Market Outlook, Update and Commentary. Best Buy (BBY) Short. Twitter (TWTR), Zillow (Z), Tesla (TSLA), Green Mountain Coffee Roasters (GMCR), TNA, TZA and Gold

On August 30th, after having been correctly bearish during the previous few weeks, we wrote:

"Markets are closed Monday per the Labor Day holiday in North America, and we remain longer-term bearish while still expecting a near-term bounce.  That bounce 'should' begin Tuesday..."

That Tuesday a rally began which took the DJIA 850 points higher over the following dozen trading days. 

The rally ended mid-day on September 18.  Earlier that morning, we offered some short sale ideas and wrote:

"Currently equities are very overvalued and sentiment is stretched to multi-year bullish extremes by some measures."

Over the following thirteen trading sessions, the market fell almost 800 points from the September 18 high. 

Here's a look at those four short sale suggestions, with the red arrows showing when we made the short call:

Thirteen sessions later, on October 08, we wrote:

"GMCR fell as much as 19%, Z fell as much as 18%, BBY fell 5% while TSLA has gone higher and well above our suggested stop.  We did participate in all of these ideas, mostly utilizing put options, and on net have come out well ahead.  As of yesterday, Monday the 7th October, we've closed these effective shorts as we now expect a market bounce."

We once again called the turn exactly.  Here's a look:

Now after a 1079-point rally, the market may have turned down again.

That'd be very lucky for us, given we swapped out of levered market longs and into an additional levered market short recently. 

We wrote that "if $70 is hit [on TNA] we'll sell.  At the same time we'd roll the profits into the inverse, TZA, circa $20."

Here's the charts, with exit and entry marked:

TZA is already 9% higher. 

We don't just mention all this to celebrate incredibly lucky and consistent timing, or to gloat about compounding winnings into winnings and into more winnings. 

It's all a lead-up to this exciting chart of TZA, which shows that a downtrend that's been in effect the entire calendar year could soon be broken:

The potential upside is tremendous, so we're happy to hold this position. 

It's also worthwhile to note that the suggested short sale stocks above did not bounce with the market, with the exception of Best Buy (BBY).  In our view it's still a good candidate to short again, with a stop on any closes at new highs above $44.25 

The reason we reviewed these stocks is to show that internally the market is much weaker than the lofty indexes reveal.

Additional evidence of this appeared Thursday when despite what would normally be considered very bullish news out in both the U.S. and Europe, along with feverish buying of the Twitter IPO, markets tanked with the NASDAQ leading the way down almost 2% on the day. 

In the U.S. official GDP estimates came in well above all expectations and consumer credit again made new highs.  In Europe the European Central Bank announced a surprise rate cut as well as using very aggressive language to describe ongoing intent and options to spur economies. 


Below is a "big picture" look at the market, expressed via the Dow Jones Industrial Average, in which we can clearly see the recent consistency of swings in both time and amplitude.  We also see a trend of established resistance directly above current levels, and that the market has been trading in a channel the past six months. 

It looks like the next major swing will be downward, and has already begun:

 

We're further encouraged in our stance by the bearish points we noted last posting.


Thursday the Twitter IPO began trading, not Wednesday as we'd mistakenly asserted.  It traded at utterly ridiculous levels, far above our generous and highly speculative entry limit suggested yesterday. 

As a result we're withdrawing our bid on Twitter and any other long positions, for at least the time being, given we believe that this expression of wildly imprudent bullish mania, on top of the many other warning signals mentioned above, could mark the end of the overall market's bull run that began last December. 

If we're wrong, that's fine.  We won't always enjoy near-perfect timing.  The important thing for us is to always position against sentiment extremes and to limit risk in case that doesn't work out.  Should markets rebound and begin closing consistently at new highs, we'll reconsider and perhaps close our TZA position. 


In closing, a word about gold.  Because of the surprise ECB decision to cut rates mentioned above, the Euro dropped and the U.S. dollar popped while gold plunged in dollars and remained flat in euros. 

Many are puzzled by this and cry "manipulation".  The real reason that gold didn't soar on this news is simple and always the same.  Very little of gold's price is based on purported central bank actions or currency devaluation. 

Precious metals and related items enjoyed a decade-long mania of incredible hype and those who foolishly kept on buying, while we were very successfully selling and selling short, often bought on margin. 

Most of those still holding gold and silver, and most of those who tried to time a bounce, are in the red on their holdings and in debt in their margin accounts.  These positions will continue to unwind over time, no matter what, with bounces along the way, same as every bubble deflates after it pops.

Any talk beyond that fact is simply evidence of "The Psychology Of Gold And Silver Investing (Seven Stages Of Grief)" we've mentioned so many times before: 

 

Eventually the strident voicing of blame and conspiracy fantasy will withdraw and mercifully silence, then the few who focus instead on reflection and acceptance might do much better next time. 

There is always a next time, for those who don't go broke, however typically the same majority lose their shirts in the exact same way while the same minority makes a killing. 

It's your choice which side you're on.  Our posting "Clutching At Straws, Still Drowning" is worth review to help you decide.

We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the positions we do, or for mentioning any positions or publicly traded companies in this blog. If we hold existing positions we divulge the fact. This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

Please presume that we, she, he, I, it, them, they, us and you are purely fictional characters and that everything written in this blog is satire intended for comedic amusement only, and not to be taken seriously in any way. Just like "real" analyst proclamations. Thank you.


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