#$drys

$DRYS is back! #shippers $EGLE $SINO $RLOG

Did Trump Tweet yesterday? DRYS got it’s head off the mat and is back from vengeance.

I was short DRYS in the @stocktwits Fantasy Competition (because it is asinine to short this really how dangerous it can be) and my 35% + gain was basically wiped out overnight. Haha

I expected this to gap up and I expect EGLE, RLOG, SINO (I don’t even know what these do) to all follow suit.

DRYS is set to Open…

We’ve seen a lot in the last two weeks: Manias, Panics, and All-Time Highs.

Manias

Dry Ships Inc. (a shipping company) went from $4 to $102 in 4 trading day following the election, an astounding gain of over 2,000%. There were a wide variety of reasons attributed to the advance (Trump is bullish for growth/shipping, a positive debt restructuring, a rally in the Baltic Dry Index, an epic short squeeze, etc.). The reasons doesn’t matter so much except that they create a fundamental rationalization for the mania to take place.

As Dry Ships was approaching $100, I conducted a poll on twitter asking where it was headed next ($200 or $50). This was the response…

Interesting. Most said lower but 37% said it would double yet again.

What happened next? Dry Ships was halted on the 16th and when it reopened on the 17th it proceeded to fall 85%, giving back almost all of the gains.

Lessons:

As long as human beings have emotions, there will be manias.

We are not rational in our decisions, which is why the markets are not entirely efficient.

We are induced to buy through a fear of missing out, among the greatest fears in investing.

Manias are possible because people buy into to the greater fool theory, where they’ll be able to sell at a higher price to a “greater fool.”

No one believes they are the greater fool.

The price you are paying during the mania becomes irrelevant: “buy high and sell higher” is the maxim.

The odds of you timing a mania successfully are not high. This suggests most would be better off watching as a spectator and letting the greater fools trade among themselves.

Panics

Following the election, we saw a good old-fashioned panic in global markets. At one point, S&P 500 futures went “limit down,” a 5% decline. Gold was up over 4%, 30-year Treasuries were up 1% (yields down), and the Dollar Index was down 2%.

Did it stick?

No. Literally everything would soon reverse course, except for the sharp decline in the Mexican Peso. U.S. Stocks rallied, the Dollar surged, Gold declined, and Treasuries sold off (yields spiked).

By the next morning, S&P 500 futures were flat. The market opened as if the overnight panic never happened.

Lessons:

Panic selling is rarely rewarded in the short-term and never in the long-term.

Panic should be embraced because fear tends to create opportunity.

If you are going to sell, better to do so calmly and with a plan before the panic sell-off than with emotion during it.

If you were panicking on election night based on a 5% decline, you need to reevaluate your risk tolerance. You are likely holding too much stock as the S&P 500 has historically had at least a 5% correction 3-4 times per year.

The markets and their initial reactions to events are not always right, far from it. They can be very wrong because investors are acting not on information but emotion. We learned that back in June after Brexit and again after the election.

All-Time Highs

The S&P 500 hit an all-time high today (total return). Does that mean anything?

Perma bears are saying it does: “this is a sign of a frothy market; it will not end well.” They have being saying so since April 2012 when the S&P 500 first hit a total return high following the worst bear market since the Great Depression. Since then we have seen 176 more all-time highs, including today.

The truth is that all-time highs, by themselves, are signaling nothing other than a market that has been going up. Just because every bear market has started from an all-time high doesn’t mean that every all-time high is followed by a bear market. Far from it.

The S&P 500 (total return) is at an all-time high roughly 8% of the time since 1928. The forward returns following all-time highs are actually slightly above average from 1-month through 5-years (exception: 3 years). The percentage of positive forward returns is above average from 1-month through 1-year and slightly below average at 3 years and 5 years forward.

Lessons:

All-time highs generate many emotions that run contrary to reality.

There is nothing inherently bearish about all-time highs based on the data. They are like most other days which tend to see positive returns going forward.

All-time highs tend to be followed by more all-time highs.

“Tend to” is far from always. There will be an all-time high in the future that will be “the top” before a 5% correction, 10% correction, or bear market ensues. That day could be tomorrow. Neither you, nor I, nor anyone else is good at predicting such things.

Making wholesale changes in your portfolio based solely on an "all-time high" probably isn't the best idea.

You don’t need to have an opinion or take action on all-time highs to make money as an investor.

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Related Posts:

Embracing Panic

Should Investors Fear New 52-Week Lows?

The Cardinal Sin: Missing Out

Interesting vs. Actionable

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

CHARLIE BILELLO, CMT

Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

Don’t be a bag holder. They are all going back towards 0. 

$DRYS is finished. Shippers are finished. Thanks for Playing. $SPY #shippers $RLOG $SINO

Everyone who bought above $40 just want to break EVEN!…Probably not going to happen. Too Much overhead resistance.

