We're just waiting for the other shoe to drop.

Yellen testifies before Congress this morning (10) but while she's doing that, both Jay Powell and Jim Bullard will be speaking at a Conference of State Bank Supervisors and, in case that's not enough to whip the market up and down 100 points, we have Durable Goods at 8:30 and Oil Inventories at 10:30, a 7-Year Note Auction at 1pm and the Charlie Evans speaks at 1:30 followed by Loretter Mester at 4:30 and Esther George at 7:15.  I'm sure by then we'll have a very clear picture of what's going on {end sarcasm font}.  

Meanwhile, we were happy to hear yesterday that the Saxo Group has finally (9 months later) caught up to our Trade of the Year idea on Natural Gas (UNG), saying:

Natural gas is being supported by an eroding supply glut and a potential tightening in 2017. Our breakout model has given a buy signal in natural gas today on the continuation chart above $2.998/therm.

Isn't that nice?  I couldn't agree more, our target is $4 in Jan 2018 but, sadly, you missed the easy meal we made for you last Decemer, when, after choosing /NG for our Members, I laid out our long case in the morning post on Dec 8th, while it was still below $2, saying:

Our UNG play is proprietary to our Options Opportunity players but I'm happy to help you play along with Carl and the way I would set up an LNG play is as follows:

• Buy 10 2017 $30 calls for $14.60 ($14,600) 

…

A divided Fed speaks!  

Last Wednesday, the Fed released the most divisive statement in many years with 3 Governors (Geoge, Mester and Rosengren), all of whom have expressed the opinion that the Fed needs to tighten now and stop dithering around.  Sadly, other than Bullard, the hawks are vastly outnumbered this week and the last word goes to Grandma Dove, Yellen, who rides in at 5pm on Thursday to help dress those windows for the last day of the quarter.  

If you think that makes it all seem like a gigantic, manipulated scam – you are catching on!  Notice the only hawk allowed to speak during trading hours is Bullard and he speaks right ahead of a 7-year note auction – a time when the Fed WANTS to scare investors back to the bond market.  There's a very strong correlation between days our Government needs to borrow money (bond auctions) and days when the market falls – making it look unattractive by comparison – even against 2% 10-year notes.  

How else do you think a country can go over 100% of it's GDP into debt and still borrow money at rates that don't even keep up with inflation?  There has to be FEAR somewhere, but you sure wouldn't know it from record-high stock indexes, would you?  Keep in mind that being in debt 100% of your GDP is like you being 100% of your gross salary in debt, before taxes.  

If you make $100,000 and lose $35,000 to taxes and have a $2,000 mortgage ($24,000) and $1,500 in monthly home expenses (taxes, insurance, utilities, groceries), that's $18,000 and maybe you have 2 cars for $1,000 monhth ($12,000) which leaves you with $11,000 in discretionary income and THAT is what you have to pay back your $110,000 of debt.

Then there's interest on the debt.  If it's just 1%, like the US debt, then you are paying $1,100 in interest but that's still 10% of your disposable income.  What happens if rates go up – what will you be sacrificing?  Also, how's that saving for college and retirement going?  No wonder 80% of American familes have little or no retirement savings – this is the example for…

Verklempt:  so shocked and overwhelmed that we cannot speak. 

That's the reaction Bill Gross and I had to the FOMC statement yesterday (and you can hear our LIVE reporting at the time in our Webinar Replay).  CNBC says Steve Leasman was also verklempt as that Fed report was indeed shocking.  Yes, we knew they might not raise rates (but I was sure enough to make it yesterday's headline that they wouldn't) but we didn't think they would LOWER their rate forecast by 30% over the next 3 years – that was STUNNING! 

Note the red numbers highlighting the changes on the projected Federal Funds Rates – that was the shocker in yesterday's report and that was why I was wrong yesterday – because we were supposed to end the year at 0.9% average and that means we NEEDED to hike now because putting off the hike wouldn't give it time to get the average in line with the Fed's targets – it did not occur to Bill Gross or I that they would suddenly lower the targets.  

This is not just putting off one raise, this is putting of 1/3 of all potential raises for the next 36 months and, before you grab your pompoms to celebrate infinite free money – think about the reason they are taking this action.   Look at the top of that chart – long-term GDP projections are down 10%, from 2% to 1.8% – how is that a good thing?  Inflation is 2% so the only "growth" in our economy is inflationary growth – that's pathetic!  

Not as pathetic as Japan (yet) where the new crime against savers by the Central Banksters is being called "Yield Curve Control" where the BoJ will target 0% yield for the 10-year Japanese Government Bond, which had been negative for months. So it’s trying to push up the 10-year yield a smidgen. Shorter maturities would still sport a negative yield. This would steepen the yield curve. In effect, the BoJ will control the yield curve.  By the end of next year, it might own 50% of all JGBs.  As noted by Wolf Richter:  

"Why even pretend there’s still a bond market?  Maybe it’s just for

…

What a fun week it's been!  

As you can see from our S&P chart, we've popped over our strong bounce line at 2,140 but, like a magnet (or the Godfather), the S&P keeps getting pulled back in though it seems just as much money can be made betting long at 2,140 as betting short – as long as you use very tight stops on the wrong side of the line.

So why, you may wonder, don't we bet long?  Because we still have plenty of long positions in our portfolios, and we already have plenty of bets going that way and also because we think the risk/reward strongly favors the downside at 1,240.  At 1,220, we may be inclined to play for a bullish bounce – as we did last Thursday Morning, when we prediceted the move back to 2,150 right in the morning post:

"2,127.50 was our weak bounce goal on the S&P 500 (SPY) and we finished the day yesterday at 2,125.77, so not quite and, unfortunately, today we must raise the bar, and our expectations, to the strong bounce line at 2,140 and we're not going to really be impressed until 2,150 is taken back but let's not get ahead of ourselves because, as noted in the title, we're looking down, not up."

A move from 2,125 to 2,150 on the S&P Futures (/ES) is good for a gain of $1,250 per contract but remember – I can only tell you what the markets are going to do and how to make money trading it – the rest is up to you…  Today we told our Members that we liked SHORTING the S&P (/ES) Futres at 1,240 and the Russell (/TF) Futures at 1,235 and the Dow (/YM) Futures at 18,100 – we'll see how those do tomorrow but back to 2,120 would be good for another $1,000 per contract (tight stops above the lines, of course).  

IN PROGRESS

It's a crazy market.  

On the whole, we've gone nowhere all week.  We fell from 2,200 to 2,100 and a weak bounce from there is 2,120 and a strong bounce is 2,140 and we're at 2,129 on the S&P Futures (/ES) but what a wild ride it has been in between, especially after having such a sleepy summer at the top of the range.   

Sadly, that range is from 1,850 to 2,220 (20%) with 2,035 being the 10% line and THAT is where we expect to correct to in this downturn and yes, it's a downturn even if we went up yesterday.  Just like a day of snow doesn't mean Global Warming isn't happening, a one-day rally doesn't mean you're not in a bear market – that kind of logic is what destroyed many traders in 2008, when they kept "buying the dips" as stocks fell 5%, 10%, 20%, 40%, even 60% from their highs.

This is why we have our fabulous 5% Rule™, which prevents us from falling for false rallies.  I drew you a chart yesterday saying we would fail at the strong bounce line on the S&P (2,140) and guess what, that's EXACTLY where we failed.  In fact, the title of the post was: "Thursday: Failure at the Strong Bounce Lines Leads to 5% Correction" so pretty much our job was simply to wait for those strong bounce lines and then go short – not complicated.  

The S&P Futures pay $50 per point so the drop from 2,140 to 2,130 has already paid $500 per contract – not bad for a day's work and 2,130 is now our stop line but, hopefully, we get a sharper move down on this wild options expiration day.   Remember:  I can only tell you what is going to happen in the market and how to make money trading it – the rest is up to you!  

This morning, the Nasdaq (/NQ) makes an excellent short as it crosses below the 4,800 mark (with very tight stops above) and that's lined up with 2,130 on the S&P (/ES), 18,050 on the Dow (/YM) and 1,215 on the Russell (/TF) and our system…

Finally an exciting market!  

Yesterday, in our live Member Chat Room, at 1:59 pm, we used our fabulous 5% Rule™ to call the weak bounce line we expected on the S&P at 2,127.50.  As it turns out, the S&P finished to day at 2,127.02, so back to the old drawing board to find out why our model is misbehaving, I suppose...

If you think calling market moves within 0.48 (0.025%) is useful for Futures trading – you're right, it really is!  As one of our Members (Craigsa60) said yesterday:

Good day for me too on the futures. Much easier when the market moves pretty much one way all day and that is the direction you are trading. thanks again Phil. I may be getting the hang of this. Made more today because there were more times when I wasn't trading, which Phil has been telling us (me in particular) for quite some time. 

At PSW, we don't tell you what to trade – we TEACH you HOW to trade – it's a subtle but huge difference.  Yes, we make plenty of picks, but they are examples as we teach our Members our trading systems.  We want our Members to become better traders and then they, in turn share their ideas and we all gain from the group knowledge – something our own country could benefit from by better educating people in general.  

Today, in case you can't see the chart (and we have charts for all the indexes in our Live Chat Room) it's 2,142.50 or bust on the S&P as it NEEDS to take back that strong bounce line to show any real strength.  If we get there and it fails, we can short at that line (2,140 would do) with tight stops above or, if 2,125 fails, we can short there too.  We expect at least a head fake higher in the morning, in the very least. 

Notice the word "short" keeps coming up and Craigs made his money on the short side as we were all shorting yesterday because we knew Monday's move was BS (see yesterday's post) and the call I made…

Wheeeee – we love a good sell-off.

Especially when we're expecting it, right?  Last week, in our September Portfolio Review, we suggested a new hedge to prepare for the coming sell-off.  It was a more aggressive hedge than we usually take because our sense of doom was growing stronger and we didn't feel we had enough protection for our Long-Term Portfolio.  The hedging play was:

• Buy 50 (more) TZA Jan $30 calls for $3.15 ($15,750) 
• Sell 50 (more) TZA Jan $40 calls for $1.70 ($8,500) 
• Sell 5 TSLA Jan $250 calls for $4.70 ($2,350) 
• Sell 5 AMZN Jan $900 calls for $8 ($4,000) 

It says 50 more because we already have the spread.  The net cost of our addition was just $900 in cash plus the margin on the short calls and the position pays back, if the ultra-short Russell ETF (TZA) is over $40 in January, $50,000 back for a $49,100 profit.  

Of course, you don't have to wait until January to make some good money on hedges.  After just a single day's sell-off, already the Amazon (AMZN) Jan $900 short calls have fallen to $6.40 ($3,200) and the Tesla (TSAL) Jan $250 short calls are down to $2.60 ($1,300) while the TZA Jan $30 long calls have jumped to $3.85 ($19,250) and the TZA Jan $40 long calls are now $2.15 ($10,750) for a current net of $4,000, which is already up $3,100 (344% on cash) in just one week. 

That's how…

If at first we don't succeed…

We're still using yesterday's shorting lines but we moved the Russell (/TF) up to 1,161.50 this morning in our Live Member Chat Room, after we gave up on 1,255 in yesterday's Live Trading Webinar (replays on our YouTube channel) - getting out even before it began to run up in the afternoon.  Other than that, we're shorting the same levels, favoring the /TF short for the simple reason that the Russell is up and the others are not – so it has farther to fall!

As we expected and, as usual, Draghi and the ECB were all talk and no action this morning but we're still waiting for Draghi's press conference, where he will once again promise to take all necessary actions to prop up the markets, while actually taking no action at all.  

I think the Central Banksters have become a bit complacent over the summer as the Junior Banksters manning the machines at the trading houses have given them a low-volume rally but now the Big Banksters are coming home from vacation and all the puts are in place (bought cheaply with a low VIX) and it's time to take down the markets.

In a desperate attempt to prop up oil prices, the MSM is harping on the 12.1M barrel draw in inventories shown in the API report, which is the biggest draw-down since 1985 and represents about 10% of a week's worth of oil usage.  Can the US have had such a demand spike over the holiday weekend?  No, of course not – that would be silly.  

What actually happened and what none of these "expert" analysts or corrupt media talking heads will tell you is that the hurricane disrupted imports last week and we imported 1.7M barrels per day LESS oil.  1.7 x 7 = 11.9M barrels, which accounts for all but 200,000 barrels of the drawdown – which is actually a crap demand number for a holiday weekend. 

