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A Publication of Princeton Research, Inc. (www.PrincetonResearch.com)
January 17, 2016
Charles Moskowitz Discussion
Week 2 was a tough one, although we managed to eke out a gain of $324 bringing YTD up to $732 (7.3%). We have only one open position for protection against further declines and that is the QQQ February $99 puts. The QQQ is the top 100 NASDAQ names and they tend to outperform in both directions. Funds in use are $750.
Since the question being asked is “Why isn’t the economy achieving better results,” we should be looking at how we are being misrepresented to by the government numbers. The case in point is the reporting of how the economy is actually performing. While many may say that this space should be reserved for market discussions, in case you didn’t know, the markets are the forward pricing mechanism for the economy. That makes this space the appropriate place for this discussion since the market is forward looking and is undisputedly the most accurate harbinger of what is really taking place. The point of this goes right to the core of the economic discussion: JOBS…..
Last week we had a 200 point rally on the back of the “great” job creation number, 292,000 new jobs. This week we had the first time unemployment claims, 284,000 new first time claims. Monthly we hear from the Secretary of Labor while he applauds the fact that we have had 70 months of uninterrupted job creation. What he doesn’t say is “by the way, after the first time unemployment claims we created only 8000 jobs and oh yeah, they were part time and low paying as reflected by the labor force participation number.” And by the way, we hear that GE and GoPro are laying off over 10,000 workers from their workforce next month…
Unfortunately the structural change brought about by Dodd-Frank legislation has generated a fairly dramatic shift away from the type of liquidity that the major trading firms provided on days like Friday. They now have less leverage and the prohibition of proprietary trading. This is akin to the difference between the specialist system at the NYSE and the fragmented use of the electronic market maker system employed by the NASDAQ. The market makers can simply not post reasonable bids if they think it will cost them money, whereas the specialists have a mandate to keep an “orderly market.” While this is not the ONLY reason for the “flash crashes” it absolutely contributes to the problem.
Earnings season will also be a problem although with the market down 8-10% depending upon which index you watch some of the downside could already be priced in. As we’ve discussed in this space before “stuff” meaning materials used to produce product doesn’t go to zero, and the manufacturers of products that drive the economy are gaining a competitive advantage as raw materials get cheaper. My favorite 2 examples are that with copper prices well below $2.00, the cost of an electric driven automobile that uses 600 pounds of wiring and homes that use copper pipes become cheaper to complete and their margins become greater.
I will only be issuing 2 new trades tonight because the 3 day weekend makes it difficult to judge how much catchup and in what direction we will have to deal with on Tuesday, but my own belief is that with the sentiment numbers as absurdly skewed to the bear side, a tradable rally is coming. It may not come without a hard down open Tuesday, and we’re already in the QQQ puts to cover that possibility… The 2 new trades are below the market and in 2 names that tend to be where big money goes to hide, PG and CL, both consumer names. These trades are listed below.......CAM
All trades were based on your participation in the texting service to receive updates. Previous closed out trades not listed here may be seen in previous market letters.
New trades $ 10,000 account...In Texting we have a limited amount of words. In the interest of brevity: OPTIONS ONLY: 1 January , 2 February. The Quantity and Strike Price for each trade is specific. Trading is hypothetical. We may trade weekly options and they are noted: SPY 1/25 147 for SPY Jan 25th 147 Calls or Puts.For questions please call 702 650 3000. Closed out positions are found in previous letters dating back four years: Jan 11th; 4th; Dec 28th;21st;14th; 7th; Nov30th; 23rd; 16th; 9th; 2nd; Oct 26th;19th;12th; 5th;Sept th;21st;14th;7th;Aug 31st; 24th; 17th;10th etc
( 1 ) Buy 4 PG February 72.50 Calls @ $ 1.10
( 2 ) Buy 4 CL February 62.50 Calls @ $ 1.55
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