Position Update
Trader Scott’s Market Blog
We’ll cover my outlook on each market for mid-August and going forward.
I will give my plan for how I’m now approaching the stock market, but first I need to comment on the supposed stock market bubble. Since April 2009, I have been preaching that the March 6, 2009 major lows in stocks was a generational low and stocks were headed massively higher, but with several very large selloffs along the way. And I have also continually completely disagreed with anyone who has claimed that the stock market is a bubble and is about to crash. For almost 8 years, these people have been completely wrong, and yet they’re still at it and they’ll continue being wrong. But just because stocks are absolutely not a bubble, that does not mean that there can’t be a large selloff.
August is often a quiet time in stock markets as many are on vacation, but it’s also a time to be very aware of important turning points. Over the years there have been numerous major stock market topping processes/DISTRIBUTIONS which have occurred in the July thru September time frame. For example in 1987, the high on August 25th led to a 36% decline into the major low in October. And in 1929, the high on September 3rd led to a 48% decline into the major low in November (although it was not THE final bear market low). I currently have no positions in the general stock market, as I covered the remainder of a bearish TRADING position two weeks ago (for a loss). The complacency currently on display regarding global stock markets is very worrisome. Do you remember the level of fear on display immediately after Brexit? It’s amazing how quickly fear can be assuaged courtesy of a stock market rally. But to be successful as traders/investors we must learn how to/when to reverse our normal human emotions. I used the fear in markets after the Brexit vote to cover part of a short position. Currently the complete lack of fear is making me very concerned about where we’re heading next. So my approach is that I expect to see a short term selloff soon, but that push lower will not be sustained. And that move lower will be then be followed by one more rally, possibly to more new highs, but it’s ONLY into that next rally that I expect to take another shot at shorting the stock market – into strength and at RESISTANCE. But for most people, what you should do is to have plenty of dry powder and to patiently wait for the next big selloff before buying stocks as an INVESTMENT. And to explain the contradiction between my belief that EVENTUALLY stocks are headed much, much higher, yet I absolutely would not currently buy stocks as an INVESTMENT. It’s the same approach that I had, for example, regarding gold during the September 2011 to December 2015 bear market. I believed and still believe that gold was/is going multiples higher, but I ONLY make my purchases when I believe that the RISK is the lowest/the PROBABILITY is the highest. So I buy when and only when I’m “confident” that the final lows are about in place. So as to stocks now, I’m very concerned and the RISK is way too high for current purchases.
My long term positions have not changed much. Those are: big position in PMs, and in this phase of the major bull market I’m most focused on the miners relative to the metal itself.
And gold has its’ eyes set on the September 6, 2011 all time highs of $1922. The road map to that point has 2 big RESISTANCE areas, but which will eventually be overcome. Those areas are —
$1530 and $1795. I have some gold charts which I will explain in detail in an upcoming post. So just continue to focus on buying gold into weakness.
I have a big long position in US Dollars. While over the next few months, I do expect a weak Dollar, I will be using weakness to buy more.
I continue to own US Govt. Bonds, which I bought over 15 years ago when yields were way higher than currently seen. But anyone buying Bonds now as an investment is truly insane. And yes this is the market with the bubble – the global Govt. Bond market is the biggest bubble of all time. The bottoming process in yields began in 2011 and is continuing. Much of the buying of the negative yielding debt in foreign countries is being made by the geniuses themselves at the Central Banks. And if anyone reading this post will please let me know If they have an explanation for the following — why in the world would any individual even consider buying – the oxymoronically named and also the guaranteed loser – bonds with a yield less than zero.
Lastly, I have a position in agriculture via the RJA ETF, which I originally bought in early March, and I just added some to the position. I am wildly bullish on agriculture long term, but I’ll only invest in a basket of agricultural commodities.
And for those who have asked me about real estate, I personally have very little capital allocated to RE, which I paid for with cash several years ago. Long term I am not even remotely bullish on owning RE, however I am very bullish on owning a fixed rate mortgage. Quite a conundrum, wouldn’t you say?
'Trader Scott – Position Update – August 17, 2016' have 13 comments
August 17, 2016 @ 2:05 pm Randal Magnuson
Good stuff Scott! Thank you!
In PM(slv), Regarding the last push higher (last few months)would seem to be a change in characteristic (wyckoff) and moving sideways would seem to want to test support, before it springboards higher as it continues into the first few steps of the bull run trend… would you agree? (Just an observation, after spending some time on wyckoff stuff)thanks again! Randal
August 18, 2016 @ 11:05 pm Scott
You’re working hard Randal. Good job. What is the change in character? Please explain. But is it possible that silver is just resting and rebuilding energy for the next push higher? The bottom line is if you believe that it’s in an UPTREND, then you should have limit buy orders in that area of a potential springboard. Springboards, when correctly identified and anticipated ahead of time, are very low RISK buy zones.
August 19, 2016 @ 10:17 am Randal Magnuson
Change in character seems to have occurred when it pushed from 14.80 to over 20, in few months, after months sideways/down action. ..now ithat seems to be consolidating (like your said) but intuitively (not skilled/experienced enough yet show technically) from what I know, I see it testing in a bit of a sell off (like today Down .38) before it springs. More of an intuitive theory, than a charted prediction, that weighs probabilities. Bouncing it off you, while I’m learning. Thanks buddy:)
August 19, 2016 @ 10:22 am Randal Magnuson
But then again, perhaps the spring board was the jump from 14.8 to where it is(quite a run). … now consolidating. ..as you seen to have indicated…
August 17, 2016 @ 5:54 pm robert j howell
Scott, Sir Cont rare of the collapsitarian. My question is, when TPTB create the new money on a computer where is this done and how to follow this tide of money in real time? Can this be done?
