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Friday: Fools Rush In Where Fundamentals Fear to Tread

Posted on the 02 August 2013 by Phil's Stock World @philstockworld

Where's my party hat?  Where's everybody's party hat?  Why are we not throwing a parade for Barack Obama, who came into office on January 20th, 2009, with the S&P 500 at 831 but, to be fair, it was in free fall and it wasn't his fault it hit 666 on March 9th.  Since then, the market has climbed back 1,040 point as of yesterday's close – a gain of 156% off the lows, making Barack Hussain Obama (as Forbes already crowned him in March) America's Greatest Economic President.

I know, if I were the President, I'd be having a Press Conference about the stock market.  Unless, of course, I was worried it was actually on the verge of collapse and I didn't want to make a big deal about a bubble top that was forming under my watch.  Just something to think about with the deafening silence regarding the stock market – especially after Bush, who took credit for every upward flutter in the S&P and, in fact, used to say it was the number one indicator that proved what a great job he was doing.  

As I've been warning Members since we topped out in May, the "experts" never see these things coming – only the crackpots.  In fact, just the other day, I posted this quote in Member Chat:

“When you’re one step ahead of the crowd you’re a genius. When you’re two steps ahead, you’re a crackpot.” —Rabbi Shlomo Riskin

RUT WEEKLYI could be wrong.  I HOPE I'm wrong – but I'm more worried about being right, that we're heading into a correction, than I'm wrong and we're going to plow on to S&P 2,000 from here.  As I said to Members yesterday, if we hold 1,700 for 2 consecutive days, all we have to do is construct a few trade ideas that make 300% if the S&P holds 1,700 and set a stop below 1,700 and then we're bullish.  Not complicated at all

As I said earlier in May when I called for cash (ahead of the big downturn actually) – I'd rather miss the next 5% leg up and be in cash than stupidly hold stocks at record highs and let those gains wash away.  It's not that we don't have plenty of bullish trade ideas – as I noted in Monday morning's post: 

I highlighted our most recent "5 Trade Ideas that can Make 500% in a Rising Market" for our Members in chat this weekend (along with very good strategy discussions, one of which I tweeted) and Stock World Weekly featured bullish plays on FCX and CROX, as well as a speculative short position on Facebook – assuming they'll pull back a bit off that huge pop last week.  With GDP and the Fed highlighting the data on Wednesday, it's going to be an interesting week, to say the least.  

TLT WEEKLYWe'll be rolling out 5 more upside plays over the weekend if the S&P holds today but so far, so wrong with our short plays and our Short-Term Portfolio is down 10% as we've been betting on a correction that isn't coming (so far).  

As you can see from Dave Fry's chart, interest rates have been flying higher (causing TLT to drop below key resistance) and rising rates are a big problem for a country that's $16Tn in debt, no matter what games they play with their GDP to pretty up the books.  A 1% rise in our borrowing rate costs us $160Bn a year – adding $1.6Tn to the deficit over 10 years!

But those are just silly fundamentals and we shouldn't worry about that because, hey, LOOK – S&P 1,700!!!  Now, where were we?  Oh yes, looking for bullish plays so we can run with the herd.  There's nothing wrong with running with the herd – especially when we have such a clearly defined electric fence like S&P 1,700 to stay away from.  We'd like it better if it were confirmed by Dow 16,000 and NYSE 10,000 but that's too nit-picky to worry over if the S&P is holding 1,700 – ALL PRAISE BE TO OBAMA!!!

Friday: Fools Rush In Where Fundamentals Fear to TreadI'm kidding my Conservative pals but you can't have it both ways.  If the market is great and real then you have to give some credit to the guy in charge and the policies he's put in place including: slashing tax breaks, extending unemployment benefits, bailing out auto companies, boosting SEC enforcement (Dodd-Frank), getting banks out of Student Loan Programs, ending the war, clean energy tax credits, Green Energy Loans (Solyndra, Tesla), raising CAFE standards, cracking down on carbon emissions, credit card reforms, Health Care Reform, tripling AmeriCorps, regulating tobacco, cutting military spending (killing the F22), pushing for better school nutrition, stem cell research grants…  You know – everything the GOP says they will reverse as soon as they have the chance.  

Friday: Fools Rush In Where Fundamentals Fear to TreadI have no doubt at all that the GOP can almost fully reverse the entirety of Obama's 1,140-point gain in the S&P if given a chance.  Heck, Bush already proved it could be done!  

Meanwhile, enough of that as it's 8:30 and Non-Farm Payrolls came in light at 162,000 jobs and, even worse, they shaved 24,000 jobs off last month too.  Even worse, unemployment is down, which means you can't pretend the Fed will boost stimulus off this number as it's the rate of unemployment they benchmark, not the number of jobs.  

Will this be enough to take a little air out of the market balloon or is this going to be just another negative data point we shrug off and move up from?  As I mentioned above, we already got super-short yesterday in our STP and this morning we went long on silver (/SI) at $19.25 and short on oil at $108 in early morning Member Chat and already we have $107 oil and $20 silver for gains of $1,000 per contract on oil and $3,750 per contract ($50 per penny) on silver.   

Usually we don't play silver, because it's so violent, but that was an easy one to call.  Sadly, we used LOGIC to make that call and it worked – and that makes it harder for us to throw logic out the window and run with the bulls if the market doesn't react to this data properly and keeps plowing higher.  Maybe, just maybe, the market will have an attack of sanity today and head lower – sparing us the angst over the weekend.  Either way, I recommend a lot of drinking ahead of next week! 

Have a great weekend, 

- Phil

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