Certain aspects of this market have become relatively easy to predict. I told my partners yesterday that they would take silver below $15 once the U.S. paper market was the only market open market on Friday (today). Soon as the London p.m. fix was set, the NY paper market manipulators went to work and they hammered silver. Interestingly the mining stocks have been very reluctantly going down these past two trading sessions. This is quite remarkable given that, from the HUI’s low-close of 100.77 on January 19, the index has run up as much as 67%. It’s due for a “technical” pullback but it seems to be yielding rather grudgingly.
There may be a message in that. I’ll be rolling out a Mining Stock Journal next week to complement my Short Seller’s Journal. Subscribers the SSJ will be able to join the MSJ for half-price.
Everyone is getting frustrated with this bear market rally. In 9 trading days the S&P 500 has gone up 122 points, mostly in big “chunks,” despite increasingly negative economic developments. If anything points to the fact that this stock market is broken, it’s the fact that exchange operators had to “unplug” the electronic markets early yesterday morning to halt an imminent rout in stock futures. At it’s nadir yesterday during the NYSE session, it looked as if the S&P 500 was about to drop off a cliff but mysteriously a big buyer appeared and stimulated a “V” rally.
“The mispricing of assets across world markets has reached epidemic proportions” – This Is Why You Can Expect Another Global Stock Market Meltdown (Marketwatch).
When the fundamentals don’t “fit” the valuations, eventually the valuations “regress” toward the fundamentals. This is not an opinion – this is a law of markets. Currently the global Central Banks are attempting to change this law. It’s a pretty pathetic visual of Ben Bernanke or Janet Yellen confronting Atlas, who merely shrugs.
As an example, in my January 3rd issue I defied CNBC and Oprah and issued a short recommendation on Weight Watchers (WTW), which had spiked over $22 when Oprah was dropping stock pump bombs on Twitter (for which she should be investigated by the SEC but won’t be):
After selling back down to $18 from $28 by Dec 24, Oprah tweeted out a video ad promoting her participation in Weight Watchers (“come join me ladies”). The stock jumped 26% from the December 24 close, to close out 2015 at $22.80. Based on the December 31 close, the stock trades at 26 p/e and 13x trailing EBITDA. The Weight Watchers brand name is quite stale with little to no growth prospects despite Oprah’s “quick fix” presence, the stock is significantly overvalued. Especially given that the stock was trading at $4/share in August. I find it testament to the insanity of the current stock bubble that the market value of a company like WTW can move up 700% in four months based on the presence of Oprah Winfrey on its board of directors.
The stock dropped down below $11 by Feb 8, when Oprah again tried to pump the stock (note: she owns 10% of the stock and her promotional pump was 2 weeks before earnings). The stock ran up over $15. WTW announced earnings after the close last night and the stock is getting drilled for 27% back down to $11 today. Nothwistanding the fact that I’m calling for an investigation of Oprah and her stock manipulation games, WTW fundamentally is not worth $5, let alone $15.
I wanted to use this example to illustrate my point that, regardless of the short term zigs and zags in the stock market, eventually the gravitational pull of fundamentals take over and the stock market will seek its intrinsic value. There’s still a plethora of stocks trading at insane multiples of revenues, cash flow and book value. The market bottom won’t be seen until all of these stocks have either gone out of business or are trading at valuation levels which reflect the ability of their business models to generate bona fide – not “adjusted non-GAAP” – cash income based on the actual demand for their products or services.
Rest assured we are a long way from that level on the Dow/S&P 500. The Short Seller’s Journal is a weekly research and trading report which presents at least two short ideas per issue. It also provides ideas for using put and call options and capital management/trading advice. It emphasizes a long term, fundamental approach to shorting the market. You can access it clicking here: Short Seller’s Journal.
Hey Dave, Loving your SSJ service. In fact it is just what I was looking for as the market rolls over. I expect to have my best year in the market ever, assuming the powers that be don’t step in to halt trading just when things are heating up, or some other such manipulation. I think the journal provides just the right amount of depth, and your writing style makes me chuckle. Keep the great tips coming. – Ken