We have been delayed writing the blog as we indicated due to travel and limited access to the blog sites in China.
Well we expected volatility coming into last week after the big news of the Alibaba IPO, IPhone 6 release and the Fed meeting and we got volatility. So Fed is on track to end their bond buying in October and this was widely broadcasted by the Fed. The news of interest rates rising next year is also now being broadcasted by the Fed – we expect this to start sometime by end of Q1 or mid Q2. The markets have been going up and up but we expect a short term pullback. Here is an interesting article and link related to margin debt on the NYSE. Very relevant chart and enlightening. Here is the link:http://www.zerohedge.com/news/2014-09-26/bofa-fears-would-exacerbate-any-equity-market-sell
We have been stating this fact for quite some time knowing that the markets are in the topping mode even though there was a breakout we believe that we are seeing it topping characteristics in the market. In periods like these, daily market gyrations and moves are exacerbated. We saw big move down on Thursday and then a move up on Friday. There was a bounce right of the 50day SMA and that is where the line in the sand is. We are seeing signs of weakness in the markets via the Advance/Decline line (or breadth) and the new high/new lows ratio. Declining volume on new highs in the markets – these are all signs of divergences in the markets.
Let us get a brief recap of our calls and positions:
Recommended Stocks: CSIQ, YHOO, ULTA, T, USO, TUBE, DE, BP, SPLK, CYBR (IPO), Junior Gold miners, gold, SNDK (short), DAL (short), now looking at HPQ short for this coming week.
We closed our BP position and DE position for small 3% loss. CSIQ, YHOO performed well for us – we are still long YHOO, T, USO, TUBE (even though it has not broken out as we would expect). We did not take a position in SPLK. CYBR – we closed half our position and are still holding the rest of the position. ULTA was unfortunately closed out due to a stop loss but the position moved over 20% since our long call.
For gold we had published a blog update which showed that GLD had broken a major trendline and we expected Gold to pull back to around 1200 or below. Gold is currently around 1209. The junior gold miners got crushed in this move down in gold and we had written covered calls for all our gold miner positions. Gold is obviously moving down due to dollar strength. We expect this to continue.
Check out these charts for HPQ (weekly break and close below 13 week SMA), look at SPY not a pullback for the last (or meaningful correction) for the last two years. It has been a nonstop climb uphill. We expect to see a pullback to the 50 week SMA and are seeing technical weakness in the indicators. Biotech stocks are moving like the internet stocks of 2000 – extremely volatile and it is becoming a very crowded trade.
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