|
|
Does the chart below of the Dow Industrial Average make you feel
bullish? Bearish? Neutral? We’re not sure ourselves. Although
we’ve been using technical analysis for nearly 40 years, the chart
doesn’t speak to us. At best, it leaves us with only a moderately
bullish bias for the near term – and a
vague feeling that the meaningless price swings that have ruled the markets
in 2011 could continue for longer than we would care to imagine, let alone
explain. This is hard to believe, especially with so many dreadnoughts
bearing down on the global economy and banking system. The U.S. is
re-entering a recession that never ended for most households. China has hit
the brakes in preparation for a slowdown in global trade, and the
country’s real estate bubble appears to be deflating with a vengeance.
Jihadists are planning naval “maneuvers” in the Strait of Hormuz.
Bird flu and the bubbling Yellowstone caldera threaten us with extinction.
And there is of course Europe, faced with the impossible choice of
either monetizing the debts of countries that will never be able to pay them,
or letting those countries go bankrupt. We think it is the latter option that
will forced on decision-makers, since rich-uncle
Germany understands that throwing another two or three trillion euros of
debt-money at the problem will not fix it. In any event, the decision
cannot be delayed for much longer, since interest rates for sovereign
borrowers are becoming increasingly uppity. For Italy, most crucially, rates
are edging back toward 7% — the extreme end of the red zone politically
and economically – within days of each new phony bailout scheme hatched
in Belgium. A disaster is coming, and it is only a question of when.
Like a Kite in a Gale
And yet, U.S. stocks continue to hover, to dive, and to soar like a kite in a
gale. Through it all, the Dow is currently trading within 20% of all-time
highs. We hesitate to credit the broad averages with “hanging
tough,” since it is not hard investment decisions that have sustained
the markets, but rather a sea of funny money. Whirlpools, eddies and
rogue crests of it drive stocks hither and thither, all presumably to no good
end. It mocks the idea of capital – of capitalism itself.
No longer does the Econ 101 equation Saving=Investment hold. How can we
speak of savings when they are offset by a quadrillion-dollar global edifice
of debt that verges on collapse? More to the point, why would anyone invest
in productive assets such as manufacturing when financial assets are so much
more rewarding? They are very riskless, too, since limitless amounts of
cash for financial speculation are available for next to nothing, and even
when you “lose,” if you lose big enough, the central bank will
make you whole again.
Straddling the Markets
Under the circumstances, which are diabolically unpredictable, Rick’s
Picks has been playing both side of the market, locking in spread positions
at little or no cost that will make money regardless of what stocks do in the
next couple of months. Legging into bearish put spreads in the QQQ, we
recently created a position that can lose no more than $20 theoretical but
which could make us as much as $1200 if stocks fall between now and late
January. That’s effectively getting 60-to-1 odds against a decline in
the market. Soon after we locked in this spread, we began to construct its
opposite — a bullish play in SPY. Our goal ultimately is to have
a mix of bull and bears spreads that have cost us little or nothing and which
leave us genuinely unconcerned about which way stocks move over the next five
weeks. We also have a bullish trade on in the March E-Mini S&P that
has produced a paper gain so far of $2700. The trade was initiated at
last week’s exact low, 1198.00. If you are curious about how we
determined to get long at that number, click here for a free trial subscription
to Rick’s Picks. And if you want to learn how to do it yourself, click here.
|
|
