Good morning,
It is day four for the markets, in this New Year, and nothing much has changed with the markets being in some turmoil.
As I write … Stateside, the S&P 500 futures are down 2%+ along with Greater Europe down in the 2% to 3% range followed with Greater Asia being down about the same … but, with China down about 7%.
Since, I am invested based upon my needs, long range goals and risk tolerance I have been mostly observing this without much anguish but with some concern. I keep enough invested to meet my income needs and to see asset prices in decline is no great joy for me. I expect some margin calls have been generated and with this will come some forced selling unless the calls can be meat with additional capital requirements. Sometime down the road a bottom will be found as those investors with weaker hands either have been forced out or sell out. Remember the markets are pretty levered up and some folks are calling their money home in this downdraft. I expect "Big Money" to be a driving force in the direction the markets are heading.
Don’t have any idea where the bottom is in this pullback … however, I am still observing with a good amount of cash (25%) on the sidelines which I built over the past couple of years. There has been a good amount of talk about a fifteen to twenty percent pull back … perhaps, it is now starting. I compute the S&P 500 Index to be down form its 52 Week high about 6.8% and year-to-date about 2.6%. So, if we are in the making of the anticipated big market correction we still have a ways to go before we get there.
Have a good day.
Old_Skeet
Comments
Agence France-Presse | Last Updated: January 07, 2016 21:16 (I S T)
China will suspend "circuit breakers", the top securities regulator of the communist nation said, after the trading curbs were again triggered Thursday when share prices dropped more than seven per cent, halting share trading early for the second time this week.
The circuit breaker mechanism, which went into force at the beginning of the year to reduce volatility on China's bourses, will be lifted from Friday, the Xinhua news agency added.
"After weighing advantages and disadvantages, currently the negative effect is bigger than the positive one. Therefore, in order to maintain market stability, CSRC has decided to suspend the circuit breaker mechanism," a statement from the China Securities Regulatory Commission (CSRC) said.
Analysts said Beijing's introduction of the circuit breaker mechanism had proved counter-productive and investors were panicked they would not be able to sell shares they do not want, rather than reassured over market stability.
The system is based on the CSI 300 index, which tracks the largest 300 stocks on the two exchanges and was triggered for the first time on Monday.
If the index falls by five per cent, the markets are suspended for 15 minutes. But when trading resumed after the initial halt on Thursday it took only one minute for the seven percent threshold to be reached, prompting a shutdown for the rest of the day.
http://profit.ndtv.com/news/economy/article-china-suspends-circuit-breaker-after-trading-halted-again-1263329
Casey Stengel on his first-year Mets," Can't Anybody Here Play This Game? "
More from Bloomberg with video
China Flip-Flops on Stock Crash Rule and Adds to Chaos
Bloomberg News
January 7, 2016 — 1:42 PM CST
Weakening Currency
On the currency front, policy makers have pledged to keep the yuan stable, drawing down a record $108 billion from foreign reserves to prop it up. At the same time, the People’s Bank of China set its reference rate at unexpectedly weak levels this week, raising speculation that it’s more tolerant of depreciation to spur exports.
“The more alarming thing is that they weakened the currency after saying they wouldn’t,” said Patrick Chovanec, New York-based chief strategist at Silvercrest Asset Management Group. “So that raises all these issues of mixed signals, confusion. It is very unclear what the policy is, whether they know what the policy is, whether they know how to implement the policy.”
http://www.bloomberg.com/news/articles/2016-01-07/china-flip-flops-on-stock-crash-rule-and-adds-to-sense-of-chaos-ij4oelj6
No one knows where the market will head so can only go by intuition. Have been training myself to think like programmed trading to understand it.
Said before that markets were looking for an excuse to pull back and China has been it. I am glad it is China so far and not some financial black swan with systemic risk because there is nothing real about Chinese markets. I have not seen a credible story yet as to why that fake market implies something about the economy elsewhere beyond the mindless headlines that is just looking for some rationalization after the fact. So, I see this as just programmed trading based on money flows and news triggers.
I expect that this pullback won't go further down than 1900 on S&P 500 and stop much short of testing August and Sept lows again which would be a bullish signal for programmed trades. So, have been going the other way in my tax advantaged portfolio that is long term because I can't touch it for a while. Currently down to 11% cash with 80% in equities. Buying only those that drop into oversold conditions. Mental stop at 1800 if I am wrong to get back to 60-10-30 equities-bond-cash. That would likely mean about a 6-8% drawdown for the year which isn't a big deal as I think the upside from that bottom is about 10-12%. No one can time the bottom, of course except in retrospect.
The taxable portfolio is very conservative and has been in 70%+ cash for a while and actually going up lately from some Gold and L/S positions. More like nothing is working so stay out strategy here.
Thanks for the note about the end of the China CSI300 "circuit breaker". I read about this too, but had not posted yet.
Will be "interesting" at the least as to what takes place in the China Friday market opening.
Regards,
Catch
By the time you know a bottom has happened with sufficient confidence after all the typical dead cat bounces, it is too late to leverage extra cash most of the time or you take the risk of investing in a pause on further way down.
http://www.marketwatch.com/story/warning-the-stealth-bear-market-is-about-to-show-its-teeth-2016-01-04
I was just about to share that the Spider Utilities ETF might be a good choice. Get defensive? XLU.
Defensive, may be, may be not. Only 30 holdings, including some of that nasty energy stuff. Cash has outperformed for the past year or so.
What are the buy and sell points for XLU?
Performance for XLU is here.