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Transcript of 2016 Forecast Part 1
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2016 FORECAST
"The energy sector……
is about to throw up a once-in-a-lifetime investment opportunity.”
-David Rubenstein
12/24/2015
Jesse Stine
Merry Christmas everybody!
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* To be added to the Friends and Family email list, you can sign up here:
http://insiderbuysuperstocks.com/friends-and-family-market-alerts/
** I want to take this opportunity to let you all know in advance that I will be taking my next
“Mini-Retirement” http://intentionalretirement.com/2013/09/the-case-for-mini-retirements/
in September, 2016.
Since returning to the market in 2012, I’ve spent some 17,000 hours staring at a computer screen
staring at charts and writing letters. I open up my laptop, look down….. and by the time I look up,
a month has flown by. I often worry that the market and technology is going to swallow my entirelife. http://www.hexjam.com/uk/news/technology-is-making-time-go-faster-kind-of
So I intend to take a step back, slow things down, pursue some hobbies that I’ve been putting off
(like photography), reconnect with friends and family, and spend some time living in Asia and
South America. During this time I will not be monitoring the markets.
Depending on market conditions, my plan is to return to the market sometime in 2018.
Unfortunately, you’re stuck with me until September!
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THE “EVENT”
Before we get started, let’s look back at 2015. There was one single event that we’ll remember
for years to come…..
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June 24, 2015:
As the major indexes were overbought above their upper Bollinger Bands, I tweeted this USA
Today ominous headline: “Investors see plenty of opportunity ahead”... “Fuel to burn”... Uh. Oh….
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As we progressed into the latter part of August, we started seeing several more ominous signs.
One of the biggest signs in my eyes was the RSI breakdown for the indexes. My portfolio would
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have been in the red this year if it wasn’t for RSI analysis. I’m using it more and more these days
thanks to my friend Danilo:) Here’s my tweet from August 20th:
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August 24th, 2015:
PURE PANIC
https://www.youtube.com/watch?v=Ea29UB02Cuw&feature=youtu.be
PEARL HARBOR FOR ALL ETF’S
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* Nothing was safe. Even Mom and Pop’s “safe” “low volatility ETF” SPLV was destroyed during
the first 70 minutes of trading.
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I posted this as USA TODAY gave us the signal on August 25th….
And you’ll never see a better “blood in the streets” bottom indicator than this…..
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THE FORECAST
Nobody knows what the heck the market will do. Especially the “experts”.....
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And our good friend Carl just came out with another one :) :) :)
http://www.businessinsider.com/carl-icahns-warning-on-stock-market-2015-12?r=UK&IR=T
Here’s the 2016 year end S+P forecast from many brokerages. Once again, they will all be
wrong:
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2015 = GLOBAL DISASTER
There’s no other way to say it, 2015 was a disaster for most traders and investors. The
most diversified investors that I’ve spoken with are down 15%-20% in 2015. The activetraders that I’ve spoken with worked harder than ever in 2015 and they have next to
nothing to show for it. Given the historically bad breadth and percentage of stocks in a
bear market (75% of stocks below 200 day moving average), most traders reached a
level of frustration that they’ve never experienced before.
The King of social media Steve Burns absolutely nailed it with this simple tweet:
I found the following global market figures in November. About 2% of the World’s
population has made money in 2015:
But for the rest of the world, it has been one of the worst years in history…..
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HISTORICALLY BAD “BREADTH”
The sign of a healthy market is good “breadth”. According to Investopedia:
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Breadth is “ A mathematical formula that uses advancing and declining issues to calculate
the amount of participation in the movement of the stock market. By evaluating how many
stocks are increasing or decreasing in price.”
The 30 year average for the Goldman Sachs Breadth index is 35. For much of 2015, it sat
at an all-time low of 1.
PERCENTAGE OF STOCKS IN A BEAR MARKET
The % of stocks above their 200 day moving average have declined steadily since
peaking in mid 2014. Since that peak, it has steadily become harder and harder to
make money in the market.
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From Bespoke Investments:
SPECULATION: MICROCAPS/PENNY STOCKS
As a trader, I don’t want to just “get by” or make a “decent living”. I want and need
EXPLOSIVE stocks. I want to see dozens of high quality earnings winners moving
100% or so per month. You have to have a favorable microcap environment to see
such plays. The microcap/penny stock environment is the worst I’ve ever seen it.
Speculation has gone missing from this market for 18 months now….
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ARE GLOBAL MARKETS SO BAD THAT THERE’S NOWHERE TO GO BUT UP?
2016!!
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Let’s now move on to 2016. We’ve established that the past 18 months have been a difficult
environment if you are a trader looking for 10-baggers. But the question is, could things possibly
get better in 2016?
My view is that markets are SO TERRIBLY BAD on a global scale that things simply HAVE TO
get better. If the average global market is down 20%+ in 2015, I’d have to say that the odds are
pretty high that we will see some upside mean reversion in 2016.
A majority of the world’s economies are at the mercy of commodities. A significant portion of
individual country GDP’s are dependent on commodities like crude oil, natural gas, lumber,
copper, gold, rice, sugar, soybeans etc…
But the big commodity of course is crude oil. Oil is THE BACKBONE of the global economy. Oil
makes the world go round. With so many economies dependent on oil revenue to support their
budgets, we will start seeing mass chaos if the price of oil doesn’t start to climb soon. If oil doesn’t
start to climb, there’s no doubt in my mind that (more) wars will break out. More Putin
shenanigans?
So… at this stage in the game, it’s in everybody’s best interest to jack up the price of oil. Russia,Saudi Arabia (please don’t relay any of the oil conspiracy theories such as Saudi Arabia triggered
the collapse and wants to keep the price down- that’s a topic for another long letter. Markets move
in cycles independent of the “Supply and Demand dynamics” that I studied for 8 years:) Cycles
and sentiment move markets.
