Tags: stocks | investors | trouble | signs

Some Signs of Trouble for Stocks

By    |   Monday, 27 July 2015 07:54 AM

Last week ended on a desultory note.

Perhaps it’s just the dog days, but analysts and traders had some thoughts worth contemplating. CNBC technician Carter Braxton Worth looked at a long-term chart of Transports going back to the beginning of the “Ronald Reagan” bull market and tracing “epic outperformance, with a spread over the rest of the market that he finds “unsustainable.”

This writer would note that because of changes in the structure of the economy and the stock market, there is controversy over whether the Dow Theory still holds and how significant the performance of Transports is for the market as a whole.

Looking specifically at UPS (UPS), Worth discerns a head-and-shoulders top that he thinks is going to break down to join other rails that have already shown weakness.

He recommends shorting UPS at 89-90 or lower. Melissa Lee interjected that fundamentals would not be consistent, because fuel prices have been so low.

Mike Khouw suggested that cheap energy and delivery demand coming from Amazon (AMZN) should bolster UPS, and he identified a put spread at a put spread to be created by buying the October $92.50 for $2.25 and selling the $87.50 for $0.90, for a net cost of $1.35 to establish a maximum potential profit of $5. He goes out to October because UPS isn’t volatile.

Next, Dan Nathan asks whether weakness in biotech is sapping the tech-heavy Nasdaq. He suggest traders might want to use the QQQ ETF as a hedge against positions they may hold in stocks like Apple (AAPL), and therefore he has bought the September 110 put for $2 cheap.

Nathan added that he is looking to create a put spread by selling a lower-priced put (presumably the September 105). Carter Braxton Worth added his endorsement of Nathan’s strategy.

In the next clip, David Seaburg pointed to the weakness in biotech that underpins the strategy the traders on the Options Action would adopt.

Tim Seymour recited a list of asset classes under “a ton of pressure” this earnings season and called it “a very scary time” for a market that is near its all-time highs.

He added that with the VIX up 13% on Friday, this is “not a time that people are feeling comfortable.”

Brian Kelly agreed that traders should be concerned about the market’s inability to hold the gains from earnings. Guy Adami noted that some indicators have maintained support levels and that the coming week in the S&P will be important.

Todd Horwitz, chief strategist at BubbaTrading.com, dares to look askance at Amazon (AMZN) because he considers its extreme valuation relevant to its price, and he sees another internet bubble that is “headed for a meltdown and a collapse.”

This writer is tempted to quip that at least in Tulipmania there were real tulips. Horwitz is looking at gold, which other traders disdain, because he questions the ability of central banks to maintain what he considers a Ponzi scheme.

As Peter Schiff and this writer have done, he doubts whether the Fed will raise interest rates, and he ventures to say a hike will not come until at least mid-2016.

In that case, this writer would add the doubt that such an aggressive Fed would raise rates in the middle of an election year.

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Last week ended on a desultory note. Perhaps it's just the dog days, but analysts and traders had some thoughts worth contemplating.
stocks, investors, trouble, signs
Monday, 27 July 2015 07:54 AM
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