Warning: Pluto Now Traversing Uranus! (BIDU,DIA)
Why am I so itchy…?
Anyway, we’re past the six month mark, so it’s time to issue our annual summer challenge to readers, poachers and schemers all – give us your year-end predictions for markets and anything else you might have a penchant for, and we’ll reward the best prognosticator with… wait for it…
And weekend for three at Mar-a-Lago!
That’s right, friends, you and your best two Facebook likes will be flown coach to the Trump family getaway, where you’ll enjoy an afternoon meal at the confectionary and a brief swim in the pool, time and weather permitting.
Conditions for participation in the annual Normandy guess-fest are the same as ever – you must be 1) a regular reader and 2) have undergone successful sex reassignment surgery in the last year (before and after photographs optional).
That’s all, folks. Simple and satisfactory.
We thought you’d approve.
Cat got your rat, Brucey?
Let the Bells of ’18 Toll
At this point we’re going to let the wind blow hard and offer you our own take on 2017’s investment outcomes – and a few other choice items we believe will transpire by year’s end.
We start with the dollar.
As we write, the dollar is sitting on the edge of a steep Norwegian fjord, looking ever more likely to slip and tumble over the icy crags into the waiting sea below.
Have a look –
As we detailed last week, there’s very little support in sight for the buck if it tucks under the DXY 92.50 level (red line). In that event, we could easily get a simple Fibonacci retracement to 90. Beyond that, it’s anyone’s guess.
We’re going to bet conservative and say that Auld Lang Syne tring-a-lings a dollar index read of 93 on January 1, the precise level at which we’re currently situated.
Next comes silver and gold, everyone’s favorite investment blow-up doll and the talk of the financial webset from Alhambra to Albequerque.
Our own view of the precious metals has been changing for several months now. Where we once saw nothing but downward trajectories and goldphile dysfunction, today we say the picture is brighter. Gold and silver now appear to be carving out a bottom whose duration and shape are still unknown, but whose certainty is coming clearer every day.
Our call on the two largest precious metals ETFs, GLD and SLV, are as follows – January will bring GLD to $135 and SLV to $17.75, gains of roughly 10% to 15%.
That said, we have to admit that these two items represent our least confident projections at this time.
The stock and bond markets are a little easier for us, because we’re privy to a good bit of talk from the street, and a fat dollop of assistance from friends and advisors with hundreds of years collective experience in the markets.
So let’s move first on the Dow, where we have a bullish take on the old gal’s final resting point for 2017, but not her precise trajectory. That is to say, we see a big move both higher and lower in the equity realm before year’s end – we just don’t know which will come first.
By all accounts, the current lack of a simple five percent correction for over a year militates toward the selloff coming first and the rebound later, but we’re not so convinced.
This market is anything but predictable, and the worse the news gets, the greater the pessimism that ensues and the higher the markets want to climb. A look at the latest AAII numbers shows a skeptical Ma and Pa Main Street. With bullish sentiment running at just 34% we find it hard to imagine a pullback of any significant measure in the near term.
Call it Dow 23,050 on New Year’s Day.
The bond market has also been a tricky call for a couple of years, even with rising rates telegraphed and registered for a good long time – and more expected over the next twelve months.
The only wrench in the machinery here is the long-dated Treasury’s role as safe haven of choice for the greater part of the world’s nervous nellies, a phenomenon that investors apparently refuse to divest themselves of. So long as there’s fiscal danger in Europe or elsewhere, the chance of a broader regional conflict in the Middle East, or the chance of a North Korean ‘event’, money will keep running to Treasuries.
For that reason, we’re calling for the most widely traded long bond ETF, the iShares 20+ Year Treasury Bond ETF (NYSE:TLT) to hold its own and close the year at $121.
In a stunning development, we call for oil to rise to $64 after a few unanticipated, explosive events on the geopolitical front.
Close her down!
We’ve got one trade that needs your attention before we move into this week’s action.
And it goes like this…
On July 18th, a mere two weeks back, we penned a letter called Freewheelin’, wherein we recommended you buy the DIA March 16th 215 CALL for $8.30 and sell the DIA March 16th 215 PUT for $8.00. Total debit on the trade was $0.30.
And since then?
It moved nicely in our direction. The long CALL now trades at $8.55 and the PUT for $7.10. Sell off the former and buy back the latter, and you net $$1.05 on thirty cents expended. That’s a gain of 350% in two weeks (equal to an annualized return of 9100%!).
And that’s Bezos money, baby!
And now for today’s rompin’ runaround…
Chinese internet giant Baidu Inc. (NASDAQ:BIDU) just tripped the light fantastic on Friday, climbing 9.5% on six times average daily volume to close at $220.
The company crushed earnings expectations, but as the chart below shows, the stock soared into the overbought, and technicians from here to Shenzhen will likely be anticipating a sideways to lower consolidation period as a result.
Have a gander –
The thinking here is simple. Implied volatility on the options punched higher, but it doesn’t look like the stock is going anywhere fast, particularly because of the overbought RSI read (in green).
We see it as wise to sell a richly priced straddle for the near term and watch it waste away.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
With kind regards,
Hugh L’ O’Haynew