When my algorithm driven Market Timing Index is at 50, the chances of losing money on new positions is the greatest, be they long or short.It is greatest for short positions when the index ticks 80, as it did in February, and for longs when it plumbs the depths of 25, like we saw in March. The money in this business is made buying the big selloffs and selling short the extreme tops. And where did the Index close on Friday? Dead on 50.
As you can tell from the chart below, the Index has been hugging the 50 level for nearly two months now. This has never happened before. That’s what caused the Volatility Index (VIX) to tickle $9.40, a 20 year low. Dip your toe in the water, and it will get bitten off by a shark.
The game now is not to try and make money, but to avoid losing money. This way you will be able to swing at the next soft pitch with plenty of confidence and with a ton of cash in your pocket. That means the ability of most of the trading industry to make short-term profits has been nil. There are probably 10,000 firms out there now using a similar algorithmic approach to trading as I, and they are all reaching the same conclusions.
As a result, this could be the deadliest summer on record.
You can proffer many reasons, the failure of the Trump economic program to move forward, the rising tide of scandals in Washington, or the explosion of volatility destroying exchange traded funds.
Or it could simple be the calendar.
June is historically one of the most difficult months of the year to make a profit as the smart money heads for The Hamptons or Newport Beach for the rays, or to Europe to do some shopping. At least with the FANG stocks you can make the case for a long-term future. I bet they will come back faster than most expect. The recent correction was more than overdue.
That means there are several attractive “BUYS” setting up in this area. Bonds (TLT) appear to be the most overvalued asset class out there right now, with the ten year Treasury bond yield hitting 2.10%.
The drumbeat for a bond killing $4 trillion taper by the Fed grows in volume with each central bank meeting.
If bond prices are screaming now, that make the US dollar a screaming “BUY” Oil (USO) and other energy supplies seem to want to explore new lows for the year. When Saudi Arabia wants to get out of the oil business, you do too. The new OPEC quotas are a flop.
That has also been dragging down precious metals (GLD), (SLV), everyone’s favorite hedge against a Trump blow up. After months of mind numbing tedium and stultifying boredom, life should soon become interesting.
It is going to be a dreadfully slow week on the data front.
On Monday, June 19, at 8:00 AM, Fed governor Dudley speaks, while Evans opines at 7:00 PM. With last week’s rate rise behind us, these should be non-events.
On Tuesday, June 20 at 8:30 AM EST, we receive the US Current Account Report, a snapshot on the health of US international trade.
On Wednesday, June 21, at 10:00 we learn May Existing Home Sales, which might actually bring a decline, thanks to the shortage of supply.
At 10:30 AM EST the weekly EIA Petroleum Status Report is out, probably with dreadful news.
Thursday, June 22, at 8:30 AM the Weekly Jobless Claims will be divulged. Last week’s number was essentially unchanged at a 43 year low.
That is followed up with the May Index of Leading Economic Indicators, a measure of ten forward looking statistics.
On Friday, June 23 wrapping up the week at 10:00 AM will be the May New Home Sales. Last month was a complete bust.
1:00 PM is the Baker-Hughes Rig Count, which has been up for most of the last year, boding ill for oil prices. Last week saw a doubling of year earlier rig numbers, and 22 straight weeks of rises.
As for me, I will spend the weekend loading up on food at Whole Foods (WFM) before the Amazon (AMZN) takeover produces a dreadful decline in quality.
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