Wednesday, October 03, 2018

Market Alert - To the Close

The stock indices are all higher, but all are will off their session highs. DJ30, the recent market leader, is 110 points off its session high. Lots of doji, opening higher, surging, then purging. The two positions we picked up, CAT and WOW, are managing to hold on well to gains, so that helps. took some gain on BA, ROKU, TJX, the latter two October options and struggling some so we banked them.

Bond yields are impressive with the 10 year moving up to 3.15%. CNBC quotes an expert saying this is the 'danger zone' for stocks as a result. Yes, some money will find these yields more attractive, but for the history of the world in economics, stocks and bonds have coexisted in investor portfolios with the stock market doing just fine. The problem we have: for so long the bond market has been controlled that experts believe it has to be controlled. Many of them never saw a market not controlled so they fear the unknown.

All of this is part of the gloom and doom, the end is here or near commentary flooding the financial blogs, websites, stations. Perhaps they are right, but I know, in 40 years of investing, a handful of people who actually accurately called tops and made money on that call, meaning they were right and played it right. Making money in markets is not an office pool; it is seeing, assigning probabilities, playing the probabilities with the right tools. Oh well, off the soap box.

Shiller says this is like the 1929 boom pre-bust. Speculation taking over. You know, I have seen speculation before, more than once. This pales in comparison to the speculation of 1999, the bank speculation on crap mortgages in 2007. The thing is, regulators and government creates the distortions that caused speculation in mortgages: government programs fostered their creation, government entities bought them no questions asked, creating markets that were the essence of speculation. I have always said, those programs work initially to get out of a jam, but then they are never ended. There is money to be made, free money from the government, and when free money is there it is not long before the sharks show up and ruin it.

Did I say I was getting off the soap box?

Bonds strong, doom and gloom strong. Earnings guidance weakening. THAT could be the market's achille's heel. Profits are the key, and if they contract, prices have to contract.

So, watching patterns. Most holding up today but still testing. This is the test we were talking about. Will it be 3 or so days or will it need to see SP500, NASDAQ at the 50 day MA? We are in the process of finding out right now.

SP500 2.82, 0.10%
NASDAQ 26.46, 0.33%
DJ30 72.63, 0.27%
SP400 0.43%
RUTX 0.87%
SOX 0.10%

RUTX, SP400 have not changed their character. Hmm, none of the other indices either.
Jon Johnson, Chief Market Strategist

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