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60% Polled Expect Federal Reserve to Taper Bond Purchases Starting December

The U.S. Federal Reserve is expected to clear the way for reductions to its monthly bond purchases later this year…

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This article was originally published by Baystreet

The U.S. Federal Reserve is expected to clear the way for reductions to its monthly bond purchases later this year in its latest policy statement to be issued today (September 22).

 

Central bank policymakers, who are wrapping up their latest two-day meeting, have been handed a conflicting set of developments since late July – signs of a slowdown in the service sector, a COVID-19 resurgence that has eclipsed that of last summer, and weak job growth in August, all alongside still strong inflation.

 

Fed officials have said the economic recovery will continue and allow the U.S. central bank to proceed with plans to reduce its $120 billion U.S. in monthly purchases of U.S. Treasuries and mortgage-backed securities by the end of 2021, and wind them down fully over the first half of next year.

 

But outside analysts expect the American central bank to hedge on exactly when the “taper” might begin, and tie it to a rebound in job growth following the disconcertingly tepid report in August, when only 235,000 jobs were created.

 

The Fed is due to release its latest policy statement and economic projections at 2 p.m. Eastern time with Federal Reserve Chair Jerome Powell holding a news conference half an hour later to discuss the outcome.

 

The U.S. job market remains about 5.3 million positions short of where it was before the pandemic. Financial markets have been roiled in the last week by concerns about spillover effects from the potential collapse of a large Chinese property developer, China Evergrande Group, and the S&P 500 index started the week with its largest daily loss in four months.

 

More then 60% of economists polled by Reuters News Agency said they expect the tapering of the bond purchases to begin this December.

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Economics

3 Top Stock Trades for the Week

Editor’s Note: This article is updated weekly to bring you fresh trade ideas.

The risk-on rally is continuing in earnest on Monday. Headlines will…

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Editor’s Note: This article is updated weekly to bring you fresh trade ideas.

The risk-on rally is continuing in earnest on Monday. Headlines will point to the S&P 500 pushing to a new record high, but what traders should find most impressive is the breadth of participation. Buyers aren’t just coming after stocks. They’re scooping up commodities and crypto too. Given the tailwind, this week’s update to the top stock trades gallery features three bullish ideas.

In scouting for the best opportunities, I found a diversified list to give you plenty of options.

First up is a red-hot retailer that has made bank of the post-pandemic economic recovery. Next comes an exchange-traded fund (ETF) offering a path to play a potential year-end breakout in small caps. Finally, we’ll break down a steel company that’s ramping after passing a recent earnings test.

That said, here are the tickers:

  • Dick’s Sporting Goods (NYSE:DKS)
  • iShares Russell 2000 ETF (NYSEARCA:IWM)
  • Steel Dynamics (NASDAQ:STLD)

As always, we’ll do a quick rundown of each chart, followed by an options trade.

Top Stock Trades: Dick’s Sporting Goods (DKS)

Dick's Sporting Goods (DKS) with inverted head & shoulders patternSource: The thinkorswim® platform from TD Ameritrade

Earnings growth for Dick’s Sportings Goods has been explosive over the past 18 months. Its best quarter EPS in the year before the pandemic was $1.26. It just reported $5.08. Its share price has reflected the incredible recovery by rising more than 10-fold from last March’s low. Spectators loath to chase will be happy to learn that DKS stock just pulled back 23% from its highs, providing a compelling chance to get in at lower prices.

The daily chart just completed an inverted head and shoulders pattern, confirming buyers are returning. Additionally, today’s 1.5% rally is pushing prices back above the 50-day moving average and suggests now is a smart time to enter.

Implied volatility is high enough to make spreads a better choice than buying calls outright.

Top Stock Trades: Buy the December $130/$150 bull call spread for $5.50.

You’re risking $5.50 for the chance to make $14.50 if DKS stock rises to $150 by expiration.

iShares Russell 2000 ETF (IWM)

iShares Russell 2000 ETF (IWM) with looming breakoutSource: The thinkorswim® platform from TD Ameritrade

If you’re hesitant to chase the S&P 500 at all-time highs, then consider shopping small-caps. The Russell 2000 Index has done nothing for the last 10 months. As a result, we have a long-term trading range that could lead to some serious upside once resistance gets breached. The silver lining of price pausing is it has allowed earnings to play catch-up and stretched valuations to become less so.

