The best thing to do when the stock market makes a huge one day ramp up on questionable volume after overnight futures were bid way up in my view is to remember that GAPS GET FILLED.
While value investing is my personal bend, I have come to respect technical analysis because that’s what most pros use to trade equities and commodities. Right now, the gap on the SPY chart after the “Cliff Deal” means that stocks are precariously vulnerable to a large 5% or so sell off sometime in the next two weeks. My suggestion is to buy some type of protection either via IWM in the money put options or through the selling of front month call options on your liquid large cap stocks.
Gaps almost always get filled because many times traders with huge books and inside info simply bid up a market before major news (like a Cliff Deal) gets released. Once the news is out, the quick drop or run-up usually reverses and the gap in the chart gets filled, the traders who have friends in Congress are already out and the little guy who bought the hope sells out at a loss. Once this cycle is complete, the strong hands in the market return to rinse and repeat.
Right now, Hedgephone is suggesting investors short the IWM against their small cap long positions but only if they own 15 or more equities in a diversified portfolio. For investors with a more speculative bend, shorting the IWM via put options makes a lot of sense, but heed the January effect and remember that the short run may wipe out some short equity — it’s okay to dollar cost average into your shorts as well as your longs!
While CRM is certainly proving us wrong at hedgephone in the short run, the valuation bubble persists. IWM is similar (though it actually has real earnings) in that valuations are disconnected somewhat from reality. Don’t get caught up in the liquidity trap and buy based on fear of missing out. The rally from the 2009 lows has been remarkable, but investors should buy solid companies that have fallen not those stocks which have risen the fastest in the least amount of time. Value investing is about mitigating risk and optimizing reward so buying when their is blood in the streets is key. Right now, with the VIX at a major low, it’s time to play defense and to protect the capital you have earned since the 2009 lows. A bird in the hand….
It’s awfully quiet in world markets right now … a little too quiet. The combination of world banks taking a break with any new stimulus and that we are in that quarterly lull period in between earnings releases is keeping stocks from surging higher. On the positive side, the same two issues will keep stocks from plunging as well.
As I have noted, the amount of the growth in liquidity in global systems has become staggering, with Helicopter Ben Bernanke’s U.S. Federal Reserve’s $2.9 trillion, the ECB’s (European Central Bank) $3.6 trillion and the BOE’s (Bank of England) $1.1 Trillion. Add in the BOJ (Bank of Japan) and other eurozone members, we cross $15 trillion that was not in the system pre-2008. This is equal to over one-third of total world equity values. It is this massive infusion of liquidity from world banks which has kept this market afloat and what will keep it from plummeting … for now.
That’s why gold, silver and commodities are attractive again such as SPDR Gold Shares (GLD), Market Vectors Gold Miners ETF (GDX), Newmont Mining Corp. (NEM), Goldcorp. (GG), Freeport-McMoRan Copper & Gold Inc. (FCX), PowerShares DB Gold Double Long ETN (DGP) for the not so faint of heart, plus Silver Wheaton Corp. (SLW) and ProShares Ultra Silver (AGQ) and Fortuna Silver Mines (FSM).
Read More Here:http://seekingalpha.com/article/460591-a-little-too-quiet-on-the-western-front-aging-bull-showing-its-wear?source=yahoo
Looks like that old quote from Gann may be true this time as futures are pointing up around .3% on the QQQ. While I think we have a lot further to fall, I also have to look at the behavior of traders in the past and accept that the future could look somewhat similar.
The damage to the chart is ongoing, and I think this rally will be one to sell or short into tomorrow.
All in all, stocks look vulnerable on valuation concerns, macro economic risks, housing related shocks, banking and finance related pressures, and sovereign debt and currency devaluation.
All of the headwinds that were around last summer are just as prevalent today. While we debase our currency to prop up markets, the picture beneath the surface is not as pallatable to the long side of the tape.
This is the second or third time this year we have switched to a 100% short equity rec. at Hedgephone.com
Look to go short the CRM, AMZN, QQQ, LNKD, IWM, etc… etc… etc… of the world.
The market tape will likely get pretty ugly as the UK parliament rejected the unification of the UK with the debt zombie that is the European Union.
Also, Pumpflix’s implosion will leave momentum investors psychologically scarred.
The market is technically overbought and due for a ripe pullback.
All in all, don’t buy the hype, or buy the rip — instead short the rip and cover the dip!!!
If you aren’t hedged here, buy some IWM puts to hedge your risks… Tuesday is NOT June 1st but May 31st so I am expecting lower stock prices to another slow grind up like we had today… Either way, play defense here and hold 20% in commodities/silver over the weekend to hedge your FIAT risk…
Again, I am still in a sell signal at Hedgephone.com and NOT uber bullish… We are still below the 50 day moving average at $57.43 on QQQ so watch that level for your signal into Tuesday…
Have a great weekend! (And sell some options going into the end of the day to capture theta decay over the long weekend — Ie sell front month calls against your longs, and front month below or at the money puts against your shorts!)
Selling premium is the best way to make money in your sleep… and the only way to earn money in the stock market over the weekend!
Hedgephone readers banked while these momo pumps tanked… TZOO was also lower today as was scamazon… Look for IWM to continue lower but keep in mind that the market will get a POMO bounce at some point and they may try to gas the futures up tonight for a snapback rally…
Here is the link to my post on SINA, BIDU, OPEN and AMZN: http://hedgephone.com/?p=865
All in all, the markets are looking weak, but i don’t trust gap downs or gap up days… Gaps often get filled…
Stay with a hedged stance but try not to get too cute with your investments here… Looking for cheap names and shorting the IWM as a hedge seems like a good way to play the market but make sure to cover on significant selloff days and to buy some of your favorite cheapies when there is blood in the street…
While other sites are telling you to buy CRM, NFLX, and AMZN hedgephone.com was telling you the bubble was about to pop and to move into cash, shorts, or gold… We still feel the market has a long way to fall from here…
S&P 500 futures down $10 to $1317 — our target is $1310 for the short term… Below $1310 look for $1270 to hold again as it did in the March Japanese contagion meldown…
IWM is the strong short sell here… Look to go short and and hold.
TNA, TYH, etc…
time to play defense, but POMO will hold this up in the afternoons so try to keep that in mind.
The markets were lower monday morning, with gold firm at $1508 per ounce. Until Real Estate bottoms look for more QE… Goldman is getting nailed again this morning under investigation worries… the stock is down some $40 or so in the past 3 months… Ouch…
Elsewhere, AIG is still getting its clock cleaned and trading well below book…
Will keep readers updated today, but MDY and IWM still look like the best short candidates here.