A Good Week To Be Gone

 

To answer the three of you who asked, THE GREEN FLAG IS STILL FLYING.  Yes we are in a continued up trend.  It is has been a green flag since July 26th.  It is amazing to think that the market has gone up 9.6% since July 26th while the world is racing to devalue every currency that matters.

 

(remember all of those buffalo headed off the cliff?)

 

Bernanke's Bubble continues to grow now at a rate of 40 Billion a month in perpetuity.  Draghi has committed to buying "unlimited" amounts of sovereign European debt until necessary.  Even Japan got into the act last week by committing about 125 billion in government bond purchase AND the elimination of its minimum yield on its own bonds.  (Meaning you could end up with a negative yield for Japanese bonds.)

 

All the while, I am taking the biggest bath of my investment life on my portfolio hedge on VXX, the VIX derivative.  We added to those positions on Friday.  The long VXX position will eventually come back to stasis.  The few accounts with the Jan Call options have to hope I know what I am doing or they will expire worthless. 

 

There is a winner right now besides all the long positions we have on the table.  Yes, if you back out the unrealized loss from the VXX positions, our portfolios look good, not as good as the overall market, but good.  The winner I refer to is Gold.  The inevitable bubble will result in gold as a safe harbor and we are seeing gold thinking about hitting 1800.  Bank of Americas threw out a gold future prices of 3550 an ounce.  (Personally I don't believe it any time soon)

 

We suggested easing into gold via GLD and physical possession, back in June and get aggressive when Bernanke committed to QE III.  That would be about 3 weeks ago.  Had you played along you'd be up about 13.9% with 7% of that in the last three weeks.

 

So what can I suggest this week?

 

Let's look at the crystal ball.  I was amused to see the cover of Barron's this week.  The covers is titled FACEBOOK is worth $15.  If that sounds familiar, when we were asked repeatedly about the IPO, we wrote a post here and we said on May 17:

 

"So let's say we a right for a change (Note to self, adjust disclaimer on the blog to say "I have made more money that a I have lost between 1986 and 2011." More later.) and FB (That is going to be their ticker) goes to 100 a share (Obviously that did not happen). In September or October whenever they report earnings, a whole bunch of shares will now be tradable. And a lot of those 1.8 billion shares are being held by early investors who KNOW their capital gains taxes are going up on January 2, 2013.  (That is happening now)

 

During their first earnings call (Did you notice that Zukerberg was not present at the Analyst IPO meeting. The most anticipated IPO since Moses tried to go public with a Ferry Service across the Nile, and the Chairman was not present? The Board asked him to go shopping for a new Hoodie instead of attending the meeting. That has got to worry some folk?) The FB team will have to explain:

 

*How they are going to monetize their hundreds of millions of users.

 

*How they are going to get advertising to work on the various smart phone platforms.

 

*Why is revenue slowing from 1.13 B to 1.06B Q1 2012 and maybe lower for Q 2 2012.

 

*How they will increase their less than 10% of the on line advertising sales market.

 

*What is FB going to do to ward off legislation about privacy globally that makes their user targeted niche marketing programs so valuable.

 

In a nutshell, a lot of things have to go right in order for Facebook to be worth 35 a share none the less the double that a lot of people are talking about. In 5 years this could be a 35-50 dollar stock. We don't see it now.  (WOW WE ARE GOOD)

 

Here is how we will play this out. We will sit on the sidelines for the first few days and look for bump in price. Probably next Friday we will go out and buy "in the money" PUTs with October-December dates  (Because of the games the major underwriters of the stock pulled in the first three days of trading we did not get sucked into the PUT trade) and simultaneously buy similar dated "out of the money" call options on AAPL and GOOG.  (WE did do that as well as selling some puts and pocketing the premiums.) Here is the rational. We will look for a significant drop in FB after the first quarter earnings report because they probably will not be able to answer many of the questions above and because the lock up period will be over and they will all wake up to an ugly person laying in bed next to them and say, "Whoa, I gotta get out of here with a profit because my Taxes are going up next year." They will take their gains and assumably want to stay in the tech sector. Hello AAPL, GOOG, PCLN, etc. But what do I know."

 

Now to the week ahead.

 

The tone of most of the articles in Barron's Saturday was bullish, but data suggests there is a lot of insider selling going on.  QE III had a less than exuberant response in the market place suggesting the Bernanke Bubble might be getting stretch marks. 

 

We have a couple of manufacturing and employment reports coming out of Europe this week, but it seems to be nothing to write home to America about. 

 

Monday

 

We have the Dallas fed report due out and with Texas being one of the shiny bejewels on the tired economic cape of the US, it could be a nice surprise but not a major market mover.

 

Look for a flat day with moderate volume.  Look for AAPL to be up again as numbers of iPhone 5s will impress.  (We bought two) 

 

Tuesday

 

Look for the Case Shiller 20 city home price survey to be up a point year on year to 1.5% beating expectations and giving Mr. Market a bit of lift. The Richmond fed report will be ugly, but less ugly that last month.  Keep an eye on the State Street Investor Confidence report.  It is hardly ever a market mover, but is a nice tell as to what folks are doing with their portfolios.

 

The market sill be up a half a point in light trading.

 

Wednesday

 

New home sales numbers should continue to improve.  The consensus number is 380,000 units.  We see a number of 390 and a nice little tick up from the market.  The petroleum reserve report comes out but the credibility of the report is under suspicion so no one really watches it any more. 

 

Look for another .5% up in moderate trading.

 

Thursday

 

We have Durable Goods, GDP, and Jobless Claims.  If there was a day to watch your stops real close this week.  Today would be the day.  If all the moons align poorly, it could be one of several distribution days in the market leading to a long overdue correction. 

 

As far as each report, the new orders segment of the Durable goods are expected to be soft.  We think the expectation will be underestimated and it will be shocker.  GDP will remain at a 1.6% clip frustrating everyone on Pennsylvania Blvd. but Bush and Republicans will get blamed I am sure. 

 

Jobless claims will drop, but truth be told, U-6, the real unemployment is climbing less people are filing and looking for work.

 

Pending home sales will be weak, but overlooked because of the other three reports.  No one will pay any attention to the Kansas City Fed report.

 

Look for a 2% drop in the market.  Yes that would be about a 250 point swing on the DOW and 29 points on the S&P. 

 

Friday

 

We have personal income and spending numbers.  Income will flatten out or drop slightly and spending will contract sending more people to the FAs saying, should we sell our stocks.

 

On the week look for the market to be down about three percent.  Gold will hit 1800 this week as everyone has figured out we hit a Golden Cross last week which is a technical tell for many traders that it is a good time to be buying.  It is when a short term simple moving average (SMA) moves past its long term SMA.  Go to a six month daily chart for GLD, set up 20, 50, and 200 day SMAs, and you will see the 50 day SMA cross the 200 day SMA.  That is a golden cross.