Trucharts.com - Market positioning and where markets are for the summer - Blog Update for Week ending 6/19/2015
Well we guess by now you are all used to the volatility and jerky moves in the markets for the past few weeks. Markets that move sideways for a long period of time are either topping, consolidating, and what we call confused markets. For the past several weeks, we have been seen these wild 3 digit moves up and down and primarily the markets holding the 18000 for the DOW, 2100 for SP500 and now 5100+ for the NASDAQ. This has been occuring every single week. The Russell 2000 hit a new high as did the NASDAQ and everyone is ready to party like its 1999.
Market pundits are trying to justify why the market valuations are low compared to 2000 - but some of their points sound absurd. Granted there are companies with good earnings and low PE ratios - but these are few and far between. Zero rates from the Fed, market speculators, big firms and heavy stock buybacks are the reasons driving this market and we have shown several examples of charts that look like exponential chart patterns. With everyone chasing performance and yield, stocks have been the only game in town and therefore we are seeing astronomical valuations for many companies - especially in biotech and stocks that are up for no reason (check the charts for stocks (for last 7 years period) like UHAL Chart; SHW chart; AMBA chart; IBB chart; REGN chart and many others.
Here are the charts for DIA chart, SPY chart, IWM chart and QQQ chart from the week ending 6/19. You can see the DIA and SPY have not broken out yet and based on the market internals, we are seeing some fundamental weakness in the Industrial stocks, Utility stocks and the individual DOW component stocks - just check here the DOW 30 stocks with the mouseover charts feature: here is the link - DOW 30 stocks - check each chart and you will see how each of these stocks are doing currently.
As we write, futures are up as Greece is trying to avoid printing drachmas and stay within the Euro zone. This is like the never ending story - it is like a soap opera - with the Greek Prime minister and the finance minister playing lead roles and the Germans are getting tired of it - but do not have a choice but to deal with it.
What should you be doing now:
We would take a very defensive posture here and take some profits in profitable positions and sell some covered calls, and to protect downside risk with buying some puts on your positions - maybe 10% below (strike price) the current price - these are cheap, knowing that the volatility (VIX) is low and the puts would be cheap insurance. We typically hedge our positions as long and short and try to keep our portfolio balanced. We definitely still think there is risk here on the downside.
NASDAQ is being hitting new highs primarily because it is being driven by the biotech stocks. These stocks may still go higher, but as they do, so does the risk. In addition, many new IPOs are healthcare related and biotech focused. We would be wary of trading these - unless you have the stomach or risk profile to handle volatile stocks.
From a stock perspective, we are long BIDU, CYBR, Z, TWTR - we like MO, PM here for short term trades. We missed BTI at 104 (major support). We are short AMBA, and INTC.
Here is a recap of some of the interesting articles we liked and have provided the links here:
What is the meaning of a "dry-bubble" to VCs?
http://www.zerohedge.com/news/2015-06-17/silicon-valleys-fantastic-dry-bubble
China bubble news:
http://www.zerohedge.com/news/2015-06-20/so-you-think-you-are-rich
California Drought:
http://www.zerohedge.com/news/2015-06-18/california-has-never-experienced-water-crisis-magnitude-%E2%80%93-and-worst-yet-come
TSMC and AAPL news - very interesting read and outlook on semi stocks:
Till next week.
Good luck trading.
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