Although IWM has been unsuccessful in breaking out of its range, I think it’s just a matter of time. And, with the bullish seasonality of November and December looming, a year-end run could finally deliver what bulls have been waiting for.

Over the past two weeks, small caps have pushed toward the upper end of the range, placing us within striking distance of another resistance test.

I like using bull call spreads to profit from the expected move higher.

Top Stock Trades: Buy the December $230/$240 bull call spread for $4.

You’re risking $4 to make $6 if IWM rises above $240 by expiration.

Top Stock Trades: Steel Dynamics (STLD)

Steel Dynamics (STLD) stock chart with bullish breakoutSource: The thinkorswim® platform from TD Ameritrade

The basic materials sector benefits when inflation heats up. Nowhere has this been more apparent than in the steel industry. Consider the past four EPS quarterly numbers for Steel Dynamics: 97 cents, $2.10, $3.40, $4.96. Talk about an eye-popping profit surge! It’s no wonder STLD has doubled in price this year.

Though the stock didn’t move much after the latest report, prices are now breaking through resistance. We’re also back above all major moving averages, which clears out a lot of potential supply. Volume patterns have been heavily favoring bulls in the wake of last week’s report as well.

To capitalize on the follow-through from Monday’s breakout, consider the following idea.

Top Stock Trades: Buy the December $70/$75 bull call spread for$1.35.

You’re risking $1.35 to make $3.65 if STLD rises to $75 by expiration.

On the date of publication, Tyler Craig was long IWM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!

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Author: Tyler Craig

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Precious Metals

Hedge Fund CIO: The Market Knows That The Fed’s Next Rescue Will Be The Biggest Ever

Hedge Fund CIO: The Market Knows That The Fed’s Next Rescue Will Be The Biggest Ever

By Eric Peters, CIO of One River Asset Management

“I…

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Hedge Fund CIO: The Market Knows That The Fed’s Next Rescue Will Be The Biggest Ever

By Eric Peters, CIO of One River Asset Management

“I do think it’s time to taper,” said Jay Powell, struggling to be heard above the whir of his magnificent money machine, wet Benjamins flying off the press. $120bln per month. “But I don’t think it’s time to raise rates,” added the Fed Chairman, cautious, haunted by Bernanke’s Taper Tantrum. Way back then, in the Spring of 2013, bearded Ben, the Princeton Professor with one too many PhDs, dropped the hint that maybe, just possibly, he might potentially slow the pace of printing.

Bond prices collapsed. 10yr yields jumped from 1.65% to 3.00% in a flash. That’s the kind of thing that only happens when markets are utterly surprised — a truly rare event. Markets almost always anticipate policy announcements, whether from central bankers or presidents.

Millions of global traders and investors – intellectually and philosophically diverse, intensely focused, triangulating, weighing, placing bets sized according to their conviction, their precious capital at risk, with the most talented deploying the largest sums, exerting the greatest influence – produce humanity’s only true artificial intelligence. A superorganism, as magnificent as it is heartless, vicious to those who oppose its verdict: the wisdom of crowds.

“We need to watch, and watch carefully, and see if the economy is evolving consistent with our expectations and adapt policy accordingly,” explained Powell, doing his best to play the highest stakes game of his career with the weakest hand of any central banker in living memory. You see, for decades, the mega macro-trends of expanding globalization, breathtaking technological advance and favorable demographics, combined to produce a global disinflationary environment.

This allowed central bankers to pursue increasingly aggressive monetary policies to moderate the economic cycle.

Now we find ourselves at a point where central bankers fear making a misstep that sparks a stock and bond market reversal which would force them to come to the rescue in even greater size. The market knows this. And sizing up a tentative Fed, the market in its infinite wisdom taunted the Fed, pushing the S&P 500 to an all-time high. Bitcoin too.