The EIA report (11 am) should confirm the draw in oil and, currently, oil (/CL) is at $46.20 and we can't wait for the beautiful sheeple to pile in and drive prices higher on the headline…

Is it Tuesday already?

While we were out enjoying our last weekend of summer, our Global leaders got together in China this weekend, met for 3 days and accomplished – NOTHING!  Well, not nothing – China and the US did ratify the Paris Climate accords and that's huge (more on that later) but it also wasn't actually G20 business, the G20 released their communique with 48 bullet-points that essentially reiterated their last meeting, after which nothing happened.

China's markets popped because, as Xinhau News put it: "The world has been hoping for Chinese wisdom and prescription to cope with common challenges after the country took over the G20 presidency."  "We will continue to reinforce macro-policy dialogue and coordination, work in the spirit of partnership to promote mutual help and win-win cooperation, and focus our minds and energy to pursue strong, sustainable, balanced and inclusive growth," Xi said.  

• A mix of effective tools, including fiscal, monetary and structural ones, must be implemented to buffer against short-term risks and unleash medium- to long-term potential, Xi said.
• "This will send a strong signal of G20's commitment to promoting global growth, and help shore up market confidence and ensure stability of global financial markets," Xi said.
• "We are determined to break a new path for growth to inject new dynamism into the world economy," Xi said.
• Past realities teach us that merely relying on fiscal and monetary policies does not work for the world economy, Xi said, adding that the world should pursue innovation-driven economy and create a new round of growth and prosperity.

Hey, hey – someone needs to tell this Xi guy that he's all worried about nothing.  Stock markets are trading at record highs, what could possibly be so bad?

What?  No, pay no attention to that chart!  Just because GDP growth (worldwide) is falling into the crapper DESPITE tens of Trillions of Dollars in stimulus by our mighty Central Banksters, the markets are trading at their all-time highs – especially in the US, where everything is AWESOME.  

…

Whatever the jobs number, G20 lies ahead.

As you can see from the chart on the right, the macro data for August has taken a very sharp downturn so it seems unlikely that we'll be matching last month's level of 255,000 jobs created and, in fact, 180,000 is the whisper number and that would be nice, if the US population wasn't growing by 220,000 per month.  Adding anything less than 220,000 jobs is falling behind in total employment. 

That's why we don't care much about the headline number - which is estimated out of 165M jobs so 50,000 jobs up or down is a 0.03% tracking error which is why it's idiotic to see these figures taken so seriously every month.  No one in the MSM ever tells you these things because you tune in or click on the Non-Farm Payroll Report and hundreds of highly-paid pundits make a living discussing the NFP so none of them are going to turn around and tell you what complete and utter BS the number is, are they?  

So we're expecting a miss this morning, even from the lower expectations and we only need one chart (above) to make that prediction and I will be on TV Tuesday morning to discuss it and they won't let me decry the whole thing as a farce – not if I want to be invited back!  

Our working theory was to hold Gasoline Futures (/RB) longs overnight in expectations of a weak jobs report weakening the Dollar and popping /RB back over the $1.30 line after yesterday's 4.5% sell-off.  We're hoping for $1.32 or better as we're coming into the holiday weekend but anything over $1.30 is a keep – so tight stops over the line.

IN PROGRESS

Flat enough for you? 

As you can see, yesterday's prediction to short the S&P at 2,180 is, so far, up $250 per contract, so you're welcome for that but it was up $500 per contract at 2,170 in the afternoon and shame on you if you didn't take that single-day money and run.  Remember, I can only tell you what the market is going to do and how to make money trading it – the rest is up to you!  

This morning, for example, we sent out an Alert to our Members at 6:50 (and a tweet to our followers) with short and long ideas to start the day off.  Our shorting lines on the indexes are the same as they were yesterday and we still have a chance to short my favorite index, so take a look if you're interested. 

It took 6 months but Shell (RDS.A) finally agrees with my Trade of the Year idea on Natural Gas (UNG) (/NG Futures), though a bit late as it's already up 40% since my call.  Shell expects LNG consumption to rise 5-7% per year and we should be right on track for our predictions through Jan, 2018.  

We announced our Trade of the Year idea on Feb 11th on Money Talk and, as above, I was subsequently interviewed about it in various places, including a Forbes interview, so it wasn't a secret and our trade was:

• Sell 10 UNG 2018 $5 puts for $1 ($1,000) 
• Buy 20 UNG 2018 $5 calls for $2.10 ($4,200) 
• Sell 20 UNG 2018 $9 calls for $0.95 ($1,900)

…

It's the last week of summer. 

That's something my kids are keenly aware of as they head back to high shool.  Turns out Jackie's (14) summer bucket list included a weekend at Matha's Vineyard and she was devastated to find out that telling me this on Thursday last week wasn't adequate notice to plan a trip for next weekend, even if I were so inclined.  

The Fed schedules their Jackson Hole conference for the last week of summer because they know no one on Wall Street does anything until after Labor Day (9/5) so the purpose of the whole circus is to give us something to chew on over the holiday, when the G20 Meeting will be held in Hangzhou, China.  As you can see from JackDamn's SPY chart, the market has been running hot all summer but we're having a lot of trouble at that top channel and there's very little support below 2,160 on the S&P all the way back to 2,100.

Hope, though, springs eternal into the fall as bullish investors are still salivating over the possibility (they think certainty) of another major round of fiscal stimulus and God help us all if the G20 disappoints on that front next weekend because the Fed certainly gave us no clear direction out of their meeting.

What Yellen said on Friday (key quote) was:

"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal-funds rate has strengthened in recent months."

"I believe" is not the same as "we believe" and a divided Fed is what has given us this choppy summer trading pattern.  Vice Chairman Fisher seemed to have more of the team spirit saying: "We should be on a program of gradual rate increases," though he added, "We can afford to be patient" when it comes to acting.  The Fed Governors were all over the place in their statements, however but, generally, all hedged towards data-dependence:

"If we had a lot of good news and we got into the September meeting and other people wanted to go, I could support…

“I don’t want to be sacrificed in your war against an inflation enemy that isn’t here.”

11 Fed officials met with "Fed Up" protesters yesterday who told them: "You will be leaving us behind,” if the Fed rushes to raise rates, accusing the Fed of “pulling the ladder right up after you have climbed it.  Our communities are still in a great recession” and “Let our wages grow”.  

The protest, misguided though it is, exemplifies how uneven the US economy has become as 8 years of easy Fed policies have done nothing for the Bottom 80% – things have actually gotten worse just below the top of the economic ladder.  Sadly, the Fed doesn't work for the Bottom 80% and the Fed is not the Government, the Fed is a Banking Cartel and the kind of inflation they seek to contain is WAGE inflation – exactly what the Fed Up crowd wants them to "fix".  

Things are very fixed, as far as the Fed is concerned.  In fact, in the past 3 months, US banks made $43.6 BILLION in profits, beating the previous record of $43.01Bn in Q2 of 2015.  So the Fed is doing exactly the job they are supposed to be doing.  They don't want higher wages – they want "full employment" – in other words, they want a high supply of labor but that doesn't mean they have any interest in those employees making a living wage – that would be inflationary!  

As noted by discount store, Dollar General's (DG) CEO last night after announcing weak sales and earnings:

I know that when we look at globally the overall U.S. population, it seems like things are getting better. But when you really start breaking it down and you look at that core consumer that we serve on the lower economic scale that's out there, that demographic, things have not gotten any better for her, and arguably, they're worse. And they're worse, because rents are accelerating, healthcare is accelerating on her at a very, very rapid clip.

Making matters worse, he added that the company's core consumers

…

Yawn!  

Not a very exciting market while we wait for Friday's Fed Speak but we have been amusing ourselves picking up some cheap positions – in case the free money train is going to keep on rolling.  The nice thing about sideline cash is you get to deploy it, which is so much more fun that being full of positions you're stuck with and praying they don't drop.  In addition to all those free trade ideas we gave you yesterday (and TOL is up over 10% since Monday's featured pick!), we added 3 more long trade ideas in yesterday's Live Member Chat Room, including IMAX, which spiked higher as we sent out our Top Trade Alert for that stock.  

Our shorting lines remain the same as yesterday and you have to be nible with those S&P (/ES) (SPY) contracts but the trading range allows for many opportunites to pick up $250-$500 pretty much every day though yesterday we firmed up on shorting the Russell (/TF) at 1,250, with tight stops above that line.  On the Russell, it's $100 per point per contract – so a little more aggressive.

We're doing a Live Trading Webinar today at 1pm, EST and we'll do a little Futures Training.  Oil should be in play today with inventories out at 10:30 but we already saw an API Report that indicates an unexpected (by economorons) 4Mb build and that should be good for those USO puts we told you about last week.  Keep in mind the reason for the build is mainly the 500Kb/d Exxon (XOM) refinery is off-line and 7 x 500,000 = 3.5M barrels that weren't refined – duh!  

Of more concern to the oil bulls is the ever-declining demand for gasoline, as evidenced by the EIA revising their gasoline consumption expectations from +4-5% in January to +1.5% in their July estimate and even that may be revised down as US consumption, according to our friends at CNBC, had missed 10Mb/d estimates by 200,000 (2%) all summer.  

Of course, those guys are full of crap and totally misleading you because US consumption is actually 8.1Mb/d so either CNBC and their analysts are incompetent…

What insanity! 

The chart on the right says it all – this is what $10Tn of stimulus in the past 7 years has bought our Central Banksters – a stock market that says things have never been better to a population who's impression of their own financial health has rarely been worse.

Hopefully the drop in productivity is merely a correction off the fantastic run we've had for the past 5 years, with a 50% increase since 2011 now paired back to a 33% increase but still very good.  Unfortunately, wages have not kept up at all and that's been hurting Consumer Sentiment and making it very hard for the economy to gain any real traction – no matter how much money the Central Banksters thow at their friends.

Of course, if you are a business owner, you are loving this and there is, of course, no better way to make sure your workers keep their grubby little hands off your proifts than to vote Republican as the GOP has been more than 5 TIMES better at keeping a lid on wages than the Democrats and, if you take out the well-deserved 900% increase in CEO and management wages over the same period – you'll find that the Republican party has TAKEN money from the workers and distributed to those of us who created those jobs, on our own, without any help from anyone, ever…

This has, unfortunately, left us with a lot of whiny poor people but plans are being drawn up at GOP headquarters to deal with that as we speak.  Those of us in the Top 10% only collect 48.2% of the income each year and that means there is room for us to get 51.8% more of the money in this country so don't be complacent – get out there and SQUEEZE the bottom 90% until more money comes out!  

Of course, the best way to get the bottom 90% to give up more of their wages is to force them to give them up.  We can do that by raising the price of necessitices like oil, gasoline, water, natural gas, food, etc. and also by paying them…

Insider selling is on the rise.

The rate of net insider selling reached the highest level since June 2015. That surge preceded a previous market high when the Dow was pushing over 18,000 for the first time ever, according to Richard Cuneo, senior vice president of operations at Argus Research.  InsiderTrade reports that, in the week ending Aug 12th, $1.9Bn worth of insider shares were sold compared to just $100M of buys – a 19:1 ratio! 

That kind of stuff should at least bother you a little if you are on the side of the 1 that is buying while 19 are selling, right?  This is just one of dozens of things that don't smell right as the market keeps testing those new highs on record-low volumes.  

This morning we noted that Hotel Room Rates fell 2.7% in July (the worst in 8 years) and Air Fares fell 6.6% while the Atlanta Fed's GDP Now Forecasts 3.6% growth in Q3.  Wherever that growth is coming from – it's certainly not from businesss travel…

Actually it's housing that's driving the forecast with Residential Investment growth projected to be up 2.4% from 0.4% in the previous reading.  So we'll be keeping an eye on reports from home builders to see if there's more signs of a turn-around there but Retail Continues to be weak with TGT's guidance well below expectations and costing that stock 4% today.  WMT reports tomorrow.  

They keep throwing red flags and we keep racing around the track at 200 miles an hour – something's gotta give at some point and we can only hope it's just a fender-bender and not a nasty multi-car crash.

IN PROGRESS

Forget the details of why this started.

What you should be concerned about is how easily a protest march in Wisconsin turned into a riot – to the point where Gov Scott Walker called out the National Guard in Milwaukee.  Six businesses were set on fire during Saturday evening’s unrest, and three of them were destroyed.  About 100 protesters had gathered for a demonstration Saturday evening when violence broke out.  Chief Flynn said the city’s gunshot detection system was activated 48 times during the unrest, adding that some activations recorded several rounds being fired. 

