Goose Feast! (RSX,SWHC,GDX)

Many will consider it a banal observation, but we believe it otherwise.

 

The phenomenon of new money – brand new money – entering the stock market after years on the sidelines, is of monumental significance and is going to accomplish several important things.

 

But before we outline them, take a look at exactly what we’re talking about.

 

Here’s an amalgam of two charts, the Dow Industrials and Transports, that includes volume figures for the last two years’ trade.

The chart makes it clear that something extraordinary has taken place.  To wit, a buying spree that outright dwarfs the trade of the last 24 months – indeed, in terms of sustained day-over-day volume, we have not witnessed turnover this strong on the Dow since the bull market began in March of 2009, and on the Transports AT ANY TIME IN THE LAST TWO DECADES.

 

In short, this is nothing to be taken lightly.  It’s a phenomenon, plain and simple, and it signals unequivocally that we’ve entered a new phase – whatever that may be.

 

So what does it mean – what’s really going on?

 

Glad you asked.

 

First of all, this is not the mainstream investor all of a sudden finding Gawd.  On the contrary, what you’re witnessing above is the concerted and self-conscious programmed buying of the investment set – which always gets in first, well before Main Street’s ham and eggers pony up and join the party.

 

They’ve now entered en masse and have pushed the indexes higher in a manner that sends an unequivocal message to all who follow the financial news that a new bull phase for equities has begun.

 

And how did they accomplish that?

 

First, by jacking all the indexes well beyond their former bull market highs, setting new records for both the industrials and the trannies, and bringing the Dow to within a hair’s breadth of 20,000.  (Last night’s close was 19,974.)

 

In so doing, they’ve also triggered a new Dow Theory BUY signal, the first effective ‘all-in’ indicator for that strategy since early 2015.

 

The Importance of Dow Theory

 

That in itself provided additional impetus for the investment set to take positions, and they did it with all due speed and enthusiasm, knowing full well that most Main Street Ma and Pa dabblers know nothing about a system credited to Charles Dow some 120 years ago.

 

All told, the immediate result of the tremendous tide that just washed into the market is the influence it will exert over the retail investor, who will now be sucked up by the investment undertow and coerced to buy those same shares away from the pros who purchased them 2000 Dow points lower.

It will, Timmy, but while there’s a chance for the bigwigs to flip their shares to some sucker for quick cash, why should they do otherwise?

 

Sometime after Xmas and all its excitement and diversionary influence, the plebes will wake up realize that the bull has again been stoked, and they’ll ask their brokers what’s up.

 

And without blinking, the lads in suits will tell their clients to fill up.  Then, of course, the market will fall as the bigshots exit, the shorts pile on and the wall of worry gets extended for another few months.

 

Before too long, the hotshots will once again renew their positions.

 

How Much Money, Matt?

 

Just to put it into perspective, consider the following numbers from TrimTabs.

 

In their regular reportage, they show a graphic that indicates some $98 billion in cash flooding the market after the election.

 

They also reveal that over the course of all of last year only $61 billion of inflows were registered for the equity market.  In a single month we’ve surpassed 1.5x that amount.  And that’s just funds entering U.S. Equity ETFs, not the rest of the individual stocks that trade on the exchanges.

 

A new day has dawned, friends, and it means higher markets for the next months and perhaps years, to be sure.  It’s the final steroidal equity explosion before the doomsday clock strikes midnight.  And it’s your last chance to make explosive profits before we all have to hunker down to something more fundamental and grounded.

 

Until then…

We’re going to report on several trades now, before we get to this week’s initiative.

 

And we’ll start with our August 4th letter, Money-Guns Blazing, in which we urged you to sell the SWHC August 31 CALL for $0.35 and the September 25 PUT for $0.40, and then use the cash to buy the December 33 Call for $1.80.  Total debit on the affair was $1.05.

 

As it turns out, we bought back the September option for $0.20 and everything else expired worthless.

 

Total loss on the trade is $1.25.

 

Next was another SWHC venture from The End is Near (August 11th), in which we recommended you sell a SWHC December 31 PUT for $3.20 and buy a SWHC January 31 CALL for $2.85.  Total credit for the pair was $0.35.

 

As of last Friday’s expiry, the 31 PUT is in the money, and we find ourselves owners of a lot of SWHC with the current price at $22.01.  We’re going to hold on temporarily to the shares here and look for a bounce.  There’s little to convince us that guns have gone out of fashion.

 

We’ll keep you posted.

 

Now for a winner.  Our October 6th trade from Icing the Miners had you buy the GDX December 20 PUT for $0.67 and sell two GDX December 18 PUTs for $0.27 each.  Total debit on the trade was $0.13.  Last week we disposed of the long PUT for $0.42 and the shorts expired worthless last Friday.  That’s 223%, and we’re quite happy with it.

 

Today, we’re going to the other side of the planet, to Russia, the country at the heart of a great deal of media attention on both the political and military fronts – and whose market is also about to burst higher.

 

Take a look –

This is the VanEck Vectors Russia ETF (NYSE:RSX) for the last six months.  And for our purposes, it shows a bullish breakout that got too hot, but has strong support in the $18 to $19 range.

 

We’ve a hunch that Russia will drop out of the news altogether now that the Electoral College has voted.

 

That’s why…

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With only good thoughts for all our readers through the holiday season and beyond, from all of us here at Normandy.

 

Many happy returns!

 

Matt McAbby

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