Welcome to this week’s edition of
the Lewison Letter. Not a whole
lot has happened in the stock market since my last writing 2 weeks ago, as the
S&P is down just 15 points, or about 1% since I last recommended taking
profits. The big moves have been
going on in the commodities sector with gold, silver, copper, oil, gas, cotton,
coffee and sugar, all (with the exception of oil and gas) trading down to 52
week lows. I still remain bullish
US Treasuries and while the VIX did spike about 50% a couple weeks ago, it has
fallen back down, but that should be short-lived, so stay long the VIX.
Heading
into May brings up the old adage of “sell in May and go away…buy in Oct it’s a
lock.” Going back 50 years, the
Dow has gained an average of 0.3% between the months of May and October and
gained about 7.5% between October and May. Given how the stock market has yet to have any meaningful
pullback this entire year, I look for the old adage to continue and would be a
seller of the market against 1600 on the S&P. The market is currently just a little more than 1% away from
that level so that would be your risk.
If you have the ability to trade options, instead of selling your
current stock holdings, you want to buy put options to protect yourself against
a pullback. While I realize that
most of you don’t have the ability to trade options, you would have the ability
to short stocks by simply selling the amount of shares you want to short. To be outright short the market, sell
the SPY, which is the S&P 500 Spider Shares ETF. If you do not want to employ that strategy, I would
recommend taking profits in stocks that have given you nice gains already this
year (which is just about every stock other than Apple). Please note, while I believe the
overall market is going to head lower to 1525, as I stated 2 weeks ago, that
doesn’t mean that every stock is going lower. Here are a couple low risk buy opportunities no matter what
direction the stock market heads: Buy AAPL against $400, buy AMZN against $240,
buy TOL against $30, buy GS against $132, buy CAT against $78, and TLT against
$118.
The
biggest story in the market over the last couple weeks has been the complete
collapse of the gold market. While
it’s only down $120 since April 8, gold fell all the way down $270 to
$1321.50/oz before rallying sharply over the last week to $1462.20/oz. While many people feel the gold
collapse is over and done, I’m in the camp that thinks the exact opposite. There is no real reason to own gold as
it’s NOT a safe haven and it’s NOT a form of currency. Since hitting an all-time high of
$1,923.70 a year and half ago, gold has been one of the worst trades out there,
dropping 23%. While I think gold
may have a little juice left in this bounce, I think major resistance will come
into play at $1,487.60 (61.8% Fibonacci retracement from the high to low over
the last two weeks), and should be sold against that level.
One
more trade that I really like right now is being long crude oil. Looking at a daily 1-year chart of oil,
it’s sitting right at an uptrend line and the 50% Fibonacci retracement over
the last 52 weeks. Since the
beginning of April, crude oil has built a perfect inverted head-and-shoulders,
almost too perfect. The bottom of
both the left and right shoulders are right at the 50% retracement of $91.86, with
the bottom of the head forming a nice rounded base around $86. From the 52 week low put in last June,
draw a trendline connecting that level, $77.28, to the lows on Novemeber 9 and
December 12, and it runs right into the lows on March 3. If you extend that trendline all the
way out, it comes right up to the 50% Fibonacci retracement and should act as
current support. If you want to
buy oil outright, then buy the Crude oil ETF (USO) otherwise; the best way to
play a rally in oil is through Phillips 66 (PSX) or Chevron (CVX).
In
closing, be aware of the “sell in May, and go away” because it’s bound to come
true. This market hasn’t taken any
breather this year and is well overdue.
Over the last couple days, we have seen rallies in the stock market get
tired and that will continue until a move back down to 1525 in the S&P.
Full disclosure: I currently hold no open positions.
Jeff Lewison
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