Koch-backed Walker has turned Wisconsin into a nightmarsish state that is now ranked 49th in the US and is one of 5 states in the country with a contracting economy with a $2Bn budget shortfall in 2015.  Walker has cut $1Bn from education, smashed unions, ended paid leave for sick days and maternity leave requirements and, of course, put in "right to work" laws that have stagnated wages for the past 6 years.  

In short, Walker has implimented the GOPs 2016 platform and his state is in revolt.  He even signed a bill that striped public employees of their collective bargaining rights, barred the traditional collection of union dues and forced workers to pay more for their health care and retirement benefits – things the national GOP want but don't dare put in writing – and this is the result!

The problem is, this is the end of all "cut taxes and cut social programs to pay for it" budget plans – it's only a question of when it is actually time to pay the piper and deploying the National Guard costs a whole lot more than buying a few kids a decent school lunch but then the money doesn't go to a contributing military contractor… politcs sure are tricky! 

Meanwhile, in the rest of the World, we're ignoring Japan's horrific 0.2% GDP Report this morning, which would have been negative if not for $276Bn in stimulus spending.  Business investment fell 5.9% and exports fell as well so the only people who…

Wheeeeee – what fun!  

Over and over again they take us back to 18,500 on the Dow Futures (/YM) and 2,180 on the S&P Futures (/ES) and over and over again we short them and pick up $250-500 per contract.  It's a suckers game and we're the guys with the cups challenging the bulls to find the red ball and the bulls are certain it's under one of those cups – just never the one they pick.

It should be like shooting fish in a barrel, making money in this market yet the average hedge fund is up 2% for the year, well behind the 6.5% gain in the S&P.  Yesterday, as we predicted in our Morning Alert to our Members (and tweeted to the general public – as we do from time to time) the market took a nice dive and though it "recovered" to 2,175 on the S&P, the huge declining volume told a very different story.  

I simply run out of ways to tell you what a horribly rigged market this is and that the "rally" is nothing more than a prop job to keep you buying at the top while the "smart money" runs for the hills.  What I said to our Members at 6am was:

Dollar is still diving, testing 95.50 and the indexes are up a lot less than the Dollar is down so huge grain of salt to be taken on the Futures, which are at 18,500 (short on /YM there), 2,180 (good on /ES too), 4,800 (good short for /NQ), 1,232.50 on/TF (also a good short) and 16,800 on /NKD (yet another good short).  Well – I guess I still like the shorts here!  

The Dow bottomed out at 18,420 for a $400 per contract gain.

The S&P bottomed out at 2,168 for a $600 per contract gain.  

The Nasdaq bottomed out at 4,770 for a $600 per contract gain.

The Russell bottomed out at 1,220 for a $1,250 per contract gain.

The Nikkei botomed out at 16,650 for a $750 per contract gain.  

IN PROGRESS

Big push or last gasp?  

2,200 is the top of our likely range at the moment and it's just 20 points away on the S&P and that's 400 points higher (22%) than we were in February and, according to our 5% Rule™, a 20% move up with a 2% overshoot is very likely to lead to a 4% pullback to about 2,120 before we'll see anything higher.

The volume gets lower and lower while the market climbs higher and higher and that's exactly the sort of thing Willie Wonka says just before something horrible happens.  I'm just saying…

We're having lots of fun scalping profits intra-day but we still have a generally bearish stance.  This morning, in our Live Member Chat Room, we already had a nice $250 per contract winner on the oil dip from $43.25 to $43 and now (8:15) we're back at $43.25 and, you know what?  We can do it again!  That's the nice thing about fake market moves – you can bet against them over and over.  

I was over at the Nasdaq yesterday discussing my broad market outlook on FaceBook Live, so you can watch that and save us the trouble of going over it again.  Needless to say we're still using yesterday's shorting lines on the Futures as, much like oil – they made great money yesterday and they can make great money again today as the market bucks like a bronco, trying to toss off the bears before it gets too tired to fight the gravity.

Remember, I can only tell you what the market is going to do and how to make money trading it – the rest is up to you!  

We did pick up a long this morning in the Futures and that's an old favorite as well.  It's good not to have all your bets in the same direction but our conviction trade is the oil (/CL) short – that's a melt-down waiting to happen (also outlined in yesterday's post).  Gasoline (/RB) is already well off the highs of $1.39, back to $1.36 and that would put oil back at…

Well we're off to a great start.  

I did an extensive review of the OOP during our Live Trading Webinar on Wednesday (@ 38:35) where we looked over our current positions and determined we were well on track to gain another $60,000 (60%) next year but, of course, we won't be just sitting on our laurels – there will be lots of fun trades to make over the next 12 months.  

After our first year (we initiated the portfolio on Aug 8th, 2015) we are now the Top Performing Premium Portfolio over at Seeking Alpha and, in fact, our strategy is outperforming even America's best performing hedge fund (Gerbina Gold Group) by a wide margin.  In fact the 2nd best performing hedge fund is also a gold fund (AIS) and is only up 33.7% for the year – so our diverse portfolio, using our "Be the House – NOT the Gambler" philosophy is proving itself in this market.  

You can read more about that strategy in my January Forbes interview where, on page 4 of the interview, I gave an example trade from the OOP using a bullish spread on oil which was:

Buy 10 UCO July $5 calls for $3.70 ($3,750)

Sell 10 UCO July $10 calls for $1.55 ($1,550)

Sell 10 USO July $8.50 puts for $1.10 ($1,100)

Despite pulling back off the highs, UCO finished on expiration day (July 15th) at $10.91 so the trade expired in the money and returned $5,000 against the net $1,050 initial outlay.  That…

"Whatever it takes."

That's what Goldman Stooge (yes, it's an official position, so we capitalize) Mark Carney says he is willing to do to get investors to ignore the fact that the Bank of England had to severely reduce their outlook for 2017 GDP, from 2.3% to 0.8% while, at the same time stating that: "recent surveys of business activity, confidence and optimism suggest that the United (for now) Kingdom is likely to see little growth in GDP in the second half of this year."  

Today's move drops the UK's benchmark rate to 0.25%, half of what it's been for the last 7 years and Carney left the door open for even more easing – though not too much, apparently:

“I’m not a fan of negative interest rates,” says Carney. “We have other options to provide more stimulus if needed.”

“We see the effective lower bound as a positive number, close to zero, but a positive number.”

A positive number – but clearly not a positive whole number – that ship has sailed long ago!  The FSTE jumped 1.5% on news that their economy will be right on the edge of recession next year but, of course, that's because the BOE is now pumping $50Bn PER MONTH into the $2.6Tn economy, which would be like our Fed tossing $380Bn/month onto the fire.  That is a staggering amount of QE funneled through the banks by Goldman Sach's former Executive Director – just a coincidence, I'm sure.  

Speaking of Goldman Sachs getting caught using their connections to manipulate the market – the firm was ordered to pay $36.3M to settle a case after they hired a Fed employee and used confidential information he provided to bring in clients to access their access.  This went on for 2 years and involved Billions of Dollars worth of transactions and, in response to the $36M penalty, a GS spokesman said "Ow, my wrist!"  

…

Here's a nice way to boost the market:

Kick out the under-performing components!  The Dow engages in this kind of manipulation all the time, most recently swapping Apple (AAPL) in for AT&T (T), who had a nice 100-year run before the American Telephone and Telegraph Company was replaced by a company that makes phones in China.  Come to think of it – that's a very good summary of how the last 100 years has been going for America, isn't it?  

Well, if the components that get kicked out are any indication of where countries are declining, we should be a bit concerned that Euro Stoxx kicked out Deutsche Bank (DB) and Credit Suisse (CS) this morning, replacing them with ASML (semi-conductors) and SGEF (Construction) in order to prop up Europe's version of the Dow as it begins to falter at the 3,000 line.

Rupert Murdoch (Wall Street Journal) owns the Dow and Deutsche Bourse (DBOEY) owns the Stoxx Index and both can do whatever they want when it comes to manipulating the numbers that global investors use to make trading decisions.  Trillions of Dollars invested in ETFs that follow the indexes controlled by these two Top 1%'ers.  Whether that makes you comfortable or uncomfortable is probably a good indicator of your political viewpoints…

As you can see from our first chart, these shenanigans didn't even buy them the entire morning before the index plunged right back down from the small lift they got overnight in the futures (though the actual substitution takes place on Monday – so watch out for that!).  Europe is down about 1.5% overall this morning, led lower by Italy and Spain, who have their own bank crises to deal with.  

As you can see from yesterday's NYSE volume chart, despite the "flat" day on the S&P, what was really happening was that the headline stocks that move the indexes were propped up to mask MASSIVE selling in the broader market.  

As I noted in last week's Live Trading Webinar, it's very easy to game the markets on low-volume days because the Banksters and Fund Managers know FOR A FACT that Billions of Dollars from people's paychecks (401K, IRA) will flow into the…

Nothing! 

That's what we got from our Fed yesterday in a statement that held no new action and not indication of when there would be action and nothing is no longer good enough to sustain record high market levels – especially with the very mediocre earnings that are being delivered in the broad markets. 

As you can see from the Fear and Greed Index, the greed is still fairly extreme and the complacency is extreme too with the VIX down under 15 this morning and Treasuries (TLT), which we're short on, are still up at the $140 line post-Fed – as if they still might turn around and loosen further than they already have.  

IN PROGRESS

2,165.

That's our shorting line on the S&P 500 Futures (/ES) and the significant line below that is the S&Ps 15% line on our Big Chart at 2,127.50 so that's the range we'll be looking for if we're going to have the beginnings of a proper correction.  Anything less than that is just a blip as we consolidate for (and I hate to say it) a move higher.

Of couse, we don't need to go all the way back to 2,127.50 to make money.  Last Thursday, we laid out our shorting lines from our Live Member Chat Room, right in the morning post and they were (and still are):

18,500 is lined up with 2,165 on /ES, 4,650 on /NQ and 1,205 on /TF, we want to see them all below to play a short.  

Then on Friday, I noted we made a profit of $500 per contact at 2,155 so of course we did it again when the levels broke again yesterday.  Learning to make money in the markets is a lot like learning to be a great stage performer – you learn your part, do it well and then learn to consistently repeat your performance over and over again.  Much like most rock bands – no one in the audience is interested in your new stuff – just play the hits please! 

S&P Futures expire in September and sentiment has them trailing the actual index, which finished at 2,168.50, 6.50 above the Futures levels, so keep that 6.5-point difference in mind when we're looking at the S&P chart and talking about the headline levels vs. the Futures.

As you can see from the hourly S&P chart,  yesterday's 13-point dip hardly registers in the bigger picture and we're still costing along the upper end of the 50-hour moving average at the top end of the bullish range.  It's going to take more than a blip like that to scare off the dip buyers – who have been rewarded by the Fed(s) for their aggressive behavior pretty much since 2009!

There's not much to do but watch and wait ahead of our Fed's announcement on Wednesday afternoon and the BOJ on Friday morning and we can expect to drift along near the highs at least until we year from our own Central Bank tomorrow. 

What a week.

Congratulations if you caught our call to short the Dow at 18,500 yesterday morning, that was good for a profit of $500 on each contract as we tested 18,400 in the afternoon – not bad for a day's work!  Our other winning short index calls were:

• 2,165 on the S&P Futures (/ES), which fell to 2,155 – up $500 per contract
• 4,650 on the Nasdaq (/NQ), which fell to 4,630 – up $400 per contract 
• 1,205 on the Russell (/TF), which fell to 1,198 – up $700 per contact

As you can see from the Dow chart above, we took a few losses poking short on the Dow during the week but it's all worth it when you catch a big winner on the way down.  This morning, of course, we're moving back up on no volume – which is why we end up shorting in the first place.   

Per our 5% Rule™, the week's fall from 18,550 to 18,400 is 150 points so a weak bounce is 30 points to 18,430 and a strong bounce is 60 points to 18,460 and 18,475 is the 50% line, which is where we'd poke short again with very tight stops and then, once the strong bounce line fails – we'd look for shorting opportunities at the strong bounce lines on all our indexes again.

Despite successfully playing for a bounce on oil and gasoline in yesterday's Live Member Chat Room, we are generally expecting a repeat of last Fall's fall and that is going to be bad news for the broad market as there is already a severe disconnect between Energy Sector stocks and the price of the energy they sell.