1987: The stock market crashed on Oct 19, 1987. Almost everyone knows this. Ask people to explain why it happened, they’ll tell you portfolio insurance combined with program trading created a structural weakness in market structure so that lower prices produced more selling. Some might blame comments on the preceding Sunday night from Treasury Secretary Baker. They’re probably right. But what most people will forget to mention is that the S&P 500 printed its all-time high on Aug 25, and in its infinite wisdom had fallen 16% before the crash.  

Gulf War I: Saddam invaded Kuwait on Aug 2, 1990. Oil prices soared. Coalition forces from 35 nations assembled forces in the region. On Jan 16, 1991, they struck. The CNN video images remain seared in our memories. Oil futures soared that night, briefly. Then collapsed. Prices closed the day down an unprecedented $10.56, settling at $21.44 which was 10 cents below the August 1, 1990 close (the day before the invasion). As a young trader, I watched in awe as the market destroyed those who over-leveraged themselves to an all but certain outcome.

1994 Bond Crash: Greenspan held rates at 3.00% for 17mths which was plenty of time for financial engineers to construct highly leveraged negatively-convex products to boost returns for those who needed higher yields. The Fed shocked markets in Feb 1994 with a rate hike. Bond prices crashed, with yields surging from 5.85% to 8% in Nov 1994. But despite the cries of surprise, markets had started moving well before the Fed hiked. 10yr yields had already sniffed out the policy shift, sending a quiet signal, jumping from 25yr lows of 5.20% in Oct 1993.

9-11: Only very rarely do terrible things happen when markets are in strong bull trends. When stocks reverse abruptly after a historic rise, it is usually for no apparent reason. Somehow, in some way, the wisdom of the crowd tends to sense approaching doom and prices start falling before something bad happens. Stocks were down 30% from the highs and 1.5yrs into a bear market when the planes hit. And stocks were 23% off the highs and 11mths into a bear market when Lehman went bust. If China invades Taiwan, it is unlikely it’ll happen near all-time highs.

Covid-19: The S&P 500 hit record highs on Feb 19, 2020. A month later, it closed 42% lower. Unlike so many tragedies, the pandemic hit with stocks right near their apex. Even so, the market had been sending signals that something wasn’t quite right. The S&P 500 rallied strongly in January 2020, yet implied volatility failed to decline. In fact, it moved slightly higher. For those who have suffered enough to learn to really listen, such signals are whispers to “watch out.” The market, in its infinite wisdom, is an imperfect crystal ball, but it’s the best one we have.

IPOs: Coinbase went public April 14th. The excitement was extraordinary. Bitcoin hit a record high that day at $64,899. And for so many young traders who have yet to learn how terrifyingly efficient the market is at separating speculators from their money, the immediate decline in Bitcoin prices was terrifying. Three months later, after an avalanche of negative headlines and a move by China to ban crypto mining/trading, Bitcoin traded 55% lower. It made record highs this week as new ETFs went live. And once burned by a reversal from these levels, the market psychology and trading setup is quite different this time around. A new lesson to be learned.

Anecdote: The market is never wrong. The price it produces reflects the collective wisdom of humanity, weighted toward those with the most capital at risk. And because money generally flows to those with the greatest aptitude, the collective judgement resulting from their aggregate bets – reflected in the market clearing price – does a better job than any other forecasting algorithm ever developed. But just because such a system is superior to all others does not mean there are no opportunities to profit. Most make the mistake of taking the market head on, trying to out-forecast it. They find their periodic successes heroic, thrilling. But in time, the odds destroy them. Survivors make money by studying market movements for decades, listening, watching, learning. Reacting to familiar setups. The most fundamental truth in the game is that for every buyer there is a seller. And vice versa.

Before you go short, understand who will sell to you at a lower price in the future. The most reliable future seller is someone who owns something that fails to move higher even though the fundamental news suggests it should rise. When such longs get stubborn and angry that the market starts sliding, the odds rise dramatically that they will eventually puke at much lower prices. The gold market is a candidate for that kind of setup. People bought too much of it in a panic, to protect themselves from inflation after the 2008 QE money printing. They hoped their children would eventually buy it from them at much higher prices.

But inflation finally arrived, and yet gold stopped going up. Now their kids are buying digital assets – they’ll never buy gold. And this also leads to a bullish digital setup. The most reliable future buyers of innovative assets are those who are stubbornly resistant to change even as it manifests, stuck in investments that are underperforming and in companies that are being unseated.

