Was today the start of the Trump dump?

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With this being such a critical time for the US and global economies, the US voted in Donald Trump, a candidate who was a non-politician, who represented change. Trump was elected with a platform of tax and regulatory cuts, and infrastructure spending. He also promised to “drain the swamp” and remove the corruption and lobbying that is the norm in Washington.

So Trump’s challenge was enormous enough as it was, but the fact that Trump cannot stop being Trump is making it almost impossible for him to make good on his promises.  The more he shoots off his mouth and Tweets, the more he  alienates his political supporters. Trump cannot implement all his promises without the approval of the Congress.

His latest scandals relate to meeting with Russians and allegations he asked FBI director Comey (now fired) to shut down an investigation into former National Security Advisor, Gen. Michael Flynn. The latter of these issues has the mainstream press all giddy with talk of impeachment.

The stock markets have not taken kindly to Trump’s latest indiscretions. Lately, the NASDAQ and S&P 500 both hit new all-time highs, but the Dow Industrial Average did not confirm. We were watching to see if the S&P 500  could have a weekly close above 2400, which would be very bullish.

With the latest Trump news, we saw volatility spike over 42% today. With the stock markets we saw the NASDAQ drop 158.63 points or 2.57%, the S&P 500 down 43.64 points or 1.82%, and the Dow down 372.82 points or 1.78%.

vix0517

The problem for the markets is that with all these distractions the odds of getting any tax reform before the summer break is in serious decline.

Keep an eye on the 2325 level (top dotted line) level for the S&P 500, as it represents the Near-term Support and a break below that level brings 2300 into sight. A break below 2300 would open the door for a significant correction. A 7% correction would take the S&P 500 to 2238 (lower horizontal line). SPX0517

At this point the April monthly close could prove to be significant. While the Dow did not confirm with a new high, if we get all three indexes with a May monthly close below the April close, then we could see a prolonged correction here.

A prolonged correction here would set up for a very welcome buying opportunity. Our model’s projection for a global debt crisis remains on target, meaning that ultimately we will see massively indebted countries default on their debt, and the global flow of capital will seek out safer private investments such as North American equities.

As the masses realize that it is governments that are the problem, investors will dump government bonds and buy equities and gold. A serious stock market correction here would set up very well with our model’s projection of one final rush out of equities into bonds, and then we see Europe start to collapse, and the first of many Sovereign Debt Defaults.

Timing is the key. If you understand the global flow of capital, you will not only survive this coming global Sovereign Debt Crisis, you will be in position to prosper significantly. If you don’t, you won’t!

Stay tuned!

May 17 Update – TTT Subscriber Content

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Bullmarket

 

A glorious day in stocks resulted in the worst tumble in over 8 months.  This was very long overdue and had nothing to do with U.S. politics.  Hopefully it’s the start of a lasting trend, however for now we’ll call it a good start.

All our positions were up today with the exception of TBT.  Most notably, VXX rose 18% today alone.

 

As good a start as that is, a bear market has not necessarily begun.  Reasonable expectations remain that markets make a new all-time high, possibly with non-confirmations among major indexes, then a protracted market drop will finally commence.  This may have already occurred with the NASDAQ and S&P500 again marking new all-time highs this week while the DJIA has not done so since early March.

In any case, an enduring and deep bear market looms and it’s safer to be short in the current technical and fundamental environment.

 

Open Positions

VXX – opened at $14.60 on May 11  Initial sell stop at $13.20 on an intraday basis.

HXD – opened on May 04 at $6.70  Initial sell stop at $6.30 on an intraday basis.

RJA – opened at $6.35 on May 02  Initial stop level at $5.84 on an intraday basis.

WEAT – opened at $7.10 on May 01  Initial stop at $6.55 on an intraday basis.

FXB – opened at $120.54 on March 16  Initial stop at $120 on an intraday basis.

NIB – opened at $24.00 on February 15.  No stop on this position as we intend to own it until cocoa is above $2500.

NIB (2nd position) – opened at $23.63 on May 08  No stop on this position as we intend to own it until cocoa is above $2500, however if you have both positions and wish to limit risk on at least one then we suggest a sell stop at $20.90

DGP – opened at $25.87 on November 02.  No stop until GTI turns bearish.

