WASHINGTON, Jan. 11, 2016 – Between Sunday night and Monday morning, stock futures were up, then down, then up again just before today’s opening trade. And indeed, just like on Friday, markets were feeling a bit jaunty, with averages trying to stay in the green zone. But again, just like Friday, the U.S. market’s usual 10:30-11:30 a.m. rally, which inexplicably occurs around the time European markets close, was curtailed early.
As of 2 p.m. Monday, the Dow is off 94 (-0.55 percent), the S&P 500 is down 17+ (-0.89 percent) and the Nasdaq is down a vicious 60.41 percent, losing another 1.3 percent at the moment on top of last week’s stunning losses. Apple (symbol: AAPL), perversely, is actually up a bit today, but not enough, apparently, to help out tech averages or the Dow.
CNBC had a pretty good instant recap this morning concerning Friday’s Funhouse of Horror:
On Friday, stocks closed out their worst start to the year ever. The S&P 500’s sharp 6 percent decline in the past week was the steepest weekly loss since summer 2011 and wiped out more than $1 trillion in market cap. The S&P closed at 1,922, and is now nearly 10 percent below its May all-time high. The Dow, also in a more than 10 percent correction, lost more than 1,000 points for the week to 16,346, while the Nasdaq dropped 7.2 percent to 4,643.
Once again today, U.S. and European markets remain bedeviled by the corrosively negative action in the Chinese markets, which tanked again Monday. Crude oil isn’t helping either. After a feeble rally attempt this morning, West Texas Intermediate (WTI) was walloped yet again. As of 1 p.m. EST, it’s off a nasty 6 percent, plus or minus, and currently trading at $31.96, off $1.90 bbl. Brent crude is even worse, currently sitting at $31.43, off rather more than 6 percent itself and nearly at parity with WTI.
Other energy commodities are off substantially as well. HFTs and hedge funds are probably behind this trade as well, apparently figuring that oil companies will soon be paying us to take gasoline and fuel oil products off their hands. This trade is getting seriously overdone, spilling over hard into related stock sectors as well. Oil refining giant Valero (symbol: VLO) for example, is already trading at $67 and change per share, down a good 5+ points from its high last week. We like this stock, but got out when the getting is good.
Sometimes it’s best to just get out of the way when the big boys are going wild. As a result, we’re completely out of the oil sector right now, even though we still love four refiners right now: VLO, Tesoro (TSO), Marathon Petroleum (MPC) and Calumet (CLMT), which is actually structured as a master limited partnership (MLP), pays a huge dividend and produces a variety of oil by-products such as additives and a good bit of asphalt as well.
But no matter. All four continue to get nuked today, which is ridiculous, since what they’re mostly selling – gasoline – has become as cheap at the pump as we’ve seen in a very long time. That means they’ll be selling a lot more of it.
But no matter. Any stock that carries even a whiff of crude about it is being taken out back and shot. Prediction: big short squeeze coming here, and fairly soon. Too bad we won’t be in when it kicks off. Too dangerous right now. Too much panic going on.
That said, the more this market gets pancaked, the more vicious the rally/dead cat bounce will be when it happens, and it should happen this week. We’re already oversold, and if today closes negative again, we’ll be even more oversold.
But right now, as we noted last week, this market is in Yogi Berra territory with regard to the relentless selling. As in, “It ain’t over ‘til it’s over.” And as of right now, it ain’t over.
Keep your powder (and your cash) dry. We thinned out our weaker positions last week, mostly for losses, alas. But you have to get out of the way when this kind of action is happening, unless you’re Warren Buffett and can keep getting government contracts and protecting your railroads from the Keystone Pipelines of the world since you have friends in Washington.
We little guys don’t have that kind of pull, so it’s time to step back. However, a few relatively safe near term opportunities might just be available.
Today’s trading tips
What near term opportunities, you say? Carefully selected ETFs and CEFs, (closed-end funds), that’s what. We’re primarily looking at bonds right now, which, perversely, are getting a nice bid here as everyone is looking for somewhere to hide.
For example, we’re starting to sneak into Schwab’s aggregate bond ETF (SCHZ), a portfolio of intermediate term mostly-Treasury issues. SCHZ looks reasonably stable here and currently yields north of 2 percent. Yeah, it’s nothing to write home about. But how’ve your “growth stocks” been doing in 2016, eh?
Pimco’s Municipal Income Fund (PMF) has been a stable CEF, at least since December and currently yields a lovely 6.1 percent even though its shares trade at a substantial premium.
iShares National AMT-Free Muni Bond ETF (MUB) is also doing fine, yielding a more conservative 2.5 percent, though its per-share price is high. In general, decent quality muni bonds and muni bond funds have been performing exceptionally well in this likely bear market.
Finally, for now at least, Powershares’ Variable Rate Preferred Stock Portfolio ETF (VRP), yielding a tad over 5 percent, is holding its own here as well. The shares represent holding of preferred stocks that will follow interest rates, wherever. Today, that’s down a bit. But if the Fed sticks to its plan, however slowly it unfolds, yields could start going up slowly and steadily as time goes by.
All along, we’ve also been happy with the stability of Powershares’ Preferred Portfolio ETF (PGX), which currently yields 5.86 percent. We’ve carried a position here for a couple of years now and tend to pick up a few shares when PGX is having a rare bad week. But in general, its price has remained astoundingly stable throughout the chaos that’s ravaged markets since the holiday season began and departed. And hooray, it pays dividends monthly. What a concept.
None of these vehicles will give you bragging rights. But they don’t move a lot, at least not lately. Their bias has been slightly up overall, a ray of sunshine in this ongoing market disaster. So we might as well try to make at least a little money instead of losing our derrières by waging a useless War Against the Machines.
But travel at your own risk, remembering that up or down, the risk is as high right now as it was in 2009.