Like much of the S&P, a combination of financial engineering (and note that Business Insider is now a lot more critical of Microsoft's (MSFT) earnings than I was on Wednesday) and completely irrational exuberance has led to unrealistic valuations that even the loosest of Fed models won't be able to sustain.  With Exxon (XOM) and Chevron (CVX) both heavy Dow components, shorting that index at the all-time highs is a no-brainer:

IN PROGRESS

Generally Accepted Accounted Principles (GAAP).

According to Investopedia: "GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary!"

Let's keep those guidlines in mind as we discuss Microsoft's (MSFT) earnings last night as they are a fine expample of the kind of BULLSHIT that is permeating the market these days.  MSFT's GAAP Revenue was $20.6Bn and GAAP Earnings were 0.39 per share, missing by a mile but, after adding back "Windows 10 deferrals to revenue" and "impairment, integration and restructuring charges", they are able to boost their non-GAAP reported earnings to $22.6Bn and that extra $2Bn of revenues, which were actual expenses but have been erasted from the report, drops straight to the non-GAAP bottom line and almost doubled non-GAAP earnings to 0.69/share – a nice beat! 

And that's not the end of it as MSFT also made non-GAAP (non-Generally Accepted) adjustments to their taxes and reports that they will only pay $225M on $3.3Bn in earnings (7%).  We can be outraged about this on many levels but the earnings weren't real so it's really not fair to expect them to pay taxes on their fake earnings, is it?  It is, however, "fair" to expect invesors to pay $55 for the stock this morning, up from $53 yesterday based on all these fake earnings.  After all, the investors are just suckers, born every minute and growing up to hold the bags. 

Microsoft is part of the Big Con, which is moving the whole market to all-time highs.  It's a significant stock on all the indexes so it will lead us higher this morning – even as the broad market continues to sell off as the big boys run for the exits during this "rally".  By holding up just a few large-cap stocks, the Fund Managers and Banksters can cover their tracks as they sell off the rest of their holdings – all the while…

There was another horrible terror attack in France yesterday.  

The markets have given it a big "who cares" so let's act like it doesn't matter because it's Options Expiraiton Day and it's much more important we pump up the stock indexes (back to that magic 3,000 mark on Euro Stoxx and 10,000 on Germany's DAX) so the Funds, who are about to dump massive amounts of shares, can buy cheap puts to protect their gains during the sell-off.  

Oops, I'm not supposed to tell you that – it's one of those inside market manipulators' secrets we're not supposed to discuss with the retail suckers traders.  Move along, nothing to see here, pay no attention to the man behind the curtain.  Terrorism?  Why on Earth would that affect the stock market?  President Trump plans to nuke those suckers out of existence, so why should we be worried?  It's nice to know he has a plan – even if the plan is horrifyinig!

We still haven't gone full-blown short on the markets because the technicals are so set against us but we did press our short bets in our Short-Term Portfolio as well as our Options Opportunity Portfolio in yesterday's Member Chat.  We looked over our Member Portfolios in Wednesday's Live Trading Webinar and the replay for that is HERE.  

While the Dow and S&P may be at all-time highs, we're still waiting for the Nasdaq (5,150), NYSE (11,250) and Russell (1,292) to confirm the move and, of course, looking at the DAX, they are still miles away (20%) from last year's high of 12,500 and China is still 40% off the highs and Japan's Nikkei is still 20,000 points (50%) off it's all time high at 39,000 but that was 1989.  More recently (last July, in fact) the Nikkei topped out at 20,600 so 16,600 is only down 4,000 – also 20%ish.  

So all the other global markets are down 20-40% and we are making all-time highs.  This hasn't happened since October of 2007, so I'm sure there's nothing to worry about this time either…

See?  And we all know how well that worked out.…

Incredible! 

As in, not credible, especially when you take into account the not very credible volume counts on SPY this week, with just 73M shares on Monday and 95M shares yesterday compared to 333M shares traded on the way down 2 weeks earlier.  Come on people, where's your enthusiasm?

That's the problem, of course, PEOPLE are not buying stocks, Fund Managers (arguably, not people) are not buying stocks, even HFT trading programs are sitting this one out.  No, it turns out the only idiots buying stocks at these record-high levels while ignoring all that is wrong in the global economy is, you guessed it – Central Banksters!  

While Investors are bailing out of equity funds at a pace not seen since 2008, the retail suckers are being herde in to hold the bags by the Central Banksers, who, along with the MSM are, of course, owned by the Top 1% – the people who are selling their equities at record highs.

Investors have pulled the equivalent of $133 billion from global equity funds so far this year, according to a weekly fund flows report from Bank of America Merrill Lynch released Friday. Of that nearly $80 billion has been pulled from U.S. equity funds.

None of that matters, of course as our beloved Central Banksters have purchased (on our behalf because we're on the hook for any losses) $600Bn in assets, at least 20% of which is, you guessed it – equities!  That's why we get these wild end of day rallies – the Fed doesn't buy like a human, they don't care what the price is – they decide to buy $2Bn worth of stocks at the end of the day and then they barrel into the markets, spending like drunken sailors with one day of shore leave.  Only they do it every day!  

In 2016 alone, the ECB and BOJ, alone, have bought $500Bn of assets.  China is not even on this chart so figure another $200Bn for them and now we're hearing the BOJ wants to do more along with the BOE and maybe even the Fed and China, for their part, are…

Abenomics lives!  

Japan's Prime Minister Shinzo Abe was re-elected this weekend and his party was given a 2/3 majority in the Diet (Parliament) which paves the path to a Consitutional Amendment that will allow Japan, after a 72-year break, to re-arm their military and, of course, allows the Bank of Japan to keep printing Yen like Pokemon cards, which also exploded higher this weekend. 

Of course, we told you this was going to happen in last Wednesday morning's post when I said:

In anticipation of BOJ action, we like /NKD long at 15,250 (tight stops below) and we'll be making an options play on the Japan ETF (EWJ) which is hopefully bottoming at $11.40.

Those /NKD Futures are now over 16,000 for a profit of $3,750 per contract in less than a week and EWJ should be heading to near $12 this morning so, even if you are only a stock player, that's +5% in less than a week – you're welcome!  Remember, I can only tell you what's going to happen and how to make money trading it – the rest is up to you…

Sadly for the non-paying readers (I was told it's not nice to call them cheapskates), we don't give away free trade ideas during earnings months but I can tell you we're seeing some amazing shorting opportunities as certain stocks have gotten way ahead of themselves.  

This week, we'll focus on the Financials but we'll have to be patient as the big boys don't weigh in until Thursday.  Alcoa (AA) is splitting up the company so we're more interested in the conference call than the earnings report and Commerce Bank (CBSH) is one of those companies that may be ahead of themselves at $47.16 and Yum (YUM) is priced to perfection and CSX (CSX) may be too ambitious as well.  It's too early to make bets, but the results will be telling.

IN PROGRESS

2,099.73

That's where "THEY" closed the S&P yesterday.  Now, when I say "THEY", I'm not referring to any sort of shadowy market-manipulators who herd retail investors like sheep to the slaughter by triggering the technical breakouts they've trained them to obey by pushing TA like crack to traders who, frankly, a weak-willed and looking for an easy fix because they aren't willing to do the work it takes to understand the true complexities of the market.  

No, I don't mean that at all – I'm not a conspiracy theorist.  When I say "THEY" I mean the perfectly natural random action of millions of Traders making Billlions of trades that just so happen to keep hitting the exact same spot – no matter what crisis took the markets down – for 2 full years in a row.  Nothing at all to see here folks, move along…

We're fully trained at PSW to short the S&P at 2,100 (so now, in case you are one of those sheep who find my analogy too vague) as well as Dow 18,000, Nasdaq 5,000, NYSE 10,500 and Russell 1,200.  At the moment, the Nasdaq Composite is at 4,859, so way short and the Russell is even shorter at 1,147 while the Dow is at 17,918 so the S&P is suspiciously high and makes a great short – with tight stops if it breaks over and then we'll see if the rest make their lines.  See – now you know how to day-trade the tops. 

As you can see from JackDamn's Dow chart, we really peak out at 18,200 but we don't always make it there and we hate to miss a reliable short so here is where we like to start positioning for another sell-off.  Though we've had an incredible recovery (as in NOT credible) since June 27th's Brexit panic – that was only our first fear of summer (see other posts as I'm in too good a mood to go over it again) and there's still 60 days to go (my kids keep me informed of the count).  

As I said in yesteday's Live Trading Webinar, IF we survive the summer, THEN I'm willing to consider…

ROFL!  

It is so funny to see all the chickens we've been warning about come home to roost – especially when it happens WHEN we thought it would.  As noted in our July Portfolio Review, we are well-positioned for a downturn, having just boosted our hedges during last week's "rally" and already this morning we're glad we did as the Dow is looking at a 100-point drop at the open which is NOTHING compared to Europe's 1.5% decline into lunch.  

As you can see from the chart (despite it's awful choices of key colors), the Brexit dominoes are lining up already and the worst thing that can happen to the EU is for the UK to emerge from their exit with their economy intact.  Fortunately for them, that doesn't seem to be a problem at the moment as economic confidence in the UK has fallen off a cliff as the Top 10%'ers who were betting a Brexit would never happen are now scrambling to cover their mistaken bets. 

And I don't mean at the bookmakers, I mean the bets they made with their company's futures, hiring plans, capital allocation strategies, loan and investment portfolios – these idiots have been living in a bubble and that bubble has just popped all around them and now the Top 10% all over Europe have to wake up to the reality that the Proletariat still have a bit of power and are willing to use it – no matter how much you try to cower them into submission. 

Nigel Farage has now joined Boris Johnson in stepping down now that they've won the UK vote and we had a discussion in our weekend chat as to whether it's a noble thing that shows they weren't in it for political gain or whether they just grabbed the wheel on the Titanic, steered it into an iceberg and are now grabbing the first lifeboat off the ship.

Morgan Stanley is assuring us that "Brexit is not a systemic risk" and the fact that they have to say that should terrify you.  As I pointed out to our Members, people don't say "Remain calm, all is well" when things are…

(Shout) a little bit softer now
(Shout) a little bit louder now
Jump up and shout now
(Shout) a little bit softer now
(Shout) a little bit louder now
Hey-hey-a hey
Shooby-doo-wop-do-wop-wop-wop-wop
(Shout) a little bit softer now
(Shout) a little bit louder now

This is one crazy MoFo market – and so much fun to trade!  

Just this morning we had some crazy Gasoline (/RB) Futures trades in our Live Member Chat Room as it plunged from our $1.50 long line (after hitting $1.51) all the way back to $1.47 where we doubled down and now we're out even at $1.485 and hoping for a return to $1.51 for a $1,050 per contract gain to take us into the holiday weekend.  Of course the gain is better if you waited for $1.47 before starting – but we didn't.  

Heading into the holiday (and bear with me as I like to pretend fundamentals still matter):

• Puerto Rico is missing their $2Bn bond payment today and will go into defaut, triggering payouts of similar Billions from the bond insurers like (AMBC) and (AGO), so we'll keep an eye on their stocks.  There may be a last minute save but a tough thing to pull off on a Friday before a holiday – you know Congress is already gone…  
• Gold flew back to $1,340 this morning so you know something is up.  Silver (our old favorite metal) is now $19.30 and yes, we still have SLW in the LTP, so far in the money it's boring now and on track for the full $4,000 gain – up 800% on cash in the LTP and, for the low-margin crowd, the STP has a smaller trade we will cash out here at $26,000 against net $2,400 invested on 10/16 (983%).  You know we love a trade when it's in our Long-Term and Short-Term Portfolio!

• Now Europe is having a temper tantrum because the UK won't leave.  Yes, they voted to leave but they haven't

…

Go kitty cat, go!  

On the right is the S&P chart and you can see the huge volume levels as we sold off with 553M shares traded on the S&P ETF (SPY) in two down days as the S&P fell from 2,113 on Thursday to 1,991 on Monday (122 points, 5.7%).  Yesterday, we popped back to 2,036, which is 45 points off the low but the volume on SPY was opnly 158M.

Let's say, for example, that you are re-building a 122-point wall that was knocked down and there were 550 bricks in the wall and you begin to re-build the wall and, as you are 45-points back up (37%), you realize you only used 158 bricks (29%).  Is that wall going to be weaker or stronger than the one that got knocked down?  Would you trust your family to be safe behind that wall?  Would you trust your investments to be safe?  

