Thursday stock market cliff dive might be buying opportunity

Federal Reserve uncertainty, Barcelona terror attack – not Trump – plus weak August trading action likely behind markets’ sickening nosedive. We look at two trades.

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Wile E. Coyote apparently grabbed onto the tech-heavy NASDAQ on the wrong day today. (Warner Brothers cartoon still, enhanced by T L Ponick.)

WASHINGTON, August 17, 2017 – Phew! The 4 p.m. ET closing bell has just been rung on Wall Street, finally bringing an end to this incredibly sickening trading day. The August-September time period tends to be predictably weak for stock market investors for a variety of reasons. But the current news headline situation certainly isn’t much help.

As we detailed at length in today’s companion column, while the Charlottesville/anti-Trump meme continues to dominate the news cycle, given the media’s near universal drive to obliterate his presidency, that’s not what took the market down today, as much as the media’s Hate America blow dries will say and think otherwise.


Read also: Fed, not Trump or Charlottesville, casting pall on stocks


While the relentlessly negative news, combined with the Fed’s lack of clarity on interest rates via its July meeting minutes (reported Wednesday), doesn’t exactly help the trading atmosphere, exogenous events continue to draw negative attention.


Almost unsurprisingly, right on the heels of this past weekend’s Charlottesville tragedy, Spain suffered another horrific “let’s kill lots of infidels with a van” attack in Barcelona today. This latest Islamofascist violence killed 12 and injuring 80, according to the latest reports. Spanish law enforcement personnel have reportedly arrested two suspects in the attack. Europe still has not gotten the message, apparently, regarding the relentless importation of these mass murderers.

Back in U.S. markets, Thursday was already a negative day in what is already an increasingly negative month. But when news of the Barcelona attack hit the tape, markets took a super-sized nosedive. The Dow closed off a whopping 274.14, a substantial 1.24 percent loss. The S&P 500 and the NASDAQ were even worse, with the NAZZ sustaining a shocking 123.19 waterfall decline: a nearly 2 percent loss.

Just a bad day overall. And, on a personal note, it devastated our portfolio something awful.

Trading Diary

We’d considered putting on a 100-500 share position in SDS, this morning. That’s the 2x S&P Short ETF, a leveraged creation that is supposed to double any general stock market decline, based on the S&P 500 average. It’s never tracked the inverse of that average with pinpoint accuracy, but it works well enough in times like these to hedge one’s portfolio.

Unfortunately, the market moved too fast for us today. That, added to having to do a few outside chores, thus taking away some market-monitoring time, prevented us from putting a hedge like SDS on at all, since we won’t chase this oddball ETF. So our portfolios had to sustain today’s disaster on their own.

We’re about 30 percent cash right now as a defensive posture. But the action today made us wish we’d raised more cash while we good. Virtually every position we hold hit a black hole today, so much so that, by the end of the trading day, we were afraid to even look at our final tally. When we finally did, the red ink caused a Maalox Moment.

On the other hand, we’ll hold all our positions right now, although we’re worried about RFT, the symbol for one issue of Rait Inc. term preferred stock. The preferred issue’s parent company (symbol: RAS) has been reporting awful numbers lately as it restructures its real estate investment portfolio.

While long-term, that restructuring is an excellent and long overdue project for this uneven REIT, it’s killed the common stock short term as relentlessly negative numbers quarterly numbers roll in. Closing today at only $1.05 per share, the company is on the verge of becoming a genuine penny stock, something we never invest in. (The preferred, however, is trading at around $19+ per share, significantly off from our original purchase price, which averaged around $23 per share.)

The preferred stock’s dividend still looks safe, relatively speaking. But investors have been dumping these shares lately on a massive scale, killing the preferred’s price on the open market.

This puts us in a frame of mind to bail on at least some of our shares. But we’re currently holding on, waiting for at least a dead cat bounce, which might motivate us to lighten our share count a bit. Problem is, investors holding the bulk of these shares right now may have the same idea, making our opportunity rather short-lived.

On the other hand, although it tumbled off the cliff (no pun intended) along with everything else today, we’re looking to get back into Cliffs Natural Resources… umm, now re-named Cleveland-Cliffs (CLF), as we’ll detail shortly.

As our readers may recall, our earlier investment results in this stock were mixed, although we did manage, ultimately, to pull out a profit. But Cliffs’ pullback today may get us to the kind of bargain share price that would motivate us to get back in, given that this iron mining and semi-refining company’s radical restructuring effort is finally bearing fruit, big time.

To celebrate its recent success, the company decided to revert back to its old name, “Cleveland-Cliffs,” reminding me of the old days when I sailed on their Great Lakes merchant marine fleet of iron ore boats to work my way through college. Tyler Crowe provides some color on the company’s name and its prospects in a short article at the Motley Fool:

“It has been a long time since the words ‘growth’ and ‘Cliffs Natural Resources’ (NYSE:CLF) could be used in the same sentence. (Nor will they likely be again: Today, the company announced it has renamed itself Cleveland-Cliffs, effective immediately.) Even if there were opportunities, the company simply didn’t have the ability to pursue them because of its bloated balance sheet.

“Today, though, Cleveland-Cliffs is in a different place, and management wants to chart a course toward new opportunities.”

So far, they’ve been pretty successful. After a nauseating drop in share price this spring, due largely to concerted efforts by some determined short-sellers, the stock price was starting to put a sever squeeze on that position before today’s broad-based crash set things back a bit.

As a result, either tomorrow or some time soon, we’ll take advantage of the market’s volatility to get back into these shares. We’re looking at other potential buys as well. But when stocks get this negative, it’s best to stay away for awhile.

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