Loading ...Days away from the Seasonal Swoon Period for Stocks…
The seasonal “danger zone” for the stock market is August to mid-November so as we close out the month of July, I thought it fitting today to focus more on the current stock market bubble rather than the Gold and Gold Miners.
I was talking to my friend and newsletter whiz-kid Dave Skarica (Addicted to Profits ) last weekend and he reminded me of one of the greatest market calls in history (which I actually watched on October 16th, 1987 during the roundtable discussion on Wall Street Week with Louis Rukeyser) by the late Martin Zweig. I met Marty in 1986 at the Securities Industry Association Commencement Dinner at the Wanamaker’s Tearoom in Philadelphia and determined that he was undoubtedly the most down-to-earth financial “guru” in the history of Wall Street AND he had a great sense of humour. The clip ( Market Crash Call by Martin Zweig ) around the 6 minute mark is now legendary. What was really great was how Mary Meeker completely refuted Zweig’s call for a crash stating that “Fundamentals are too good for a crash…” only to get annihilated on the following Monday. Zweig used portfolio insurance and put 1% of his portfolio into OEX put options on Friday October 16th which went from $2.35 to over $140 allowing his portfolio to actually rise 9% during the famous October ’87 Crash.
David has just published his new book “Collapse!: How the Federal Reserve Created Another Stock Market Bubble and Why it Will Collapse” where he outlines the myriad of reasons that this market is ready for a downturn and it is an excellent read. The rationale laid out by David is the reason that I have been quite timid about re-entering the Gold Miners. I am certainly bullish on zinc and silver (physical) but since the producers, developers, and explorers of those metals are still stocks, I am concerned that any upward move based upon the positive seasonality for gold and silver will be offset by a broad market correction.
As for today, I have added to the SLV October $18 calls @ $1.95 as well as the SLV ETF @ $19.75. I won’t touch the miners until this week is over and all of the FOMC propaganda is behind us. I continue to look at the VIX and urge you all to read this comment by Blackrock on volatility (http://www.bloomberg.com/news/2014-06-26/blackrock-recommends-buying-volatility-while-pimco-sells.html ) as portfolio insurance is more maligned today than at any point in the past decade.
Last point: An astute client asked me if he should liquidate his juniors exploration holdings for fear that they might “correct” in an S&P selloff. My response was “Correct what?” They have not participated in the 2014 gold rally to any extent worth noting so there is nothing to “correct”. They certainly weren’t lifted by the rising stock tide of the past three years so there is little (if any) profit to protect. My strategy is to overweight the physical silver market and to protect the portfolio with VIX and SDS call options while holding 50% positions in the GDX and GDXJ and sitting pat with TK and SRC.
By being partially short (as was Martin Zweig in 1987), we are hedged against the advent of the seasonal swoon and with the help of regular church attendance and rabbit’s feet, we shall (hopefully) endure…
MJB