Yes, an 8% difference doesn't seem like a big deal but it's actually 158 out of 203 (37% of 550) that should have been used so we're 45 bricks short, so far, and that's 22.4% short.  So, going back to the market, we are getting to the same overbought levels but now with 22.4% less cash supporting the run than we had before.  That's really not good!  

IN PROGRESS

This is the end 
My only friend, the end 

Of our elaborate plans, the end 
Of everything that stands, the end 
No safety or surprise, the end 

Well, we couldn't be happier.

I'm sorry if you're reading this and you are losing money in this downturn – clearly you're not one of our Members as we had a very happy Friday in our Live Member Chat Room talking about all those juicy opportunities as we watched the herd of market gazells panic into the canyon, where we have them completely surrounded.  

We cashed out the last of our risk on June 7th and I discussed it in our morning post on June 8th, while the Dow was hitting 18,000 and everyting still seemed awesome.  My comment at the time was:

That's right, the Dow hit 18,000 and we took the money and ran, closing out over half of our uncovered Long-Term Portfolio positions, pretty much everything that was up 40% or more, getting our CASH!!! off the table just in time to take a 2-week trading vacation ahead of the June 23rd Brexit vote.  It's so much easier to take your money off the table while things are still going up – you get much better prices from all the suckers who are still buying (they are called "bagholders" by market professionals).

If you are one of those bagholders, I am truly sorry but not for my lack of warning you as we had been talking about Brexit and the potential repercussions for a good month before that yet the market kept on rallying but we expected a market correction regardless for solid, FUNDAMENTAL reasons and, as I said at the time:

SOMETHING is going to hit the fan this summer.  After the Brexit vote, even if the UK remains, then we will turn our attention to Brazil with 6 weeks to the Olympics (Aug 5th) that country and their disastrous economy (World's 5th largest) will be in the news constantly – as will fears of the Zika virus, which is bad enough that 150 experts petitioned the World Health Organization to postpone or move the Olympics to avoid a possible global pandemic

…

"And, has thou slain the Jabberwock?

  Come to my arms, my beamish boy!

O frabjous day! Callooh! Callay!'

  He chortled in his joy.

`Twas brillig, and the slithy toves did gyre and gimble in the wabe.  All mimsy were the borogoves, and the mome raths outgrabe.

Yep, that's about how much sense the morning run makes as the UK heads to the polls on Brexit day.  Early exit polls show the Remain camp with a slight lead and our indexes have rocketed back to their highs, where we've taken the opportunity to short them this morning.  My note to our Members in our Live Chat Room was:

Nice test of 2,100 on /ES, which is a good shorting line along with 17,8000 on /YM, 4,450 on /NQ and 1,160 on /TF and 16,600 on /NKD is ridiculous since the Dollar is down half a point (93.23) but safer to short the US indexes since the Dollar coming back would be good for /NKD.

For our Futures, we're shorting at the 1% lines and expecting at least a small pullback off the EU's 2.5% lines to pull us back a bit.  /NKD is happy because it's the Euro and Pound driving down the Yen, not the Dollar..

It's very easy to play the Futures.  We had a Live Trading Webinar yesterday and we made $475 in 30 minutes just demonstrating it (we were long Oil (/CL) and Gasoline (/RB) Futures at the time, now short oil at $50 with tight stops above).  

Why are we shorting?  Aside from the obvious technical reason, the initial reaction is often an over-reaction and there is NO WAY that they can be certain of the vote since they haven't even begun to count yet.  In fact, per this chart of the UK announcements, we won't hear the first official count until midnight, EST as the polls don't even close until 10pm in the UK (5 pm, EST) so, much like our Presidential elections – anyone who calls a winner…

"Day after day, Head in a cloud
The man of a thousand voices
Talking perfectly loud

"But nobody wants to know him
They can see that he's just a fool
And he never gives an answer" - Beatles

As we wait for Janet Yellen's semi-annual testimony before Congress, the UK Government is pulling out all the stops for the Remain camp, including well-known currency manipulator, George Soros and well-known ball manipulator, David Beckham.  Many people will analyze Soros' BS so let's concentrate on what a really handsome, rich guy has to say:

I was also privileged to play and live in Madrid, Milan and Paris with teammates from all around Europe and the world. Those great European cities and their passionate fans welcomed me and my family and gave us the opportunity to enjoy their unique and inspiring cultures and people.

We live in a vibrant and connected world where together as a people we are strong. For our children and their children we should be facing the problems of the world together and not alone.

See, Europeans are nice, we should play with them!  Of course, I'm not sure if reminding British Soccer Fans about other European teams is the best way to promote love and brotherhood…  As usual, the Remain camp pushes the "safe" and "comfortable" angle because they have already lost the factual, economic and political arguments.  The Remain campaign is all about fear of the unknown – even though the unknown, in this case, is simply going back to the way things were, pre-EU.

Brexit has been a fun distraction for the past month but it's not the only reason we cashed out many of our long positions on the 8th.  Yellen had spoken that Monday (6th) and the market ran back to the highs and we took our money off the table, avoiding the subsequent drop – very clever in retrospect.  As I noted in…

Ooops, sorry, that headline is supposed to be at the end of the day. 

I guess we'll leave it and see how the day goes but I was just interviewed by Reuters and that's what we decided would happen today, though you'll have to wait for the official headline until the close.  At the moment, our Futures are down slightly after a nice rally into yesterday's close saved us from DOOM!  The S&P Futures (/ES) ran all the way up to 2,070 and that was up 10 points for a $500 per contract gain from my morning call along with similar gains on the other indexes.

Before we went up, we went down hard yesterday and, as I said in the morning post "Probably have to wait for the Dollar to be done rallying – it should stop before 95."  As you can see from this Dollar chart, we went a bit further than I thought and the Dollar topped out at 95.50 around 10:45 but the effect was as expected on the indexes once it ran out of steam:

If you're going to trade the Futures, or be any kind of day-trader, you HAVE to learn to understand the relationship between currency, commodity and equity pricing.  That's why I talk about all those other, boring things every day – our system is based on the philosophy that, if you give a man a fish – you feed him for a day but, if you teach a man to fish – you feed him for life!   We teach our Members HOW the market work so they understand how to make adjustments without having to rely on other people to tell them what to do.

Still, we do have our Live Member Chat room and we discuss the nuances during the trading day (and you can get an idea of how that works from this week's Live Trading Webinar) and, at 10:17, as things were bottoming, I said to our Members:

Dollar 95.41 – can't blame anything for

…

27%

That's how many of your fellow Americans have "a great deal" or "quite a lot" of confidence in banks.  Only 18% of the people have confidence in Big Business and just 9% have confidence in Congress.  9% – that's not even the whole top 10% that Congress works for!

This is supposed to be a Democracy, folks – in a real Democracy, half of us should be happy with the people we voted for – certainly not 9%.  Something is very, very wrong with this country if we are seeing these kinds of numbers but at least it's encouraging to see that the public is finally waking up to the idea that TV News and Newspapers are not to be trusted.

This is what I mean when we are having discussions in chat and I point out to our Members (who are almost certainly in the Top 10%) that we live in a bubble and that the rest of the country is deeply unhappy with the way things are – about 10% more unhappy than they were 10 years ago at this pace.  That's an important number because we're down to our last 10% and we can't afford another 10 years of eroding trust or soon it will be just us rich folks defending our institutions from the 90% that are mad as Hell and not going to take it anymore.

Do we even have it in us anymore to be angry about what our nation is becoming?  Only 30% of us have faith in the schools we send our own children to where they are supposed to be prepared for their lives ahead and, if not, they may have to deal with a criminal justice system that not even 1/4 of us believe in.  That's kind of ridiculous, isn't it?  

That's why the Brexit vote next Thursday is such a big deal – one country, one Democracy on this planet - our closest cousins, in fact, is putting their foot down and saying "we don't know if things will be better or worse but we do know that what we have sucks – so we're voting to change."  Obama was elected on the "Change" platform but, as evidenced by the poll above, nothing has changed – we need something more drastic than a new President.  

IN PROGRESS

Monday again?

Come on people, let's lobby our useless Congress to make all Monday's National Holidays.  A 4-day work-week would also make sense.  If we stopped people from using Social Media at work, they'd be able to accomplish everything in 2 days anyway.  According to the chart on the right, 10% of our workforce spends more time on the web than they do working.  

Only 60% admit they visit Social Media sites during work and sure, 30% of those people are old – so maybe they really didn't but it's not just Social Media, of course.  Finding a place to eat counts too, or planning a trip or reading non-work stuff.  Work is, on the whole, a strange thing because most people can take a vacation for a whole week and the company is just fine without them, right?  

"Gig Economy" workers don't get paid when they take time off and that gives Gig Employers a 2% advantage over their rivals right out of the gate.  A complete lack of benefit payments adds another 6% advantage and then there's the fact that the employees don't get paid at all for time they are not being productive – let's call that 22% to round it out to a 30% advantage Gig Employers have over traditional employers.  

Over 6% of our labor force is now "Gig" or pretty much 100% of the "jobs" that have been created since the crash of 2008.  These are not, generally, great jobs.  They are certainly not the kind of jobs that let you dream of a sweet retirement and that is why you have a jobs recovery without a recovery in the underlying economy and without any real growth in Consumer Spending or Housing.  If we had a booming slave economy, you wouldn't be surprised that the slaves aren't running out and buying new homes or couches and washing machines yet the idea of wage slavery is too abstract for most Americans to understand – especially us older ones, who used to be able to afford an apartment in college with our minimum wage jobs. 

That's simply not true anymore.  If like me, you got…

Things are turning ugly again.

We are now officially short on the market and just in time, it seems as the EuroStoxx index is down 0.666% for the day and 3.33% from the top and it's another 145-point drop to our next support at 2,850 but call it the 5% Rule™ from 3,000, of course.

Speaking of the 5% Rule™, we nailed it with our oil prediction yesterday as Oil Futures (/CL) topped out right at $51.67 and, as I said in yesterday's morning post: "Our plan is to short 1x here ($51.15) and go to 2x at $52.25 to average $51.70, then half out at $51.70 and we'll see how far it falls."  We didn't go quite as high as we'd hoped but our oil shorts already paid off nicely this morning as we fell back to $50.80 and we stopped out at $50.85 and now we're back short again below the $50.80 line, hopefully for a ride back to $50 but a tight stop still at $50.85, which risks a $50 per contract loss against possible $800 per contract gains, again:

We knew it would be something – that's why we called for CASH!!! on Tuesday, while everyone else was in a greed-buying frenzy.  Today we can blame Mario Draghi, who spoke at the ECB's Economic Forum this morning and sent the markets into a dive (down 1%ish in Europe) by saying the truth – that monetary policy alone could not fix Europe's problems and that "if other policies are not aligned with monetary policy, inflation risks returning to our objective at a slower pace."

This marks a big shift from Draghi subtly hinting that the ECB needs to provide its own stimulus programs (preferably infrastructure spending) to outright begging as it's becoming clear that QE is losing it's effectiveness in the stalling economies of Europe and, as Draghi notes, it's not enough:

Bank balance sheets have not yet been fully repaired, as illustrated by the high stock of non-performing loans in some parts of the euro area. So more work-out of these non-performing assets will have to take place, and the

…

Everything is awesome!  

Janet Yellen told us yesterday not to overreact to the Friday's AWFUL Jobs Report while she herself overreacted and took the June rate hike off the table, blaming the Brexit vote – as if she only just yesterday found out about it.  That sent our markets flying higher and, this morning, Asia followed us higher and Europe followed Asia and the US higher and now our markets are following Europe higher and the tiger will continue to chase it's own tail for a while and we'll see where we end up but then what?

Then tomorrow we get the oil inventories at 10:30 and $50 oil is one of the big drivers of this week's rally as the Energy Sector and the Financails who lent them money are much relieved.  If you actually read Yellen's speech – it's kind of all over the place and she says "Unfortunately" 3 times and essentially says the Fed does not have a clue as to what's going on or what to do about it.  Isn't that AWESOME???

She says weak 10 times:  GDP growth, economic activity, business investment (3 times), productivity (3 time), US growth and International growth.  The only "strongs" she mentions are goals for the future so yes, we are weak (10x) and we HOPE to be strong (4x) and the market reaction is to get back to all-time highs – as if we're already strong and getting stronger – AWESOME!!! 

