Market Outlook for the Week Ahead
 

This week is the 50-year anniversary of the Doors’ “Light My Fire” hitting the number one position in the pop charts.

I remember the first time I heard this classic rock icon in 1967 like it was yesterday.

I was hitch hiking from my job as a blue berry picker in the fields near The Dalles, Oregon when I was picked up by a 1956 Chevy convertible.

The song came on the radio and the driver said, “Hey, it’s Light My Fire,” and turned it up full blast.

There I was driving down Interstate 84 on a warm summer day, the wind blowing through my hair at 70 miles an hour, $8 secure in my pocket from a day of fruit picking, listening to Jim Morrison.

Life was good.

It all made an indelible imprint on my memory.

A few years later I visited Morrison’s grave in Paris.

After the tumultuous performance of the FANG stocks last week, they may need some relighting as well.

Apple (AAPL ) fell $6 in a heartbeat. Facebook (FB) swooned 5% on their earnings report. Amazon (AMZN) gave back an eye-popping $90.

I hate to state the obvious here, but this is all market topping price action on thin volume.

After ignoring Washington all year, traders have finally started paying attention to the freak show that is going on there.

To the shock and amazement of many long-term observers, the health care bill failed in the Senate in a government entirely controlled by a single party.

This has to be one for the history books.

But Arizona’s John McCain hugging California’s Nancy Pelosi on the Senate floor in the wake of his deciding vote? That goes beyond the pale.

Next, dogs and cats will lie down together.

Then the president carried out his long awaited house cleaning, no doubt a prelude of greater things to come.

My friend, Anthony Scaramucci’s response to all this? Scream obscenities at the media.

With the major indexes piling up a Sear’s catalog amount of “SELL” signals, one can only thank providence that I haven’t been selling short the market all year, as have many suffering and befuddled hedge fund pals of mine.

We are now at valuation levels seen only three times in a century, and the Fed is about to dump $4 trillion in bonds on the market.

The European Central Bank is mooting ending its bond purchases sooner than expected.

The net of all of this?

The world’s financial markets are about to lose their eight year old free put option, their bargain insurance policy against capital losses.

The amount of Volatility Index (VIX) short selling going on has reached Biblical proportions, taking the closely watched measure to new all time lows at $8.80.

Then it rocketed 30% in a single day!

According to Goldman Sachs, selling short front month (VIX) futures has generated a one-year return of 199%!

There nothing like driving 100 miles an hour while only looking in the rear few mirror.

Note to Ed: Isn’t there a “playing the violin while Rome burns” metaphor that fits in here somewhere?

Realized 30-day volatility is now far below 1929 lows, and we know too well how that one worked out.

But Friday was the stick that finally broke the camels back for me, with the political doomsday scenario I predicted in my newsletter only the day before starting to play out.

So I bought the (VIX) and a put spread on the S&P 500 (SPY), which will both benefit from a falling market in August.

Mind you, I didn’t bet the ranch.

My positions expire in only 14 trading days on August 18. I’m just trying to pick some low hanging fruit here. And I still have plenty of dry powder, with a cash level of 85%.

Q2 earnings will continue apace this week.

The biggie? Apple (AAPL), which reports on Tuesday after the close. Will sales dip ahead of the iPhone 8 launch in September, as they usually do?

Or will the market look through the dip and buy on any announcement?

We shall see.

Almost any other report is irrelevant compared to the one from Steve Jobs’ creation.

By the way, did you notice that his multi billionaire widow, Lauren Jobs Powell, bought the storied Atlantic magazine last week? What does she know that we don’t?

With FANG and bank earnings already out, anything else headed our way will be anticlimactic. What comes next are energy earnings, which are expected to be horrendous.

On Monday, July 31 at 10:00 AM EST, we will see the June Pending Home Sales a leading index for sales of existing homes.

On Tuesday, August 1 at 9:45 AM EST we get the July PMI Manufacturing Index, another volatile sentiment survey.

On Wednesday, August 2, at 7:00 AM EST ADP Employment Report will be published, a read on hiring in the private sector, and the first of the trifecta of jobs numbers this week.

At 10:30 AM EST the weekly EIA Petroleum Status Report is out, which could kill the recent 15% rally in Texas tea.

Thursday, August 3 at 8:30 AM EST we learn the Weekly Jobless Claims. Last week’s number saw a bearish slight tick up.

At 9:45 AM we get the July PMI Services Index, another dodgy questionnaire circulated among 400 major US companies.

On Friday, August 4 at 8:30 AM EST we get the big number of the week with the July Nonfarm Payroll Report. Last month brought us an upside surprise so we’ll see if we revert to the mean.

Wrapping up the week at 1:00 PM is the Baker-Hughes Rig Count, which has been up for most of the last year, boding ill for oil prices. Last week saw another new 18-month high, with 11 rigs added.

As for me, I will be riding the rails as you read this, checking the markets on my cell phone at each major station.

Good luck and good trading!