IT’S GOING TO BE A RED XMAS

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We’re getting respite now and bargain shoppers are piling in, tripping over each other in an effort to grab some crumbs of profit. We’re late in the year too, which means hedge funds will desperately grab at alpha, otherwise go out of business. This is the market we’re in now. The backdrop is gloomy.

The Fed is almost certainly going to hike rates in December, especially since Trump is calling them out. The China trade talks, if they fail, will really cast a dark shadow over stocks. If they’re successful, well, we go back to the way things were before.

Does anyone really think status quo will work now?

With WTI -30% this quarter, I believe the market is forecasting a severe economic slowdown. Morgan Stanley talked about it yesterday.

We can do some valuation analysis on stocks like AAPL, take their lowest estimates and extrapolate a price target based upon a 10 year moving average of their p/s and PE ratios; but what good is that is the E portion of the PE is a moving target lower? That’s the issue here. We’re looking at FPEs and saying ‘oh, markets have 20% upside from here’, based on numbers that might disappear.

The Nasdaq is building steam now and my trades are working. But I’m not disillusioned. Take your profits quickly and prepare for the rough roads ahead. I wouldn’t stay very long after this week.