In the "I hate to say I-told-you-so" category, it looks like the
Punxsutawney Phil came out of his den last week, took one look at the state
of the global stock markets, and decided to go back to bed for six years. One
short week after I posted "Never Underestimate the Replacement Power of Equities Within
a (HYPER) Inflationary Spiral," complete with a chart with five smiling
faces of those that would be responsible for "Dow 25,800," we have
lost a very quick 2,000 Dow points and 105 for the S&P 500. The VIX (CBOE
Volatility Index) has moved from around 9 to nearly 50 and the UVXY
[Proshares Trust Ultra VIX Short-Term Futures ETF] ("the
divorcee-maker" since 2009) went from $8.52 topping over $30 on Monday.
CNBC guest commentators are now displaying manic-depressive-type patterns
of speech as they waffle back-and-forth stammering and stuttering about how
they predicted this bloodbath and how and why investors "have to take a
longer-term perspective." In light of these rapidly altered conditions,
I am proud to display a NEW chart complete with the concerned faces of the
POTUS and the poster-child for U.S. stocks, CNBC's "Mad Money"
maestro, Jim Cramer. You will notice that the smiles in January 17 missive are now frowns as the ramifications of the $5
trillion wealth implosion are slowly being assessed.
Now that we have all had the chance to breathe and avoid the inevitable
"Spanish Inquisition" from our spouses who happened to catch the
early-week headlines and are several milliseconds away from demanding a
forensic audit on our personal trading accounts, I had to laugh at the mess
created as Janet Yellen left the Fed last weekend in reference to the forced
board changes at Wells Fargo and I loved how Jon Najarian described how
"she tossed a live grenade into the room as she left."
The dramatic swings this week have been a classic exercise NOT in the
psychology of quivering, screaming carbon units but rather the reaction of
the boys at 33 Liberty St. (NY Fed) to the abject terror of the Steve
Liesmans of the world. The more the sweat beaded on the brows of the CNBC
anchors, the closer I was getting to pulling the trigger on the UVXY
position. It was finally consummated when I got about fifty emails/tweets/IMs
asking me if I was ADDING to the UVXYs with the best being "DUDE, wake
up! UVXY trading $32 in the after-hours markets!" That is what happens
when people become mesmerized with short-term trends and I quickly replied
"You want to be a SELLER of volatility, not a buyer up 300% in nineteen
days!" Then, I watched in absolute delight as they took the Dow apart on
Thursday afternoon and then took Asia down last night.
A gentleman by the name of Richard Breslow offers these two charts as a
couple of reasons why it is WAY TOO EARLY to be "buying the dip."
The 21-month moving average has carried a gravitational pull for stock prices
going all the way back to the 1970s and since it got so exaggerated since
2016, it stands to reason that a full-blown return to that line is in the
cards. The one small problem for the dip-buyers is that line is another 7.4%
below Thursday night's closing levels and if stocks are taken there, all
gains since Q1/2017 are vaporized and the granddaddy of modern bear markets
will have arrived. Mind you, Donald Trump's "need-to-be-loved"
behavioral bias might result in a full-blown PPT assault now that the 200-DMA
for the S&P is under assault.
As for gold and gold miners, many of us have had to listen to legions of
Millennials and Gen-Xers castigating their older colleagues for failing to
comprehend the "true meaning" of cryptocurrencies and the growth
potential behind cannabis stocks. For that reason, the two lead dogs in the
Canadian space, WEED and HIVE, are now sporting losses from their respective
tops of 41.75% and 73% respectively. Now the younger crowd are starting to
feel the same pain that we have felt since the politicians and their central
bank attack dogs put a rope around the necks of gold and silver back in 2013.
The point is that this bloodbath is eventually going to force investors back
to the safety of the traditional safe havens that we KNOW are gold and silver
and away from the "flavor of the month" novelties like weed and
blockchain.
Last point for the week is that while gold prices are holding together
nicely above the $1,310-1,315 level, silver continues to underperform and the
HUI (NYSE Arca Gold BUGS Index) is now back below the early December lows. As
I wrote about last week, the problem with gold miners in a market crash is
that as far as the margin clerks are concerned, gold miners are the same
source of liquidity as shares in Apple or Netflix or Amazon and they get sold
along with everything else. So, until we get some type of stabilization in
the global arena, the physical metals will outperform the shares.
COT Report:
No surprises here. . .large specs get purged with market-related
redemptions triggering capitulation; bullion banks sit there with zero margin
problems and cover.
I noticed that the two creatures with whom I share this humble abode on
lovely Lake Skugog have returned to the confines and are actually poking
their heads around corners to see if I am pacing the room, potential
projectiles in hand while enjoying animated conversations with lampshades and
mirrors. That is usually the signal for them that mayhem is nigh and
remaining within any sort of landing zone for paperweights and wine bottles
is hazardous at best. As it would be, I am calmly seated at my workstation
eagerly anticipating the arrival of calm, which might explain their somewhat
tentative behavior, which, after all these years, might be understandable
given the sawed-off shotgun I have been romancing for the past five hours.
I'll show them "volatility". . .
All charts and images courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be deemed to
be investment advice, implied or otherwise. This letter represents my views
and replicates trades that I am making but nothing more than that. Always
consult your registered advisor to assist you with your investments. I accept
no liability for any loss arising from the use of the data contained on this
letter. Options and junior mining stocks contain a high level of risk that
may result in the loss of part or all invested capital and therefore are
suitable for experienced and professional investors and traders only. One
should be familiar with the risks involved in junior mining and options
trading and we recommend consulting a financial adviser if you feel you do
not understand the risks involved.
