Friday Morning Market Downdate

A quick “downdate” on the market today. I will try to put out quick thoughts when the market is moving around a lot or something interesting catches my attention.

Today, the markets opened down over 2%. As I type, the Dow is down 336 points and 2.06%, the S&P 500 is down 37 and 1.96%, the Nasdaq down 109 and 2.36% and the Russell 2000 down 22 and 2.13%. More importantly for subscribers, oil is plunging again as it seems determined to crack $20 per barrel for at least a moment in time. 

This week we bought puts on the Russell 2000. Those are up substantially. It is not a bad idea to take the profits off right now, however, I wouldn’t take more than that as technical and quantitative indicators (not magic, just sign posts) are pointing to a full on bear market across the board in the stock markets. With the Russell 2000 we are hitting that right now as the high the past 12 months was 1296. So, we are exactly at bear market territory on small caps right now. 


However, the S&P 500 and Nasdaq both still have some room to go before those are officially bear markets. The 52 week high on the S&P 500 was 2134.72 which makes a 20% correction at 1707.77, so a bear market still is a bit away. On the Nasdaq the 52 week high was 5231.94 which makes an official bear market at 4185.55. I expect both of those markets to at least touch the 20% correction mark. Will they go much below those levels, I doubt it for all the monetary reasons I’ve pointed out before. 

While the S&P 500 and Nasdaq are correcting, the rest of the markets will be under pressure too. While the small caps are now officially in a bear market, they will continue lower as the larger companies head lower. Fundamental Trends subscribers have short term puts on the iShares Russell 2000 ETF (IWM) that are now quite profitable. I think it could be prudent to take off the profit if it is a substantial amount of net asset value. However, I am giving things until next week to see if Monday and Tuesday complete the bear market across the board. If that occurs, then IWM could drop into the low $90s in which case we earn a multiple on our money.

What’s interesting is that we are seeing other markets really crash, i.e. China. While I like the U.S. best of the major markets, I am looking for the emerging markets with young populations, good technology, good rule of law, good resource positions and low debt to be places to invest in as well. With all of those criteria, it’s a short list, but there are going to be some great opportunities soon to spread out globally a bit. Take a look at India. 

The price of a barrel of oil is of particular interest to Fundamental Trends subscribers since we own the ProShares UltraShort Bloomberg Crude Oil ETF (SCO). I am not taking anything off on this, however, given that most folks should be up handsomely on this in a short period of time, taking off the profit portion if it’s a substantial amount of money for you could be prudent. Have no doubt about it, I believe it is inevitable that the price of oil gets into the teens for at least a moment. I have set my sell limit price accordingly. 

Remember, while we aspire to be value investors because we know that is the long-term path to profits, when there is little value, and there isn’t right now, the market will create downward trends in prices to bring back value. For us, riding those trends down can be profitable. If you are not invested in any downtrends, then be patient before buying into new long positions.

One last thing, there are increasing risks of a short-term bear market rally, so, be careful. We could see a snap back which longs can be sold into and shorts re-established. Caution is warranted on all activity. Long-term the market remains bearish.

More this weekend.




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