WASHINGTON, Aug, 25, 2015 – Battered traders felt like singing that old song, “What a Difference a Day Makes” Tuesday morning. Stocks of all shapes and sizes surged out the starting gate in a massive up-move. Averages briefly came close to getting back much of what was lost in Monday’s market bloodbath.
But now it’s after 2 p.m. EDT, and the averages have been giving a lot of that initial gain back. The DJI is up 216 and change, the broader-based S&P 500 is up 25 and the NASDAQ is up a very respectable 97 and change, a 2.2 percent improvement over yesterday’s dismal close. The reason for today’s bounce, according to the talking heads, is that China cut interest rates. Again. Big whoop. Their markets still went down.
That said, we’re seeing today about what we thought we’d see when we dragged ourselves away from the computer and into the sack last night. Even as markets opened Monday, we were very short-term oversold. Yesterday’s meltdown simply made things even more horribly oversold, making it close to certain we’d get a snapback rally today.
But what kind of rally? Will markets get back on the road to recovery here and regain the bull market they began to forfeit last week? Or is this one of those proverbial “dead cat bounces,” a brief respite before the torrid selling begins another round of portfolio destruction?
Anyone who gives you a firm, definitive answer to either of these questions is a liar. No one knows, including the blow-dried financial media along with most of the investment shills they regularly interview.
The latter are always “talking their book” as they say in the trade. In other words, they’re touting the stocks they own in the hopes that the saps watching them on the tube or catching a video interview online will get excited and buy these “recommendations.” If enough do, they’ll be buying their shares right out of the shill’s portfolio as he dumps them for a profit and liquidates the same position he was touting. It’s how they make money. Don’t help them.
While a few of these talking heads were cautious Monday, plenty of these clowns were dubbing yesterday’s disaster “the buying opportunity of a lifetime,” which it was not. As Tuesday’s action is indicating thus far, the current relief rally is probably some flavor of a dead cat bounce—one that might even run another 2-4 if traders get cocky, but one that will again run out of steam once no good news is forthcoming on the Chinese, oil or Greek fronts, or all three and anything else for that matter. The next few trading days could give us a better clue.
UPDATE: After Tuesday morning’s over 400 point rally began to weaken as we wrote this article earlier today, the market was literally attacked in the last half hour of trading by wave after wave of selling and, perhaps, relentless short-selling as well, the bulk of the selling likely to have been carried on by HFTs. The result: the Dow closed down 204.71 points, more than a one percent loss after yesterday’s hammering. The S&P 500 also closed off over one percent, down 25.58. The NASDAQ held up best, off only .44 percent, taking a 19.76 point hit. Our verdict for today’s aborted rally: Dead cat bounce. For sure.
Today’s Trading Tips
For those new to this column, please keep in mind that this section, when we post it, is something like a trading diary. These are the hits and misses that happen in the Maven’s portfolio. And yes, unlike the blow-dries, the Maven admits his mistakes—which have been legion, alas, in 2015, although his track record is generally good.
As the Maven is no longer a registered rep, however, having retired from the biz a long time ago, these comments and remarks are not buy and sell recommendations and should not be construed as such. So travel at your own risk. But do try to travel safely in a market that’s as treacherous as this one..
We’ve been sneaking out of a few positions, for losses of course. But are mainly remaining in what we hold. Many of our holdings are term preferred stocks that will be redeemed in seven years or less. Others are REITs and refiners that, despite oil’s dismal recent performance, should do okay selling plenty of cheaper and cheaper product at the pump—assuming that they decide to pass on their huge cost savings to consumers at some point.
We’ve kept two banks as well—Keycorp (symbol: KEY) and New York Community Bankshares (NYCB), the latter for its swell, sustained dividend. We did dump, at least for now, our small holding of First Niagara (FNFG). It was slipping in the charts and was the weakest of our bank holdings, and we needed to weed out at least one.
All banks will be slipping once again as the chance of the Fed’s raising interest rates at all this year slipped mightily on Monday as China continued to flounder and the Fed went deeper and deeper into its current Hamlet-like dithering and indecision.
The banks will be back, but not soon. So the ones to hold, we still think, are at least a couple of the stronger regionals and perhaps BB&T (BBT) which recently made its second major acquisition of 2015. These banks, and many more, will try to hit the comeback trail once again the next time the Fed really, really and truly decides to raise those rates. Whenever.
We’re also hanging on to a couple of Schwab bond ETFs, SCHR (the one that holds mostly fairly short term treasuries) and SCHZ (the one that holds a broader-based portfolio, again primarily Treasurys but not the bonds with longer terms).
We also hold some energy stocks—probably too many shares at the moment—highlighted by refiners Tesoro (TSO), Valero (VLO) and Calumet (CLMT), the latter of which is actually a high-yielding master limited partnership (abbreviation: MLP). We’re also looking at Marathon Petroleum (MPC) another refiner we’ve made money on before. But it’s still looking a little woozy today, even though the price seems right.
As for CLMT, it’s been holding on strong and we bought a little bit more yesterday when it—like everything else—dropped down hard early in the day. The position is already profitable again. Fingers crossed.
Profit-wise, we wish we could say the same for TSO and VLO. Even though they’ve recovered somewhat Tuesday, our positions in both still look like the ghost of Al Capone attacked them with a baseball bat. We regard the mauling of both stocks over the last few trading days as the results of pure idiocy and panic. They sell gasoline and diesel fuel, for God’s sake. They don’t drill for oil with all the liabilities that entails.
But when traders, hedge funds and HFTs decide to do a mass dump in a sector like oil, they dump everything all at once without looking at the product label. TSO and VLO will come back some time this fall. We think. (We don’t “hope,” because that’s a bad way to invest.)
If things stay sloppy, we’ll continue to do some selective selling, generally for a loss. As a new entrant into Social Security and Medicare territory, the Maven finds he needs to get more and more conservative and income oriented and avoid some of the nuttier stuff that used to get him jazzed.
But if the market’s tone picks up in a week or two, the Maven might nibble on the buy side a little bit. Once the market gets hit like it has over the past three to five trading days, however, it’s best to stand back and let the smoke clear until you see some volume re-enter on the buy side. That’s a clue that the big boys are testing the waters again. We little guys need to lie back and let them do it first.
On balance, despite the headline issues with China and oil, we are beginning to suspect that this pullback is one way of getting post-QE markets back down to sane levels before the Fed actually does make up its mind on interest rates. The current—and likely terminated—bull market has been on essentially since the spring of 2009. That’s an abnormally long time for a bull. It was due to come to an end. That may very well have happened over the last few trading days.
Meanwhile, back at Jackson Hole, Wy.—where the Fed is holding its annual funfest later this week—we suspect that Fed bigwigs are dreaming about the day when markets can once again rally and prosper without the phony QE money they decided to stop printing last fall. The jury is still out on that one.
Keep your powder dry. And don’t be surprised if we get another wave of selling again fairly soon. We’d be surprised if that didn’t happen.