Quite the bang out of the market this morning. The Dow and the S&P ran up solidly in the first hour, and are still hanging in there, even though the buying has tapered off. The finish today will tell us more about the conviction and buying power of the bulls in this long-winded rally.
In the meantime, let’s consider a thought about the market relative to the long-term outlook.
- “Perhaps the best name is not the ‘great rotation’ but the ‘gradual rotation’. If you look at the state of investment today and asset allocation it has taken years, not just since the financial crisis to get to the current asset allocation,” Sheila Patel, the head of international at Goldman Sachs Asset Management, said.
The suggestion here from Goldman Sachs (again, consider the source) is that money is moving east to west and from bonds to equities. I find no fault in her statement, as it is true, looking at the numbers. Money is moving out of bonds and into equities, and money is coming into the US markets from overseas. Slowly, yes, but that is so much better than a mad rush. It is more good news for the big picture, but let’s switch gears here to a question from a reader.
- These sudden pops in certain stocks, i.e. DDD, SCTY, and TSLA are nothing more than short coverings. If it is true, how does one get in the action before it happens to pop?
The stocks here are 3D Systems, Solar City, and Tesla. Although I agree some of the pop for these stocks is from short covering, I don’t agree with the underlying assumption that the quick rises are “nothing more than short coverings.”
Each of these three stocks represents an area of transformation in the global economy. DDD is on the forefront of 3-D printing, the hottest industrial innovation out there right now. Solar City is making huge advances as a solar-production company, the most advanced alternative energy format out there right now. Goldman Sachs just committed to a $500 million investment with that company. Tesla is the most successful electric car producer right now, and it is on the forefront of the rapidly advancing electric care re-revolution. Helpful stuff, but the question is: how does one get in front of the huge pops, such as the ones just mentioned above?
The only way I know to catch these tsunami-like moves is to read, read, and read some more about the current state of technology and then act on a hunch, more or less. For example, I knew about all three of these before they popped because I read, read, and read some more about the current state of technology, but I did not act on a single one of these three. The reason is my style of trading, the one I have developed over years of practice, leaves me little room or bank to go after hunches. Sure, they pay off handsomely, (SCTY is up some 330% since the first of the year), but there is huge risk in companies on the forefront of transformation. If they pop, great, otherwise you are looking at a quick loss or dead money. Coincidentally, I have a friend who suggested SCTY to me. I passed and she made a good trade on a quick pop. She acted; I did not.
Stay up on technology and you will see more and more of these trades coming up. In fact, I might just have to rethink my style of trading. One can get stuffy in the same suit after a time.
- The fundamentals of the energy market regarding crude and gasoline this year have been bearish, with ample supply to offset tepid demand.
An interesting and thought-provoking statement, one that bears scrutiny if one plays the oil market.
- However, this hasn’t translated in lower prices at the pump or in the futures market for that matter. The two dips below $90.00 a barrel we have seen the last three months didn’t last long and ended up being tremendous buying opportunities. That tells me that there is tremendous conviction to the upside and that triple digit crude prices could possibly be in our future once again. Markets that don’t trade bearishly to bearish news usually react in the opposite direction.
Something to consider, if commodities are your thing, and you are looking for a more traditional pop, a pop other than in the companies doing the transformative thing.
Trade in the day; Invest in your life …
