Equity Happy; Treasury Crappy (TLT,DIA,FCX,UUP,IYT)

Equity Happy; Treasury Crappy (TLT,DIA,FCX,UUP,IYT) We’ve been talking in more emphatic terms about the bond market lately, though not because we have anything new to say on the matter. The message has been consistent for several years – that a grand selloff in Treasuries would funnel tremendous flows of cash into the equity market, precisely at the moment that U.S. stocks were perceived as the greatest possible investment holding of the last three centuries. In other words, there’s a bullish equity bubble in the making that will eventually tear the buttocks from Ginger May Gorilla, while sending the bond market lower for potentially many years to come. So CRASS! Our latest rantings, however, come at a time when the yield on the three year Treasury has come up even-steven with the yield on the S&P 500 (see below), an inflection point that could have a significant impact on the direction of both asset classes. Here’s the way it looks graphically – The last time the two met, the vectors were reversed, with a breakdown in Treasury yields creating an advantage for equities (red rectangle). That took place, of course, while the stock market was melting down, and nary a lad…

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Broad Themes and Extremes (FCX,UUP,AAPL)

Broad Themes and Extremes (FCX,UUP,AAPL) We’re going to revisit some of the themes we’ve been pressing over the past six months, particularly as they relate to the commodities, as it’s there we see the week’s best opportunity to write a trade. But before we do, a little background. The current move higher in the dollar is not over. We’ll get more upward pressure over the intermediate term as a function of a number of inputs, and we’ll discuss a few of those below. But take it as near a certainty as you’ll find in the financial world these days, that barring a cataclysmic event in Washington or Wall Street, the buck’s bounce is a buy. And what does that mean for commodities? Well, in a world where financial rules and inter-market relationships still applied, we’d tell you that a move higher in the dollar would be negative for commodities. But today we don’t think so. And here’s why. Commodities got a pant-whacking over the past eight years – one that puts AG Schneiderman to shame. Across the board (almost), the entire asset class was trounced. And now, selectively, we’re seeing a return of funds to the ‘thingy’ sector. Energy in…

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The Bigger Picture (SPY,FNV,DIA,UUP,DBC)

The Bigger Picture (SPY,FNV,DIA,UUP,DBC)   For some time now, we’ve been kicking up a big to-do about how the current market has lost all sense of the fundamental and is being driven exclusively by sentiment and cash flows.   And there’s no gainsaying that as we approach the final innings of history’s greatest ever bull market, we’ll see ever more money making chase after equities as they swerve higher and lower, as volatility ratchets up like Norse stretch rack and indecision in the bond market creates powerful cash surges between equities and fixed income.   That said, we want to reassure you that we still believe the major indexes’ best days lie ahead – but it won’t be nearly as smooth a ride getting there as we’ve seen over the last year. We’re going to take a look at several discrete items now to acquaint you with our market thesis going forward.  But before we do, let’s first summarize the broad forces now at play in the system.   Push and Pull   The foremost driver of today’s capital markets remains the massive liquidity infusion of the last decade courtesy global central banks.  This single factor has set the underpinnings…

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That’s Some Horse! (DIA,AAPL,UUP,IYT)

That’s Some Horse! (DIA,AAPL,UUP,IYT)   There are stats and there are stats.  And, of course, when the market is in the middle of a panic breakdown, all the facts fit to print are lugged out of the analyst valise in order to convince you of what’s to come. And here at Normandy, we’re really no different.  Regardless of how little we trust the mainstream, fundamental approach to investing in this era of absolute government intervention, we have to rely on something.  Coin-flipping went out at least a century ago in the stock buying game.   As we’ve stated repeatedly, the contest is now being played on the sentiment front – in large part – while flows of funds, sector rotation and some basic technical analysis still offer clues to market direction.   The larger picture will continue to be dominated by the size and degree of intervention by the Fed and Treasury, and while we’re always watching those two do-gooders like a chickenhawk, much of what they do is simply not transparent and the rest grinds its way through the system very slowly.   So it’s to the stats we’re forced to return for our commentary.   And we start…

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Let’s Talk Dollars (UUP,DBC,DIA)

Let’s Talk Dollars (UUP,DBC,DIA)   We’ll open today with a look at the dollar and a few comments that the White House has been making in relation thereto.   And we start like this –   Steve Mnuchin, the President’s Treasury Secretary was in Davos this week to laugh at the world’s poor and confabulate over how to keep things humming without too much acting out on the part of the hoi polloi.   And in the midst of it all he offered the following on the sinking American dollar – And that immediately sent the buck-sellers directly into action.  The Dollar Index tanked, adding shame to the already existing scorn, and creating a picture that looked like this – We’re going to take a minute now to unpack the above dollar chart before we get back to the White House and Dr. Mnuchin and examine where things are headed for the markets in the weeks ahead.   We begin with the oversold RSI read that occurred last week (in green).  After a steep decline and a break of long term support at 91 (in red), the dollar bounced slightly but has declined to deeper lows since then – likely…