Brazil, the Middle East, Indonesia, Russia, China, Africa, Australia etc. etc. need oil to increase in
value or their economies will eventually collapse. Because of this, these producing nations will do
just about anything to jack up the price of oil.
From desperation comes inspiration. In 2016, watch out for some “unforseen” bullish crude oil
events that come out of left field. The funny thing is that these events should come well after the
price of crude has started advancing. If it ever comes, “reason” almost always arrives WELL after
the move. When you get “reason”, it’s usually time to sell….
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In my experience, markets move almost entirely on Sentiment. Here’s the latest Sentiment data
from Sentimentrader.com from the last week or so. I highly suggest you check out
Sentimentrader.com if you are into market Sentiment.
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LET’S LOOK AT THE GENERAL MARKET LANDSCAPE
We’re seeing a multi-year extreme in insider buying vs. dumb money selling. The last time we saw
such extremes in 2011, the Dow was 2500 points higher 10 months later….
INDIVIDUAL INVESTORS
The AAII individual investor survey is showing the most bearishness going back 6 months. Thisvery well could be the highest level of bearishness of the year, but I don’t have the data prior to
July.
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*Far right column is bearish %
“ONCE IN A LIFETIME OPPORTUNITY”?
When I see financial entertainment headlines about a “once in a lifetime opportunity”, I
typically ignore the article. However, a couple of weeks ago, I saw a headline regarding
David Rubenstein.
David Rubenstein isn’t like the rest of the sleazeballs on Wall Street who are either
idiots or are trying to sell you something. David Rubenstein is the real deal. He’s made
31% annually over the past 25 years. I’ll listen to anybody with that track record. He
truly is Buffett Jr.
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Rubenstein has a true heart and is about as far from Wall Street as one can possibly
get. Here’s his great “TED” speech:
https://www.youtube.com/watch?v=qY1ZsTA-w7A
Wall Street salesmen talk about their ideas only AFTER they establish their positions.
It’s called “Talking their book” in order to jack up their returns or to create buying interest
to sell you their stocks that they no longer want.
This might be different:
"The energy sector is about to throw up a once-in-a-lifetime investment opportunity.
That is according to David Rubenstein, the billionaire cofounder and co-CEO of the
alternatives giant Carlyle Group.
"Maybe the greatest energy investing opportunities we've ever seen" lie ahead,
Rubenstein said December 9 at the Goldman Sachs Financial Services Conference inNew York.
"Distressed debt is very popular right now."
Carlyle has a series of funds dedicated to energy deals with more than $10 billion in dry
powder, according to Rubenstein.
He thinks Carlyle has done a good job of biding its time, and said prices still haven't
reached a bottom. West Texas Intermediate crude oil dropped below $37 a barrel onTuesday.
"We're quite pleased with our willingness to hold back."
His comments echo those of Oaktree Capital co-founder Howard Marks, who spoke at
the same event on Tuesday and said that his firm was ready to catch falling knives.
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"I think $37-dollar oil will present a lot of opportunities," he said Tuesday. "I think $30
will present more."
http://finance.yahoo.com/news/billionaire-investor-greatest-energy-investing-152450730
.html
When I first read that article, I put it on the backburner as I didn’t yet see any immediate potentialenergy setups. In order for me to get interested in a stock or sector, I want to see sector
components begin to set-up across the board. As I say in my book, I want to see “Low Risk
Entries”.
After a week or two, I finally started seeing some very interesting commodity setups. On Tuesday
of this week, I started seeing more and more across the board. That’s when I posted the chart of
the world’s largest commodity company, Glencore on social media Tuesday morning.
As Glencore is the industry’s heavyweight, I figured that when it was ready, the sector would be
ready. Since its crash in September, I’ve patiently watched Glencore waiting for it to retest the
lows and form a higher low or double bottom. We may have seen that re-test on Tuesday.
Additionally, I began seeing quite a few extremely compelling energy values driven down to the
“magical $1 threshold”. (More on that later in the letter). So after being 88% cash for what seems
like forever, I started buying commodity and energy names on Tuesday and am up to 52%
invested currently. There are at least 20 stocks on my radar right now that I’d love to buy if low
risk entries present themselves.
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CRUDE AND ENERGY
I posted this chart of WTI crude on social media last Friday. I believe this chart is the key for
2016.
So far, we’re seeing a long-term weekly RSI lower trendline test, a 5th wave test of the lower
trendline which is in the $34-$35 range as well as a test of the 2009 low. Given that this may be a
5th wave low in combination with a possible major double bottom, if legit, we should see a straight
shot higher right through the top of the channel.
In such a scenario, we wouldn’t see a retest of the lows as stocks generally power higher after
double bottoms and 5th wave lows. Of course, if we don’t see a march higher in the weeks to
come, then all bets are off and it’s time to hit the golf course.
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December 31st often marks major turning points.
Take a look at any asset class and look back as far as you can. Surprisingly, you’ll see major
inflection points over and over that happen within days of December 31st. Crude has been noexception in the past.
BRENT
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OIL AND GAS PRODUCTION STOCKS VS. S+P RATIO
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HEATING OIL
JUNK BONDS
Here’s the chart of junk bonds I posted on social media on the 11th. I noticed that just
about everyone was talking about junk bonds and HYG and JNK that day. Nobody
EVER EVER talks about these vehicles on social media. Whenever the masses start
talking about a financial product at the same time (whether up or down), more often
than not, it marks a turning point.
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In this instance, junk bonds are an indicator for commodity stocks, as 90% now have
high yielding “junk bonds”. If their bonds start recovering, chances are good that their
stocks will follow.
NATURAL GAS
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THE STOCK TO COMMODITY RATIO
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