What’s next for US Markets and OPNewsletter (Jul +4.0%)

US markets suffered big losses last week. The DOW was down 3.3%, S&P 500 was down nearly 2.5%, Nasdaq was down nearly 1.5 %. This was OPNewsletter’s first week since we opened our July’08 portfolio and including commissions OPN’s is up+4% and x-commission it is up +5.8% for the July expiration cycle. We opened 5 mini-portfolios and all are positive in spite of major market falls in the week that just passed. And guess what, we haven’t made any adjustments so far to any portfolio. Excluding normal income trades, I also shared directional bonus trades like GLD (+68% my returns, OPN subscribers have multiple points), POT (+50% mine), RTN (+25%) and GS (which was closed for -30% intraday). If you would like to subscribe to OPNewsletter, pls sign-up for the waitlist here.

Dow was down nearly 3.8% for the week and it closed below 12K, a key psychological support point from a chartist perspective. It is not very far from the March Low. All the 30 Dow Components closed in red yesterday. And to add more pain, the downward move cam on above average volume. Earlier it had touched 200Days moving average but since then it has follows a pattern one week up, next down, another up, next down and that has been the case for the past 7weeks. Where is it headed, it tough to make that call. It may see a bounce next week. RSI is just about to touch the oversold level from daily perspective. However, if you take a weekly perspective, the story is different. RSI is not even close to oversold area, simply saying that there is room for further fall and 11,670 may work as an interim support while DOW work out it’s oversold region.

Other things that you may want to check out is that “Number of new lows” on NYSE are rising (though slowly), Number of stocks above 50days moving average or 200Days moving average are also declining slowly. These are not good signs and one needs to be really careful while interpreting these.

I think we are about to see a correction in commodities (x-oil, as Oil is now determined by several factors) and it may be possible that once June is out, we’ll see a retracement in Energy sector as a whole. I may be wrong here but the sense that I am getting for these sectors is of “Top Heavy”.  I am positioned for DBA and DBC bearish strategies. But I am quite flexible in cutting losses the moment I see a further surge in the commodities. And other contrary thought is that we are probably just a few months away in seeing turn around in financial as well as Banking sector as a whole. May be, November. There is amazing resilience in the Transports, specially Rails. Energy (Oil, Oil Services), Coal and Mining has been trending up and up.

International markets are also falling apart. Since the start of the year, India is down significantly, China is down nearly 50%, Japan’s Nikkei is down and so is London’s FTSE. RBS just warned for a 300 points drop in S&P500 in next 3months.

So here we are, at the crossroads again. What to do next? Attached is a “sector rotation” chart from “StockCharts“. They have pretty good charts that you may want to check out. I think value is slowly emerging in Banks and Financial sectors, Commodities may offer short term pull back opportunity, Inflation is riding high so I’ll hide in gold, trains and shipping industry are doing good but if goods are not going to move then why will they run so watch out for world trading activities via Baltic Dry Index and consumer spending. If corporate earnings are not going to go high, I don’t see a reason for Tech to win either. No matter who is the next US president, govt spending needs to take place and therefore defense may offer another stable opportunity. Home and construction-they need to fix their foundation first before we can think of any castle above that.

Whatever you choose, be careful and be protected as much as possible. I can’t think of any suggestion if a black swan event happens, but yeah, try protecting your hard money in case markets move in either direction by a combination of calls and puts and/or by having a right assett allocation mix so one’s effect nullifies the other. Oh by the way, you may also choose to join OPNewsletter if you are looking for just 5-7% per month.

Profitable trading, OP


4 responses to “What’s next for US Markets and OPNewsletter (Jul +4.0%)”

  1. David Castello Avatar
    David Castello

    “I am positioned for DBA and DBC bearish strategies.”

    OP, are you refering to the Deutsche Bank funds? If so, thankyou for the heads up. I have a position (that has done well) in DBC in my IRA so it might be time to take some profits and/or set a stop loss.

  2. KB Avatar

    Hi OP,

    I dun think the financial sector is done with the write down yet. My guess is the smaller banks in US& rest of world will be feeling the next round of write down.

    There are loans like car, credit card and Student loans. If the economy turns for the worst, avery American will default their payments and the smaller banks will be affected the next round of default. This time, Uncle Ben will not be made available to bail them out as compare to the big boys.


  3. OptionPundit Avatar

    David, Yes I am referring to Deutsche Bank funds. That is purely my thought and I shall be careful to the FOMC announcement today. But there is no harm in booking profits during uncertain times.

    KB, I mentioned 3-4months i.e. November is what I am looking at. Let’s see what happens till then. I can change my strategy anytime if that doesn’t happen. And BTW, I have learned over long time, “Don’t mess with the Fed”, there are a lot of thing in Uncle Ben’s arm that he can use. He is also one of the depression scholar. Stay neutral and enjoy the show and position accordingly.

  4. […] was not too long ago when I mentioned that once June is gone, we may see pull back in commodities. And guess what, it’s been only a […]

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