Closing Out the Holidays Horror Show--$CASH is King

Powell did raise, did keep QT and then blew most confidence away with hawkish remarks then the White House #Idiocracy snuffed out the rest


Dear Subscriber,

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The short version of the new market reality is long only institutions and retail investors have tossed in the confidence towel on this market--which means this cyclical bear market "correction" is not over.

We DID get a 35 reading on the VIX...but on 60% LESS volume than the 10-day moving average. This is NOT a capitulation flush. A capitulation flush is 40-50% HIGHER volume than the 10-day volume average and >30 VIX and really at this point hitting 45-50+ on the VIX fear gauge


We should see the first week of 2019 as people take/protect profits in 2019 to not pay taxes on them till 2020. The first five trading days of 2019 
a) Could be a huge relief rally IF Trump White House announces surprise China Trade War settlement (odds are 2%)
b) could be a big woosh down on tax deferral selling (60% chance)
c) Markets get MORE oversold and the biggest winners of 2018 (AMD for instance) and ANY tech stocks with 50%+ profits get sold purely to offset losses (75% chance). 

Action to take: Use ANY relief rally to close out any remaining technology shares. HOLD the QQQ long trade option--it was as I said a high risk bet that the one or both of the bull marekt killers blink i.e., there is a China trade war upside surprise AND/OR Fed guidance that the monetary tightening from the bear market IS enough to say "DONE" for interest rate hikes for next 6 months AND we are reducing portfolio runoff back to $20 billion vs. $50 billion a month. 

I am NOT holding my breath for this event. 

HOLD high income plays MIC MORL MRRL NZA BDCL NEWT.They are getting hammered by indiscriminate selling that comes with these panic markets for tax purposes. There WILL be a bottom soon and yields will be 25%+ which with new purchases will be fantastic buys with 25% cushions in 2019.

Our newsletter will come out starting 27th within a few parts:
#1 2019's 30 Biggest Market Risks in order of risk of loss magnitude
#2 How we MAKE money (including dividends) as the market prices in a 2020 recession and overshoots to the downside. 

But here is the gist. After 2 weeks of calling and texting and emailing and reading responses and analysis from all the market participants I respect--our job now is to figure out is this a cyclical bear market in a secular bull market OR the end of the 10 year bull with a bear market anticipating a first half 2020 mild recession of tepid growth recession.

Clearly, this looks and acts like a true bear market where ALL the leading profit stocks are taken out an shot and short equity ETFs and some utilities are making 52-week highs.

My main point is the market collapse is gaining speed because institutions and individuals have lost confidence in the fundamental underpinnings of the bull market and Trumponomics. The stock market IS the ultimate game of confidence--confidence to step in a buy the dips in a bull market. Today we have over 30 legitimate risks to the 2019 market with 5 of those market risks we have never had before or have not had for 3-4 decades.

Key point: The totality of these 30  legitimate risks is simply overwhelming investor greed for more gains. The downward momentum is shaking out the momentum money which drove us since 2015. The last man standing will be us and big institutions with cash in hand when BELOW average market valuations present themselves. BUT--there will be violent melt-ups on good news in the interim--we will NOT fall for them. 

In short, when investor confidence is snuffed out--the stock market only bottoms when stocks are priced low enough that the valuations are so low the perceived risk of loss is much lower than gree for upside potential. The stock market is a real-time confidence metric measurement system in the short term ... and that confidence is built and sustained by economic results that support their confidence thesis.

Now we can only expect in most cases Q2018 reporting in 2019 will guide lower and indicate a 2020 mild recession or earnings recession thesis...and that becomes a self-fulfilling negative feedback loop.

In a bear market, you SELL stocks in the violent melt-ups driven by short covering. You raise cash and be ready to reload when we overshoot to extreme low valuations like we always do. 
But today things got just weird. Secretary Steven Mnuchin looked to quash big-bank worries over plunging stock markets and reports that President Donald Trump might move on his Federal Reserve chief by assuring the financial community on Sunday IN A TWEET that market liquidity is "in good shape."

Some market participants like me, however, were dismayed why Mnuchin answered a question that no one was asking. Even after recent market losses, a liquidity squeeze or fresh financial crisis hadn’t been on the market’s mind. Mnuchin’s assertion of ample liquidity risked raising doubts.

THEN you add in the bizarre and unhinged blizzard of Tweets from the POTUS that further unnerved investors on a short trading day. 

AT SOME point this insanity will overshoot. BUT--when you read the 30 market risks for 2019 and especially the 5 risks that we have never faced or not faced in the last 4 decades--Q1 2019 guidance is the only thing to hold back 10 years and 300% of profit taking that many people 60+ aged who lived through 4-5 bear markets will NOT want to live through again. 16,000 Americans turn 65 or 70 every DAY until 2030--that is one of just 30 of the biggest risks/headwinds for exponential growth stocks. 

Have a great holiday--dont tell your in-laws or relatives that you sold your tech stocks starting in February 2018 and all by the end of August/first week September...and make sure you have our email address in your email contacts list so you don't miss a thing!

Merry Christmas/Happy Holidays/Feliz Navidad for our many subscribers living all over the world but a LOT in Spain/South America and Mexico!


Updates/AlertsTobin Smith