Weekly Market Assessment
Tell me if you have heard this one before? The correction is finally here! Just take a look at this simple chart of the S&P 500 and how it has reacted to this now famous saying. It has hit the 120 and 150 day moving averages 4 times this year alone and bounced right off it! In freely traded markets, human behavior is patterned and therefore predictable. When we get a down day, emotions run high with everyone fearing how this one could be it! Everyone wants to buy the dips until there actually here, staring them in the face! Turning to the charts speaks volumes of what investors/traders are really doing. The saying "actions speak louder than words" truly is seen here. How to control these emotions seems impossible when the market is falling and real money is being taken away! However, the saying from Roosevelt goes, "with the new day comes new strength and new thoughts" This is a perfect explanation of how the market and those trading it are thinking. After one bad day it's all forgotten and suddenly positive signs are seen and the buy the dip mentally comes out. The shorts keep getting taken out and are forced to buyback their positions, only further fueling the market back onto the path to new highs!
Are we seeing signs of deflation? Looking at the commodity index (CRBQ) it looks like we are in a free fall, down 14%! Global commodity deflation are what some are saying as everything from corn to aluminum is down big! The dollar has affected this trade with a more than 8% rally. This has bleed into the energy sector, as crude oil has dropped below $90, for a 4% loss just this week and has put this sector in correction territory. The devaluation of foreign currencies and economic weakness in other countries has driven money into the dollar while pushing raw costs down. How could this occur with some much "money printing" and low rates? If we enter a climate of deflation, something to look out for would quantitative easing number 4! A continued decline in commodities and rise in the dollar will force the Fed to postpone it's rate hike and may even force their hand back into buying bonds to force yields down and weaken the dollar! As I have said before, this is what happens when government interferes with a Laissez-faire economy!
The Rant: Going Off on a Tangent with my 2 Cents
For the first time ever in the U.S. we had a case of Ebola enter the States! Scary yes, but reason for the market to sell off is absolutely ridiculous! Almost all of Wednesday, the topic of how Ebola was affecting the market sell-off of over 200+ points was insane! It still amazes me the reasons people find for a sell-off! Its like they search around for anything that will justify why the market is down! Mind you this was one person. I am fully aware that it could spread but looking solely at the current situation, a multiple billion dollar market sell-off doesn't justify it. So of course people where selling the airlines and buying companies that are in the Ebola vaccine field, which will soon reverse course and burn those that entered this trade. One has to remember that the market moves in relationship to companies earnings and for some odd reason i don't see how one or even 10 people are going to have a significant impact on a billion dollar companies bottom or top line.
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
Valeant Pharmaceuticals (VRX) $129.70- On 8/8/2014 I mentioned VRX at 109.17 making the watch list on Bill Ackman's pursuit of a hostile takeover of Allergan. Since then the stock has appreciated ~19%!
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk:
S&P 500 (SPX) -Bought a "CALL" on the SPX at 1945 on Thursday after hitting the 150 day average and made a quick 12% option gain! Wish I held this longer as the SPX now sits at 1965!
Yahoo (YHOO)-Sold out of this position at $40.95 for a 2.5% gain. may look to re-enter this position due to investor activism surrounding it.