Enthusiastic Thursday – Dressing the Windows for the Holidays

Related imagePropaganda! 

That's what you are seeing in the markets this morning.  What do "THEY" want you talking about with your friends and relatives at the weekend barbeque?  They want you to tell everyone how resiliant the markets are and how you "can't lose" on bullish bets and how buying the dips is a brilliant strategy.  Why?  Because every good Ponzi scheme needs a fresh round of suckers to keep things going!  

Since our down days on Aug 17th and 18th, market volume has vanished and our "recovery," such as it is, has been very narrowly based – with just a few of the market-moving stocks taking the indexes higher, which forces the ETF algorithms to BUYBUYBUY – without the need of human intervenetion.

Here's a look at the volume on the S&P 500 ETF (SPY) over the past 10 days:

Date Open High Low Close* Adj Close** Volume
Aug 30, 2017 244.83 246.32 244.62 246.01 246.01 58,757,200


continue reading

Which Way Wednesday – GDP Edition

To 3(%) or not to 3(%).

As you can see from the Fed's GDPNow forecast, it's raging ahead of the forecasts of our leading Economorons by a wide margin.  Usually, I bet against the Economorons but the Fed is full of them too so it's a toss-up as to who is likely to be more wrong but we have a short bet on the Dow Futures (/YM) at 21,900 that says it's the Fed.  

We took that bet in our Live Trading Webinar yesterday afternoon and added to it this morning as the Dow popped in early morning trading, getting all excited about a European open that's fading fast as of 6:35.  To some extent, it's a hedge against our long Oil (/CL) bet at $46.15, which is a double-dip from the bet that made us gains $500 per contract in the first hour of our live webinar (you're welcome!).  

This morning, Gasoline (/RB) is looking cheap again at $1.63, so I like a long there with tight stops below $1.625, which would still be a $210 loss as gasoline contracts are expensive at $420 per penny – so be very careful trading them.  We'll see if the oil inventories (10:30) can get both to break higher, the API Data was encouraging for the bulls, showing a 5.78Mb draw in crude, up from 3.6Mb last week but that data was through Friday – ahead of the storm.

Oh, and don't cry if you missed yesterday's PSW Report (subscribe here and never miss one again) but you know those Gasoline (/RBV7) contracts that were up $1,755 early yesterday morning at $1.585 and I said you missed the first 0.02 of the move?  Well, this morning we got the rest of the 0.10 to $1.655, so that's another $7,020 gained on our 2 long contracts, up $3,510 per contract – wasn't that easy?  

That's right, while I was writing this post (which 

 

 

 

IN PROGRESS

 

 

 

 

Tumbling Tuesday – NoKo’s Missile Test over Japan Freaks Markets Out

It's always something, right?

We don't know what specific event we are hedging against but mornings like this remind us WHY we hedge our portfolios.  When the market is priced to perfection, it doesn't take a great deal of effort to bring it down and, this morning, all it took was North Korea firing a small test missile 1,700 miles, right over the top of Japan.

While the missile was still in the air, Japanese authorities sent an alert to northern areas near its path.  “A missile has apparently been launched from North Korea. Please take refuge in a sturdy building or underground,” the alert said. The warning was lifted a few minutes later, after the missile went down in the Pacific.  Japanese Defense Minister Itsunori Onodera said initial analysis suggests the missile was an intermediate-range ballistic missile of the same type that North Korea fired on May 14th.

Just last week U.S. Secretary of State, Rex Tillerson, praised North Korea for exercising “restraint” in not having conducted any missile tests during joint annual exercises between the U.S. and South Korean militaries, which began on Aug. 21st but are still ongoing – so much for that!  “How the U.S. responds to this provocation will be closely watched by both Japan and South Korea, and could be a critical moment in alliance relations,” said Jenny Town, assistant director for the U.S.-Korea Institute at Johns Hopkins University’s School of Advanced International Studies. ?Given the administration’s strong response to the earlier threat against Guam, she said, “a tepid response now to this missile test further erodes U.S. credibility with our allies.”

Image result for kim jong un trump

There is nothing more terrifying than a power-mad authoritarian ruler with a bloated ego that has to constantly be stroked by his sycophantic followers who have to primp up even his smallest accomplishments to keep him in a good mood, to prevent him goes off the rails and doing something even crazier than usual.   A "leader" like that thinks nothing of lying to his own people, restricting freedom of the press and blaming all of his administration's troubles on scapegoats – firing (or murdering) staff members whenever something goes wrong for them.  Imagine having to live under


continue reading

Monday Market Musings – Making Money on Misery

$5,418! 

