Slaughter on 11 Wall: Friday’s markets on road to oblivion
WASHINGTON, Aug. 21, 2015 – Pretty much the entire market was taken out back and shot Thursday, as both stocks and averages essentially endured their worst day ever in 2015. And that’s saying a lot. Amateurs, professionals, hedge funds and mutual funds alike have been hammered this year by the market’s whipsaw movements back and forth.
To paraphrase a biblical verse, Thursday’s markets beat investors with whips. So far today as of 11 a.m. EDT, Friday’s markets are beating them with scorpions. After opening some 200 points down the Dow Jones Industrials tried to stage a comeback, but the fading bulls seemed to be wasting their ammunition. As of just a few moments ago, the Dow had dropped over 300 points, with the S&P 500 off a convincing -34.46 and the tech-heavy, small cap-heavy NASDAQ was tanking a colossal -95.73 points.
Longtime Broadway fans may recall the famous Richard Rodgers/George Balanchine ballet “Slaughter on Tenth Avenue,” that helped bring the Rodgers and Hart musical “On Your Toes” to an almost tragic conclusion. It looks like that famous number is being replaced by a new one in Downtown Manhattan today: “Slaughter on 11 Wall.”
Whether you’re dumping your shares on the New York stock exchange or anywhere else today where The Machines are routing your sell tickets—(there are no buy tickets, apparently)—you and your portfolio are getting riddled with negative, value-draining bullets. Worse, unlike the plot twist that gives “On Your Toes” a happy ending after that famous ballet, the corpses of once-vigorous portfolios will likely remain strewn on the ground long after Friday’s close.
What’s going on here? In reality, we’re dealing with a good, old-fashioned selling panic at the moment, no doubt aided and abetted by the Criminal Minds™ currently running and front-running those nefarious, always-profitable high-frequency trading (HFT) outfits.
It also doesn’t help that today, Friday, is August options expiration time, leading Wall Street’s other criminal gangs of computer-driven thieves to hunt down and hit in-the-money options, an activity that tends to exaggerate whichever direction the market is already trending. Most options expiration dates end on a positive note. Since stocks have been pummeled this week, today’s action seems to be accentuating what’s already happened.
We are also, at least for now, in the process of going from bad to worse, in that this catastrophic selling tsunami, exacerbated by HFT front-running and options expiration is hitting panic velocity because margin calls are likely going out in a market that has been heretofore badly overextended by bulls who’ve bought stocks with borrowed money, which is now being called in as these leveraged positions sink beneath the waves.
This forced selling, in turn, encourages hedge funds and investors to raise cash as quickly as they can by dumping their most expensive positions—like Apple (symbol: AAPL), which is down $4.44 at the moment, currently sitting at $108.23 per share. It had been as high as $132 and change barely a month ago in July. That puts in roughly 18 percent below that recent high, nearly qualifying it as a full-blown correction, a dubious honor that generally occurs at -20 percent or lower. Other pricey stocks are in similar downdrafts.
What’s got markets bugged, if you listen to the often-wrong financial cognoscenti, is that stocks, having enjoyed a protracted if bumpy bull run since 2009, have run out of juice and Federal Reserve QE largess. Investors are now seeing what we’ve seen and preached for years, namely that it’s taxpayer-financed corporate stock buybacks that have been propping fake corporate profits and low PE ratios for years, not ramped up manufacturing, sales and product innovation.
Like Washington’s criminal political establishment, corporate American also has no real clothes, no clue and no plan for restoring jobs or prosperity, save for those who labor in fancy, wood-paneled corporate board rooms. People are figuring this out. So whenever Joe Sixpack manages to eke out a bit of family budget surplus, he pays off another credit card or car loan instead of loading up on stuff he doesn’t actually need at the local Walmart.
In turn, the consumer’s retrenchment is not goosing sales at all, lowering the need for companies to invest in plants and equipment and/or purchase raw materials to manufacture goods that ultimately won’t sell. Which, in turn, means companies are not purchasing raw materials. Which, in turn, means deflation. Which, in turn, means the Fed, which earnestly desires to return interest rates to “normalcy,” can’t do so cleanly, fearing a 1937-style re-recession could be the consequence of such a move.
Of course, oil also continues to sink, although we are still reading endless excuses as to why the price of the pump isn’t the lowest we’ve seen in recent memory, which it is most certainly not.
People are losing confidence, raising cash, and not spending nearly as much as Washington’s and New York’s crony capitalist cadre would like them to spend. Maybe we’re seeing the little guy’s reaction to corporate and government thievery at last. It’s about time. But that’s not helping stocks.
Today’s trading tips
If your eyes are now glazing over, wondering when the Maven will halt this chain-event litany, be reassured. He’s done now. And frankly, he’s just as confused and baffled as you. And hourly, since he’s still partly in the market, the Maven is currently getting poorer and poorer as the current chapter of our fiscal melodrama works its way through the markets.
We’ll either get some kind of dead-cat bounce this afternoon or perhaps Monday. Or else we won’t. But technical damage has definitively damaged market averages and stock trendlines, and none of this is likely to be repaired anytime soon.
We are mostly sitting still today, foolishly (perhaps) averaging down in positions we took in refinery stocks like Tesoro (TSO) and Valero (VLO). This is a risky move for some oil-industry specific reasons, like fall refinery closures for maintenance.
But refiners, remember, sell the end product, and if they buy the raw material (oil) cheaper and cheaper, at some point they’ll sell more of what they’re refining. They don’t have nearly the pricing risk the oil companies do on the downside, something traders are currently forgetting.
That said, stock market panics are stock market panics, and we could be seeing more near-term downside even in the oil sector as long as market bears reign supreme as they’ve done throughout most of this long and dreary summer.
Elsewhere, we’re also holding on to our preferred stocks and REITs, most of which have done tolerably well in the current downdraft. But we confess that grueling, meat grinder action such as what’s been occurring this week starts crushing even stalwart spirits and making fingers itchy to hit the “sell” button and just get the (heck) out.
The generally rule when entering a bear market or bear phase, is that you should try to stay invested (to the extent you don’t need a quart of Maalox a day), although you likely will lose at least a small amount of money for bravely maintaining your positions. The philosophy is that if you make a lot of money in a bull market (when it’s relatively easy) and lose only a little in a bear market (when making money is generally hard), you’ll come out considerably ahead.
But while this is usually the best advice for the patient investor, the caveat is that every so often—like 2007-2009—you’ll lose a fortune by staying too fully invested, so it’s best to be careful at this juncture in our clearly tiring bull market. The world’s institutions and governments have become nearly 100 percent corrupt at this point, and expecting rational behavior from them is an utter waste of time. So don’t bet the ranch.
Take care of your own stuff, don’t get cocky, don’t get (too) terrified here, and watch what happens this afternoon and Monday before dumping everything at a catastrophic loss. Which, of course, the HFTs are eagerly waiting for you to do.
Stay tuned. The Maven plans to spend part of the afternoon at Gold’s Gym working out his frustrations. We’ll try again on Monday.