August 24, 2017

Rough Road Ahead?

Could this chart come to fruition?

Could Serge’s prediction of a fast and furious decline over the next 5-6 days come true?

Couple the aforementioned with the following study from my favorite analyst, Jason Goepfert of and I think we could indeed be in for a nice decline over the next few weeks.

Intel’s Earnings

One of the seasonal negatives that we’ve touched on lately is the market’s tendency to fall back soon after Intel releases its quarterly earnings, specifically if the market (meaning the Nasdaq 100) was trading near a multi-month or yearly extreme at the time.

Intel’s earnings beat expectations, and the stock is trading up mildly this morning. The broader market is doing well, too, so let’s refresh the table and look at every time since the mid-1990’s that the Nasdaq 100 was trading within 2% of a 52-week high the day Intel released its earning, then gapped up at least +0.5% the next morning. The table shows returns in the Nasdaq 100 trust (QQQQ) over the next two weeks.

Date                    Return         Max Loss          Max Gain
04/14/99        -2.8%             -11.8%                  3.4%
07/14/99        -2.9%             -6.8%                   3.1%
01/14/00        -3.6%           -10.2%                  5.0%
07/16/03        -3.2%            -5.7%                   0.1%
10/15/03         -1.3%            -6.5%                   0.1%
10/17/07         2.6%            -3.0%                   2.7%
10/14/09        -4.0%           -4.2%                    1.7%
04/14/10        -0.4%            -1.4%                   2.2%

Median             -2.9%            -6.1%                   2.4%

It should be no surprise that there’s a lot of red in the table. Every instance but one lost at least -3% during the next two weeks, and the maximum risk averaged nearly three times greater than the maximum reward.

The one exception, when QQQQ showed a positive two-week return, was in October 2007. What’s notable is that the 2.6% gain marked the exact closing high for QQQQ. It fell nearly -2% the following day…and nearly -12% in the next two weeks.

Current Positions

There is no doubt that my current positions are underwater, particularly my SPY position. I am looking at hefty losses at the moment, but it is an options portfolio so losses are typically bigger than a regular stock or ETF-based portfolio. However, in hindsight I could have avoided the losses or at least minimized them several weeks ago. I will always be transparent with you, my loyal readers and this time is no different. As I always say, the only guarantee in trading is that losses will occur. My job is to minimize them and I certainly could have done a better job with my most recent trades. Of course, I am still up quite a bit since the portfolio was initiated back in May, but….. Even if the market declines significantly over the next few weeks I am not proud of how I handled my most recent trades.

However, I am still short-term bearish given what Mr. Probability continues to tell me, but as all of you it has been quite the trying ride over the past six or so weeks.