Those same 2 gasoline (/RBV7) contracts we initiated in Wednesday's Live Trading Webinar (which I reminded you of in Friday morning's PSW Report) made another $700 per contract over the weekend and we stopped out with over $5,400 gains at the $1.60 line as Hurricane Harvey seems to have peaked out and Gasoline Futures hit our +5% on the money.  That's a big YOU'RE WELCOME to get our week started but our hearts go out to the people of Texas, who are suffering from the after effects of the storm we used to make money on.

If NOT betting gasoline would go up when a hurricane hits the Gulf Coast refineries, then I would have felt bad about the bet but this was one of those essentially sure things you really can't pass up if you want to call yourself a trader.  As it stands, about 22% of Gulf Refining Capacity is off-line and that's 1Mb/d our of 5 that's going to get drawn out of inventories for the duration because the rest of US refining has been operating near capacity and can't make up that kind of shortfall – unless they curtail exports, which is possible.

Even if the damage near the refineries is controlled quickly, widespread damage throughout the area will make it hard for refinery workers to get to work — the Shell plant, for instance, has more than 3,000 workers and contractors.  As you can see from this handy map, Valero (VLO) is losing 416,000 barrels a day in two hard-hit refineries and Marathon (MRO) will be down 546,000 barrels and, with 1-45 closed, it's likely to be a good week at least before they are full on-line again, probably 2 weeks. 

Of course, news is not all bad for VLO, who we're long on, as the refiners are benefitting from a widening crack spread – the cost between the barrels of oil they buy and the price of the refined products they can sell when they "crack" the barrel open.  We got aggressively long on VLO in our Aug 18th Butterfly Portfolio Review and we didn't know about Harvey at the time but we did know we expected a stronger than usual…
continue reading

Force 3 Friday – Hurricane Harvey Throws Markets into Turmoil

Image result for hurricane harvey animated gifThis is a huge storm.

We haven't had a storm like this hit the land in over a decade and 2-3 FEET of rain are expected where Harvey hits land in the Gulf Basin.  That will take many refiners off-line and Gasoline (/RB) and that's already fantastic for our long Futures contracts, which we discussed during Wednesday's Live Trading Webinar (Oil, /CL too) and /RB is already up over $2,000 per contract at $1.725 while Oil is, so far, struggling to retake $48 but that's still good for $500 per contract every time we go from $47.50 (our long line) to $48.

Also, the Natural Gas (/NGZ7) long trade idea from Monday morning's PSW Report at $3.07 already popped 0.10 for an $1,000 per contract gain - you're welcome!  And, by the way, at the time (Monday morning) we were shorting oil at $50 so the trip down to $47.50 was a $2,500 per contract winner until we called for the turn – aren't Futures fun?  Speaking of fun, the Russell Futures (/TF) are back to our shorting line at 1,377.50 and closing in on the other lines we discussed in Wednesday morning's Report, which were:

As we expected, we did hit our strong bounce lines on on the Futures in yesterday's action at Dow 21,800 (21,850), S&P 2,442.50 (2,450), Nasdaq 5,850 (5,870) but missed Russell 1,377.50 (1,372.50) so we shorted the Russell at the 1,370 line and, this morning, we're already up $250 per contract at 1,365.  That's exactly what we said we'd do – wait for the strong bounces and short them as they cross back under.  Now we're waiting to see if the other indexes cross back under or if the RUT comes up to join them and confirms a more bullish rally.  Dow (/YM) 21,850 is my next favorite short. 

That is the Russell chart from Tuesday morning's Report and, since then (when we were long), we have drifted back towards our shorting line at 1,377.50 but, to stay short, we need to see failure at Tuesday's opening lines (Dow 21,850, S&P 2,450 & Nasdaq 5,870) and it's tricky today as…
continue reading

Thoughtful Thursday – Jackson Hole Dreams

Image result for fed jackson holeIt's time for the Fed conference.

Central Banksters from around the World will fly to Jackson Hole, Wyoming to congratulate each other on what a great job they are all doing while ignoring protestors who will do their best to point out what a terrible job the Central Banksters have been doing on restoring the actual economy – where 80% of the people are one missed paycheck away from poverty.

According to the latest data from the U.S. Bureau of Economic Analysis, the personal saving rate in the United States is 5.7%. This means that out of every $100 in after-tax income Americans bring in, approximately $5.70 is being saved for things like retirement, emergency expenses, and rainy-day savings.

