Monday, March 16, 2015

Larry Reaugh – Uptick Rule, Mike Swanson – Volatility in Equity Markets

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Saxobank’s Chief Economist: 2015 Is A Lost Year (and Here’s Why)

Even though the US has seen so-called ‘strong’ job numbers and Europe is forecast to grow 1.5% this year, Saxo Bank’s Chief Economist Steen Jakobsen says 2015 will be a lost year. That’s because the two supposed growth engines of the world – the US economy and emerging markets – will grind to a halt and slow Europe down in the process. As we already pointed out, for the first time since Lehman, US earnings are now expected to drop in 2015 – apparently confirming this second-half hockey-stick is now dead… and as Jakobsen explains in this brief clip, capital preservation remains a must going into the second quarter of the year… with 10Y Treasury yields expected below 1.5% by the end of the year.
Via SaxoTV…

Zero Hedge
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2014 was a tough year for small cap stocks. The Russell 2000 index which is a great barometer of what speculative money is doing as a whole. History has shown that small capitalization stocks are the first group to show weakness after a multi-year bull market.
For all of 2014 this group of stocks has been struggling to hold up. Each time it nears a previous high, sellers come out of the woodwork and unload shares in large volume. This was the first tell-tale sign that institutions are starting to rotate their positions out of these high beta stocks.
Later that year in October 2014 the S&P 500 fell 10% in just a few weeks. The speed of the selloff and the heavy volume that accompanied it are yet another warning sign that the underlying strength of the stock market is weakening. This broad market selloff included the large capitalization stocks which means the end is nearing.
If we turn our focus to the Dow Jones Industrial Average and look at the chart below you will see my prediction for 2015/2016.
I should be clear on what to expect during market tops because they differ than market bottoms. Most bottoms that occur are powered by fear. And fear has a price pattern on the chart that is much different than what we see during market tops when optimism is high.
Bottoms tend to be more violent with large range bars and the process happens in half of the time than what a bull market top requires.
Bull market tops take longer to form and for price to actually breakdown and confirm it’s headed lower. My thinking is that a market top may have already started. The underlying metrics are eroding and the heavy volume selloff in Oct 2014 was the first major signal that big money is selling.
I do feel the market as a whole can and will make some minor new highs, but will have strong bouts of selling shortly after. Late 2015 and going into 2016 is when the US stock market will likely start to get volatile and we will see the first MAJOR drop in value. It will be similar to the first breakdown bar that took place Jan 2008. A 15-20% drop that breaks the Oct 2014 low is going to be the straw that breaks the camel’s back.
Once we get the initial break in price the market should pause or bounce for a few months as investors are still overly bullish at these BARGAIN prices “they think” and buy more shares. In reality it’s the worst thing an investor can do at this stage of the stock market life cycle.
Once the bear market starts investors should expect 12-24 months of lower and sideways price action.

So How Do We Take Advantage Of This?

There are two ways to play the next bear market. First is to simply move your money out of stocks. This means sell long positions, pull money out of mutual funds etc… and just hold your money in cash. Cash is king and by doing this you will retain your current level of wealth and be ready to invest when the time comes later in 2016/2017.
The second option is to do the same as above but to put a portion of your money to work in a way that will allow you to profit from a falling stock market. That is to invest in ETFs specifically inverse funds.
Inverse funds rise in value as the stock market price falls. For example if the Dow Jones Industrial Average drops 35% over the next 24 months, your investment would rise 35%, 70% or even 105% depending on the type of fund purchased.

Below are some ETFs that can be used to take advantage of the next bear market

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CIT Group Inc. (NYSE: CIT)

CIT Group Inc. operates as the holding company for CIT bank that provides commercial financing and leasing products; and a suite of savings options in the United States. Its Transportation & International Finance segment offers leasing and financing solutions to operators and suppliers in the aviation and railcar industries. The company’s North American Commercial Finance segment offers commercial services, such as factoring, receivable management products, and secured financing to apparel, textile, furniture, home furnishings, and consumer electronics industries; corporate finance, including financing options and advisory services to commercial and industrial, communications, media and entertainment, energy, and healthcare industries; leasing and equipment loan solutions; and commercial real estate loans to developers and other commercial real estate professionals.
Take a look at the 1-year chart of CIT (NYSE: CIT) with the added notations:
CIT has been trading mostly sideways over the last 10 months while repeatedly finding support at $43 (green) whenever that level has been approached. Now that the stock appears to be on its way down there again, traders should be able to expect some sort of bounce. However, if the $43 support were to break, much lower prices should follow.

The Tale of the Tape: CIT has a key level of support at $43. A trader could enter a long position at $43 with a stop placed under the level. If the stock were to break below the support a short position could be entered instead.
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US Weekly Economic Calendar

time (et) report period ACTUAL CONSENSUS
8:30 am Empire state index March   8.5 7.8
9:15 am Industrial production Feb.   0.3% 0.2%
9:15 am Capacity utilization Feb.   79.6% 79.4%
10 am Home builders' index March   57 55
8:30 am Housing starts Feb.   1.045 mln 1.065 mln
8:30 am Building permits Feb.   -- 1.060 mln
WEDNESDAY, march 18
2 pm FOMC statement        
2:30 am Janet Yellen press conference        
THURSDAY, march 19
8:30 am Weekly jobless claims March 14
295,000 289,000
8:30 am Current account 4Q   -- -$100 bln
10 am Philly Fed March   8.0 5.2
10 am Leading indicators Feb.   -- 0.2%
FRIDAY, march 20
  None scheduled        
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