Separate Yourself from the Herd

Why is it dangerous when most of the marketplace is leaning one way? Well, because most people lose money when they invest, so if you do what most do you will arrive at the same outcome. When the majority thinks the stock market is moving into a new bull market it is probably time for a correction, when most believe the US dollar is doomed it will presumably see higher ground, when the general market sentiment is that fed funds will be near zero indefinitely then we may actually see rates move higher sooner rather than later. The point being is when too many people lean in one direction it is generally a bad outcome. Think of yachtsman all running towards one side of a boat…you get the idea.
Financials
Stocks: Both the S&P and the Dow closed almost at the exact price where the week started, talk about a market that may be running on fumes. Sellers continue to emerge around 1010 to 1015 in the S&P and we will be sellers at those levels with them on behalf of clients. Continue to accumulate puts and hold for a break to 960 is how we see it. 958 serves as the 38.3% Fibonacci retracement, the 50 day moving average comes in at 940 in September. The Dow should find resistance at 9425 and support at 9175 and then 8975. In the words of Warren Buffet we suggest booking profits as “you never go broke by taking a profit.” It may actually help you sleep better as well with less stock market exposure.
Bonds: The Fed concluded its 2 day meeting and kept rates unchanged at .125%, as expected. Their latest information “suggests that economic activity is leveling out.” They also confirmed that they are in the process of purchasing $300 billion of Treasury securities and expect to be done by October. September 30-yr bonds traded higher by 3’19 points last week closing back over the 40 day moving average. This level at 117’20 should now act as support. Resistance comes in at 119’16 followed by 120’10.
September 10-yr notes were also higher last week, gaining 2’11.5 points. Support comes in at the 40 day moving average as well at 116’18 with resistance at 118’00 followed by 118’20. After last week’s gains in the Euro-dollar look to buy more puts this week. This will be a reoccurring theme as we will continue to advise selling rallies for the next several quarters. Our favored play is at the money or just out of the money puts in June and September 10′.
Currencies
The Euro was marginally lower giving up 5 ticks as prices have been unable to get too far from the 20 day moving average on either side. Resistance comes in at 1.43/1.4325 with support between 1.4040 and 1.4070. Prices could go either way.
The Aussie was lower by 58 ticks last week as the high for the last 2 weeks has acted as significant resistance at .8450. Support is seen at .8175 followed by .8025. On the weekly chart it looks like we should see lower levels. We scratched for clients on the September 80 puts last week deciding to exit because the option premiums were not moving.
The Swissie was higher by 63 ticks last week. Resistance comes in at .9375 and then .9410 with support at .9225. No opinion at this point.
The Loonie experienced some weakness most likely from adverse action in the metals and energies giving up 164 ticks last week. Being we’ve had 2 consecutive negative weeks, it is most likely an interim top was made 2 weeks ago and we should see a short-term trade lower. Resistance comes in at .9250 with support at .9000 followed by .8850.
The Cable lost 171 ticks ending the week just above the 50% Fibonacci retracement level. Resistance is eyed at 1.6620 with support at 1.6360. I would rather be short than long but currently we have no client exposure.
Japan’s central bank kept rates unchanged but did underline its cautious outlook for the economy saying conditions had stopped worsening but that unemployment would stay high and consumer spending low. The Yen gained just over 3 cents last week picking up almost 3% closing back above the 20 day moving average. If equities continue to falter we should see further upside. Support is seen at 1.0450 with resistance at 1.0650 and then 1.0750. Aggressive traders could buy September 103/106 call spreads for $2000 holding into expiration. If prices finish above 1.06 this spread will be worth $3750. Less aggressive traders could buy the September 110 calls for $375, risking the premium with a target of $675.
The Kiwi dollar gained 55 ticks last week but prices are looking tired. We expect a down move but will be watching from the sidelines. Resistance is at last week’s high at .6879 with support at .6675.
The US dollar was higher by 17.5 ticks last week and has now been positive for 2 weeks in a row for the first time since April. Support is seen at last week’s low at 78.30 with resistance at 79.10 and then 79.60. Tough to say but if equities trade lower money could flow back into the dollar. Though we have no exposure we have a bullish bias.
Metals
December gold was lower by $7.90 last week as gold movement, at least for the time being, seems to be governed by outside markets. Resistance comes in between $962/965 with support at $940 and the $930. We don’t have a good feel either way so we would caution any exposure. Seasonally this is a strong period for gold but that alone is not a compelling enough reason for my clients to be long. In the past 9 years having long exposure in gold from late July to early September has been a profitable trade. Past performance is not indicative of future results.
September silver was higher by 16 cents last week making last week the 5th consecutive positive week. Resistance comes in between $15.10/15.20 with support at the 50 day moving average at $14.00 followed by the 50% Fibonacci retracement level at $13.75. We’re advising clients to buy December $3 call spreads and prefer silver to gold. The ratio we have spoken of for months now currently sits at 65:1. At $1000 gold, if we were to get back to historical norms, silver would be priced closer to $30/ounce. You tell me what metal you would rather own?
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Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions.