WASHINGTON, August 12, 2013 – Investors are cheering this morning’s confirmation of a new iPhone announcement at a September 10 special event. But the balance of August is shaping up to make Wall Street a very treacherous place. And things may only get more uncertain—and more volatile—as September arrives.
After all, this week is options expiration week, which means that the Big Boyz will be having fun and profit at our expense as they manipulate stocks and pick off strike prices with ease. Trading volumes are at record lows and price spreads make retail trading more dangerous than usual, further exacerbating this monthly game of wealth re-allocation to the already rich.
The standard options expiration week template in recent months is for Monday doldrums, perhaps extending into Tuesday. Then, wild rallying in certain favored average-moving stocks on Wednesday and Thursday as professional thieves traders manipulate prices to pick off those strikes. Then, fluttery Fridays often find markets flat-to-down slightly as pressures ease when the big traders make early departures for their mansions in the Hamptons or their yachts in Rhode Island.
We’re probably in too much stock this month and are looking to pare back. Oversold bounces are likely, particularly this week, but markets are already looking toward the return of Congress and Congressional gridlock in September as the Democrats rev up their PR campaign to end the sequester and ramp up social spending once again while savaging Republicans for everything to prepare the ground for another 2014 electoral battle.
The Washington action will be as cynical politically as Wall Street action is from a monetary standpoint. Americans have yet to understand that the Democrats have permanently subordinated all agenda items in favor of maintaining their power in Washington forever. They’re prepared to tank markets this fall with budget, sequester, and government shutdown scenarios, all the better to terrify the weak-kneed, hapless country club Republican pluralities into losing battles and disastrous compromises.
Like Wall Street, Washington and the Federal government are well and truly broken—likely a permanent situation until the people have had enough. In the meantime, short-term investment strategies will be best. Long term bets, except those favoring tax increases, will tend to turn out badly.
This week’s markets:
Given our observations above, we’d advise investors to peel out of profitable positions this week, if indeed they have any left after the July rally that’s now mostly fizzled. Our once-favored REITs remain treacherous due to the now virtual certainty of an autumn bond buying “taper” by the Fed. Energy remains temporarily favorable but volatile, hinging less now on Middle East events but still hinging on them anyway. Tech is entering what’s usually its best season, but is perhaps best sampled via the equal weight NASDAQ 100 ETF (QQEW)—although if you like Apple’s chances, you could dabble in a little bit of the regular NAZZ 100 ETF (QQQ).
But lo and behold! Gold may be making a bit of a comeback, at least for traders. We are beginning to favor the kind of gold ETFs that actually hold bullion rather than representing it with some bullion and some paper. Funny things are going on in gold trading lately, and we just feel better with ETFs that hold the actual yellow stuff like the Swiss gold ETF (SGOL) and the peculiar but interesting Sprott Physical Gold ETF (PHYS), a Canada-based outfit that actually allows you to redeem stock for its value in that outfit’s bullion reserves. But be careful here. In this market, these are only trades.
BTW, if you’re with Schwab (which we are), SGOL is available commission-free, a swell perk if you indulge in the metal. Other brokerages may have similar deals, but we’re not currently aware of them.
Aside from that, we’d stay cool in August. Our trust level is very low right now, and as such, we don’t think it’s a swell time to commit a lot of money to this market.
Have a good week.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently owns a small positions in SGOL, mentioned above.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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