Wall Street Next Week: Financial astrology for the successful investor & trade

1.YELLOW ALERT AKA THREE TIMES A CHARM?

Is a market correction coming? Of course. The question is when? One of our bets is for early next week:

HW: CPI 5.4% June July reports Aug 11 8:30 AM - If the truth be told: 7%+, markets could drop limit down. While not likely still....

KEY DATES3 Aug 9/10, 11/12

If not, we will largely stand aside as the last two weeks of the August as they are notoriously treacherous for traders when fundamentals matter even less than usual.

We continue to maintain defensive protection:

High cash levels cash, low or no margin, writing calls, hedging, very short-term trading and buying only special situations in August.

Sell H1 AugustCorrection odds 76% Bear Market odds August 60% 

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We are not buying today’s pyramid games will continue forever.  Some possible triggers beyond Delta Covid fears include:

• Inflation above 5%
• High Taxation
• More Market Stumbles like AMZN
• Bitcoin collapses (28K support broken which it will sooner or later) would do it. Cf: bitcoin-why-you-should-be-terrified-of-owning-btc
• Another landmine would be TNX >1.50-1.75.
• A change in perspective- comparing not to last month or last year, but a longer term horizon leaves little upside to analyst projections.
• FED tapering or warning of future course shift or simply losing credibility!
• The usual assorted geopolitical threats especially US/China aggressive escalation.

 

I am unwilling to buy at today’s prices, especially SPX > 4000: given the potential downside risk.

Outside of day trading and special situations, we plan to sell/short and wait to buy if/when markets are 12%-20% lower. 

PIVOTS         2020 Close  10%-            Nov 3                                                                                                                              

DJI 35000      30606          31687           27480          

SPX 4400       3756             3992             3369            

NAS 15000    12888          13605           11160

Most computer programs also monitor their 50 & 200 DAY MOVING AVERAGES FOR SUPPORT TESTS.

Inflation is now above 5% and I don’t believe it is just “temporary”; if the global economy slows, we are then likely to see STAGFLATION!

Given still high valuations, we do not see sufficient FUNDEMENTALS (Fed accommodation, Vaccines & Stimulus Packages) to justify SP500 earnings.

Our recommendation continues to be maximum portfolio protection.  

 

TSLA, BTC, VIX, GME & TNX are our five market “canaries in the coal mine”:

When three or more canaries sing, be ready to Head for the Hills (&/or your nearest bar) .

TNX:              > 1.50-1.75

TSLA:            < 695-666

VIX:               >22-26

BTC:              < 42-30K

GME:*           <50-30

*Gamestop & stocks such as AMC [>20] or COIN [>225] are like Bitcoin, their trading has little or no relationship to reality. 

Public valuations of large, mid and small cap companies remain near their highest levels in recent history.

Short of a reality check that the emperor has NO clothes, newbies learning that all stocks do NOT go UP ALL the time can also time market tops (by August)

TRADERS DO QUICK DAY TRADES OR HAVE VERY DEEP POCKETSMARKER SHORTS: DJIA 35051 & 35208 SPX 4411 & 4436 NASDAQ 14,836 & 14835

• After hard rallies or market drops, it is smart to book some profits.
• Odds of a market drop in August is HIGH- Be prepared.
• This week we may short aggressively but with agile dancing as needed & careful money management.

 

Commodity Trading:                                                                      

Gold             Buy on dips Rinse and repeat Last buy 1763 Previous: 1812 (sold 1812) & 1798 (Sold 1830)

Silver            Accumulate on dips < 25.25 Buys 25.15, 24.33

Copper         4.50 Pivot 4.25 Support

Oil                 66 Support First Sell 72 (Bought 71) Sold 74 (Bought 68)

 

KEY DATES:        August 9/10, 11/12

DJIA:                    35000 SUPPORT?

SPX:                     4500 RESISTANCE

NASDAQ:             15000 RESISTANCE

GOLD:                  1750 PIVOT/SUPPORT R1 1780  R2 1800

SILVER:                24 SUPPORT

OIL:                       68 PIVOT R1 70 S1 66

COPPER:              4.50 RESISTANCE

US 10 Year:          1.25 R1 1.40 R2 1.50

DXY:                      92 PIVOT R1 94

VIX:                       18 PIVOT R1 22 R2 26

BTC:                      42 PIVOT S1 40KS2 36K R1 44K

 

2020 CLOSE:          DJIA 30606 SPX 3756 & NASDAQ 12888

2019 CLOSE:          DJIA 28508 SPX 3231 & NASDAQ 8823  

2018 CLOSE:          DJIA 23327 SPX 2506 & NASDAQ 6635

AFUND Fair Value  GOLD $1834

Reduce Risk and Focus on Capital Preservation:

THINK TRADITIONAL SWISS AND PRESERVE CAPITAL: HEDGE AND PROTECT AGAINST DOWNSIDE RISK.

