There Will Be Rallies and Rumours of Rallies

There will also be blood.

I see the market is reversing off the lows, sending shares higher. If you’re like me, you already have longs. Albeit, my level of degeneracy pales in comparison to yours. My top holding is ETR, a utility that pays more than a 4.5% dividend. My second largest is TRN, followed by CYBR, WRE and CLR. That being said, I track the NASDAQ 100 pretty tightly, a design that I created in order to avoid being blown out.

Let me remind you of the suggestive nature of this tape and to be careful of chicanery. Just because we are rallying now doesn’t mean all is well. This market is infected by a cancer, an ailment that can only be cured with soaring WTI-Brent crude prices. We need to know global growth is ok. After seeing the MCHP warning, tech investors are feeling uneasy. Look at MU.

I am hoping for the best, but certainly will not be surprised to see a late day collapse.

On the positive side, this is day 14 of The PPT missed oversold signal. In other words, the last time it was wrong, it took 14 days of market mayhem to finally rip higher.

Hopefully history will repeat itself.

NOTE: Today is the last trading day of The PPT free trial.

Throughout our recent history, every single decline of this magnitude has resulted in a face ripping rally. Even during the darkest days of May of 2014, the high beta tech and biotech rout, that represented extreme opportunity, as many of those shares rose by 50% in the months to come. I believe a similar fate awaits the oil men in the Bakken–the young gents waking up at 4am to inject fracking fluids into the earth for the explicit purposes of becoming rich. And, as a side bonus, convert the local drinking water into a toxic incendiary cocktail of win.

I realize that you are very frightened now, scared of shadows and mugs overfilling with black smoke. But, I promise you, this will pass. As an investor, it is your responsibility to remain in the game. That means you need to measure yourself. This is not the time to be greedy, but to stay alive. There will be plenty of coin to make once the market turns. You should not be buying anything on margin or dumping large portions of your portfolios into short dated option contracts.

I have a mind for this sort of tape. I’ve been through the very worst markets the world has to offer and do not get nervous anymore. Your emotional response to loss should be equal to that of gain. One outcome is equal to the next and it must remain that way, otherwise you’ll panic out of good positions.

Let’s see how she opens and then I’ll offer some quick analysis.

Let’s all agree that CLR represents the oil trade, as it pertains to both quality and risk, as they have operations domiciled in the reviled region of the Bakken shale. The question we have to ask ourselves is “how long with this correction in crude last and how low can these stocks go?” Our only guide is history, gentlemen. It’s all a guess. But at least with history, we can get an idea of where that rubber band of human emotion breaks.

Here are some of the more frightful one month drops in CLR, since 2008, and the returns in following two months afterwards.

Jan 2010: -11.4%, Feb: +3.95%, March: +7.75%
Feb 2009: -23%, March: +33.3%, April: +10.2%
April 2013: -8%, May: +1.5%, June: +6.1%
May 2012: -18%, June: -8.5%, July: -3.9%
July 2008: -17.6%, August: -12.2%, Sept: -22%
August 2010: -10.9%, Sept: +14.4%, Oct: +2.5%
August 2011: -18.5%, Sept: -13.4%, Oct: +25.3%
Sept 2014: -17.5%, Oct: -7.5%?, Nov: ?
Nov 2008: -39%, Dec: +5.9%, Jan 2009: -0.1%

As you can see, these sort of declines are not unique, but rather par for the course. I am going out on a limb here and saying 2008 type losses are out of the question. But that does’t mean we are done going lower. Every time we slid more than 15% in a given month, the following month was horrendous, sans Feb of 2009.

During May of 2012, we slid about 30% from May through July.

During August of 2011, we slid 31% before spring boarding 25% higher.

Right now, CLR is down 25% over the past two months. If I was a betting man, I’d say there is 5% down, 25% up in the name–good odds from my vantage point.

I will be averaging down if we leg down again.

Analysts notes are already streaming into my inbox, complaining and whining over stock prices dropping to ‘unreasonable’ levels. They cite robust business conditions and reaffirm their guidance. The same thing happened in 2008, ahead of the largest stock market rout the world had ever known. No one really knew the full extent of the carnage before it was too late. Lehman went bust and sucked us into the wormhole with it.

But it was more than Lehman. The economy was in a tailspin and banks were losing billions daily.

Today we have a different scenario. The market has gone up 11,000 points since the 2009 lows. Corporate balance sheets have never been better and banks are doing just fine.

So what’s the problem?

I will repeat this salient point because no one seems to be believing me: oil.

This rally was built on oil. We were sold a bill of goods that stated America could be energy independent because of all that oil coming out from the Bakken and Permian. At the end of the day, it was all a mirage, since we’d need to sustain $70 oil to make it worthwhile. In other words, the people were never going to benefit from this so called energy independence because oil had to remain elevated.

With the price of crude dropping daily, we are now seeing the vulnerability of that house of cards.

That’s the bad news.

The good news is the selling will exhaust itself soon. I intended to begin buying on Friday and that’s probably what I will end up doing. I was shattered today, to small pieces and then broomed up and placed in a garbage canister. I’ll make it back and so will you.

The good folks at iBankCoin aren’t going anywhere and will stay with you to bear witness to all 7 stages of the Apocalypse.

The great meat grinder of 2014 is upon you. This is the capital destructor, the zero sum game of pain.

If you pay close attention, you can smell the fear. You can’t say this wasn’t telegraphed, because it was. Hell, I’ve been telling you for months that this was bound to happen. After QE1 and 2, the market dropped by 16 and 19 percent, respectively. Over the past month, more than 1,400 stocks are down 10%, compared to just 10% up. Yields are at new lows, as well as commodities and the Fed is nervous, real nervous.

