Controlled Burn

I believe risk is most when we feel it least and the risk is least when we feel it most. -Steve Blumenthal CMG

I read Steve Blumenthal’s weekly blog On My Radar every week. I don’t always agree with Steve but he always makes me think. His take on risk really struck a chord with me. I read it over several times. When the wine if flowing and markets are rising we don’t notice that risk is rising. Market moves lower create sheer panic. That gets our attention. It is then that risk is lower. Tops may or may not be forming but the signs are there. Investor complacency. Mega deals. High valuations. Be on guard.

Oil has taken a beating over the last week. The negotiations between the OPEC nations have seen more posturing and negotiating and that has oil backing away from $50 a barrel. We think that they are closer to the end of the negotiations than the beginning. Things for the Saudi’s at home are running a little tight and they need higher oil prices. The Saudi’s are looking for cooperation and we think they will make a deal. Right now oil is in a bit of a panic selloff and may seek to retest the lows. Goldman Sachs has piled on by calling for lower oil prices. Doing the opposite of what Goldman says publicly has been a great strategy for years.

Arthur Cashin pointed out on Friday morning that the market is on an extended losing streak and it has been picking up steam since breaking through the 2130 level we warned about.

The negative close made it eight down sessions in a row something the S&P hasn’t done since October of 2008 in the days following the Lehman collapse. The severity of the selling was far sharper in 2008. That eight session sell off dinged the S&P for 23% while this move has only sliced 3% from the S&P. 11/4/2016

Friday’s close made it 9 down sessions in a row. That makes for the longest losing streak in 36 years. The market is down only 4.9% from its all time high so this is acting as a very controlled burn. A Trump win could make for more downside but another 5% would be a very healthy 10% correction which we haven’t seen in a while. The big question is will the Federal Reserve still raise rates if Trump wins? That could help propel the selloff. We have our doubts that the Fed will have the stomach for it. If they do we could see cheaper prices. We have had heavy cash positions for some time. One year returns have gone negative on the S&P. Valuations have been high and that justified our cash position. History tells us that markets have struggled to rise from these valuation levels. The market has been stuck in a rut. We would love to see cheaper prices.

Market closed at 2085 which is just above our support level of 2080. Even a blind squirrel finds a nut from time to time. A break of 2080 brings 2040 into play but markets are very oversold and looking for a bounce. 2080 is support for now. We would not be surprised if we do not have a winner on Tuesday night. Gore v Bush. Hold all tickets!

I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein


To learn more about us and Blackthorn Asset Management LLC visit our website at .


A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill


Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.






Published in: on November 5, 2016 at 8:20 am  Leave a Comment  
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