As I mentioned in yesterday's post, we're not trying to fight the Fed(s) here – as long as they are going to keep pumping up the markets, we will go along for the ride – but we will keep one hand on the exit door at all times because this crazy train may come to a screeching halt at any time but, for now, we seem to coast right past crisis after crises as they all pile up in our rear-view mirrors – still there but forgotten by our short-sighted investors.  

In fact, our Long-Term Portfolio, which is generally bullish, topped +100% for the first time on yesterday's rally and our Options Opportunity Portfolio (available as a…

Yet another fantastic two months for our Top Trade Ideas!  Not only did we start the year with 15 of 16 winners (see April's Review), but our only losing trade idea at the time was UNG, which just turned around last week – making us PERFECT for 2016 in our first 16 picks.  

Of course, it's been like shooting fish in a barrel since the February dip on the bull side but the really cool thing is we also called the drop on Jan 8th with SDS and SQQQ hedges that paid off huge as we bottomed out the next month.  We only started doing Top Trades last August and what we do is simply select one or two trades a week from our Live Member Chat Room at Philstockworld that we feel have a very high probability of success.  That then sends out Text and EMail Alerts to our Members, so it's perfect for people who don't have time to be on-line during the day.  All PSW Basic and Premium Members have Top Trade Access (just make sure your smart phone number is in the box here). 

We don't have a portfolio for our Top Trades as it would be redundant to our 4 Member Tracking Portfolios but many Top Trade Ideas are from trades we do officially add to our portfolios.  That's why we do these reviews once in a while – to check in and see if our logic is on or off track.  You can't make good future decisions without learning from your past ones – something we emphasize at PSW!  

54 of our first 73 (74%) Top Trade ideas were winners and 4 of our 11 losers were Lumber Liquidators (LL) trade ideas – still one of our favorite value plays!  Getting 3 out of 4 trades right is plenty to move the investing ball towards the goal line.  

Combine that with sensible portfolio management techniques (diversification, managing losses, hedging) and you'll beat the S&P by a mile with no sweat.  Generally, with our Top Trades, we're simply picking stocks we feel are underpriced and we're using our various options techniques to give ourselves even better discounts and hedged entries but these are patience plays that can take time to get going, usually our Top Trade Ideas have…

No one was trading yesterday.

The markets may as well have been closed based on the volume trading on the S&P's ETF (SPY) and, as you can see, the TradeBots that did show up for work dutifully brought us right back to $210 (2,100 on the index) – to preserve the illusion that all is well – even though it's clearly not.  

Obama made a great speech yesterday laying out the good and bad of our current economy and setting the tone for the next 6 months of debate as we decide who will replace him next year.  The things that make me nervous about the markets have nothing to do with our economy – which is slowly recovering – it's about the economies of Europe and China and Japan.  Those are the economic nightmares that keep me up at night.  

Just yesterday, Bloomberg reported that the PBOC is looking to crack down on China's $8.1Tn on-line financing market (ie. shadow banking), which is used to finance everything in China from diamond mines to weddings.  $8Tn is 80% of China's entire economy in unregulated banking and the fear is that it's become a massive Ponzi scheme as more and more small investors get involved in lending schemes in search of higher interest rates than the banks give them.   

"Risks have also emerged because of the relatively loose regulations," Yu Xiangrong, an economist at China International Capital Corp. in Hong Kong, wrote in a recent note, citing reports of Ponzi schemes and operators disappearing with investor money. "We expect China to step up its efforts to address the risks associated with internet finance and to tighten regulations on fundraising, loan-pricing, lending and risk controls."

Meanwhile, casino revenues in Macau fell 9.6% – another indication of Chinese belt-tightening and April was down 9.5%.  The average visitor spent $220, down 30% from 2014 and Macau's economy is down 13.3% in Q1 – it's 7th consecutive decline.  Wynn (WYNN) opens the Palace in July – it will be interesting to see how that goes.  Then Sands (LVS) opens the Parisian in September.  While we wait, Moody's has downgraded the city's…

Are we there yet? 

Barron's doesn't think so but, this morning, the Chinese markets fell 12.5% in seconds, erasing 3 months of gains but immediately (same minute) recovered and finished the day up 2.5%, for a 15% intra-day swing.  Overall, China's CSI 300 is down 16% for the year so, technically, not a bear market – yet.    

Of course, we started the year 30% off the highs so, technically, it's totally STILL in a bear market.  Interestingly, short interest on China's ETF (FXI) climbed to record highs last week – just ahead of this morning's test crash.  Yes, I said test crash because that's what these "flash-crashes" tend to be – some program spiking the bottom to see where the real buyers are so they can set up their cascading sell orders for the month ahead.  

I know – yawn! – China's a mess, Japan's a mess, Europe is toxic and perhaps about to fall apart, oil is barely holding $49.50 after the busiest driving week of the year… so what?  We've had the same concerns for ages and we're STILL at 2,100 – testing the record high for the S&P 500.  While that's true, couldn't you say the same thing about a car that's about to fall apart but making "record" mileage?  You KNOW it will die one day – just maybe not today.  

Check out the also record-high price to sales ratio on the S&P 500.  Never before has so much money been paid for so little actual sales.  We are now paying 20% more for Corporate Revenues than we did before the last collapse and about 130% over the historic average.  That seems like a lot, doesn't it?  Of course, never before have the books been manipulated to the extent they are today, with a record 58% of the S&P companies reporting non-GAAP numbers this year.  

If you listen to analysts, Q2 earnings are the trough and Q3 and Q4 should be much better, which is good – because they can hardly get any worse, can they?  Of course, now that we're done with Q1 earnings reports, we'll begin to get those crappy…

Wheeee, what fun!  

Another day, another 10 points closer to 2,100 on the S&P and, during yesterday's Live Trading Webinar (replays available at our YouTube channel) we shorted the Nikkei (/NKD) Futures at the 17,000 line and that trade alone was good for $1,000 per contract as we hit our 16,800 goal overnight.  We didn't wait for the overnights, however as we had a live $525 gain on /NKD along with another $580 on our Natural Gas (/NG) Futures longs and making over $1,000 in a 2-hour webinar (plus another $110 on the Dow shorts) was plenty to lock in at the time.  

Not being able to trade the futures is like not having a hammer in your toolbox.  Sure, you can get by using your other tools to hammer things in when the need arises but isn't it better to learn how to use a hammer so that, any time something needs to be nailed – you have the proper tool.  As I said two weeks ago, when we made $683.50 in 10 minutes while teaching Members how to trade the Futures:

If you want to get an idea of the techniques we teach our Members at Philstockworld, you can check out the replay here - unless, of course, you already make more than a $4,000 hourly rate – then we have nothing to teach you.

Today we are shorting oil (/CL) IFF (if and only if) it crosses back below the $50 line and we will have tight stops over the line.  $50 is a good point of resistance and the main reason oil is high is because the Dollar is down 0.3% this morning and, of course, because it's a holiday weekend and they are trying to screw you at the pump.  In fact, we're also playing gasoline (/RB) over the $1.65 line, also with very tight stops.

The key to Futures trading is finding a good support/restistance line where you can set tight stops where the risk significantly outweighs the reward.  Gasoline contracts pay $420 per penny and we were over $1.67 on Tuesday so we…

Go on, take the week off.  

Really, these markets are just stupid – there's no point trading them.  The volume on the S&P ETF (SPY) yesterday was 58M, one of the lowest levels of the year – including half days!  We opened at $205.51 and closed at $205.21 with a high of $205.84 and a low of $204.99 so a narrow range of 9 S&P points during the day and then, at 3am, we magically race back up 12 points – on no volume at all.  

It's a manipulated joke of a market and, while we enjoy playing the game, I hear from far too many people who take this nonsense seriously and are worried about what to do in the face of all this uncertainty.  The only trade we added in our Live Member Chat Room yesterday was a neutral butterfly spread on TGT, using our BE THE HOUSE stratgegy of selling premium over time against a long-term position.  That's how you make money in this market – take it from the people who think they know which way it will go!  

We're hoping for a nice rally so we can add back Nasdaq Ultra-Short (SQQQ) positions, now that Apple (AAPL) has bounced a bit.  Of course you are sick of me saying "I told you so" but I did tell you so, right in our Friday the 13th post, where I said:

Also, if you'd like a quick stock play – we picked up Apple (AAPL) at $90 yesterday and we leveraged it with the May (expire next Friday) $87.50 calls at $3.15, which closed yesterday at $3.25, which is net $90.75 and we think AAPL can at least bounce $1 or two and that should take those calls to $4, which is a very nice, quick gain into the weekend.  

With AAPL closing at $95.22 on Friday, those calls expired at $7.72 for a very nice $447 (137%) per contract win in 7 days.  That's the kind of trade idea you get just for having a PSW Report Membership ($99) as it was right in my morning post.  Of course, if you subscribed to our higher-level Memberships, you would…

10 points.  

That's what we need on the S&P today to reverse what is turning into a very ugly downtrend on the weekly chart.  We've been discussing that line since February as the danger zone and, if you read us at all, you KNOW we short the S&P every time it gets to 2,100 and the last visit was mid-April, when I warned it wouldn't last in "Toppy Tuesday – What More Can They Do?"  At the time, the market had spiked up on enthusiasm over the "emergency meeting" between the White House and the Fed – nothing came of it and the markets promptly began to fall for the next 4 weeks.

In that article, I noted that we expected weak earnings, especially in the Financial Sector and, more importantly and more relevant to today's discussion, I warned that the real crisis was China's growing debt load, saying:

As money is sucked out of the pockets of the many and placed in the bank accounts of the few, China's economy (like ours) has stagnated as consumers can't afford to buy the goods they are producing at work and, as of last year, Chinese firms had only just enough operating profit to cover the interest expenses on their debt 2 times, down from 6 times in 2010.  That means a rise in rates OR a decline in profits can quickly lead to a huge economic crisis with massive defaults. 

As credit stresses mount, China is drafting rules to make it easier for lenders to convert bank loans into equity stakes of debtor companies. China may also approve, as soon as this month, a plan allowing banks to convert as much as 1Tn Yuan ($150Bn) of soured debt into equity – a very bad idea.

Last May (in case you forgot) is when China began going off the rails – triggered by a wave of defaults that I was warning you about all spring.  The problem was, I was too early with my warnings and a lot of people got complacent by May so this year I've waited before bringing it up again but the cycle will begin again soon and we need to keep our ears open for reports of Chinese loan defaults.  Our own market followed China down with a

…

You are very welcome!  

Yesterday's morning post (which you can get, pre-market, every morning by subscribing HERE) was titled: "Trendless Tuesday – Watch Yesterday’s Fake Gains Disappear" and, if that wasn't enough of a hint of things to come, despite the Futures being positive at the time, I even let the free readers have a look at our Live Chat Trade Idea for playing the Indexes short, saying:

I've already put a note out to our Members to short the Futures in our Live Member Chat Room:

People are starting to notice China's debt and that's not a good thing.  After a brief flirt higher, we're back to Dow 17,650 (/YM), S&P 2,060 (/ES), Nasdaq 4,375 (/NQ), Russell 1,112.50 (/TF) and Nikkei 16,720 (/NKD) and I wouldn't use /NKD but the others all make good shorting lines to play (if 2 are under, short the laggards, look for last others to confirm and tight stops if any go back over).  

As you can see above, we had a nice $2,000 per contract gain on the Russell and the Dow hit 17,450 for a $1,000 per contract gain with the S&P hitting 2,040 for a $1,000 per contract gain and Nasdaq fell to 4,320 so 55 points at $20 per point is $1,100 gained on each of those contracts – not bad for a day's work!  

Keep in mind though, that that comment was a quote from our Member Chat Room at 7:42.  In the course of writing the post, we decided to add back the Nikkei short as well as it tested 16,700 and we caught a $750 gain per contract move to 16,550 after coming in just shy of our 16,500 target.  All in all, that's $5,850 in winning trade…

Rent-A-Rebel to the rescue!  

That's right, whenever the oil market needs a lift, there are hundreds of reliable groups of kids with guns and outboard motors who are able to shut down oil production and transportation around the World.  This week, with just 5 days to go until the contract rollover on Friday and 239M barrels of fake, Fake, FAKE!!! orders piled up at the NYMEX, the best way to boost interest in the contracts you are dumping is to funnel $50,000 to some starving teenagers and promise another $50,000 if they can interrupt the oil supply enough to get you an extra Dollar for your $239M barrels.  This week, it's a brand new group in Nigeria driving up prices by issuing this ultimatum:

“The Niger Delta Avengers is giving two weeks ultimatum to all oil companies in our region to shut down and evacuates their staff. To international oil companies, this is just the beginning and you have not seen anything yet. We will make you suffer as you have made the people of the Niger Delta suffer over the years from environmental degradation and environment pollution,” the group said in a statement signed by spokesman Mudoch Agbinibo.

