Category Archives: Insider Trading

Insider Trading

The End Is Near

There’s been something missing from the current market.

Throughout history, we haven’t had a bubble until there was a new way of thinking in the markets.

Well, I think the Spirited Funds/ETFMG Whiskey & Spirits ETF (NYSE: WSKY) proves that final piece of the puzzle is in place.

WSKY is an ETF that invests in companies that make booze.

Too much of a niche product for you? Then maybe the ETFMG Video Game Tech ETF (NYSE: GAMR) is for you. This one buys only video game companies.

Exchange-traded funds (ETFs) are baskets of stocks that are bought or sold as a unit.

ETFs offer investors a low-cost way to obtain a diversified portfolio. They are a good thing, but Wall Street always takes good things too far.

The Final Piece of the Bubble

The number of ETFs has grown as Wall Street created indexes. Any index can be turned into a fee-generating ETF. That explains why we now have more indexes than individual stocks.

ETFs offer investors a low-cost way to obtain a diversified portfolio. They are a good thing, but Wall Street always takes good things too far.

(Source: Bloomberg)

The history of Wall Street excesses includes turning subprime mortgages into derivatives that would destroy the financial system we knew in 2008.

In the late 1990s, Wall Street used accounting rules to turn internet startups into billion-dollar companies.

In 1987, portfolio insurance led investors to believe it was impossible to suffer a large loss in stocks.

You’ve probably noticed all these developments ended in disasters. In 1987, the Dow Jones Industrial Average fell more than 22% in one day. In 2000 and 2008, the Dow fell more than 50%.

This desire to take things too far predates Wall Street. The very first bubble in history imploded after futures on tulip bulbs were created in 17th century Holland.

The creation of stocks led to a bubble in 18th century England. Railroad bonds led to several bubbles in the 19th century. Emerging market debt first imploded in the early 20th century.

As stocks rallied this year, valuations became stretched. Irrational valuations are one part of a bubble. We were missing the final piece of the bubble, which was the new way of thinking.

ETFs now provide that piece of the bubble.

The Most Likely Path of the Stock Market

Some investors are buying ETFs because they think stocks only go up. This group is ignoring valuation and buying plain vanilla index funds. Trillions of dollars are now in funds that are designed for long-term investors.

When the next bear market comes, this money will drive downside risks when investors see stock prices go down as well as up.

Billions of dollars are in leveraged ETFs. These funds move two or three times more than their underlying index. They will lose money twice or thrice as fast, as plain vanilla funds are another source of selling pressure.

Volatility funds also hold billions of dollars. These ETFs will move wildly in a bear market as volatility increases, scaring investors out of the funds and creating even more volatility.

All of this means the end is near.

Bubbles always end with a sharp rally up. That’s the most likely path of the stock market through the end of the year.

In a bubble, some investors wonder what to buy. The answer is to buy everything until the bubble pops. It’s time to enjoy what’s likely to be a once-in-a-generation rally.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader

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Source: Banyan Hill 

Insider Trading, Options

The Most Likely Time for Market Panics Is Over the Next 30 Days

At our Total Wealth Symposium conference two weeks ago, the main question I got was: Where do I see the market headed in the next few months?

It’s one of those questions you need a crystal ball for, because the truth is, no one knows.

We have an idea, and we follow our indicators and other tools to help us gauge where the market is heading. But in the end, it’s an answer that changes from day to day.

One of the tools I use is a calendar based on an 18.5-year cycle.

The calendar dates back to 1784 and has identified major bear and bull markets, as well as shorter-term market panics and stock market rallies.

And 2017 is a year where, according to the calendar, market panics are likely.

But here we are, starting the 10th month of the year, and there hasn’t been any.

However, the year’s not over yet. And the most likely time for market panics is over the next 30 days…

A Pattern of Pullbacks

The calendar identifies each year with a letter.

For example, in 2007 to 2008 the calendar called for extreme low prices, and it expected a new stock market cycle to begin after that, which would lead to several years of rising prices. Just like the calendar predicted, the market bottomed in March of 2009 and rose rapidly for several years.

The year 2017 is annotated by the letter F, which means stock market panics are likely.

So, in April, I went back and showed you how each year that ended with an F stacked up since 1900.

