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It is just after 10 O’clock Sunday night and there is a
clear pattern in the markets. Lets look at our three indicators.
The S&P 500 is off 16 points less than 1%
The price of oil is up about $1.20 or a little less that
Gold is up $22.00 just over 1.8%
The yield on the 10-year T Bonds is off about 4 basis points
or around 1%
At least for now the US markets don’t seem to be to
concerned about what is happening in the Ukraine and Russia. Our President
suggested over the weekend that any invasion by Russia into the Ukraine could
be a cause for economic sanctions by the west. The real question is will
Vladimir Putin withdraw his troops? I think that he is testing the west to see
if they are like the west before World War II in the period of appeasement with
Does the west have the courage to stand up to Mother Russia
or will they, in order to avoid a major conflict, let Putin have the Ukraine?
If they do then Putin will be embolden to tray and take other land. How will
President Obama react to Putin’s aggression? Will he want to lead from behind
and let other leaders try and solve the problem?
What is the message that Secretary of State Kerry is
carrying to the leadership in the Ukraine?
All of these questions are important, for now, things are a
little messy but potentially manageable. However, if things escalate and no
progress is made I would expect the markets to start getting worried.
What should we look for:
I think two things to watch are the price of gold and the
yield on the 10-year T Bond. If thinks start to get more difficult money will
want to move to a safe have and that is primarily US Governments and in
particular the 10-year, current yield 2.61%. Gold stands at $1,343 an ounce.
Gold could run to $1,400 and the yield on the 10-year could break below 2.50.
In a bad outcome the yield on the 10-year could test 2%.
The longer we go without a resolution the more challenged the
markets will be. One last thought see if the Russians are still in the Ukraine
at the time the G-8 ministers are supposed to meet in Russia. Look for a call
to not attend the G8 meeting.
We have cash and the SDS to give us some downside protection
if the stock markets fall apart. Watch for blog and e-mail updates.
I thought it might help to review the last week and my predictions.
Jan 24, 2014 318 point decline
haven't seen one of these days for a long time. The question I think some of
you might be asking is, "Are we in a dip or is this the start of a
significant correction?" I would say that is a great question perhaps I
can take a stab at answering it for you. The largest single correction in the
markets since it began its run has been just over 7%. So if we take the high in
the S&P 500 at 1,850 then a 7% correction is about 130 points would take us
to 1,720. We closed the market today at 1,790 and that put us just under half
way to 7%.
a significant sell off today I would expect a lot of investors to be thinking
about selling on the opening over the weekend to protect profits, so
I expect some selling pressure on the opening that could take us to 1775.
Next I would expect to see a bounce back close to the 1790 level and some
consolidation before we make a run at a new high or further decline.
Street may be telling a different story in the sell so far this year. Wall
Street has been a big supporter of the President and as long as the Fed was
pumping money into the system Wall Street could make money, a lot of money. The free money may be coming to an end. Now
with the Fed starting to reduce the stimulus the easy money may be gone
regardless of how the economy is doing.
Big companies are face the challenge of
Obamacare and are cutting back on earnings estimates. The market can't continue
to go up if earnings aren't there to support prices. Perhaps this market
decline is a warning to the President that his state of the union address this
week has to take a different tone. Be sure if the President doesn't deliver the
markets will be down the next day.
this link to a WSJ story that might be of interest to you. Click on the link
below and enjoy,
A client sent me this question. What are your latest thoughts on buy
time with the market? 1/29/14
Frank, in my quick note last Friday suggested that the
biggest correction in this run was 7%. If we were to correct to the mean then
7% would be 1720 on the S&P. However I did caution that depending how the
presidents speech was received that we could see the
markets fall on Wednesday. Based on the 190 point decline today the
markets didn't like the state of the union message. I do believe that we might see a rally back to 1790 but I would then
expect to see it fail and a test of 1720 level. If the 1720 level is breached
then we could quickly fall to 1665 which would be a 10% correction.
look at the above I pretty much nailed it. What is very exciting for me, and will be for you when you receive your statement, is that
I looked at every account after the close and for the most part most of the
accounts minus any withdrawals were flat to up for the month. The Dow Jones was
off over 5% while the broader S&P 500 as off just under 4%. So if you were
flat for the month on a $500,000 account then you didn’t loose $25,000.
we will try the 1790 level on the S&P but I think the market will struggle
to break out above 1790. Significant support for the S&P is 1775 which I
think we will break perhaps next week. A normal correction would take us to
1720. If the level doesn’t hold then a full 10% correction would take us to
1660, which I think is possible.
earnings out on Tuesday the fourth and we should get some information on the
sales of the Hep C drug. We added to some accounts additional shares of NLY and
got a nice pop up in a down market.
the markets to be volatile until we get through the debt ceiling issue. I’m
watching and looking for opportunities.
getting a new camera so I hope to be up to speed soon.