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Chameleon Asset Strategies Blog

03 Mar

Window of Opportunity – A few things to consider before letting it pass you by...

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Window of Opportunity – A few things to consider before letting it pass you by...

The markets have recovered handsomely from their recent lows however I don’t think they’ll linger up here very long. I believe that we’ve just entered the narrow window of opportunity that I spoke about previously. Here’s some food for thought-

 Contrary to what most advisors with tell you, taking profits here does NOT mean that you don’t have a long term perspective. As I’m writing this the S&P 500 is down around 7% from its all-time high. In the last 2 bear markets, it declined around 50% from its high. It can happen again, statistically a large move down should happen again, and with each year that ticks by, the odds increase. If you look at the big picture, we have what appears to be the most defined market ceiling of my lifetime and plenty of room to fall below. You are not acting irrationally by choosing to sell into this rally.

 This is a good place to change strategies if you want to. Many investors wait until the worst time to make decisions – Don’t do that. If you’re worried about the global economy, geopolitical risks, etc. act now as opposed to after the damage has been done. It doesn’t have to be all or nothing either; there is middle ground. If you didn’t take any measures to hedge/reduce your exposure at year end when I suggested it, this is your next best place to do so. Consider having at least part of your risk portfolio invested in strategies that are designed to function in a market that goes up or down.

The S&P 500 futures have been battling higher for the last 2 weeks and investors are getting excited again at the prospect that a bottom may have been put in. Hopefully they’re right, but I doubt it. Just above where we are lurks a massive glut of anxious bears who have been patiently waiting for our exhausted bulls to arrive. I’d like to see the rally continue a bit higher, but don’t expect much more. By most measures, price has been stretched, the indexes are overbought and we’re nearing the most logical places for major players to begin selling again. As I’ve mentioned in previous posts, I expect to see the market reverse course within the red box. I’ll be very aggressively looking for short opportunities in the S&P futures near 2000.

All the best,

Stephen

 

02 Feb

Sellers on vacation – A few green shoots popping up...

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Sellers on vacation – A few green shoots popping up...

Last week the markets were pretty upbeat. We saw some of the first signs of positive activity in the oil patch in quite some time. Global banks recovered a sizable chunk of the year’s losses. Stock index futures also managed to make some significant headway.

The March oil contract made a new low however the April contract held its January low and has risen a few dollars from there. This is a relatively subtle difference in the charts, but it carries quite a bit of technical significance as the selling pressure has subsided somewhat. It’s still too early to be calling a bottom at this point as the fundamentals remain pretty ugly, but it's a start. Many analysts see price stability in energy as a prerequisite to any sustainable rally in stocks.

Jamie Dimon ( The CEO of JP Morgan Chase Bank) personally bought 500,000 shares of his company, worth around $26 million. His confidence in the strength of the US banking system attracted many other buyers. Deutsche Bank will buy back around $5 billion of its senior debt, which helped to sooth some fears over its capital position. The market loved these headlines but I really don’t see any material change in the environment that sent them tumbling in the first place, save for a pause in the oil freefall. The currency fiasco in Latin America, systemic debt fears tied to depressed commodity prices, and fallout from slowing growth in China are still very much in play. Take the bounce with a grain of salt.

Equity futures rebounded nicely after a rough start to the month. Unfortunately, the rally appears to consist predominantly of short covering and not necessarily new buyers stepping in. This fluffy rally has also pushed the S&P right into the upper part of its trading range while reaching an overbought condition ( when prices move up too fast in a very short amount of time ) This would normally be a setup for sellers to return to the market. A close above 1950 and we’ll probably see a short term extension of the rally – a close below 1900 and one would expect to revisit 1800. We’ll see what happens.

All the best,

Stephen

 

02 Feb

Stock and Oil futures joined at the hip...Where is oil leading?

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Stock and Oil futures joined at the hip...Where is oil leading?

 Crude started the week by heading below $30 again and breaking all recent support; Equity futures fell with them. On Thursday around 12:45, a carefully crafted, suspiciously timed headline was released, which stated that OPEC may have an emergency meeting and begin coordinated production cuts. Both oil and equity futures were at their session lows, which also happened to be the lowest intraday levels for both that we’ve seen in recent years. The futures surged on the news and took advantage of a long weekend where traders prefer to close their short positions, which fueled the gains. If ( and it’s a HUGE if) there is any truth to the rumor, these markets have a good chance of rallying further in the near term. If there is no merit to the rumor, which I suspect that there is not, plan to see oil continue to make fresh lows and drag index futures helplessly along with them.

 Why do I think that the rumor isn’t true or won’t carry the weight that people hope it will? Saudi Arabia has been silent on this headline, once again. The statements they have made in the past indicate that they have a very clear agenda, which is to keep prices low until high cost producers are flushed out and stop oversupplying the market. We’ve just barely started to see the kind of pain necessary to fulfill their aspirations. Most companies have halted drilling and a few high profile oil players have cut dividends, but in my opinion there has been no meaningful decrease in production. I believe that the Saudis are committed to their goal and will continue to pump at record levels while boycotting any efforts of other weaker players to slow the bleeding.

In the near term, oil will continue to take center stage and lead index futures. Gold and Treasury futures have surged  and are due for a pullback before continuing on their trajectory. I’ll be looking for attractive places to buy them and join the trend.