The shipping, coal, and miners are on the verge of bankruptcy, and the farmers aren’t fairing too well either. Old school retailers, JCP and SHLD, now have junk status bonds that are indicating bankruptcy. The rest of retail is a mess too.

What do we have?

We have a bunch of fat, bloated, global pariahs who employ people in Malaysia for $1 per day and then turn around and sell to us for $20.

The banks are good, if you consider good paying the government billions of dollars in endless fines.

I regret buying TRN yesterday. I am happy with both HE and WRE and I know ETR will be fine. Much to my chagrin, I am nearly fully invested, with just 10% cash. There is nothing redeeming about today’s tape, other than its audacity.

This is beyond my scope of expertise. All I can tell you is “this too shall pass.” There is probably some high stakes geo-political event taking place between the west and Russia, ahead of winter. Russia has europe over a barrel because they need natural gas. But, by the looks of crude, Russia isn’t fairing too well either.

The biggest loser is the Bakken shale, where drillers are required to extract oil at the ridiculous cost of $70-80 per barrel. With oil approaching $80, people are getting panicky.

Into this morass, I like rate sensitive plays, like TLT, ETR, HE, WRE and a myriad of other utilities and REITs.

I hope we’re done going lower and the market can reverse. But even if it does, the damned price of oil needs to catch a bid.

The good news, naturally, is your monthly gasoline bill. My monthly gasoline expense ranges anywhere from $300-400. How about yours?

My only consolation, after watching the market vomit on itself this morning, is that I bought HE and WRE, alongside that bastard rail stock TRN, yesterday.

Is this what the world has come to, a giant ball of shit being killed off by African diseases? How ironic, the ‘cradle of civilization’ is also its deathbed.

Do you want to know what it’s like to trade this grind house? I am not gonna say anything else, just watch this video.

By the way, we are the chicks and Stuntman Mike is the market.

I talk a lot of shit about a lot of people. But let me give a few praise. This morning the CNBC audience was treated to a true master, legendary hedge fund manager Leon Cooperman. This is a man who knows his stuff, inside and out, makes a ton of sense and is a pleasure to listen to. Another person that I admire and respect is Bob Parker from Credit Suisse, who usually frequents CNBC europe. I’ve been watching Bob for many years and he always seems to get the market right.

Futures are off a bit and the spoiled rotten brats on Twitter are already getting out the defibrillators, complaining over the specter of loss. Hey moron, the SPY was up 33 handles yesterday. If we pulled back a cool 5 to 10, would that be the end of the world?

What we want to see is stability, for equities, commodities and currencies. After we base out, we can launch higher and pop champagne corks into each other’s faces.

Oh, by the way, before you make fun of the portly coupled featured on the front page, just know they won $259 million in the UK lottery.

Make no mistake, we are in the beginning stages of a reflex rally. In order for this rally to have legs, the current boogeyman must be shot dead. The problem with that, of course, is the boogeyman cannot be killed (extra Michael Meyers). That’s alright. All we need and require is a little obedience and we too can gallivant around town, clad in $20,000 suits and top hats made from the skulls of enemies.

Instead of going hog-wild retard into today’s circle jerk, I took a measured approach and opted to play a low rate environment, which should benefit REITs and Utes. To play this fucking oil spill catastrophe, I bought TRN–because once a rail man, always a rail man.

Keep in mind here lads, I already own 35 stocks, all of which have been ravaged by the market elements. Those positions are spread out and correlate the NASDAQ 100 fairy well, so I have my bases covered there.

In addition to that, I have open trading positions in TNA, CYBR, CLR, ETR, WRE, HE and YELP. Thank the stock Gods and the celestial beings who watch over me at night while I sleep for guiding me out of ARWR, EMES and BITA before they detonated and ripped shareholders to pieces.

My caprices allow me to change with the winds. I am not beholden to any mantra or bias, other than making money. This has been a hard year for me (extra penis) and I am trying to navigate these waters well enough to leave me in a pole position to make a late year run. Avoiding disasters is my #1 priority, even if it means playing the reflex rally to come like some sort of office clerk coward, monitoring the front lines from his jackass perch.

You’re wrong about rates. You keep saying that ‘everyone knows’ rates aren’t going higher; but that’s a bald faced lie!

Every single person that I know, sans Hugh Hendry, thinks rates are going higher. You can hear it for yourself on the television, where experts predict 200 basis point moves over the next two years. It seems that no one, mind you, is able to look at a balance sheet and acknowledge the fact that America will NEVER undergo austerity, in order to make the cuts necessary to service higher interest rate debt.

Argue all you want. But ZIRP is here forever.

Market roared higher, dragging bears from the back of speeding pick up trucks. But I saw something different in this run, different from past bull markets. Rate sensitive names, like REITs and Utes, pressed their rights higher too. So the stocks that I bought today, weren’t actually for today–but for tomorrow.

I believe the utes and REITs will hit new highs. I also believe the way the rails have been treated is disrespectful and discourteous to true ‘Rail Men’ like myself. I took a large stake in TRN, not because I felt bad for legacy shareholders, because it’s going higher.

FYI: Early Bird pricing for the FIRST EVER AND LAST EVER iBANKCOIN INVESTORS CONFERENCE ends Sunday. If you’ve been on the fence about coming, make up your mind son and take the dive already.

REMINDER: We are day 2 of a 5 day FREE TRIAL for The PPT.