SJB (1st position) – opened at $25.15 on October 28.  Initial stop at $23.58  Original post is here.

SJB (2nd position) – opened at $24.95 on December 14.  Initial stop at $23.58

SJB (3rd position) – opened at $24.40 on March 08.  Initial stop at $23.58

TBT opened at $30.80 on July 12 2016.  Initial stop at $29.90.  Here’s the original rationale and chart.

 

Indicators

GTI (Gold Trend Indicator) : Bullish

DJIA: 20606  -372 Wednesday.

Daily: bearish, 20890.  Short-term highly aggressive traders and hedgers may wish to be net long when the DJIA is above this level, and net short below.

Weekly: bullish, 20845.  Moderately aggressive investors, trading or hedging on an intermediate basis, who follow the Weekly Indicator may find it prudent to be hedged or net short if the DJIA is trading below this pivot level. Reminder – we do not have an official change to “bullish” or “bearish” unless the DJIA closes the calendar week above/below this pivot level as the case may be.

Monthly: bullish, 20400.  Conservative investors, trading or hedging on a longer-term basis, who follow the Monthly Indicator may find it prudent to be hedged or net short when the DJIA is trading below this pivot level. Reminder – we do not have an official change to “bullish” or “bearish” unless the DJIA closes the calendar month above/below this pivot level as the case may be.

NOTE : Speculators and frequent traders will prefer to use the Daily or Weekly Indicator levels as trading or hedging pivot points, while longer-term investors may prefer to consider only the Monthly Indicator level.

 

General Recap

As of March measures, U.S. investors were holding 52% stocks relative to cash.  In nearly 30 years, fewer than 10% of months have shown measures as high as 52% in the stocks-to-cash ratio.  Most of those months were toward the end of the massive market top of the late 1990s.

U.S. Margin debt is 38% higher than at the market peak of July 2007 and 90% higher than the market top in March 2000.

As of early February 2017 the Investment Intelligence Advisors’ Survey has registered a bullish percentage that shows the highest level of optimism in 30 years.  That’s extremely bearish, and the last time this reading was higher was in 1987 before the major market crash that year.

Here’s a look at the Shiller 10-year price/earnings ratio as of late January 2017.  The implications are self-evident and ominous.

shiller-pe10

Complacency and imprudence is not rewarded in the long term.  Whenever the top is hit the gains in 2017, at least, will be unwound in a matter of days or weeks.

Consider too that a lasting bear market hasn’t happened in decades.  The crash of 2000-2003 was fully reversed by 2006 and the DJIA was at all-time highs by 2007.  The crash of 2007-2009 was fully reversed by 2012 and by the end of 2016 the DJIA was at a far higher all-time high.  We may well be approaching a lasting top in equities before a real, and long, bear market.  Act accordingly with respect to risk, position sizing and stops.  Anything you buy, be prepared to buy again (or sell) at half the price or less.  Always.

Risk is very high.  A material and lasting correction in equities is years overdue, while some bullish measures are at extremes not seen since the peak of the tech bubble in the late 1990’s.

In the “big picture” it’s not a safe time to enter long-term holdings which is why the only longs we’d considered keeping at least paid high dividends.

One well-timed entry can be far more profitable than rushing into a dozen positions simply to be doing something, so those with a long-term outlook are best advised to wait for a significant market low even if it takes months or years, or at least get paid dividends while waiting.

The old adage applies – “If in doubt stay out”, and wait for new opportunities as they come up.

Prudent position sizing and risk management are key.  Without risk however there can be no reward, so over time we’ll seek to mitigate risk via true diversification and buying only when shares seem beaten down and oversold, as well as adopting general market short positions at prudent times in order to hedge.

 

Positions Closed in 2017

FXB – opened at $120.25 on October 11, stopped at $118 on January 11

FXP – opened at $30.10 on October 11, stopped at $29.90 on January 26.

NIB – opened at $27.70 on January 24.  stopped at $24.90 on February 08.

TZA – opened at $19.85 on December 22, closed at $18.35 on February 10.

ETP – opened at $35.61 on December 03 2015, closed at $38.20 on February 10 and yielded 11.9% ($4.22) based on our entry price for 14 months.

