WAR! All the Latest Bellicosity and Bombast! (SPY,C,FB,DIA,IYT)

WAR! All the Latest Bellicosity and Bombast! (SPY,C,FB,DIA,IYT)   North Korea, friends.  It’s all about North Korea.   What do we mean?   Well, in the first place, you can expect that the news cycle is about to be dominated by that nuclear-tipped maniac, Kim Jong Un and his merry band of scribblers for the next couple of months, as the move toward a full scale erasure of the wicked Northern Kingdom is hatched, plotted and executed.   Already we see signs that, at the very least, the stage is being set for a negotiating turn of the screw the likes of which haven’t been seen since Bold Boy Arnold threatened the entire stickball crew behind P.S. 113 in Brooklyn back in 1931. Anyhow, we note several new developments in the last few days that we believe will provide the backdrop for a temporary top in the markets and subsequent short-term decline.  They’re connected to North Korea, and they’re as follows –   First, the New York Times is reporting on drills to evacuate American citizens from South Korea in the event of a peninsular war.  These are drills that have taken place in the past, to be sure, but…

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ICARUS ALTITUDES (IYT,DIA,FAS)

ICARUS ALTITUDES (IYT,DIA,FAS)   Everyone wants to fly.  Everyone wants to be a spaceman and soar to the heavens, free from the shackles of this mortal coil.   Look at Playboy Branson of Virgin Airlines fame, look at Amazon’s Bald Bezos, look at Elon Musk from the Tesla boondoggle, and you’ll understand that the rich and famous no longer believe that flying across the ocean on a private jet is chic.  Today’s vogue travel plan has to involve oxygen tanks and space suits. How it all turns out is anyone’s guess.  Sure, it could be like Apollo 11.  Or, it could end up like another Kim Jong Un flop that blows up as it leaves the cold dark earth.  We all remember what happened to the Space Shuttle Challenger.  That one never even made it into the bleak reaches of the final frontier.  And that was NASA.   The reason for our jaunt today into the ether is a nagging feeling that the transport stocks have simply gone lunar.  A look at the latest price action (below) shows a wonderful rise that has the bulls all a’twitter and the possibility of an overbought signal arriving any day now.   That’s…

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The CAT Came Back (CAT,GS,DIA,IYT)

The CAT Came Back (CAT,GS,DIA,IYT)   It’s not easy to measure the impact geo-political events will have on markets.  Indeed, most headline-grabbing happenings – including live fire incidents between sovereign nations – end up having a negligible effect on securities prices.   That said, if the fear that a major conflagration might erupt captures traders’ imaginations, then nothing will stop even the coldest hands from divesting themselves of everything in their portfolios save cold, hard cash. The current developing conflict in the Persian Gulf between Qatar, on the one side, and a group of powerful Arab nations on the other (including Saudi Arabia, Jordan, UAE and Egypt), has an ominous ring to it, and no one should believe that because of a shared language or religion, these nations would be loathe to engage in open conflict with one another.   Arab civil wars have been as plentiful as they’ve been deadly, as the current conflict in Syria makes abundantly clear.   But never before have we seen such a potency of firepower available to all sides as we do in the current crisis.  Nor have we seen such clearly drawn alliances as we now do.  All of which leads us…

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Theory and Practice (DIA,IYT)

Theory and Practice (DIA,IYT)   It was all spelled out some eighty years ago, by a little known, London-based equity analyst who wrote, The fellow lived and traded through a great many financial ups and downs, including two global military conflagrations and several cataclysmic economic down-cycles that sundered both the U.K. and global economies.  But the above quotation was made with respect to the RISE in stocks in the late 1920’s!   That’s right.  It was when the bull market was still hot, and the push to all-time highs on the Dow was feeding the ‘roaring’ descriptor of the 1920’s that our analyst Cornelius penned these words.   And now we’ve come full circle.   Because again, today, it’s the push toward all-time highs on the indexes that presents the greatest challenge for investors.   And just as Cornelius’ charming reset of Thomas Paine’s famous line spoke to the troubles the professional investment class was experiencing in 1928, so, too, must we admit that traditional systems of stock measurement are today failing to signal with the certainty they once did.   And that means we must all reconsider our approach to owning stocks.   Particularly, we must abandon any thought…

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The Madness of Trade Liquidation (TLT,AAPL,OLN,PM,MO,GDX,IYT)

You’ll have to forgive our French, but there are several sectors of the market that are taking an absolute ass-kicking at the moment, and we’d be completely remiss if we didn’t pony up and say something about them.   The first is the long bond – the entire Treasury complex, in fact – that’s been given a vicious stomping of late; its worst takedown in a year and a half.  But when you throw in the technical damage done, we can’t remember seeing a month this bloody since the meltdown of 2009 gutted close to 30% from Treasury investors’ pockets.   The second is the precious metals, including gold, silver and the miners, all of which have seen tremendous declines in the last three months and which could stand to lose significantly more if the stock market continues on its sexy way, drawing in fresh flows of funds from all manner of suitors domestic and foreign.   The third is a number of big tech and internet names that we’ll likely have to address in a coming letter.  There’s just too much to deal with given the space we have.   The Coming Madness   We’ll look at the charts…