Take a look at this chart of the previous years marked with an F and the max drawdown during those years (from highs to lows):

A 233-year-old calendar has predicted history’s major bear and bull markets. And 2017 is a year where, according to the calendar, market panics are likely.

According to data based on the Dow Jones Industrial Average, each of those years suffered at least a 5% pullback.

So far in 2017, the max drawdown (the difference from the highs and lows this year) is about 3%.

Does that mean this year will not have a 5% correction? I don’t know yet.

But what I do know is that if we are to see one, the month of October is the most likely time it will occur. Here’s why…

The Most Volatile Month

Going back over 100 years, October is a historically volatile month. It’s actually the most volatile, with a standard deviation (a measure of volatility) of 1.44%. The average of all 12 months is just 1.08%.

You can attribute the reasons for October being the most volatile to many historic drops, crashes and downright panics occurring during the month.

The Dow experienced a 554-point drop on October 27, 1997. A 733-point drop on October 15, 2008. And in 1987, the Dow plunged 22% on October 19.

It also experienced crashes in October of 1929, 1978 and 1979, and October marked the highest just before the bear market in 2007.

With the 18.5-year cycle calling for at least a 5% correction this year, October poses the best opportunity for that.

I’ll continue to follow the markets closely. Even though this calendar is accurate overall, precise dates are off, and the panics could be up to a year from today. So even if we survive 2017 without a panic, we are not in the clear yet — a panic is still likely.

The good news is that this will be just a correction. The calendar doesn’t call for an all-out bear market until we get into the 2020s.

Regards,

Chad Shoop, CMT
Editor, Automatic Profits Alert

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Source: Banyan Hill

Insider Trading, Uncategorized

When This Chart Changes, All Markets Will Crash

This is a chart of what investors believe inflation will average over the next 10 years. It’s based on what the current interest rates are.

It’s always close to the current rate of inflation. In other words, investors believe inflation will stay about the same.

That’s a surprisingly accurate assumption. Inflation generally does stay within a narrow range.

But when it unexpectedly jumps, like it did in 1968, the stock and bond markets fall.

The Federal Reserve calls this important metric “inflation expectations.” It understands that if expectations are stable, markets are fine.

But if inflation jumps, expectations will jump. The Fed’s goal is to manage expectations.

When inflation jumped in 1968, expectations stayed high for more than 20 years. Stocks suffered four distinct bear markets from the next 15 years. A bear market in this case is a decline of at least 20% in the S&P 500.

If inflation and inflation expectations jump, that will happen again.

Investors will see volatility and declines more often. Consumers will suffer as prices rise at stores. Overall, it will simply be terrible.

And it’s likely to happen within the next few years.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader

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Insider Trading, Technology

Buy These 3 Stocks Before the Next Big Computer Hack

According to a Lloyds of London report issued in July, a global cyber attack could result in damages of as much as $121.4 billion. But based on the growing frequency of such cyber attacks and hacks, this estimate will likely turn out to be too conservative.

The reason is straightforward. The world’s volume of data has been growing exponentially year after year, with the trend really accelerating after 2005. This gives cyber criminals more and more opportunity to gain access to massive amounts of data in a single breach. And potentially a bigger payoff.

Research from IT services firm DXC.technology gives us an idea of how much of our data is out there, exposed to unsavory people. Its research forecast that…

  • By 2020, over one-third of all data will live in or pass through the cloud.
  • In 2020, data production is estimated to be 44 times greater than in 2009. That’s a 4,300% increase!

The reality is that our personal data as well as corporate and government data will become more and more exposed to those who would exploit access to such data. That does open though a world of opportunity for investors. More on that later.

But first, more on this nasty underside of life in the 21stcentury coming to the fore again as the credit-reporting agency Equifax (NYSE: EFX) revealed a massive breach of its cyber defenses.

Equifax Debacle

Equifax, with $3.1 billion in revenues in 2016, has a dual role as both a credit-data bureau and fraud monitor. Yet, its cyber defenses could be best described as a sieve.

The hack, which began in mid-May, went undetected for two and a half months. Exposed were the personal records of up to 143 million Americans. That’s nearly half the U.S. population, folks.