“If at the end of the ultimatum and you’re still operating. We will blow up all the locations. It will be bloody. So, just shut down your operations and leave,” it added.

That was just what the oil bull doctor ordered and oil blasted up from $46 to $47.25 (2.5%) on that "news" completing the exact 5% move from $45 and right back to our shorting range at $47 (if it crosses back under).  While a small group of students "incapacitate" dozens of multi-Billion Dollar energy firms and their extensive security forces (and if so, what hope is there against terrorism), the reality is Nigeria is still putting out 1.7Mb/day of crude, 800,000 of their peak capacity, which isn't nothing but only 1/3 of the 3Mbd global glut we're in at the moment.  

No, this is all theater to drive gas prices up…

You are welcome!  

I know often those of you who don't subscribe to the PSW Report don't get these trade ideas after the market opens and miss out on some of our Futures trades but yesterday oil didn't even hit our target short at $47 until 9:20 and was still at $46.75 even after my free post went up over at Seeking Alpha with that very, very specific trade idea and target.  We actually published the trade idea at 5:53 am in our live Member Chat room – so our Members had hours to get on board and you can actually see our initiation of the trade all the way back on Wednesday, during our Live Trading Webinar at 2pm (where I also called Retail dead the day before the big Retail sell off (at 00:56:10)!   

As it worked out, we nailed the top and nailed the bottom on that oil call and no, I'm not psychic – we're merely using the 5% Rule™ – one of the essential tools we teach to our Members at PSW every day!  

We even made money on the move back up in our Live Member Chat Room, calling the turn at 11:17, a full hour before it began to go higher.  We also had similar success on our Gasoline Futures play (/RB), where we had called the short in the Webinar at $1.575 and we caught a 0.02 drop at $420 per penny, per contract, which paid $840 on a single contract and $3,360 for 4 to push us well over the $5,000 mark from Wednesday's Webinar Trade Ideas – keeping our 2016 streak of winning trade ideas alive.  

Remember – I can only tell you what is going to happen in the markets and how to make money playing it – the rest is up to you!  

We had an extensive macro discussion this morning on oil and the Global Economy in our chat room, so I won't go over that again but the key takeaway was the Abe/Kuroda one-two punch this morning that sent the Yen lower but has failed to lift the Nikkei as people simply no longer believe in the Banksters who…

Up 1.25% is very impressive.  

Unless, of course, you look at the volume, which is what we usually get on a holiday.  This is why, for the most part, we are sitting on the sidelines with plenty of CASH!!! – ass these low-volume market moves do not make us very confident that the "rally" will hold once activity picks up.  As noted by Dave Fry last night:

As markets were weak the previous two weeks it was the perfect time for a short squeeze and we’ve seen this numerous times over the past many months. There were also some supposed bullish comments from the IMF and (yes, them again) Greece as the Germans caved for another rescue.

But, another true thing is there was little volume in trade Tuesday, and this means little participation which to me is a negative.

We knew this going into the close, of course and I said to our Members last night (6:56 pm): 

As long as the Dollar is over 94, the Nikkei can hold up but 16,900 is our shorting line on /NKD (you are on your own in /NIY).   On the others, /NQ is a great short at 4,398 because 4,400 should be tough to cross – so a good stop.  Matches with 2,080 on /ES (another good short) and 17,850 on /YM and 1,125 on/TF so those are the confirming lines.  

…

Why do we work 5 days?  

Market trading on a Monday is like going to a kids softball game when only 4 or 5 kids show up for each team yet they insist on playing anyway and the parents sit on a metal bench for 2 hours watching kids chase balls around.  There's a human tendency to follow a plan – even if the plan already looks like a disaster.  This just happened to my daughter's game on Saturday and I KNOW everyone would have rather gone out for pizza instead but it was on the schedule and would count in the league standings so we went through the motions – but no one, not even the kids, considered it a real game.  

The markets are like that on Monday.  Half the traders are still in the Hamptons and the ones that show up aren't into it and volume is usually 2/3 or less than that of a regular day and even the news isn't awake yet and very little data is scheduled (how often do you promise to have a report ready Monday morning?).  Still, we go through the motions but I'm not going to pretend it matters – let's just try to enjoy a nice sunny day.

Europe is happy this morning as the Greeks have agreed to yet another round of Draconian austerity measures.  Well, everyone but Italy is happy, because they are next on the EU chopping block.  Though thousands of protesters rallied outside Parliament yesterday, the Greek lawmakers bowed to Germany's demands (over IMF objections) and slashed $6.2Bn (3% of GDP) worth of spending, mostly coming from pension cuts while, at the same time, increasing the amount workers must contribute into the dwindling pensions.  

I have long warned that Greece is simply a petri dish in which the powers that be test just how much crap the people will take before they revolt – so far, it's an amazing amount of crap!  What has "worked" for Greece (ie. allowed them to pay usurous creditors 20% interest on bonds) is now being pushed on Italy who, like Greece tried to do, are pushing back by electing a union leader to represent them at the EU.  Most likely, he will fail as…

It's Non-Farm Payroll Day!  

Much more exciting than Cinco de Mayo, which we properly celebrated with quesadillas and sangria last night.  We celebrate Non-Farm Payroll Day by checking our Futures levels (we're short per our morning Alert to Members) and having some coffee – not as much fun but it can be more profitable.  This is one of those days when it's great to have a Futures account as the markets don't open for a whole hour after this major market-moving report is released.  

As you can see from the chart above, after fixing the disaster of the Bush collapse, Obama's job-creation record has been amazing – the best since Clinton (still the champ with 20M jobs created) and the monthly gyrations up and down are really not a big deal in the grand scheme of having now 6 years where we're averaging 200,000 jobs added per month (14.4M jobs).  

UNFORTUNATELY, we still haven't done enough to reverse the downtrend in total compensation – a number which takes into account hours worked, salaries paid, etc.  Total Annual Compensation has dropped by 15% of our GDP ($3Tn) since 1970 and workers of the World have failed to unite to reverse this trend in any meaningful way (raising minimum wages to $15 over 5 years is a small start).  

As members of the investing class, we can take comfort in knowing that screwing over the workers is VERY profitable for the Corporate Masters who pushed this disparity into overdrive since 9/11, increasing Corporate Profits by 120% in the past 15 years.  So hurray for us, I guess – unless of course you have someone you care about who has to work for a living – then it really sucks for them…

Of course, it's not all good news when you don't pay your workers enough to live on.  For one thing, they can't afford to buy homes and home sales are a very important driver of our economy.  Of course, as investors, we simply shift our money away from home builders and into REITs who own a lot of apartments and out of…

President Trump!  

Just think about what that will mean for America.  Then keep on thinking about it because we are only one Hillary scandal away from a Trump Presidency now that Ted Cruz has quit the race, leaving the GOP no choice but to rally behind The Donald at their conventon on July 18th.  Then it's just 4 months until the November 8th election when we can look forward to Trumps agenda, which includes (out of 76 campaign promises so far):

• 1. Build a wall along the southern border that's taller than the arenas where Trump holds his rallies, taller than any ladder and one foot taller than the Great Wall of China. This "artistically beautiful" wall will be constructed out of hardened concrete, rebar and steel, and it will be "the greatest wall that you've ever seen" — so great that the nation will likely one day name it "The Trump Wall."
• 4. Get rid of Common Core because it's "a disaster" and a "very bad thing." Trump says he wants to give local school districts more control and might even eliminate the Department of Education.
• 6. Get rid of Obamacare and replace it with something "terrific" that is "so much better, so much better, so much better."
• 10. Defund Planned Parenthood.
• 18. Prosecute Hillary Clinton for her use of a private e-mail server while serving as secretary of state.
• 23. Strengthen the military so that it's "so big and so strong and so great" that "nobody's going to mess with us."
• 27. Target and kill the relatives of terrorists.
• 46. Put billionaire hedge fund manager Carl Icahn in charge of trade negotiations with China and Japan, and pick an ambassador to Japan who is "a killer," unlike the current ambassador, Caroline Kennedy.
• 54. Simplify the U.S. tax code and reduce the number of tax brackets from seven to four. The highest earners would pay a 25-percent tax. The corporate tax rate would fall to 15 percent. Eliminate the "marriage penalty" for taxpayers and get rid of the alternate minimum tax.54. Simplify the U.S. tax code and reduce the number of tax brackets from seven to four. The highest earners would pay a 25-percent tax. The corporate tax rate would fall to 15 percent.

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One again the BOJ does nothing over the weekend.  

That's put many, many traders on the wrong side of the strong Dollar/weak Yen bet and it's also pushed the Nikkei back to our long line at 16,000, which is where we expect support from the BOJ – whether overt or covert.  As I said in a Bloomberg interview last week:

I think 105 is a line that will be defended by the BOJ in whatever way they can, for as long as they can and the 16,000 line is also being defended at the moment so it's great fun to play in the Futures but as soon as we get to around 18,000 or 116 on the Yen, we flip to shorting the Nikkei and long on the Yen (short USD/JPY) because both those levels are unrealistic, no matter how hard the BOJ tries to push us over those lines. 

The BOJ's problem is they can't fight the constant flow of money coming into Japan from Asian investors looking for safe-havens to park their cash.  What are the alternatives?  As bad as Japan is, it's less scary than their home countries so investors tend to buy Euros (Francs, etc.), Dollars and Yen but, as a reserve currency, the Yen is just 2.5% of the Global Float (Dollar 63%, Euro 24%) yes, when people are allocating cash – they tend to put a disproportionately high percentage into Yen (vis a vis allocating by reserve status) and that is what causes the Yen to be too strong, no matter how much the BOJ tries to weaken it.  

Now Japan has been placed on on official US Government watch list for currency manipulation and that's forcing the BOJ to tread cautiously before making any additional currency moves and, as I said in another interview last week (hasn't aired yet), we're not expecting any real action from the BOJ until after the upcoming G7 meeting.

Without specific action to…

I told you so!  

Yes, I say that a lot these days and that's because I regret not being more emphatic with my cash calls in 2007 and 2008 when I was a less-experienced writer and felt "silly" being the only analyst who was worried about the irrational exuberance of the time.  A good example is our November Wrap-Up from 2007 and, specifically, November 6th, when I said:  

I don't like to play the role of Chicken Little but I feel like the casting is forced on me because almost everyone else I talk to is a bull.  I said my piece about the housing disaster on Monday and that's only ONE of the things I think are really terrible in the economy!

This is the problem with the markets, we are rallying on leaders and, in the case of oil companies, the worst kind of leaders, while the rest of the market; retail, regional manufacturing, services, dining, discretionary… is in the doldrums.  Rallying the market based on the energy sector is like a group of hemophiliacs electing a vampire as their leader, it's a recipe for disaster.  And who are our other "leaders"?  Commodities stoking inflation!  Holy cow people, does anyone actually live on the planet we're investing in? 

Sound familiar?  On October 29th, 2007, I had pointed out that the MSM was "yadda yadding" over the bad news saying:

Back in August I told readers about the dirty little secret of the financial press, they are ratings whores just like every other aspect of the media, and that means they will tell you whatever you want to hear!  Newsletters (like this one) are no different because we rely on subscribers to pay the bills and subscribers don't like to hear bad news any more than the average person who

…

Here we go again!  

Back in the summer, EVERYONE said we were going to break out to new highs and the analysts were tripping over themselves to predict a higher goal for the S&P and, after calling for caution since May, I virtually screamed for people to get to cash on July 20th in "Monday Market Manipulation – Everything is Awesome" in which I said:

CASH!!! People! Cash, cash, Cash and more CASH!!! I can only tell you and show you that the conditions we are seeing now – INCLUDING the market-boosting government bailouts – are VERY similar to what happened in 2007/8 leading up to the collapse. That is the limit of my ability. In 2007 and early 2008 I also was "wrong" and the markets went up and I said it was ridiculous and the markets went up and I warned people to go to cash and the markets went up and my only regret was that I didn't do MORE to warn people how dangerous the markets were at the time.

