Let’s put things in perspective –
First, we’ve seen the rate hike, and it did precisely nothing to equity markets. The NASDAQ remains less than 3% off its all-time high, the S&P 500 and DOW a mere 4%. Japan is off its latest peak by 9%, while the Chinese market, after wild fluctuations this summer, a major currency devaluation last week, and perennial life-threatening smog, continues to consolidate.
The commodities look like a post-exorcism diablo, with oil leading the pack now into the third circle of hell and the gold buggerers screaming for investigations into the maniacal freemason cabal that continues to press all the world’s buttons.
And in spite of them, equities remain stable.
Fourth quarter earnings are projected to be lower, and there’s much to be said about the latest thinning of the markets – indeed, any objective view of breadth would prove that the indexes are being lifted increasingly by a narrowing cohort of busty, big name corporations with a strong connection to government spy agencies – outfits like Facebook, Google, Twitter and Microsoft.
War. Everywhere you turn, there’s talk of arming, re-arming, threats, explosions, terrorists, boots-on-the-ground, decapitations, bombings, drones, and roving masses of migrant jihadists. So why don’t markets panic?
Is it the above-mentioned Fed, in league with the scions of business, a corrupt justice system and its overly-militarized police force that’s keeping markets afloat? Is it all being done to afford the Bilderbergs and their Davosian henchmen time enough to drain their wealth from the system and flee to some seaside haven in Tahiti?
But conspiracy theories aside, we’d like to propose a simpler understanding of what’s boosting equities in the face of a ubiquitously dire prognosis for markets in 2016.
And it goes like this –
The Truth – in 1000 words or less!
First off, no one is cocky. The entire investment world is shouting about how sick the corporate world, the U.S. and global economies are and how we’re due for a pullback of some substantial proportion in the year ahead.
And that’s bullish. The market will not fall in any appreciable manner until everyone is in and excited to be in and eager to tell you that they’re in.
And that brings us to point number two.
No one is in.
Neither Main Street (see chart above) nor the aforementioned Tahitian getaway crowd. Wall Street has been buying, as the chart demonstrates, but they’ve got a lot more meat on the porpoise to offer.
Add to that the following –
- Corporate insiders are selling. And how. According to TrimTabs, insider selling in November reached the fourth-highest monthly level on record, at $7.6 billion.
- Corporate buybacks are ending. With a squeeze on profits and looming debt payments ahead, the artificial ‘goose’ on stock prices is likely over.
- Hedge funds along with the professional investment set are all moving to the sidelines. Take a look –
- And it’s been at least a year and a half since sentiment numbers from the AAII – a sure-fire guide to Joe Q. Stockholder’s outlook for shares – have been convincingly bullish (see chart below).
The stock market is a dud from nearly everyone’s perspective.
And, again, that’s bullish.
Now, let’s turn to two other items – the dollar and overall liquidity, two factors that over the course of our seven year bull market have served as catalysts to push stocks higher.
We start with the dollar.
The U.S. Dollar will remain the world’s reserve currency, a faithful means of exchange and store of value until it isn’t. Or, to put it less cryptically: those who believe the Chinese Yuan or anything else (gold) will replace the buck in the near term are simply shucking oysters.
Because a hard-nosed look at reality says so.
- Look at where the so-called Chinese ‘criminals’ are so eager to ferry their ill-gotten riches when given the chance – to the U.S.
- Look at where the massive outflow of Greek savings and investment (for those who still have any) ended up – right here.
- Look all over Europe and the emerging markets, where economic decline is now the order of the day, and observe where troubled investors are sending their cash – to our shores and nowhere else.
And I don’t say this as a patriot. I’m interested in truth. The fact is, when people are getting kicked in the financial ‘nads they immediately rush to put their cash in American investments.
And so it doesn’t matter if the fed is printing money, and it doesn’t matter if the national debt runs to $80 quadrillion – so long as the perception is that no better store of value is available, the dollar will remain the destination of the majority of anxious global cash flows.
From the redwood forest to the gulf stream waters…
This land was made to take your money!
And that means a strong dollar and a bull market for equities.
Liquidity, Rudy, LIQUIDITY!
And now, to comment on the final destination of the stunning amount of liquidity currently available to banks, corporations and more increasingly to individuals – it’s our opinion that a rise in asset inflation is an inevitability. Why? Very simply because there’s still too much competition in the labor pool to push wages higher, and the price of commodities will continue to put a lid on consumer prices.
The only thing left to do with all that money, therefore – even as the fed raises interest rates – is to invest in stocks.
Which stock, Huey? Give us a tip!
We like the following stock because it moves.
Shares of Tesla Motors today look like they’re headed for a breakout.
This is the weekly chart for TSLA, which is extraordinarily bullish in our opinion.
We may be early here, but we see an upside breakout from the ascending triangle as imminent (in black).
TSLA has moved sideways for the better part of two years, waiting for its 137 week moving average to catch up, as it were, to price.
It has now caught up (in red).
RSI and MACD are also poised to offer a full-on weekly bull signal. RSI could occur within a week. MACD might be three weeks off (in blue).
We could be early, but we’re taking this sucker for a drive.
Here is how to play it and profit:
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Wall Street Elite recommends you consider purchasing the TSLA January (2017) 230 CALL for $43.00 and selling the January (2017) 240 PUT for $43.10, for a net credit of $10 on the trade.
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With kind regards for a safe and happy New Year,
Hugh L. O’Haynew