The hackers gained access to both the credit card files as well as the company’s back-end systems that store exhaustive data profiles on consumers. This data included Social Security numbers, driver’s license numbers and other sensitive information.

This isn’t the industry’s first brush with poor security of customers’ data. In 2013, it was discovered that an identity thief in Vietnam ran a service that helped others access millions of Americans’ credit reports from a company Experian PLC (OTC: EXPGY) had recently purchased.

Of course, massive data breaches aren’t confined to just this industry. Last December, Yahoo (now part of Verizon (NYSE: VZ) revealed that attacks between 2013 and 2016 had compromised the personal information of more than a billion users. The data stolen included names, phone numbers, birth dates and passwords.

But Equifax’s approach to the breach seemed particularly egregious to me.

First, it did not report the breach for 40 days – just beating the deadline of 45 days, which certain states require. Then, if you were affected by the hack and sign up for Equifax’s offer of one year of its TrustedID product, which scans the black web for your stolen information, you lose all rights to sue the company.

And finally, three Equifax executives sold $1.8 million worth of stock just days after the breach was discovered. That may have been a coincidence, but still the stench from Equifax is almost overwhelming. Talk about a stock to avoid.

More Dangers Lurk

You and I are more at risk though from more than just fraud being committed in our name. Other types of hackers are aiming at other important targets in our lives.

According to a report from cyber security company Symantec (Nasdaq: SYMC), hackers have breached the operational systems of utility companies in the U.S. Symantec says they are lying in wait with the ability to switch off the power and sabotage computer networks.

The group of hackers goes by several names – Dragonfly, Energetic Bear and Berserk Bear. The group is believed to have ties to Russia and has been around for a while. In 2014, it is believed to have compromised the systems of more than 1,000 organizations in 84 countries.

Access is almost too easy for these hackers. With the recent hack of U.S. utilities, entry was gained by simply tricking employees into opening Microsoft Word documents that steal employees’ usernames and passwords.

The danger is very real. Eric Chien of Symantec said that even if hackers compromised a small electric utility company, they could put the power grid at risk by either removing or putting too much power into the grid.

This should not come as a shock to any of us. In July, the Department of Homeland Security and the FBI warned that the U.S. energy industry had been targeted by hackers.

Cybersecurity Investments

While these hackers may be waiting for the exact right moment to strike, you should not.

Wall Street continues to largely ignore the threat of cyberattacks and hacks. This has left most cybersecurity stocks trailing the performance of other technology sectors, making them relative bargains.

For the broadest possible exposure to the sector, I like the ETFMG Prime Cyber Security ETF (NYSE: HACK). It is up nearly 13% year-to-date and just 10% over the 52 weeks.

Its portfolio consists of 25 stocks, with its top five positions being: Palo Alto Networks (NYSE: PANW), Cisco Systems (Nasdaq: CSCO), the aforementioned Symantec, Splunk (Nasdaq: SPLK) and the British cybersecurity firm, Sophos Group.

This group of stocks contains my next two choices – Symantec and Palo Alto Networks. These companies are benefiting from the growth of the IT security industry from $75 billion in 2015 to $101 billion in 2018, according to IT research firm Gartner.

Symantec provides a wide range of Internet security solutions to both individuals (41% of revenue) and businesses (59% of revenue). You probably have one of its Norton products installed on your computer.

The company’s last earnings report was strong with revenues jumping nearly 33% year-on-year. These kind of results should continue propelling the stock higher (up 34.5% year-to-date and 31.25% over the past 52 weeks).

Palo Alto Networks offers network security solutions, such as next-generation firewall products, to businesses, service providers and governments. As of the end of 2016, the company was third in the security appliance segment (in terms of revenues) trailing only Cisco Systems and Check Point Software Technologies (Nasdaq: CHKP).

It continues gaining customers, with it recently adding 3,000 to its 42,500 global customer base. I also like the fact that Palo Alto’s balance sheet is strong with cash on the books and no debt obligations.

As with Symantec, its latest quarterly report was good with revenues climbing 27% year-on-year. Those kinds of numbers should finally get the stock going. It is up more than 16% year-to-date, but just 1% over the past year.

Owning some sort of cybersecurity is one of the rare no-brainers in the investment world, especially in light of recent events like the Equifax breach.

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Source: Investors Alley