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DON’T LOOK BACK! (UUP,IYT)

DON’T LOOK BACK! (UUP,IYT)   We’re currently in the midst of an overbought rapture of retail investor effusion, one that will send markets unpredictably higher in the very near term before an inevitable stall brings it all to a halt.   At that point we’ll have to see what happens.   It could take a few days, a few weeks, or a bit longer, but there’s little chance it won’t occur.  The trajectory has been set, the momentum is building and the masses are enthralled. What’s less predictable is how the rest of the investment world will respond.  In particular, we’ll be looking to the bond market and select commodities for our cues, but equally important will be the emerging markets and local high yield securities, all of which offer a meaningful gauge of where the next big moves are going to take place AND what volume of selling we can expect from equities.   As we’ve remarked repeatedly in this space over the last couple of years, we do not believe the final market top is at hand.  There’s still a measure of hubris that has to be attained before the ultimate heights are reached, and the current mood…

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Metals. Now. (FCX,UUP,UNG)

Metals. Now. (FCX,UUP,UNG)   We’re going to take a broad survey of the commodities today because recent action in the ‘stuff’ class is looking bullish, and we believe we’ve identified a clever way to trade it.   But first to the background.   We start with the dollar.   As of this writing, the buck sits at its weakest level in a year and is threatening to plunge Alice-like into the nether realms if it loses but a rabbit’s hair more value.   In percentage terms, a mere 2% decline from current levels would put the dollar necrophiliacs into a rapturous frenzy of selling.   And to where she drops, nobody knows.   Have a look – This is the U.S. Dollar Index for the last three years, and as you can see, support sits but a whisker below current levels.   It goes without saying that a tumble of the sort we alluded to above would send the price of commodities blasting through space in search of an equilibrium moment.  The g-spot earthquake of buying that would ensue would simply be too much for the market to keep clothed.   The panties would fly and the ensuing screams would wake…

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Financial Drone Strike! (NOC,DBC,JCP,LOW,SLV,UUP)

There’s been a great deal of press lately regarding a handful of tech companies and the outsized role they’ve played in goosing the market averages.   And, indeed, it’s the case that Amazon, Alphabet (Google), Microsoft, Facebook and Apple have all been climbing recently, and contributed in great measure to the success of the NASDAQ, not to mention the S&P 500 in the last fortnight.   But a look at breadth figures for the rest of the big caps shows that the big five are not alone; nearly all the index components have been pulling their weight. The percentage of S&P stocks trading above their 50 day moving averages, a rudimentary indicator of bullishness, climbed from 40% to nearly 60% in the last two weeks, as the market bumped up a solid 3%.   That’s as clear a sign as any that the market is not a mere five cylinder engine.  One hundred and sixty big-name, big-cap stocks also turned sharply higher in that period.   Negativity in the Noise   Be that as it may, the biggest five U.S. stocks have been a great bet a) since New Year’s, b) since the election, and c) going back a full…

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Spring Cleaning (UUP,SLV)

Spring Cleaning (UUP,SLV)   Propagandists and sales and marketing professionals know the value of repeating the message ad nauseum.  They know that with enough time they’ll eventually crack through their audience’s cortex and implant themselves there for good.   There’s something about the human psyche, it seems (call it an inborn weakness), that eventually relents, and then wholeheartedly believes after the 650th repetition of “CLEANS WHILE IT DISINFECTS” that the product actually does what it says.   The marketing pros in the brokerage and mutual fund businesses are also aware of this, and the techniques they use are exactly the same. When we first started out in this business nearly thirty years ago, we experienced an epiphanic moment, when one of the more experienced brokers in our office, a highly strung chap in a camel colored suit, burst into the training session where we rookies were just about to break for lunch and yelled in an almost desperate voice, “If you guys think this business is any different from selling vacuum cleaners door-to-door, you’re wrong!”   Oh? Puzzled, we were at the time.   But today we understand.   Success on Wall Street resides in repeating the same message a…

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The Finale (XLP,XLF,UUP)

Let’s review.   We’re now at the beginning of the final, stock market blowoff top, the one that will go down in history as the greatest and most spastic, bubbilicious equity buying frenzy of all time.   Forget the roaring twenties, forget the South Sea Bubble, forget Tulips and Go-Go and Nifty Fifty and the Singaporean Twin Ballerina Bubble of the mid seventeenth century – nothing will compare to what you’re about to see. Buy and hold?   Hard to tell, because we don’t know at this stage how long the rally will last.   Buy single stocks, an ETF, or an index?   Sure, if you want.  But again, the timing will be difficult here, as it’s sure to be a jerky ride to the top – something like gold in 1979-80-81 – up 20%, down 40%, up another 55%, down 35%, up 60%, etc., etc.  Hanging on to anything will challenge even the most testosterone gifted investor.   That being the case, we prefer a slightly different approach, which we’ll outline in further detail in a moment.   But first, a brief refresher.   We got to this stage in financial history on the back of a drug-induced…

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