In some other brief notes, first here's the schedule for the coming week, it starts out light and picks up some steam from there with the F_O_M_C_ minutes due out this week on Wednesday, this could be a pivotal event, the last release of the minutes caused the market some trepidation, we'll see what these bring.
What is interesting as I spoke with some member's this weekend about the nature of bubbles, is the defining feature of every bubble I've studied back to the Dutch Tulip Craze of the 17th century, with an excerpt from Wikipedia:
"At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble"
There are some great stories and interesting events such as a man who paid the equivalent of about $100,000 today for one bulb, only to find out a sailor had mistaken it for an onion and ate it. The craze was caused by a virus that had infected the tulips and created spectacular colors, men made and lost fortunes overnight trading bulbs they had never laid eyes on.
In any case, in keeping with the tone of my discourse, there's one defining feature of every bubble and that is the words, "This time it is different". I recall them very well during the housing boom and all logical thoughts, but all the same, the hallmark of a bubble.
I had also talked a little about how many believe the F_E_D is what makes "This time different", however almost all bubbles have ended abruptly and in ways few had imagined in strange corners that were the end of a chain of cause and effect events, again, ending in ways in most cases that most would never have imagined. The F_E_D is unchartered waters with this type of policy accommodation, there's a split at the F_E_D and F_O_M_C because of this very situation, that is why the minutes will be more enlightening than the last policy directive/statement was.
One of the events of the G20 was the failure to stop a wave of currency devaluations which are a type of trade war. The one constant that has been observed when currency devaluations take place is the flocking to the reserve currency which is the $USD, so while other nations send their currency plummeting, the USD tends to rise as buyers move to the reserve currency. I probably don't need to point this out, but a rising $USD is bad for stocks for many reasons, just chart the $USD vs any major index and you'll see the inverse relationship.
As for the FX market's open this week... No big surprises
Equity Futures are open for a brief time, they'll close tomorrow with the rest of the market in observance of the holiday, tonight though they are little moved from Friday's 4 pm levels.
One thing we will be looking toward this week is the Cats and Dogs trade, many of you may recall it, the cheapest stocks, the Cats and Dogs of the market tend to do well right before a market turn south, the reason being new retail money, such as we have been seeing so far this year missed out on the initial move and are now stepping in the market ( a type of greed), but like all humans, they are looking for sale items and rather buy those than the high flyers.
I have thought about this a lot this weekend, it is evident in the Percentage of stocks 1 and 2 standard deviations above their 40 day moving average as well as stocks just above their 40 day moving average as all have declined severely over the last several weeks as I have posted several times, that the high flyers are being skipped over in favor of stocks on sale, the Cats and Dogs.
If you look at the gains of the Russell 3000 vs the Russell 2000 (the smaller 2/3rd's of the R3K), you'll note the smaller cap index is doing better just as the NASDAQ Composite is doing better than the biggest of the NASDAQ components, the NASDAQ 100/NDX/QQQ. Yes, the trend is toward the smaller stocks, in essence, the "Sale Items", which has always done 2 things for us, act as a warning for the market and provided some very fast 1-3 day trades that pop from 10% to sometimes 100+% (average 30-50%) in 1-3 days and this is just the stock only, no options or leverage. However the season of the cats and dogs, something I've been documenting for at least 6 years and we have successfully played here several times, is short-lived, yet fruitful. I've already identified a number of these stocks, many have popped off already, but there are still some good looking plays available, as always, Take What the Market Gives, even if the season is brief.
Enjoy President's Day.
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