Trading Diary: Healthcare, tech crushed in Thursday trading

But traders in black gold—extractors, refiners, and exploration and pipeline companies—soar post-OPEC agreement to cut production.

This 1901 political cartoon depicts a great bull (in this case, J.P. Morgan) who's blowing market bubbles and partying hearty with fellow investors. Party time on Wall Street today? (Photo via Wikipedia, now in public domain.)

WASHINGTON, December 1, 2016 – The Prudent Man is re-acclimating himself to the post-Election 2016 action after a stretched out Thanksgiving holiday, but not much seems to have changed. Market tone is still positive. Stocks still want to go up and resume the Trump-Santa Claus Rally.

But markets were also extremely overbought last week and needed to cool of, which is exactly what they’re doing Thursday as large, generally multi-national companies represented on the Dow are nicely up today, while mid- and small-caps, notably tech and healthcare stocks, are getting pummeled, particularly in the chip and pharmaceutical sectors.

As always, a snapshot of Wednesday’s closing McClellan Oscillator gives us a clue as to what’s going on.

McClellan Oscillator as of 11/30/2016. Market trying to work off overbought situation. (Image courtesy, a subscription service)
McClellan Oscillator as of 11/30/2016. Market trying to work off overbought situation. (Image courtesy, a subscription service)

Markets appear to be working off the obvious oversold situation here, but still have a little way to go before they drop below the zero line. Below that line at some point, the rally is likely to resume.

Trading Diary

Given the uneven action, we’re going to have to pick entry points carefully to pick off more of this rally. Our own performance continues to be damaged short-term by our large (for us) position in Allergan convertible preferred shares (symbol: AGN/PRA, yours may vary). Along with the Allergan common (AGN) and other pharmas, AGN/PRA rallied sharply earlier this week. But it’s getting back to bearish business today just like the underlying common, with AGN/PRA currently off a nasty $12 or so a share at 3 p.m. today.

On the other hand, a huge dividend payment will go into our accounts today, which is partly why we’re sitting this current nastiness out for the long term.

Read also: Thursday trade: Rally pauses, #DumpKelloggs petition hits fan

We actually think that this market—which for so long has functioned at the largely illegal whim of high-frequency traders (HFTs)—may be making the transition back to what it used to be: a market of actual stocks, each of which must be evaluated on a number of key criteria instead of guessing which headlines HFTs may next embrace to drive stocks quickly up or down regardless of corporate profits or losses.

Monday, we picked a new stock from a broker recommendation, picking up some shares of a somewhat obscure insurer known as American Equity Investment Life (AEL). The following day, of course, it tanked, something that often happens after you think you’ve acquired a stock at what you thought was a good price. Happily, however, AEL promptly reversed course Wednesday and is up another 5+ percent today, giving us a nice short-term gain, though we plan to hold this one for a while.

Also behaving nicely is Bank of America (BAC). We’ve been in and out of this one countless times, barely breaking even over the years as we tried to time when the company would exit from its seemingly endless woes and actually become genuinely profitable once again. But that generally didn’t happen, courtesy of its disastrous acquisition of the criminal enterprise otherwise known as Countrywide.

But now, with an interest rate increase allegedly upon us, we have a modest position in BAC, having acquired it when it commenced its definitive breakout move in November. We normally don’t chase moves like this one (which is why we’re not chasing oil today) but it was easy to see that BAC finally had legs in this year-end rally, so in we went with a buy order. We’re already up nearly 14% in just about 2 weeks’ time, but we’re holding for now.

We picked up more shares of Independence Realty (IRT), a multi-family unit REIT that dropped off precipitously when it issued new shares. For some reason as yet unknown to us, either some entity or some person did a mass dump of IRT at this morning’s opening bell. The stock is still down, but we used this opportunity to acquire more shares.

Finally, our only genuine position in Big Oil—the giant French integrated oil company Total SA (TOT)—is nicely up Thursday. We wish we’d picked up some shares in one or two others, as nearly all oils, including TOT, are up sharply today. But we’re not going to chase them here. Oil is extraordinarily volatile and is on a tear today. When today’s soaring crude prices settle back down a bit, we’ll attempt to get some reasonably priced shares in Devon (DVN), Conoco-Phillips (COP) and maybe a couple others. Right now, though, we’re standing pat and we’re not going to chase today’s very sharp rally in this sector.

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