August 18, 2016 @ 12:54 pm scott
I’m not sure that I understand “where” is this done. But the Fed and the Primary Dealers (Wall Street Banks) are the basic mechanism. The Fed buys bonds from them and then it’s up to the banks what they do with that “money”.
My whole trading/investing methodology is based upon real time liquidity flows (supply and demand). This is done thru understanding the relationship between price and volume in various markets. I have written numerous times about this (archived).
Google Richard Wyckoff to get started. Several readers of this blog have made great strides in understanding what that’s all about.
August 17, 2016 @ 7:08 pm Scott
Trader Scott;
Where do you park you cash when you step out of the markets to take profits?
Short term Treasury funds? Money Markets?
Thanks,
Scott
August 18, 2016 @ 12:41 pm Scott
Money market. I never put money in note or bond mutual funds.
August 17, 2016 @ 9:12 pm Peter Nickel
Scott:
I appreciate so much your comments here! So many naysayers out there. I have to keep reminding myself they are selling something.(fear)
Quick question about your position statement. You mentioned that you were not in the general stock market at this time. But later, you mention an interest in PM miners. Could you clarify?
Also, if a plunge does occur in the fall, do think that also happen to the mining companies as well? I seem to think that it would have more of a positive effect for them. Or, if the plunge is severe, will it take all with it?
Would a straddle be prudent?
Thanks Again
Peter
August 19, 2016 @ 6:34 pm Scott
The answer to your first paragraph is a word that you used – confidence. And specifically what to be aware of is the confidence in central banking. That will go hand in hand with the final top in price/low in yields. As I’ve pointed out several times over the years, in the US the shorter term rates will bottom first and then with a lag of several years (probably six), the 30 year yield will finally bottom. So far in the US, the short term rates bottomed in Sept., 2011. But I am still own a large position in 30 year US bonds, but I am fully aware of the very long term picture for global interest rates. And please don’t assume that central banks can keep a lid on this forever – they can’t.
I gave my outlook for the $ above and in many previous posts (archived). As far as the yen, I’m still fairly bullish on the yen (stronger yen).
And as far as the websites that have constantly promoted the manipulation obsession for PMs over the years, I find them disgusting. They have cost investors a tremendous amount of money for so many years. Are PMs manipulated – of course they are. So is every market on this planet. Always have and always will. But what in the world does it accomplish to focus on that? Focus instead on how markets truly operate and how to pull consistent profits from them. You’re obviously a bright guy Rob. Please have the confidence in yourself that you can do this market thing by doing it the right way. And I did a blog post all about manipulation.
Here’s the link – https://oneradionetwork.com/archive/manipulators-can-actually-make-richer/.
August 20, 2016 @ 3:06 pm Rob
Hi Scott, thank you for your response!
Sorry to push you on this, but is there nothing other than confidence that can crack this one? Japan’s rates bottomed and they have been can kicking for 20+ years now! Yet I think everyone has known for a long time that they are not going to claw their way out the hole their economy was left in by their own property bubble. In some ways, Japan seems more like a prototype to me, we are now doing the same on a much bigger scale – and I am sure all the Yellens in the world will do anything they can to take us all down the same path, rather than risk possibly the biggest crash in history. I am aware of a possible fallacy of composition here however, in that Japan doing this in isolation is not the same as the rest of the world doing it, but I am still trying to figure out the specifics of why it could be different?? I guess one possibility is that it increases total systemic instability and confidence, and therefore more susceptible to major financial shocks e.g. coming from China (love the work of Steve Keen on private debt levels here), Deutsch bank etc. But I am not sure of this, as Andy says they can and I am sure will always try to paper over any problems, and their vice like grip on the media gives them enormous power to control perception. I guess I am searching for some fundamental mechanism that will give me an answer as to why it has to end :).
Re PM manipulation – I do get tired of the folks who are constantly calling this out and predicting global doom. It does get old, and I have caught some of them being actively dishonest. I cannot speak to them losing folks lots of money, but I can understand this as a good reason to find them distasteful! And I am trying to use the system to my own advantage, dont get me wrong. But I do still sympathise with those who are getting angry at the situation – watching as $billions of paper contracts are suddendly and inexplicably dumped into the market in order to cap a growing rally, it is totally egregious and deserves to be publicly outed. However, given yes it happens deal with it, the question becomes whether can you still use market fundamentals in such a situation??
Thanks for the vote of confidence though :). I am trying to learn but my God… there is SOO much to learn….
Finally – you mentioned you respected Gundlach, well I am just at the end of my 1 week trial of Real Vision TV – a seriously excellent service. Their last interview yesterday was 50 minutes with Gundlach, if you like I can upload the audio and share with you? Just give me your e-mail if you want me to send you a link!
August 22, 2016 @ 6:50 pm scott
You’re raising several great questions/comments. Send me an e-mail and continue: [email protected].
August 19, 2016 @ 6:45 pm scott
Peter to clarify – I have a big long position in miners as I mentioned in previous posts several months ago, but not in the big indexes like S&P.
Yes this Fall could be quite dicey for all markets. If the miners have one more big run higher into late September, I may have to scale back. But let’s be patient and see what sets up. And the main point should be to only buy the miners into weakness, that’s the major focus.
And by straddle, if you mean options, I don’t see how that would help. If you want to email me and explain – [email protected].