So naturally, they will be the future buyers of digital assets and the infrastructure that they represent.  

Tyler Durden
Mon, 10/25/2021 – 14:35









Author: Tyler Durden

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Economics

Monday Amusement: The New Normal Investing Rules For A ‘QE’-Driven Market

Monday Amusement: The New Normal Investing Rules For A ‘QE’-Driven Market

Authored by Lance Roberts via RealInvestmentAdvice.com,

A recent…

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Monday Amusement: The New Normal Investing Rules For A ‘QE’-Driven Market

Authored by Lance Roberts via RealInvestmentAdvice.com,

A recent post on CNBCdiscussed Bob Farrell’s 10-Investing Rules. These rules have withstood the test of time as it relates to long-term investing.

Here’s a list of Farrell’s 10-rules:

  1. Markets tend to return to the mean over time

  2. Excesses in one direction will lead to an opposite excess in the other direction

  3. There are no new eras — excesses are never permanent

  4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

  5. The public buys the most at the top and the least at the bottom

  6. Fear and greed are stronger than long-term resolve

  7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names

  8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend

  9. When all the experts and forecasts agree — something else is going to happen

  10. Bull markets are more fun than bear markets

However, given more than a decade of QE-driven bull market advance, I wondered what they might be like if Bob Farrell was alive today. Would he have changed his mind?

With this in mind, I present Bob Farrell’s 10-Investing Rules For A “QE” Driven Market. (Tongue firmly implanted into the cheek, of course.)

1) Markets Remain Deviated From The Long-Term Means Over Time

Bob believed that stock prices get anchored to their moving averages. As such, with regularity, prices must and will revert to and beyond those means over time.

However, as any young retail investor will tell you, such “boomer” ideas must be “put out to pasture,” as they say in Texas. All you need is a fresh round of “stimmies,” some “rocket emojis,” and you have all the ingredients necessary for a bull market.

Sure, prices certainly get overextended, but any dip is a buying opportunity because the “Fed put” ensures any downside is limited.

2) Excesses In One Direction (On The Upside) Lead To More Excesses

“Ole’ Boomer Bob” antiquated notion that markets, which can and do overshoot on the upside, will also overshoot on the downside, is also clearly wrong. The further markets swing to the upside, the higher they should go.

There is no reason not to buy stocks as long as there are low interest rates, liquidity, and a mobile trading app. Sure, prices are a “smidge” above fair value, but valuations are such an antiquated metric. Also, plenty of articles suggest the “P/E” ratios are terrible market timing devices, so why even pay attention to them?

Sure, the market-capitalization ratio is almost 3x what the economy can produce, but we have never been in a market like this before. With all the Fed and Government money paying for everything, there is no reason to be productive when everyone can stay home, trade stocks and play “Call of Duty – Warzone.”

3) There Are No New Eras – Except This Time As Excesses Are Permanent

There will always be some “new thing” that elicits speculative interest. Over the last 500 years, there were speculative bubbles involving everything from Tulip Bulbs to Railways, Real Estate to Technology, Emerging Markets (5 times) to Automobiles, Commodities, and Bitcoin.

Jeremy Grantham posted the following chart of 40-years of price bubbles in the markets. During the inflation phase, each got rationalized that “this time is different.” 

But Jeremy is an old “boomer” that doesn’t understand current markets.

Multiple media sources pen articles stating valuations don’t matter. As long as interest rates are low, the Fed provides liquidity; stocks can only go up. That is a much better narrative, and if I put out a 1-minute video on “Tik-Tok, I can get a bunch of followers.

4) Rapidly Rising Markets Go Further Than You Think, But Correct By Going Even Higher.

The reality is that excesses, such as we are seeing in the market now, can indeed go much further than logic would dictate. However, these excesses, as stated above, are never worked off simply by trading sideways. Instead, excessively high prices are “corrected” by prices just going higher in this new market.

That makes complete sense to me.

5) The Public Buys The Most And The Top, And More At The Next Top

After more than a decade of Fed interventions, investors believe that buying at the current “top” will be a bargain compared to an even higher top coming. Sure, logic would dictate the best time to invest is after a sell-off, but if you have “Diamond Hands,” you need to keep buying because prices will only go up.

