WASHINGTON, January 29, 2013 – It’s harder and harder to game this market. January has been a spectacular amount of fun for the bulls thus far, generating even more bullishness in the process. What started out as a typical upward run for the annual year-end bounceback* candidates gained momentum when high-yielding stocks jumped aboard.
The fast-moving train has chugged irresistibly forward from that point with the notable exception of Apple (AAPL). The stock that everybody loved throughout most of 2012 has now become a social pariah because it generated merely way-cool profitability last quarter instead of god-like dominance over the technical space.
The market looked to cool off a bit this morning, but is starting to storm ahead again as of about 11:15 a.m. EST. Fuels, which looked a bit anemic yesterday, are getting goosed again this morning, although our beloved, fuel-oriented MLPs are getting hit a bit for the second straight day, undoubtedly due to some profit-taking, which we find incomprehensible as many of these stocks are either about to or just have gone ex-dividend.
Note, BTW, that on the actual ex-dividend day, stocks are generally marked down by the amount of the dividend that new holders won’t receive. However, anticipatory selling of several MLPs exceeds this number indicating that holders are more interested in copping January’s capital gains rather than waiting around for the dividend.
Anyhow, we seem to be moving back into another Waiting for Godot moment in the market, with a hat tip to Samuel Beckett whose famous, much-anticipated character never actually shows up in the play that bears his name. That’s why we’ve re-run a scene from that play in our header graphic today—for the umpteenth time over the past year, by the way, as so many market days have been just like the non-event in that classic theater of the absurd drama by the Irish playwright who became a Frenchman.
Why Godot? Because we’re always waiting for a cosmic “something” in this market. The current iteration of that “something” is one of the usual suspects: the Fed’s latest Delphic pronouncements, due tomorrow. Traders are eagerly searching for clues laid like Hansel and Gretel bread crumbs in the Fed’s latest oracle that might hint, one way or the other, as to when the current QE punchbowl might be taken off the party table. Frankly, we’d be surprised at any hints at all on this matter, as the Fed’s current aim, clearly, is to spike the market averages enabling all of us to feel wealthier again. But who really knows?
The Fed has stated in a notably forward manner that it’s currently most concerned with moving the unemployment rate down from approximately 7.8% (15+% if you live in the real world) to around a “normal” 5% (12% in Obamanation reality). That rate, however, is likely to remain relatively stagnant unless homebuilding really picks up this spring. And the continuing fear of Obamacare will keep prospective employers, particularly in smaller firms, from indulging in too much employment-style irrational exuberance.
Ergo, the Fed is likely to continue its indefinite pump-priming unless, mirabile dictu, Congress and the President get serious about making real, meaningful, lasting cuts to the government that include a rational first-move toward addressing the nation’s intricately nested entitlement Ponzi schemes. If the Fools on the Hill actually did something meaningful along these lines this spring, the Maven would probably abandon this column and live out the rest of his days in the local Trappist monastery just down the road for us on the Shenandoah.
But what we’re driving at is this: buying is petering out, the bulls are still keeping the low-volume market elevated, but charts and numbers tell us some kind of correction, or at least a pause, is coming to the market, and soon. So playing defense is the best way of waiting for Godot this time around, peeling off nice-percentage winners and taking gains little by little instead of making new commitments.
We continue to hold our REITs and MLPs; look for interesting IPOs and secondaries (one of which, a Pfizer spinoff, will allegedly arrive Friday); occasionally violate our own rule by rebalancing our investment mix; but, in general, slowly selling stocks that have gained a lot. If you’re in that situation, it’s best not to get greedy when the market is getting toppy. Take some winnings off the table if you have them. There will always be some nice markdowns tomorrow.
*Bounceback candidates. We’ve mentioned this before but it probably bears repeating. To simplify, any number of stocks that people would like to hold past the end of the calendar year get sold down anyway and often sold down hard in the month of December or even a bit earlier. The reason why: if you like a stock, but if taxes dictate you should take the loss, you dump it. And then you buy it back in the new year, taking care to avoid “wash sale” rules—which void the value of your loss—by selling a bit earlier rather than later in the month. Then after the end of the year, you buy the stocks back again. So many people do this in January that once anemic looking stocks can experience at least 10% increases in price or more.
This year’s bounceback effect was magnified massively by the “fiscal cliff” phenomenon, with even massively profitable positions being dumped in a tsunami of selling to avoid higher tax rates, which indeed happened earlier this month. This was actually the major initial reason for the Apple (AAPL) selloff, no matter what the idiots in the financial press are telling you. Most long-term Apple holders had already made a fortune in the stock. Better to take those big cap gains under the 2012 “Bush tax cut” tax structure rather than risk taking a bath from the tax increasers in DC in 2013. We could go on, but that would be another column.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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