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A sampling of some of the analysis I've made that has come to pass is or happening now...
Welcome. The content below is free to the public. It might be worth what you are paying for it. Having studied economics and being in finance for over two decades, I have learned that only one thing is certain - that almost nothing is certain. As we endeavor to come up with our best analysis of the world around us, the opportunities and risks, we have to try to overcome a myriad of issues including our own ignorance, biases and emotions. What follows are my attempts to overcome those obstacles. Welcome to my view - publishing Monday and Friday afternoons.
In 2015 we saw a lot of stocks get annihilated as market leadership narrowed. Hedge fund darlings were flipped from running higher to getting pummeled. Biotech stocks got pilloried and Hillaried. Energy names were the big story though, as most fell in share price, many were crushed and some went to zero. As measured by the SPDR Select Energy ETF (XLE) the industry is down over 30% from its high. Interestingly, the 50 day moving average has started to turn up. A blip? A head fake? Or, is something else going on?
Today the price of WTI crude oil rose 3.19%. Normally that would be a hugely bullish sign for oil, however, last week the price dropped 8%. With driving season well behind us and existing wells still pumping out oil, it will take two things to happen before oil prices rise and hold at a higher range. The first thing is on the way. The second, the Saudi's control when that happens. Before we get into what needs to happen for higher oil prices, let's take a look at what the market looks like.
Over the course of this year I saw something in markets that early on I couldn't explain. I suspected that there was something different with market structure that was dangerous but I didn't know exactly what. I now mostly know what is going on.
Starting back in the 2nd quarter I started using a phrase, the "networked traders" to describe what was happening with certain stocks. It started in energy as companies with billions in assets saw their share prices pushed down as if oil and gas would stay cheap forever and that they were on the verge of bankruptcy. While some energy companies are on the verge of bankruptcy, most aren't.
Since spring, people have been obsessing about whether or not the Federal Reserve will raise interest rates this year. While I don't think gradually raising rates to 1% over a year or so is a big deal, markets treat it like is monumental.
For the record, I think Janet and The Feds have been looking for cover to raise interest rates all year. With this past week's very good - not great - employment number, it looks like there will indeed be an interest rate hike this December, albeit small, and maybe, just maybe, accompanied by a small quantitative easing to smooth volatility and support liquidity.
For about a year now I've been talking about the broad market being in a topping process. Here's another chart that speaks to the same issue:
We've had a brief discussion about whether we are at the end of a secular bear market or the beginning of a secular bull market. Well, the answer will be found in the next big correction. If we have in fact started a new cyclical bear market which I signaled about a month ago on MarketWatch, then we simply need to watch the bottom of it to know where things stand.
War is not something that we want to think about, but it is a reality in the world. Since peaking in severity with World War II, there have been a series of wars, for the most part with decreasing severity. Since 2010 however, a new trend has started to emerge. Whether it is a blip or a harbinger of a larger conflict, the sort of which we have not seen since the Korean War, is as yet unknown.
I do not mean to hype, however, I believe we are looking straight into the face of an asymmetric profit opportunity. This is the type of buy low, reduced risk chance to generate real wealth that only comes around about once per decade. Soon, oil and gas prices will reverse course. When that happens, the companies that survived this oil and gas crash will be operating in an environment with not only higher oil and gas prices, but less competition and nations motivated to keep oil and gas prices high. Just like survivors of other crashes have racked up huge gains, so too will the strongest survivors of oil and gas crash of 2014-15.
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