Thanks for Playing.

A key index of global shipping prices is nearly 50% below its previous record low level.

We swore we wouldn’t devote any more Charts Of The Day to the Baltic Dry Index (BDI) after it broke its all-time low in November. Things are really getting out of hand now, though, so it deserves at least a mention. The previous record low in the BDI was 553, set back in 1986. Upon breaking that low in November, the BDI continued to crater. As of today, the Baltic Dry Index is listed at 303.00 -- nearly a full 50% below its previous all-time low.

So what is the Baltic Dry Index? The BDI is a composite of various global shipping rates tied to the movement of raw materials. Why is it important? It can serve as a barometer of the global trade environment, as well as a measure of inflation based on global trade. If that is the case, the trade environment would appear downright dismal.

Now, of course much of the input into the BDI comes from the price of raw materials. Considering the deflationary spiral in commodities, the drop in the BDI to all-time lows shouldn’t be a shock. However, the depths that the index is now plumbing is quite alarming and suggests trouble in the global trade picture.

It would also suggest perhaps that the deflationary pressure is not just a supply issue. Consider every prior drop in the Baltic Dry Index down to the 500-600 level. Each time, the index immediately jumped as if latent demand was just waiting for those lower prices. That development has not yet occurred this time around, even as prices are reaching 45% below the previous record low.

The Baltic Dry Index has become a trendy thing to mention in recent years when discussing global market and economic conditions. The truth is, nobody really ever knows for sure what the broader message is behind the index’s behavior. That said, this recent plunge is making it quite difficult to conceive that it means anything positive in terms of the global economy and deflationary pressures.

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More from Dana Lyons, JLFMI and My401kPro.

New Post has been published on http://freetraderchat.com/blog/penny-stock-watch-list-1-25-2016/

Penny Stock Watch List – 1-25-2016 – $UNIS, $DRYS, $NXTD, $GBSN, $CVM

$UNIS – Higher lows. $1.00 is a nice target with volume. Closed above VWAP.

$DRYS – If Oil and the shippers are hot tomorrow this may follow. Also keep an eye on $FREE.

$NXTD – Still a little more to give back IMO.

$GBSN – Gapped up last Friday on Warrant news.

A key indicator of shipping rates just made an all-time low.

With speculation running wild surrounding the first potential rate hike in 9 years at the upcoming December Fed meeting, the inflation discussion has been at the fore. Since inflation represents half of the Fed’s duel mandate, this is not a surprise. Except for perhaps a few outlier views, most characterizations of the current inflation landscape seem to range from “approaching moderate inflation” to “rampant deflation”. One indicator that would fall into that latter category is the Baltic Dry Index (BDI).

The BDI is a composite of various global shipping rates tied to the movement of raw materials. Thus, it is measure of inflation of sorts tied to global trade conditions. In that sense, deflationary forces cannot be overstated at this point as the BDI has just dropped to its lowest level ever.

In January, amid the deflationary spiral in commodity prices, we posted a note showing the BDI at its lowest levels outside of a few months in 1986. The index would get as low as 509 before rebounding quite strongly, as it had always done following forays down to the 700 level or worse. In July, we noted that the BDI had actually doubled since its lows early in the year to over 1000. In that July post, we pondered whether the bounce was a ray of hope for global shipping and trade -- or if it was merely dead-cat, mean-reversion bounce. Our sense was that it was the latter.

While the recent 100% jump in the Baltic Dry Index, on the surface, would appear to be a ray of light for global shipping activity, and perhaps the global economy at large, we are not so sure. Upon examination, the index appears to exhibit purely cyclical characteristics that outweigh the shorter-term economic and inflationary trends at a given time. Thus, it seems be more prone to “reversion to the mean” than a deep economic “meaning”.

In addition, after solid bounces during the spring, commodity prices were back on a downward trend with many of them approaching their lows from early in the year. We were skeptical, given those falling prices, that the BDI bounce was tied to anything fundamental. Indeed, we see now that that was likely the case as the BDI has caught up (or down) to commodity prices. As of Friday, November 20, the index had dropped to 498, the first time it has ever been below 500.

Is there a larger message being sent here? Well, as we have discussed previously, due to its short-term cyclical tendencies, we’ve found it less than reliable as an economic indicator. That said, there is no doubt that the cycles recently have resulted in lower highs and lower lows. Therefore, if there is any economic value to the BDI outside of simply a read on shipping rates, the trend is not a positive one for the overall global trade scene. The impact may be especially negative on the markets we’ve found to be most highly correlated to the BDI, China and Europe.

Whatever the larger economic message (if any) stemming from the BDI, an all-time low in shipping rates is certainly not evidence of the elusive inflation that many policy makers around the globe are pining for.

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“SHIPWRECK” photo by Marckles55.

More from Dana Lyons, JLFMI and My401kPro.