6) Fear (Of Missing Out) And Greed Is All That Matters

As stated in Rule #5, emotions cloud your decisions and affect your long-term plan.

“Gains make us exuberant; they enhance well-being and promote optimism,” says Santa Clara University finance professor Meir Statman.  His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”

What is clear is that Meir Statman does not have “Diamond Hands.” While he is correct, there are only two primary emotions any investor should have.

  1. FEAR – The “Fear Of Missing Out;” and,

  2. GREED – The “Cojones” to take out debt, lever up. and ramp your “risk bets” in this one way market.

In the words of Warren Buffett:

“Buy when people are fearful and sell when they are greedy.”

Clearly, “Boomer Buffett” doesn’t get it either. But, of course, he is the same idiot sitting on $150 billion in cash whining because he can’t find anything to buy. So if he was indeed an “Oracle,” why didn’t he load up on AMC and GameStop?

7) Markets Are Strongest When The Fed Is Dumping Liquidity Into The System

“Breadth is important. A rally on narrow breadth indicates limited participation and the chances of failure are above average. The market cannot continue to rally with just a few large-caps (generals) leading the way. Small and mid-caps (troops) must also be on board to give the rally credibility. A rally that “lifts all boats” indicates far-reaching strength and increases the chances of further gains.” – Every “Old” Technical Analyst

Sure thing, “Boomer.”

To crush the market, all you have to do is buy the 10-fundamentally worst companies that have the highest short-ratios, leverage it up with margin debt and options, and sit back. Then, the “ATM” will start spitting out money.

All you need to watch is for a change in the Fed.

The high correlation between the financial markets and the Federal Reserve interventions is all you need to know to navigate the market.

Those direct or psychological interventions are all you need to justify taking on all the speculative “risk” you muster.

8) Bear Markets Have Three Stages – Up, Up, and Up.

“We don’t have no stinkin’ bear markets.”

Any decline in the market is just a good reason to take on even more risk. Given the Fed will stop any market crash by injecting trillions in liquidity, buy.

After all, before the “economic shutdown,” I had to work three jobs (Uber, Lyft, and Amazon delivery) to make ends meet. Now, I sit at home, trade stocks, and make “TikTok” videos about all the money I am making. Plus, once I get to 100,000 followers, I increase my income by doing affiliate marketing and getting my followers to trade on Robinhood.

What could go wrong with that?

9) When All Experts Agree – Whatever They Agreed On Is Likely To Happen

Another old “boomer,” Sam Stovall, the investment strategist for Standard & Poor’s, once quipped:

“If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

Well DUUHHHH!!! Who wants to sell? That is just stupid.

10) Bull Markets Are More Fun Because Bear Markets Don’t Happen Any Longer.

What should be clear by now to anyone is that after 12-years of monetary interventions, “Bear Markets” can no longer happen.

So, suck it up, quit your complaining, and “Party On Garth.”

This Time Isn’t Different

If you detected a hint of sarcasm in today’s post, don’t be surprised.

Like all rules on Wall Street, Bob Farrell’s rules are not hard and fast. There are always exceptions to every rule, and while history never repeats exactly, it often “rhymes” closely.

Nevertheless, these rules get ignored during periods of excess in markets as investors get swept up into the “greed” of the moment.

Yes, this time certainly seems different. However, a look back at history suggests it isn’t.

When the eventual reversion occurs, individuals, and even professional investors, try to justify their capital destruction.

 “I am a long term, fundamental value, investor. So these rules don’t really apply to me.”

No, you’re not. Yes, they do.

Individuals are long-term investors only as long as the markets are rising. Unfortunately, despite endless warnings, repeated suggestions, and outright recommendations, getting investors to manage portfolio risks gets lost in prolonged bull markets. Unfortunately, when the fear, desperation, and panic stages get reached, it is always too late to do anything about it.

Those with “Diamond Hands” will eventually sell at the worst possible time.

Just remember, “Old ‘Boomer Bob’” did warn you.

Tyler Durden
Mon, 10/25/2021 – 14:25








Author: Tyler Durden

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