Monday afternoon trading tips for a very toppy stock market

Current market action is like betting on a horse race without a decent tip sheet. It’s a roll of the dice, and we think stocks are about to tank.

Horse and jockey.
Horse and jockey. Bangor on Dee horse racing - National Hunt. (Used on via Flickr. Creative commons 2.0)

WASHINGTON, March 9, 2015 – Since we devoted our other column to commentary on the pluses and minuses of Monday’s iWatch Apple Watch announcement by Apple (AAPL), we figured we’d move our Monday trading tips info over to this, our regular column, given that Internet readers hate long pages.

We were indeed busy today and are writing this commentary after the Monday market close. As noted in our companion column, the Maven’s portfolio, weighed down by his modest (and maybe too-early) energy plays, looked sickeningly green about the gills today and didn’t share in Monday’s decent rally. Which, however, like nearly all decent rallies, wasn’t robust enough to overcome Friday’s utter clocking of the averages.

Most rallies these days seem to equal about ½ of the bear raids, meaning that if you are holding a pretty full portfolio of stocks, it’s one step forward and then two steps back. Not a good way to guarantee capital gains.

Our portfolio has to be comfortable with some of this, as we’re tilted pretty nicely toward yield rather than capital gains.

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However, one of our better yield plays—Calumet (CLMT), a Master Limited Partnership (MLP) primarily driven by its specialty oil refineries—tanked in after hours trading today when they announced a big secondary offering of stock after the close of regular trading.

Thanks, guys. The Maven just picked up 100 shares more of this company this morning on a modest pullback, little guessing CLMT was about to launch a guerrilla attack on its little-guy shareholders. Obviously, “they” (likely the 1%) were tipped off ahead of time, as the stock began to sink like a rock as the afternoon progressed. Then we find out why when we can no longer do anything effective about it.

This always torques off the Maven when it comes to MLPs. They frequently do come with secondary offerings out of the blue, raising cheap funds when their stocks are starting to hit new highs, and that’s what’s been happening lately with CLMT. But it’s still infuriating, given that many of these offerings are privately placed, and loyal little-guy shareholders can’t buy any.

Fortunately (or not), this typically drives the MLP secondary down below its offering price when trading re-opens. If that happens, the Maven will look for a near term bottom and double down. But he will still be at least mildly pissed.

As for the rest of the market, it’s still looking toppy. And, having rallied today, who’s to say that we now won’t get two colossally negative trading days in a row on Tuesday and Wednesday. If it looks like that’s about to happen, we’ll start sliding back into short S&P 500 ETF SH.

At the suggestion of one of our trading services, we did take advantage of today’s rally to sneak into roughly a half a position of VXX, the iPath S&P 500 Short-Term VIX futures ETF. To oversimplify, the VIX is a measure of stock market volatility. When things are getting jumpy and wild, particularly on the downside, the VIX jumps up big time. When things are nice, and the bulls are happy and placid and stocks are going up, up, up, the VIX declines.

This ETF is a bet that volatility will get nasty, and soon, shooting its price upward and, theoretically, compensating for some of the hit the rest of your portfolio will be taking.

We’ll see if that one works tomorrow. And if it does, we’ll double the position. We still think this market looks pretty toppy. We’d actually like to be wrong, but if we’re not, we can hold our positions reasonably well without having to sell due to holdings of SH and/or VXX. That’s what’s called “hedging.” We hate it, but sometimes you have to do it.



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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17