   

All the best,

Stephen

 

02 Feb

Defense wins championships! ... and tells us everything we need to know about the current stock market.

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Defense wins championships! ... and tells us everything we need to know about the current stock market.

This week Nasdaq futures dropped like a rock while the other major indices held up much better. Why such a divergence? Investors chose to shed risk and start playing some DEFENSE ...  Utilities, telecom, and consumer staples are sectors showing price stability as large players seek safety over growth. Historically, this is a move that is made in anticipation of economic weakness and in my opinion is evidence of a shift in overall market sentiment.

The S&P futures were able to hold the 1865 level, but given the price action in the Nasdaq futures, it appears that the next leg down may be upon us. The next few days will be telling. A close above 1925 in the S&P futures and there's a chance we continue higher in the short term. A close below 1850 and the fabric may unwind rather quickly. I’m going to watch things unfold and let stocks pick a direction. The price of oil will likely create a catalyst in one direction or the other. Until then I’ll be looking for opportunities in other markets.

 

 

Take care,

Stephen

 

01 Jan

High stakes musical chairs! How to grab your seat while the music is playing...

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High stakes musical chairs! How to grab your seat while the music is playing...

 As of Friday the S&P 500 is out of correction territory!... but not out of the woods. This anticipated rally in the index futures is just a normal component of a bear market as it continues to take shape. Historically, some of the best moves to the upside have occurred within an overall downtrend. The timing of this move fits the narrative perfectly. In my previous posts, I’ve commented on the Financial WMP’s (Weapons of mass production) that are being deployed right now all around the world as governments and central bankers attempt to stem the declines. This latest mammoth stimulus measure by the Bank of Japan helped to coax buyers out and drive prices higher. We’re also in the midst of earning’s season and companies are both reporting on the previous quarter and providing guidance for the future. Fund managers and retail investors alike tend to put cash to work during these periods as talented CEOs and commentators paint a somewhat optimistic picture of the future. You can see the phenomenon at work - last week the US Dollar, Gold, Oil, 10 Yr. US Treasury, and Equity futures all moved higher. This really isn’t supposed to happen and one would think that at least one of these markets is lying to us (-:

So far things are progressing according to the 2016 playbook and I’ll continue to look for short term buying opportunities. I’m expecting to see the major index futures continue to fight their way higher again this week as the negative tone mellows and the bulls start talking about how we’ve seen “the bottom”. That’s your queue to start looking for a chair – When it’s obvious to the world that the music isn’t playing anymore, your options become far more limited and the competition for seats increases immensely. I sent the picture on the left to a client last week to help illustrate the market path I’m looking for. The picture to the right includes Friday’s surge. If you’ve missed my previous commentary and are still fully invested, I believe that the area inside of the box (1960-2030) will represent your best opportunity to sell S&P Futures for the next couple of years. As global GDP continues to contract, I just don’t see any meaningful upside. I do however see a few potential catalysts to the downside. I’m not a doom and gloom guy that’s suggesting you liquidate everything and buy gold with the proceeds, but there are very real problems taking shape. Equities are risk assets that typically experience large swings due to their liquidity and forward looking nature. This isn’t going to be 2008 all over again in the sense that we have the exact scenario play out as it did then, but I think it’s naïve to assume that a decline of similar magnitude is impossible because we fixed the banking system. 2008 wasn’t 2001 because we didn’t have a tech bubble, but your portfolio probably couldn’t tell the difference. Doesn’t it make sense to have a good portion of your money in a vehicle that is designed to function in a multidirectional market?

 

 The United States by many measures IS healthier than it was in 2008 and healthier than other developed economies around the world. I don’t think that we’ll fall into a vicious recession here, but we can still have a bear market with a good economy. How is that possible?

Doc brown has the answer “Marty, you’re not thinking 4th dimensionally” - The question isn’t “is the glass half full or half empty”, it’s whether it is filling or draining that Wall Street cares about. In reality the glass is actually a lot closer to being full, but depending on what data you follow the glass appears to be draining now. One can make the case that though we’ve experienced growth and reduced energy costs, that effect has been offset by increases in the cost of healthcare and housing. Couple that with an increased savings rate and stock fueling consumption suffers. Around half of the revenue from S&P 500 companies and our large tech giants is generated outside of the United States. When you look abroad, the deterioration is far more obvious. Brazil, Russia, Venezuela… Yikes. Sovereign wealth funds have been selling stocks to make up for budget shortfalls, and in my opinion this has to continue for some time. According to the SWFI, 4 of the top 5 funds ( Norway, Abu Dhabi, Saudi Arabia & Kuwait) have been built by oil revenue and have a collective value of around $3 Trillion. These funds used to be net buyers helping to propel global stocks markets higher, but with $30 oil they have been converted to large sellers. The Saudis are waging a very public price war with the intention of destroying the oil industry in entire countries. We’ve seen (in my humble opinion) a statically insignificant decrease in production thus far, so provided that the Saudis stick to their plan, this trend will continue until we see real carnage in the oil patch. When you have plenty of willing sellers and fewer and fewer willing buyers you can’t possibly expect anything other than lower prices.

If your portfolio isn’t tooled to take advantage of this environment, give me a call.

 

All the best,

Stephen

 

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