EARN – opened at $12.34 on December 17 2015, closed at $14.10 on March 08 and yielded 13% ($2.10) based on our entry price for over 15 months.

OSP.to – opened at $7.00 on March 01, closed at $9.33 on March 08 and yielded 17.1% ($1.20) based on our entry price for 12 months.

ONCS – opened at $1.67 on February 22, closed at $1.29 on March 14.

VXX – opened at $18.00 on February 16, closed at $15.80 on March 17.

USLV – opened at $11.95 on December 29, closed at $15.90 on April 07.

WEAT – opened at $7.30 on January 17, closed at $6.65 on April 21.

SDOW – opened at $33.85 on March 06, closed at $33.76 on April 25.

TZA – opened at $17.85 on February 23, closed ay $16.89 on April 25.

VXX – opened at $16.30 on March 21, closed at $15.14 on April 25.

Average  +7.2% over 19 weeks including dividends (19.7% annualized)

Win percentage 29%

Average Gain  33.6% including dividends

Average Loss  7.5%

Click here for the tally of closed positions in 2016 representing annualized gains of 40%

Subprime auto debt crisis coming?

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In 2016 US auto makers sold more cars than ever before, with many of the mainstream media hailing this as clear evidence of rising consumer confidence. But it was not just auto sales that revved higher, so too did auto loans.

US auto buyers racked up $1.2 trillion in auto loans last year, an increase of 9% from the previous year. Meanwhile, the number of vehicles purchased increased by only 1.5%, highlighting that auto loans are now representing a higher percentage of household debt.

Autoloan

It is not just that auto loans are increasing that we find concerning, it’s the fact that auto loans made to consumers with subprime credit have accounted for a growing percentage of the market.  These increased sales have been achieved by aggressively pushing people into auto loans that they cannot afford.

It’s not like we haven’t seen this movie before. In 2007/08 we entered the subprime mortgage crisis, all based on lending too much money to people who had poor credit ratings. When they defaulted on their mortgages, we saw the US real estate market implode.

So now in the auto loan sector, delinquencies have moved up as the credit quality of the loans has deteriorated and the length of the auto loans has increased, up to 84 months.

Auto loan delinquencies hit the highest level since the financial crisis as more  than six million American consumers are at least 90 days late on their car loan payments, according to the Federal Reserve Bank of New York.

 “The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years,”  said the bank

About $23.27 billion in loans were 30 days or more late as of Dec. 31,  a whopping 14% increase from the year earlier and the most since the $23.46 billion in the third quarter of 2008.

Deliquent_auto

Moreover, of those subprime auto loans, the New York Fed said a full 75% originated with auto finance companies which have been loosening their credit standards since 2010.

As a result of these weak lending practices by the auto finance companies, almost 5% of their auto loans were running at least 90 days in arrears during the fourth quarter, compared with 1% for auto loans issued by banks and credit unions.

As we should have learned in the subprime mortgage crisis, when you make loans to people who cannot afford them, eventually many of those loans are going to go bad, which is what is happening now.

In addition, sales are declining and used car prices have dropped, none of which makes us want to own stock in the automakers today.

Ford

Stay tuned!

Headlines

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  • Wall St opens higher as government shutdown averted. Read story
  • Oil falls as drillers boost rigs and Libya expands output. Read story
  • Biggest gold ETF just saw largest outflows on record. Read story
  • Fed’s cut in bond holdings may be messier than Yellen hopes. Read story
  • French election: Macron says EU must reform or face ‘Frexit’. Read story
  • Le Pen attacks ‘same old’ Macron. Reads story
  • Trump: Kim Jong un is ‘a pretty small cookie.’ Read story
  • Trump commends Philippines leader Duterte’s war on drugs and invites him to US. Read story
  • US factory activity slows; inflation pressures subside. Read story
  • Obama makes $400K for speech at A&E event. Read story
  • Student penalized for using the word ‘mankind’ instead of ‘humankind’ in essay. Read story
  • Netflix finds a way into China, but it’s not quite what it really wants. Read story
  • Almost every speed limit is too low. Read story
  • Democrats say they now know exactly why Clinton lost. Read story
  • On the lighter side. Check it out!