Fortunately, we followed our own advice and cashed in our Member portfolios – getting out at the red line on our Big Chart (+15%) and getting back in at the green line (Must Hold) and THAT is why we have AVERAGE gains of over 100% since last summer – especially as we did it all over again in November!  Our timing could not have been better.  PERHAPS this time is different but I have that same sense of foreboding I had in July but not so imminent that we've gone to all cash – but we do have $120,000 worth of downside hedges in our Short-Term Portfolio and we did tightly cover our Long-Term, Butterfly and Option Opportunity Portfolios (see weekend review).

In fact, we gained about $8,000 (1.3%) in our paired Long and Short-Term Portfolios on yesterday's little dip so I think we're bearish enough there but the OOP lose $2,000 (2%) and the Butterfly Portfolio, God bless it, was flat (it's supposed to be). Portfolio balance is a tricky thing and it's important, when you are worried about market direction – to have a very good idea of how a 1% rise or fall will affect your overall balance.  …

$1,450,390 – that's up 141% at the end of the first quarter of year three.

More importantly, our paired and balanced Long-Term and Short-Term Portfolios are up 45% since our December review and, essentially, they are the same positions – especially in the LTP, which has gained $318,747 (49%) in the 4 months since 12/13 – and those are the positions we don't touch at all and, more importantly, those are the positions which make up the bulk of our portfolio allocations – as they are meant to be INVESTMENTS – not trades!  

To you day traders out there – I implore you  - please read the December review and look over those positions and check out those same positions 3 months later and CONSIDER – please consider – that day-trading may not be the best way to play the market.  Yes, the LTP goes up and down too but, when it's down, we have cash on the side to buy bigger positions (which is what we did last year) while they are cheap.  Since those positions are INVESTMENTS, we end up with something of great value when the market comes back.

With day trading – even the best day traders spend 1/3 of their time trying to win back what they've lost and the stress level of day trading is through the roof compared to our very simple, long-term, Be the House – NOT the Gambler strategy.  Even our ultra-conservative, ultra low-touch Butterfly Portfolio popped from $181,075 to $263,052, a gain of $81,977 (82%) in 4 short months.  Admittedly, we went off book and got aggressive in the Jan dip, as we expected another round of drastic Central Bank action to save the market – and it did.  

I'll tell you now that, on the next breakdown, I will be nowhere near as confident flipping bullish.  I think the CBs are almost out of ammo and already their moves smack of desperation so I'm now leaning towards a lot of hedging (we did a lot of that earlier this month) or just getting the Hell out with our massive gains and starting again in the Fall (or whenever we get another nice dip).  I don't mind going to CASH!!!, having a fantastic, relaxing summer and then coming…

That's right, we're still short. 

Now, in addition to S&P (/ES) 2,100, we're short oil (/CL) at $44 – as noted yesterday in our Live Trading Webinar (replay available later today on our site).  If there were DAX Futures, we'd short them at 10,500, as that the top of a 5% pop off the 10,000 line (so we expected and got a 100-point pullback per our 5% Rule™) and only halfway to the Dax's Must Hold Line at 11,000, which is the same Must Hold as the NYSE, which also isn't holding.

Why is it that these broad-market indexes (and the Russell) are 5% below their value lines while the S&P and Nasdaq are 12.5% above?  Because this "rally" is fake, Fake, FAKE!!! with very narrow participation and not even anemic volume.  Yesterday, in fact, just 71M shares were traded on the S&P 500 ETF (SPY), which is about half of a normal day's volume although "normal" days are now 50% lower than they were before the crash anyway.  

In any good survey, you need a proper sample size or the results of the survey are meaningless, right?  Well, the stock market is not much different – the less volume there is, the less "votes" are cast and the less reliable the price action is in predicting the future. 

Unfortunately, TA people tend not to take this into account and treat each move as if it's just as valid as any other.  They don't even consider fairly drastic changes in the Dollar, which the exchanges are priced in and that's just STUPID.  That's why TA is stupid – you can't pretend to measure something with the goal of extrapoliting a trend when you ignore major factors that drive the very thing you measure!  

That is the "inconvenient truth" about TA – it's generally not much more reliable than tea leaves in the short-term.  You look at the above SPY chart and I bet you think it's bottoming around $209.50 but that's a 5-minute chart and you are like an ant on a football field trying to predict the movement of individual players based on your observations of feet as they pass you by!  

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There, is that clear enough of a call? 

FU people who don't pay, this is a private post for our Members and I've already put out an Alert to our Members (tweeted it too at 6:14) in which we analyzed Germany's ZEW, the Australian Central Bank Meeting, China's Bond Market and the continuing effect of the Doha Failure (see yesterday's post) that had us shorting /CLM6 contracts at $41.50 (now $41.58) in anticipation of a sharp correction into tomorrow's NYMEX rollover (2:35 pm, EST).  As to the indexes, my comment this morning was (and is):

It is tempting, however, to play a Futures short here – in case we are rejected at 2,100 on /ES (now 2,097.50) and that's lined up with Dow (/YM) 18,000 (now 17,995), 4,585 on /NQ and 1,145 on /TF and 17,200 on /NKD.  You know the rules – short the last 2 of the 3 to cross below, but they are all below now, so we short the closest to the top (/YM or /ES) and we stop out if ANY of them go over! 

This is not rocket science folks.  I made the call after IBM had a miss that cost them $6 (48 Dow points) and before GS missed too and they are down $2 (8 Dow points).  Netflix (NFLX) is down 10% on their disappointing earnings as well and the only think holding up the oil market is the Kuwait strike, which is taking 2Mb/d off the market but could end at any moment.  Oh, and the weak Dollar that's been supporting everything this week. 

We don't need to talk about news and the Fed is done speaking for the week and no interesting data until Japanese Trade Wednesday and then Thursday gets busy again but between now and then is earnings and earnings kind of suck, on the whole, with -8.3% earnings vs. last year BUT, because expectations were SO LOW, that's an 8.2% "upside surprise".  I know I sound like your older brother telling you that Uncle Market isn't really pulling coins out of your ear and it's just a trick – you kind of know it's true, but you don't really want to believe it…

Still, skepticism doesn't stop us from making money.  The July /NGN6 contracts…

Yet another fantastic quarter for our Top Trade Ideas!  

Of course, it's been like shooting fish in a barrel since the February dip on the bull side but the really cool thing is we also called the drop on Jan 8th with SDS and SQQQ hedges that paid off huge as we bottomed out the next month.  We only started doing Top Trades last August and what we do is simply select one or two trades a week from our Live Member Chat Room at Philstockworld that we feel have a very high probability of success.  That then sends out Text and EMail Alerts to our Members, so it's perfect for people who don't have time to be on-line during the day.  All PSW Basic and Premium Members have Top Trade Access (just make sure your smart phone number is in the box here). 

We don't have a portfolio for our Top Trades as it would be redundant to our 4 Member Tracking Portfolios but many Top Trade Ideas are from trades we do officially add to our portfolios.  That's why we do these reviews once in a while – to check in and see if our logic is on or off track.  You can't make good future decisions without learning from your past ones – something we emphasize at PSW!  

38 of our first 57 (66%) Top Trade ideas were winners and 4 of our 15 losers were Lumber Liquidators (LL) trade ideas – all of which are now coming back as LL pops back towards $20!  Getting two out of three trades right is plenty to move the investing ball towards the goal line.  

Combine that with sensible portfolio management techniques (diversification, managing losses, hedging) and you'll beat the S&P by a mile with no sweat.  Generally, with our Top Trades, we're simply picking stocks we feel are underpriced and we're using our various options techniques to give ourselves even better discounts and hedged entries but these are patience plays that can take time to get going, usually our Top Trade Ideas have long-term objectives.  

Without further ado, here's the next month of trades for review – some are still good for new entries:

Our first Top Trade Alert of the…

It's a race to the bottom.  

Who will be the first country to begin printing 1M denominations?  We've seen this play out before and it's only a matter of time before one of the Global currencies completely collapses.  The Yen is halfway there with 10,000 Yen notes, just one more zero before they are in stage one of Zimbabwe's 2008 hyperinflation, where the country was forced to print Trillion Dollar notes before they finally gave up, defaulted and revalued their currency.  The boy in the picture needed that money to buy a quart of milk!  

Oddly enough, Japan WANTS more Yen devaluation ASAP and their Finance Minister said just yeasterday that 105 Yen to the Dollar is not enough and they will be forced to devalue if the Yen gets any stronger (and we discussed Yen dynamics in last week's post).  In fact, since last Thursday, our Toyota (TM) trade has already gained $1,275, which is a 566% gain on our net $225 cash outlay in 7 days – the trade idea for our Long-Term Portfolio was:

• Sell 5 TM Jan $90 puts for $4.80 ($2,400) 
• Buy 5 Jan $100 calls for $7.50 ($3,750) 
• Sell 5 Jan $115 calls for $2.25 ($1,125)

We knew that the BOJ would intervene or at least say they would intervene last week simply because we pay attention to all these boring Fundamentals that most traders ignore (see Thursday's post for my rant on that).  In fact, as I said in the last line of that post:  "That's why an "ugly" chart like TM doesn't bother us – we KNOW what the company is worth, even if our fellow investors do not."  

We still like TM for the long-term, the trade will pay $7,500 if TM finishes the year over $115 and we're confident so you can still make $6,000 (400%) if you take a net $1,500 today – it just sounds kind of lame compared to our $225 entry last week – but that's the difference between taking a fundamentally good entry and waiting for the trend to reverse before buying a stock.  

In yesterday's Live…

A big nothing.  

That's what came out of Obama's meeting with Yellen and company last night.  The White House issued a very short, meaningless statement which seemed very odd following an "emergency meeting" with the Fed.   Of course, as former Fed adviser, Andrew Levin, reminds us: "A lot of people would be stunned to know” the extent to which the Federal Reserve is privately owned…  Currently, the leaders of the New York, Philadelphia, Dallas and Minneapolis Fed banks are helmed by men who formerly worked for or had close connections to investment bank Goldman Sachs."  So, when the Fed has an emergency meeting with the White House – it's really our favorite Banksters making demands of the President.  

Very likely the "emergency" is the horrific earnings we're expecting from the Financial sector and nothing gets bankers to take action faster than a threat to their bonuses – especially this close to the time of year when they have to come up with deposits on their Hampton beach houses.  Goldman Sachs, who arguably steered the United States right into the subprime crisis with Trillions of Dollars in risky mortgages repackaged as AAA paper – finally paid a $5Bn fine yesterday (0.1%) – a very small consolation as the statute of limitations runs out on criminal prosecutions for those "shitty deals":

There's a great documentary called "The Men Who Crashed the World" that summarizes the events leading up to the crisis and the scary thing today is that NO ONE went to jail and most of the same people are in the same positions today, once again writing the same kinds of loans with new packaging – setting us up for the next financial crisis.  Even worse, they have exported their expertise and now demand for World Bank loans is back at pre-crisis levels – and this isn't even a crisis – yet!

Chinese Banksters have really taken the US playbook and ran with it and China has produced 450 new Billionaries since the Financial crisis, now past the US with 568 Billionaires (1/3 of the World's total) vs. "just" 535 people with 10-figure bank accounts in…

Come on kids, let me tell you a story!  

It's the same story we tell you every time the market goes dark and you are worried about the economic monsters in your closet but it sure works to calm the investors down – EVERY TIME!  Yesterday the kids were really scared so they brought out all 4 of the Fed's master story-tellers to literally speak to kids at the New York Economic Club and boy, did that do the trick!    

NEW YORK—Federal Reserve Chairwoman Janet Yellen and three former Fed leaders sought to dispel worries the U.S. is heading back toward recession despite concerns about slow global growth and the expansion’s advancing age.

Ms. Yellen, joined Thursday in an unusual gathering in New York by former Fed Chairmen Ben Bernanke, Alan Greenspan and Paul Volcker, described an economy that is progressing without breeding obvious new financial bubbles that could derail growth.

“This is an economy on a solid course, not a bubble economy,” Ms. Yellen said. It has made “tremendous progress” from the damage of the 2007-2009 financial crisis.

See, everything is great – no monsters under your bed or in the closet, now go back to the store or the market and BUYBUYBUY!  And BUYBUYBUY investors did, reversing half of yesterday's losses overnight – EXACTLY what we predicted would happen yesterday morning and, how did we know?  Because we've heard this story 100 times at this point!  As I said to our Members:

I am simply in awe of the effort that is being put in by the G20

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