It's time to step out from my "normal" role as the "energy
expert" and make a comment or two on the markets in general, just
as a professional trader who's seen quite a bit in his almost three
decades of daily experience with capital markets and the way they
act. Patterns emerge that aren't foolproof, but they've served well
over the years and they are making some very visceral noises to me,
even observing the action at longer range on vacation.
Here's something that won't be news to you - the markets look
It's not just the fundamental information that most of the
"regular" equity analysts have been filling you full of on every
media outlet around: There's the lowering of expectations on
earnings, not just the disappointments of second-quarter results
(which were uninspiring). It's not just the continued bad
indications from the emerging markets, whose growth rates continue
to be guided downward. It's not the continuing bleat of "taper
talk," which (for those who believe this has been a totally
Fed-inspired rally) would be a total death knell for stocks.
You don't need me to point out any of this.
But here's what I see. There's a stock market that continues to
ride the lower edges of some usually reliable technical indicators,
like the RSI and Stochastic, usually a good sign for a technical
rally. There's a market that's felt extended but now looks more
like it's really rolling over, and not for any short-term of a few
sessions or weeks, as we had earlier this year. We've got a bond
market that may be even worse than equities, and is riding out into
the sunset on a wave of panic, with very few analysts interested in
buying. And we've got a pick-up in some of the most 'left-for-dead'
commodities that were never supposed to come back, including copper
and natural gas, up above $3.50/mcf again.
Every stock rally looks like it has to be sold, and gold actually
looks like it should be bought.
These are not good signs, folks. These are the signs of a market
that has put in its best values for the next several months and has
a best case scenario of moving sideways for the rest of the year,
if not into the first few quarters of 2014.
But where can you go? As an oil trader, I've got no problem being
short commodities, but I have a lousy track record being short
stocks. That's why I've advocated collecting premium wherever you
can by selling calls either in the money or slightly out of it on
most every issue you own in stocks. With your commodity exposure, I
still maintain that most of the risk remains to the upside and the
strong correlations between oil and stocks are slowing breaking.
In very, very unique cases, I might look to buy something
undervalued, but it would have to have been undervalued for years,
as the miners have been or perhaps inside the natural gas space.
But for now and into the near future, I'm hunkering down.
The market action just stinks.
This article was written by Dan Dicker of