Wall Street dilemma: Keep 2013’s rally going or dumpster dive?


WASHINGTON, January 27, 2014 – After the stock market’s sickening collective thud this Friday past, Wall Street is bracing for the worst this week. The roller coaster ride the market’s been on for the entire month of January is likely to continue indefinitely.

An uneven earnings season, Chinese economic uncertainties, suddenly unstable emerging market currencies, the departure of Ben Bernanke as Fed chief, and the soon-to-be-felt rippling effects of the rapidly failing Obamacare mess—all these and additional issues are resulting in continuing bearish pressure on stocks this month, perhaps putting a heavy lid on 2013’s extended bout of irrational market exuberance.

In addition, there’s President Obama’s State of the Union address, scheduled for Tuesday evening. Sources likely to have already glimpsed the text of this latest piece of Presidential performance art claim that the address will highlight the usual giveaways of tax dollars the U.S. does not have, the annual hollow White House promise of help for the petit bourgeoisie middle class it’s not so secretly dedicated to destroying, the usual Permanent Democrat Majority bill (aka mass amnesty for illegal aliens), and various statements geared toward bypassing Congress entirely via the abuse of executive fiat.

Most media reporters claim that few will tune into the President’s increasingly hollow and irrelevant speechifying. But they’ll continue to flog his ruinous policies, which now also seem to include using the IRS and Department of Justice to silence and then financially ruin any voice that chooses to resist the Dictatorship of the Proletariat. We’ll be playing it safe tonight by watching the latest non-scientific re-run on TSC, once known as The Science Channel.

Speaking of science, market science is inexact. As we put the finishing touches on this report at 11:30 a.m. EST, the stock market, at least in the U.S., is going schizzy on us.

The Dow is currently in bounce back mode after Friday’s epic drubbing, up 27 points at the moment, more or less. Meanwhile, the broader S&P 500 is still hiding out in one of the handy dumpsters depicted above, down roughly 4 at the moment. The tech-heavy NASDAQ has joined S&P in this morning’s dumpster diving game, off a whopping 22. Even lofty Google (GOOG) can’t seem to save us, down 21 and change at the moment.

Aside from all the political announcements, earnings season is in full early bloom this morning, although corporate P&L numbers lately would seem to indicate that most blossoms and green shoots have already been frostbitten and nipped in the bud by our latest encounter with the below-zero flavor of global warming.

Reporting today is Apple (AAPL). Later this week, it will be followed by Boeing (BA) and Facebook (FB) on Wednesday and Exxon Mobil (XOM) and our friends at Google (GOOG) on Thursday.

Plenty more earnings from other big companies are also on tap, as is plenty of economic news, including the Fed’s final Bernanke-led report on Wednesday which should provide some crucial insight as to whether the Fed intends to stay the course on tapering right now, or take another vacation and wait another month or two.

The question Wednesday revolves around whether Congress is gearing up once again for another debt ceiling battle in February. Whether that happens or not, the President is likely to use the State of the Union to attack Republican opposition in advance, proving that once again for this White House, the utter destruction of one political party is far more important than the petty concerns of the unemployed.

At any rate, the Fed chickened out on tapering last September when the budget battle was heating up then. Who knows what they’ll do right now. Whatever they do, this is another big reason behind the market’s skittish performance of late—no transparency on anything that might affect stocks. But why should Washington care? It’s only your 401(k) that’s at risk.

Today’s trades

We’re cautious and have been selling a lot of stuff, both profitable and un- in order to reduce our exposure to the latest nonsense. We’re still holding investments with decent yields but began to hedge on Friday and again today by putting on some short ETFs, including our old standbys, the regular short and double short S&P 500 ETFs—SH and SDS respectively—along with a few recent discoveries via one of our investment services: SKF (double-short financials), the volatile 3x short emerging markets ETF (EDZ), and one that’s entirely new on us, HDGE, which is a studied pure bear ETF.

All of these are meant as protection for what’s left of our current portfolios, most of which have gone primarily to cash buttressed by a few remaining bonds. But another day or two like Friday could make them highly profitable positions for us.

On the other hand, given the violence of the recent downturn, we could hit the short-term oversold point, which could lead to a big rally, killing our short positions. In other words, it’s risk city out there right now. If you’re moderately uncomfortable with the risk, you might try putting on at least SH above since it’s slow moving and easy to get out of if you’re wrong.

Leveraged ETFs, which roughly move at two or three times the velocity of their underlying indexes when they actually work, need to be watched by either you or your stock broker each and every entire trading day. If you’re not in that kind of position, you’re best advised not to try them.

Bottom line: We expect 2014’s markets to be a lot harder to negotiate than 2013’s. The uncertainties are piling up, and the nature and depth of Obamacare’s almost certain failure is as yet unknown. So having more available cash in your account this year would seem to be a wide choice indeed.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently owns shares of HDGE, SH, SDS, EDZ and SKF.

Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk. Caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.


The dumpsters in the Arctic village of Anaktuvuk Pass are painted with slogans that reflect community values

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