contractor, FLR is the major stockholder in NuScale Power, the major force in small modular nuclear plants. Such plants are not yet in production, but are projected to be major power source in 7-10 years. Just FYI.
Oddlot
Glen, no. A possible path is described in the post to which this replies.
Oddlot
SPX LT analysis
To the analysis of the prior post, I would like to add the following:
Re 40week low
Prior low occurred week of 4/1, or week 14 of 2018. 40weeks later is 54-52 = week 2 of 2019.
If cycle is 43weeks, my preference, then 1st week of Feb.
Tax selling thru Dec will end, and IRA/pension contributions start Jan1, so bottom may occur Jan2 or anytime soon thereafter.
My target of week22 for the 3.3yr cycle low may be deferred by 20-22 weeks in order to synch with the low in Jan.
SPX LT framework
To the analysis in the prior post, I would like to add the following:
Re 40week low
Prior low occurred week of 4/1, or week 14 of 2018. 40weeks later is 54-52 = week 2 of 2019.
If cycle is 43weeks, my preference, then 1st week of Feb.
Tax selling thru Dec will end, and IRA/pension contributions start Jan1, so bottom may occur Jan2 or anytime soon thereafter.
My target of week22 for the 3.3yr cycle low may be deferred by 20-22 weeks in order to synch with the low in Jan.
Oddlot
SPX this is the 9th day since the mist recent low, and would be expected to be a short term low. However, the 36 day low is in front of us approx 9 days, so the strength should be temporary and modest. Sell a rally after 1-2 days.
Oddlot
SPX this is the 9th day since the mist recent low, and would be expected to be a short term low. However, the 36 day low is in front of us approx 9 days, so the strength should be temporary and modest. Sell a rally after 1-2 days.
Oddlot
SPX this is the 9th day since the mist recent low, and would be expected to be a short term low. However, the 36 day low is in front of us approx 9 days, so the strength should be temporary and modest. Sell a rally after 1-2 days.
Oddlot
XLE the lows next summer should be bought in most everything. As an example, the 6.6yr Bollinger 2.0 (weekly) would suggest 55-50 would be reasonable LT purchase. Remember, at the lows it will look insane to be buying, but you have to grit your teeth and do it. Screen for financial soundness and value such as Enterprise Value vs EBITDA. Finviz for screening, and Seeking Alpha for the other.
Oddlot
cuemaster: see the prior post. While this is SPX, this is most of the tea leaves which I can read. Current guess is that we bounce from 2500-2550, and then continue lower with the low in Jan at maybe 2425. Ultimately, maybe 1800-2000.
Oddlot
SMH reentry: short (2) 97.15
Oddlot
SMH reentry: short (2) 97.15
Oddlot
SMH reentry: short (2) 97.15
Oddlot
Position/rec update:
GLD long 115.33 and 113.80. Last close 117.36
XLB short (2) 59.44, last close 55.54.
SMH shorted 106.44 and 92.80. Stopped out 12/3 at 98.57. Looking to reenter. Last close 98.45
VEU short 52.57 and 47.85. Last close 49.00.
SPY short at 271.80. Last close 278.62
SDS long 37.20 and 35.20. Last close 35.65.
Oddlot
Position/rec update:
GLD long 115.33 and 113.80. Last close 117.36
XLB short (2) 59.44, last close 55.54.
SMH shorted 106.44 and 92.80. Stopped out 12/3 at 98.57. Looking to reenter. Last close 98.45
VEU short 52.57 and 47.85. Last close 49.00.
SPY short at 271.80. Last close 278.62
SDS long 37.20 and 35.20. Last close 35.65.
Oddlot
SMH reenter short (2) units on stop at 97.17. Protective stop 97.17 close only. If position survives first day, will put stop somewhere over high of yesterday.
Oddlot
Position/rec update:
GLD long 115.33 and 113.80. Last close 117.36
XLB short (2) 59.44, last close 55.54.
SMH shorted 106.44 and 92.80. Stopped out 12/3 at 98.57. Looking to reenter. Last close 98.45
VEU short 52.57 and 47.85. Last close 49.00.
SPY short at 271.80. Last close 278.62
SDS long 37.20 and 35.20. Last close 35.65.
Oddlot
??What is interpretation if we open at yesterdays low and fall? Island top?
SDS added at 35.20 on the open. Now holding two units.
Oddlot
SDS add to bearish position. Buy SDS 35.32.
Oddlot
If you are able to track the case, a follow-up re final decision would be appreciated.
Thanks,
Oddlot
OT The land of the Free, sort of...
