Thursday, December 8, 2016

Big stock moves possible in 2017

Following the presidential election, the US stock market confirmed what had already been a new uptrend in 2016. PMIs and GDP have been strengthening since a weak first quarter. Steel and copper prices have risen meaningfully, breaking their downtrend.

The question I'm trying to figure out now is how does the stock market move in 2017 and 2018. It certainly looks headed higher with money moving out of bonds into stocks. One unusual scenario keeps picking at the back of my brain: the stock market may go up 40% the first half of 2017 then crash in the fall, much like 1987. We haven't had a true 20% bear move since 2007 and it does seem likely we get a move like the 1987 blowoff before the market resumes a strong uptrend.

Two reasons point to a possible big move up and down. The first is that retail investors are finally getting back into the stock market. Politically conservative American have kept their money out of the market due to irrational political bias under the Democratic president. They now feel all is well again and are putting their IRA savings back into stock funds.

My second point of logic is investors are buying cyclical stocks on the belief the new Congress will eliminate banking regulations, repeal the Affordable Care Act, force corporations to repatriate overseas profits, and pass a large infrastructure spending bill. Republican legislators are still fractured and will not pass all these measure. We likely see Republican legislators basking in the glow of a Democratic defeat the first 100 days, then returning to their inflexible stances that have frozen Congress the last six years. (The ACA likely is repealed pretty quickly.)

One hundred days after inauguration puts us in May, and Sell in May could be the smart move in 2017. But all this is speculation, I have no clue what will actually happen. Experts see the most likely move is a 10% drop after the inauguration, because that is what typically happens.

If we do get a huge move up into May 2017, I will sell half my stock holdings and move that money into bonds, gold, and a VIX ETF. One last note that most people forget, the stock market was actually positive by the end of 1987.

Monday, November 3, 2014

Oil and Gold Headed Lower in 2015

The recent drop in crude oil prices caught most of us by surprise. Many global forces affect the price of crude oil, but the primary factor lowering oil prices in the U.S. is the strong dollar. Crude oil will likely stay above $75/barrel over the winter as Americans turn on their furnaces, then weaken again in February or March when the ECB starts printing money to stimulate inflation.

The strong dollar and lower oil prices got me thinking about 1981-1985 when the dollar strengthened swiftly. Here is a chart of the dollar index:

Crude oil fell significantly during that period (crude oil adjusted for inflation):

This chart shows the long-term movements of the dollar, oil, and gold.
A stronger dollar in 2015-2016 will mean lower oil prices, which will translate to oil companies losing money under a certain price threshold, much like the natural gas and coal companies have been losing money since 2012. Good for the U.S. economy, but bad for oil companies who do not have a substantial refinery division. American oil companies wisely have been announcing capital expenditure reductions, which means they are not drilling new wells.

Today Bloomberg published a very useful chart of threshold barrel costs:

Friday, August 26, 2011

Take profits and stop listening to the TV experts

My portfolio reached its highest value in March of this year, within reach of the goal I had set for year end.  I sold a few stocks that had reached the price targets I had set, but didn't sell more because that would have triggered large short-term gains.  I sat back, looked at charts of stocks that had doubled or tripled over recent years, and reflected that I should be holding stocks longer to enjoy the lower tax rate on long-term gains.  Plus most of the experts on CNBC were predicting a move 10% higher by the end of the year.

Then I made the really big mistake of investing in risky stocks I thought could double within a year.  I should have put that money into bonds and protection, although I hadn't learned how to buy protection without buying puts yet.  When my portfolio gets back to where it was in July, I will move 5% into TZA and VXX.  (I don't buy or sell options because I don't want my broker lending my shares out to traders.)

I did move into 10% cash in July because the Tea Party was threatening national debt default.  Once the debt ceiling agreement was signed, I thought we were headed back up and bought stocks.  (I had debated whether to wait until the end of August because the stock market typically takes off at the beginnng of September.)  If I had booked those gains back in March, I could have sold a few stocks at a loss on the way down to raise cash.  I'm not beating myself up too badly and instead trying to learn the rhythm of the markets and perform better in the future.