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Business/Finance See other Business/Finance Articles Title: August Crash Lows Tested … Bonds Soar … Yen Surges … Oil Plumbs New Depths August Crash Lows Tested … Bonds Soar … Yen Surges … Oil Plumbs New Depths Mike Larson | Wednesday, January 20, 2016 at 4:20 pm Now THAT was ugly. Virtually every market tanked around the world, except for those that surge in times of worry and panic. To briefly recap: The Standard & Poor’s 500 Index knifed through its lows from the August crash at 1,867 earlier today, before staging a partial recovery this afternoon. The Dow Jones Industrial Average and Nasdaq Composite Index also sold off sharply, but didn’t quite get through their intraday August lows at 15,370 and 4,292, respectively. On the other hand, the Dow Transports and Russell 2000 Index bid adieu to those support levels a couple weeks ago. The Russell just hit the lowest since July 2013, while the Transports tanked to the lowest since October 2013. As a matter of fact, the iShares Transportation Average ETF (IYT) is down more than 11% year-to-date — less than three weeks since New Year’s Eve. For its part, crude just keeps getting cheaper and cheaper. The U.S. benchmark price of a barrel of oil sank as low as $26.19. We haven’t seen black gold this low since all the way back in 2003. The United States Oil Fund LP (USO) has lost around 54% in the past year. The yen has benefited from the panic, as have U.S. Treasury bonds. Where is all that money going? How about Treasury bonds! Long bond futures prices surged by another point and a half in the early going, while the iShares 20+ Year Treasury Bond ETF (TLT) hit its highest level in five months. Yields on 10-year Treasuries breached 2% to the downside. The Japanese yen also took off like a rocket, pushing the CurrencyShares Japanese Yen Trust (FXY) to its highest level in a year. That’s because the yen is used to fund so-called “carry trades,” those in which investors borrow loads of cheap money in one currency and re-invest those funds in higher-yielding assets elsewhere in the world. When market panic sets in and asset prices plunge, they’re forced to unwind those trades before they get wiped out — a process that can send the yen surging in value. I sincerely hope you were prepared for this carnage. My warnings in Money and Markets have been crystal clear dating back to last spring, and I’ve been sharing several protective strategies that you can use to insulate your portfolios from tumultuous times like these. Or better yet, I hope you’re turning this market chaos into a huge profit opportunity. Subscribers to my Interest Rate Speculator service have had the chance to bag profit after profit since the summer — including two more hefty gains today on a vulnerable European bank and a reeling U.S. brokerage stock. As always, losses can and do happen, and past performance is no guarantee of future success. In the meantime, where do we go next? Well, we’re obviously getting more and more oversold in the short term. That means we’re likely to see more rally and bounce attempts like we had Tuesday of this week and Thursday of last week. Indeed, we had an intraday bounce today, with the Dow rallying from minus-566 to minus-249. “Investors are taking advantage of bounce rallies to unload stocks at better prices.” But unlike the rallies we saw in the six-plus year bull market from 2009 through early 2015, those rallies aren’t turning into powerful V-shaped moves to new highs. Investors are instead taking advantage of them to unload stocks at better prices, or to re-load short positions. You know when I last saw that pattern play out? During the bear markets of 2000-02 and 2006-08. Investors have clearly lost faith in the ability of funny money to prop up asset prices for more than short periods of time, not to mention confidence in the economic and inflation outlook. So until that pattern changes, make sure you’ve shifted your thinking and approach to the markets. You can buy cheap, relatively safe stocks on big dips … but you have to remember to then follow up by selling into big rips. You can’t just count on a rising bull market tide to carry your shares to new highs and beyond. If you’re more aggressive, go a step further. Hedge your downside risk or target downside profits by adding inverse ETFs or put options into big rallies. They can pay off handsomely in times like these. Above all, please stay safe. We’ve seen two major bear markets in the past 16 years — bear markets that wiped out vast amounts of wealth. If this is truly the third great bear of this young century, you don’t want to suffer those kinds of losses again. Taking some protective steps will ensure you don’t. Post Comment Private Reply Ignore Thread
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