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CONFIDENCE RETURNS! [MONEY FOLLOWS] (GS,GDX,IYT,FB,UUP)

Not even Donald Trump shoots from the hip like we do at Normandy.   You will not get any straighter answers delivered on things that matter, without all the blather and hype, as you do here.   And more than that, you get it with a dash of humor, too!   So count yourselves among the luckiest, and possibly richest sons’a’birches in the investment world.  And all thanks to us.  The planet’s wisest and humblest newsletter publishers. You’ll remember that some three weeks back we tipped you off regarding the market’s likeliest reaction to a Trump victory vs. a Hillary win.  We even drew a picture for you that the bigwigs in management decided to post on our website.   The chart looked like this – Now, there’s no need to repeat ourselves and comment a second time on the extreme genius at work here in the halls of the Normandy Mansion, Maryland’s chic-est corporate castle, situated in the heart of the east coast’s grandest neighborhood, a Gatsbean delight if there ever was one.   But you no doubt noticed that the left hand chart that we developed prior to the election bears a striking – some would say ‘eerily…

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Hop on Your Boxcar, Willie! (IYT)

Dow Theory is the oldest of the technical approaches to market analysis – in the western world, anyway.  And we like it, even though its purpose is limited to determining whether the market is in a secular bull or bear trend.   To that end, it’s helpful for traders as a first-stop compass of sorts, a means of gathering one’s bearings, determining whether the prevailing winds are blowing north or south.   And if we mean to be successful at our trade, we sailors on the equity tides must always keep an eye on the Dow Industrials and Transports, as it’s upon these two indexes that the entire system is based.   We’re not going to delve too deeply into the details of the theory here, and it should be known that not everyone even agrees on them.  The method was never codified or systematized from the get-go; rather, it was developed over decades by a number of market watchers who added to the original observations of Charles Dow that appeared on the editorial pages of the Wall Street Journal over 110 years ago. The basis of the theory is that bull markets are in force so long as the…

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Transport Hi-Jinx! (IYT)

There are a number of important, broad market developments underway, and we’re going to use today’s letter to draw your attention to them.   The first is found in the bond market, where the divergence between the price of the riskiest instruments is running entirely at odds with that of the safest. The second involves the relationship between the U.S. Dollar and the commodities complex, an inter-market comparison that has a number of important ramifications for market watchers. And finally, we take a look at the transport sector, an index that has important stand-alone value for those attempting to understand market direction.   Taken together, we hope our analysis of the above three items will provide you with a confident understanding of exactly where we stand today and where we’re headed over the intermediate term. All right.  We start with the fixed income sector, where high yield (junk) bonds have been flying, and the long bond – among the safest of all interest bearing instruments – has been stuck in a tight sideways range.   Have a look first at high yield, as represented by the iShares iBoxx High Yield Corporate Bond ETF (NYSE:HYG) – Straight line profits.   Here,…

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Trades for Volatile Times (NFLX,IYT)

Before we look at one older trade and offer you a new one for today, just a word about volatility.   There are a number of ways of measuring volatility and each has its own root and function. The two main measures employed by traders are historical volatility, a measure of price fluctuations over any given period, and implied volatility, a number that purports to tell us what sort of price fluctuations we can expect at some point down the road.   The most popular and widely watched measure of implied volatilty is the CBOE’s VIX, the so-called ‘fear gauge’, that offers an up to date indication of how traders foresee the S&P 500 trading 30 days away.   Subjective and Objective?   The truth about the VIX is that it’s determined in both an objective and subjective manner. Sound strange? The explanation goes like this – in the first place, it’s calculated instantaneously during trading hours by tracking the objectively verifiable prices of a select number of S&P 500 options. Glad you asked.   It’s not objective because the prices of those same options are set, as are all options, by the floor traders and market makers who fix…

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Chilled by the Weather, Warmed by Hope (TYL,DIA,IYT)

Today we’re going to look at four trades – one that closed, one that needs closing, a third that should be reinstated (but in the opposite direction) and a fourth that has great prospects.   You, of course, should feel free to partake in this Xmas profit madness with as many platefuls as you deem appropriate. And remember you can always start that diet after the holidays.   Let’s start with what has passed.   On the 24th of November, in a letter called Go Suck on a Fish, we opened a short straddle on Tyler Technologies (NYSE:TYL). We sold the TYL December 170 PUT and CALL for a total credit of $995.   And how did it end?   Nicely, in fact. Our short call closed in-the-money, so we’re currently short 100 shares of TYL at 170, creating a losing position of $705 (TYL now trades at $177.05), while the short put expired worthless. Buy back the shares at the market and you net a profit of $290 on the initiative (995 – 705).   Good work and congratulations if you got it on.   We note, too, that the resulting profit helps us cut down on the loss…

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