 

2. Why China is cracking down on certain publicly-traded companies, according to Carson Block

General Advice:

• Review your Portfolio Holdings for possible changes.
• Prepare a list of GOOD stocks to buy AFTER a 15-20% correction. Choose your favorite stocks and patiently bid for them.  
• Stock selection is important. Include some stocks sporting strong cash flows, sound balance sheets & growing dividends.
• Include some investments that can benefit from higher inflation such as gold, TIPS, utilities, Art/Blue Chip collectibles and selective real estate etc.

 

Favorite H2 2021 Sectors:

Entertainment, Mining & Technology [AFTER a 20% correction if Undervalued & Highly Scalable]

Currently we are also watching some Select Health Care (lower cost/better outcomes, & Distressed Investing for H2 2021.

Note: As long as Oil is above $70 we recommend reducing/covering Energy bets.

 

3. Gold will soon be entering its favorable seasonal cycle.

One can only imagine when Bitcoin meet reality, how it would likely to usher in a rapid source of many new gold investors.

Gold Fair Value is $1834 with $1750 support and $1925 overhead resistance.

Silver Fair Value $27 $24 support and $30 overhead resistance.

There are many good buys in the precious metal space depending on your time frame & risk/reward desires.

Gold: Fundamentally the global political and economic situation is very favorable for precious metals.

Precious metals remain favorite sections. Many generalist investors now have some interest in Metals and Mining.

Also, it is under allocated by most investment programs, this gives it even more potential room to run, especially as inflation fears resurface &/or if US dollar weakens!

Hence, we recommend a full and over weighted precious metals portfolio allocation.

However, we advise long term precious metal investors to also pay attention to stock selection.

• Gold remains cheap geopolitical crisis insurance.
• For investors who cannot or will not buy the $US currency as well as investors who wish to safely and cheaply h [email protected] their US$ exposure, ONLY GOLD IS AS GOOD AS GOLD!
• Once again, some investors are hedging record equity prices by buying gold.
• Low real interest rates is positive for gold as well as low global bond yields makes gold an attractive alternative risk mitigation hedge.
• We expect precious metal stocks to outperform physical gold & silver in 2021.

Gold FV $1834 = Commodity FV: 1670 + Currency FV: 1804+ Inflation Metal FV: 1812 + Crisis FV: 2050

INVESTORS: We will stay LONG in H2 2021 both as an investment and as a portfolio hedge.

 

4. SUMMER SEASONED SPECULATOR picks: On Hold

Many picks are best for speculative portfolio allocation and as such bought as a member of a group of 5 to 10 such stocks.

Remember NOT to ignore potential High Risk - meaning use speculative allocation i.e., “money you can afford to lose without altering your lifestyle.”

Always do due diligence before deciding to act. 

 

“The Fed is playing a fine line. We’re worried about the market not fully appreciating how soon the Fed may have to increase rates and the speed of tapering.”

Phil Kastenholz, investment strategy & research director, Aspiriant

HW: Yes.                  

 

“China’s economy is expected to slow down in H2 2021. Slower export growth, rising commodity prices, lacklustre infrastructure investment and expiring subsidies will all drag down the country’s GDP growth. As a result, we should see a deceleration of commodities demand in China.”

Yanting Zhou, senior economist, Wood Mackenzie

HW: Yes, this will be one key input to commodity pricing.

 

“The Main Street economy is recovering as well or better than we would have hoped. That’s definitely much more positive for the brick-and-mortar economy compared to the Nasdaq-side of the economy being able to maintain lofty valuations.

Josh Rubin,  portfolio manager, Thornburg Investment Management

HW: It is not the end of the world, but it is far, VERY far from perfection.

 

5. READER:  If this is a strong time for gold, then what is a weak time like?

HW: H2 August is the beginning of the traditional strong gold seasonal cycle: Gold will soon be entering its favorable seasonal cycle is what we wrote.

That of course leaves out the obviously strong FUNDEMENTAL case for gold.