Government Now Wants To Seize Your Car For Going 5MPH Over The Limit
Profile picture for user Tyler Durden
by Tyler Durden
Sat, 12/01/2018 - 14:15
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Via SovereignMan.com,
We’ve discussed this on and off for several years now. Civil asset forfeiture is a legal process that allows the government to seize assets and cash from citizens without any due process or judicial oversight.
You don’t even have to be charged with a crime. You are assumed guilty unless you can somehow prove your innocence.
Of course, not everyone has this ability… if you aren’t local, state, or federal law enforcement, this is called stealing, and you go to prison.
But the government is actually a bigger problem than common thieves.
A 2015 report showed that law enforcement used civil asset forfeiture to steal more from US residents than every thief, robber, and burglar in America combined.
About $4.5 BILLION worth of cash, cars, homes, and other property is taken by civil asset forfeiture each year - hundreds of millions more than common criminals steal.
And it happens at every level. Your local cop can use civil asset forfeiture just like your state trooper. And then any one of the armed agents of the US government—from the FBI to the Fish and Wildlife Service—can rob you for whatever reason they want.
This travesty continues to grow because the cops who take your stuff get to keep it. Police departments and government agencies around the country depend on civil asset forfeiture to boost their budgets.
Cops will literally keep some of the cars they take as squad cars. And they make a fortune auctioning off the houses, boats, and anything else they confiscate.
Obviously this gives cops an incentive to steal, whether or not they actually think the property was used in a crime, or acquired illegally. Remember, civil asset forfeiture adds billions every year to their bottom line.
On Wednesday, the Supreme Court heard arguments in a case of civil asset forfeiture.
Tyson Timbs was convicted of selling a small amount of drugs to an undercover police officer. He was sentenced to house arrest, and paid about $1,200 in fines.
But then police used civil asset forfeiture to take his $42,000 Land Rover which Timbs purchased with money from a life insurance policy after his father died. The money did not come from selling drugs, or any other illegal activity.
Timbs sued, and the case made its way to the Supreme Court, because every lower court in Indiana said the forfeiture was perfectly legit.
The case revolves around whether or not the seizure of the Land Rover was an excessive fine under the 8th amendment, and whether or not this protection against excessive fines applies to state governments.
And the public got some crazy insight into the government’s position.
The Indiana Solicitor General was arguing in favor of civil asset forfeiture when Justice Stephen Breyer asked him a hypothetical.
Breyer asked, if a state needs revenue, could it force someone to forfeit their Bugatti, Mercedes, or Ferrari for speeding? Even if they were going just 5 miles per hour over the speed limit?
And the utterly appalling answer from the Indiana Solicitor General was, yes.
That’s right... the official government position is that they can steal any amount of your property in “connection” with any crime whatsoever, no matter how trivial the crime may be… even exceeding the speed limit by 5 miles per hour.
This is how overbearing and authoritarian the government has become in the land of the free.
This is how much power your local cop has… and the power only grows as you go to state, and federal officials.
If there is any solace in any of this, it is that the other Supreme Court Justices were reportedly laughing at this exchange.
The justices seemed incredulous that Indiana’s top lawyer was using such absurd assertions and flimsy reasoning in his arguments.
So, for now, we can keep our cars if we get pulled over for speeding. But that may not always be the case…
Depending on how this is ruled, it could pave the way for even more egregious abuses of power… or it could curb the practice, and reign in these thieves in uniforms.
Just understand where the government is coming from. These politicians, bureaucrats and officers think they can do whatever they want. Absolutely anything goes, with no limitation whatsoever.
And that makes it a little tough to feel like you really live in the land of the free.
First you made some scathing observations re Trump vs various historical figures, and then you apologized. As you can see, such "observations" create a lot of ill-will and do not further the mission of the board. While you have the right to voice your opinion, please put the inflammatory rhetoric on a different board, and continue your market and economic commentary here as you wish.
Thanks in advance,
Oddlot
chrisduo: pink sheet stocks are frowned on here. You are welcome to bring names that are more established, but not pinks.
Oddlot
OT Just learned something: Dershowitz on Fox made point the Mueller report will be a "prosecutorial document" and will by definition be one-sided. It should not be even considered without the rebuttal from the Trump attorneys. Only then will you have both sides of the story.
Oddlot
Deva, take a look at FLD's for cycles of 72, 216, and 432 (FLD parameter of 1/2 length). Now we are in a box with the FLD for 216 on bottom, and those for 72 and 432 on top. At end of this week the box becomes very organized with the top side(s) declining to 3way intersection near end of next week, near 2760.
A rally that tops and declines back below 2760 by Dec7 would maintain the bearish posture. Maintaining a value over 2760 after next week would say this mkt is a bull.
Your interpretation??
Oddlot
Dec 7 confluence
Not only is it a possible high, but it is also the date for a possible Govt shutdown. Coincidence, or not?