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Weekly Reversal Report For 6/22/2015: Humana Imperfect For Swing Trading; $SPX May Be Near An Inflection Point. Is It Time To Worry About The Robot Apocalypse?


Cartoon from Article In New York Times Regarding The Coming “Robot Apocalypse” To Be Referenced In This Post

Out of the 20000 stocks sorted, only HUM (Humana, Inc.) made the list and with better than acceptable statistics. There are 2 reasons that I will not trade it as a swing trade, nor should you:

1) Humana’s price: Friday, June 19, 2015 close was 202.31. The vast majority of you out there cannot buy a large enough chunk of that to make a tremendous amount of money in that trade.

2) I would avoid Humana and most health care providers and health insurance companies as swing trades (despite recent merger activity) until we see the results of rulings by the United States Supreme Court on subsidies for state exchanges under the Patient Protection And Affordable Care Act are passed down. I personally think there is a bit too much news speculation in the very short run to make a long swing trade the smart thing to do. There will be other opportunities to do so once all this news settles out.

I will continue to track what we have as I figure out how to transition this blog into an authority format (which is ongoing). Despite the delays, the video will be going up soon along with the survey.

Lets spend just a moment looking at a monthly chart of the $SPX. While studying the financial news and financial social media, I have seen the $SPX (Standard and Poor’s 500 Stock Index) referred to as the “mildly bullish roller coaster of death” (there’s a visual) to a most undervalued index with tons of growth potential. I decided to create a Fib reatracement model (again without the “air traffic control screens” to show the interaction of Fibonacci level confluence). I will get to that later as we go down the road. Take a look at this chart, basically unedited. Notice how at the top right of the chart, you can see the near record or new record levels we are at now, and the fact that there is a triple confluence of Fibonacci levels converging there. Typically, you need four closing in at very tight points, which we do not have yet. We do though have a 161.8% extension level of the last upswing from the 2009 lows being put in. That is, at least, cause to be worried that we might be in for some kind of significant correction. It will likely not be the death knell that I saw in Bitcoin awhile back, but it does give pause to at least think about the possibility that a key inflection point is nearing.

I am going to stop beating the drum about extended historical valuation levels (as you can search this blog and others to find my warnings on that topic). There are also others who consider the market to be in clear sailing mode, as you can see from Greg Harmon’s blog. I began to exit many equity markets in 2012, and by the end of 2013, I had exited all of my energy stocks, as I felt they too were extended beyond what could be seen as a healthy value, even with the dividend yield. I did similarly with bond and bond funds that remained, as I felt that the tightening cycle would one day appear, and that I did not want to ride that train into the gulch once the dynamite of higher interest rates, mandated by U.S. Federal Reserve action, blew up the bond bridge, sending my train into the depths below. I made alternative investments going forward, as well as income producing real estate with a large potential for gain over time, as well as land.

Was I completely right? No, but I feel I have done decently well. Should you ride out the equity roller coaster and be long only come hell or high water until the end of time? Probably not. I think the answer that would determine these things are held in your age, your income circumstances, and your tolerance for risk. I will be 60 years old this year, so I have to begin to think about balancing out risk. I think for someone like me, doing that is important, because we are at an extreme in the interest rate progression (with low or basically zero interest rates) and the fact that in the future, at least until we can get through another 15 year cycle, there will likely be more net redemptions in U.S. equities than purchases, as retirees take their money and collect income, by various means. If you are under 40, you certainly have more time and you can afford to put money in places that will provide good return. Even for you of that age, however, I think it is important to understand real equity value relative to earnings growth, sales, and cash flow. We are likely not that far away from another bubble, created by some sort of exogenous event, likely regional or world war in my opinion. It could come from any number of economic dislocations, however, as even now China is worried about its own debt problems, and may join the world in one way or another in its own version of quantitative easing. Their move would be one of the largest participations in the “race to zero” for world currency valuations, and that ultimately creates another source of bubbles whose final outcomes are the unintended consequences of ignorance of free market action. Young investors are likely going to have to be more open-minded, world-focused, and flexible. It may also mean that they might have to risk further exposure to private capital markets as world governments begin to potentially overegulate public capital markets and destroy their competitiveness.

There’s a lot of dystopian fear-mongering going on in the U.S. and world press as well. Some think that we are close to another mass species extinction. While I think that forecast is bordering on psychotic, there is a real fear that the speed of technological change will ultimately replace humans with robots. While I do worry that the forces of fascism and technology are converging rather rapidly to quell human freedom and ease of innovation, I think there are some reasons not to be worried. In fact for young people, now is the time to prepare to be on the rising tide of technology. That is the subject of these two articles ( here and here). I think that investing will begin to take on a more hybrid structure as we go into the future. Even Warren Buffett is beginning to explore the private equity markets, as he is beginning to find it hard to see true value in equities.

Young people will have to explore entrepreneurial ventures in much the same way as their great-grandparents did during and after the Great Depression. College will not just become a dirty word for many, it will become an overpriced word for many more, and these young people will rely on their own intellect and their guts to find projects that will lead to greater long-term opportunity. Just buying a mutual fund and waiting may not enough for millennials to survive until just past mid-century (2050). Those vehicles might not even exist, or may be so convoluted by regulation that they might not be viable. That grouping might also include exchange traded funds (ETFS) in the future too.

What those articles did not discuss is the very fact that I believe that private industry can and MUST take the lead in space exploration. Governments are too interested in buying votes for power and bloating Byzantine bureaucracies to get us where we need to go. If we do see some kind of Malthusian disaster, some people may want to go into space eventually to terraform distant planets and start new lives. I think that is a very real possibility as we move closer to 2050. If we don’t blow each other to bits on this planet, I think that is going to be the greatest opportunity for the next three or four generations. We will figure out how to travel great distances, handle harsh environments,  and make new opportunities that did not exist previously. Private industry and individual effort will make that possible.

My turn and our generations’ turn at the wheel is about over. The next generational wave will inevitably have to lead the way out of the mess that exists worldwide today. There is one thing for certain, however. One cannot sit on one’s ass playing video games and make that happen. Some of the coming stresses of change will bring forth another group of people who will take those problems head-on. As bad as things seem to be at the moment, you have no choice really. If you are alive, you have to persevere and participate in the growth. Be awake, be aware, and be ready to get into the action as activity and growth changes direction. We have had these dystopian nightmares in every century. We need to put down the nightmares, and begin to dream again. Some of that will require putting the digital device down, and turning on the brain. It will happen when the time is right, I think.

I will get more into other indexes and markets as time goes on. Check your portfolios to make certain you are not holding something that is not past its shelf-life in terms of value while markets move sideways. Its not time to panic yet, but it is probably time to prune.

As always, thanks one and all for supporting this blog!




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