US Personal Saving Rate Chart

You should be saving between 10% to 15% of your income. Fidelity recommends a minimum of 15%, but keep in mind that this includes any employer matching retirement contributions. So, if your employer contributes say, 4% of your salary to your 401(k), this implies that you should be saving 11% of your income.

Total debt (including mortgages, auto loans and student loans) is expected to surpass the amounts owed at the beginning of the Great Recession by the end of 2016, NerdWallet found, mostly due to mortgages and student loans. Many Americans find it difficult to stick to savings goals and that’s even worse if you have a family.  The amount that a two-parent, two-child family needs just to pay the bills (but not have money left over for savings) ranges from about $50,000 to more than $100,000 depending on where a family lives 

Mortgage debt jumped from $159,020 per household in 2010 to $172,806 in 2016, and debt from auto loans grew from $20,032 in 2010 to $28,535 in 2016.  Nationwide, total household debt (including mortgages, auto loans and student loans) now equals almost $12.4 trillion, up from about $11.7 trillion in 2010. That's adding $200Bn per year in debt accounting for ALL of our Retail Sales growth since the recession.  

Image result for trickle down economics reaganMedian household income has grown
continue reading

Which Way Wednesday – Pavlov’s Tax Cut

Image result for pavlov cartoonTrump will cut taxes!  

That's what took the Dow 200 points higher yesterday.  Have we heard that before?  Yes – for almost a year now, that's been driving the markets higher and any time the markets need a boost, they promise us tax cuts and, like well-trained dogs and, like I said in the title of yesterday's Morning Report: "Fools Rush Us Towards the Strong Bounce Lines."  

As we expected, we did hit our strong bounce lines on on the Futures in yesterday's action at Dow 21,800 (21,850), S&P 2,442.50 (2,450), Nasdaq 5,850 (5,870) but missed Russell 1,377.50 (1,372.50) so we shorted the Russell at the 1,370 line and, this morning, we're already up $250 per contract at 1,365.  That's exactly what we said we'd do – wait for the strong bounces and short them as they cross back under.  Now we're waiting to see if the other indexes cross back under or if the RUT comes up to join them and confirms a more bullish rally.  Dow (/YM) 21,850 is my next favorite short. 

Our long position on the Nikkei (/NKD) was good for gains of $500 per contract on the way up and yes, we could have made more money on the Dow or the Nasdaq – but we weren't that confident in the morning that the indexes wouldn't head further down and /NKD seemed like the safer bet.  We have a Live Trading Webinar at 1pm, EST and we'll look for some new opportunities this afternoon.  

We are back long on Coffee, using the /KCH8 (March) contracts.  I was encouraged by finding a bit of support at $130 ($133 in March), though below $130 we will stop out and wait for a better bottom.  Our long premise on coffee is that Global Warming will disrupt production and, right now, Italy is having a terrible grape season due to a drought (go long Italian Wine).  As noted by the Times:

The warming temperatures, shortening of the seasons and unseasonal storms brought on by global climate change are hastening


continue reading

Tempting Tuesday – Fools Rush Us Towards the Strong Bounce Lines

We're getting there.

The S&P 500 Futures (/ES) are only at 2,431.50 at 7:49 and yesterday, in our PSW Morning Report, we predicted a weak bounce to 2,430 while the strong bounce line is still 0.5% away at 2,442.50 and, if we don't get over the strong bounce line today, odds are this has just been the pause that refreshes for the bears, who are consolidating above -2.5% line (2,418) for a proper break-down – but we still have faith as those dip-buyers are well-trained, aren't they?

We haven't made any bearish bets yet but we'd love to see 5,850 tested on the Nasdaq, but it's not likely we get that high today.  Nor is 1,377.50 likely on the Russell but the Dow (/YM) is over its strong bounce line at 21,670 and failing that line will be the signal we're looking for to add some shorts to the indexes.  These are the handy charts I made for our Members in yesterday's Live Chat Room:

The S&P Chart was already posted in the Morning Report and let's not give the Dow too much credit as we were looking to confirm a more bearish channel, from 22,000 to 21,450 (-2.5%) but, in reality, the drop was only from 22,100 to 21,600, which is 500 points so our 5% Rule™ says to expect 100-point bounces to 21,700 and 21,800.  The 22,670 line confirms that the Dow is failing within a longer-term, weaker trend we believe is in progress.  The short story is, the Dow has to hit 21,800 before we consider it in proper recovery.  

If you want an upside hedge right away, try the Nikkei (/NKD) which tested a major bottom at 19,300.  Once they cross over 19,400, that line can be used for a bullish bet with tight stops below 19,400 and, of course, the Nikkei loves a strong Dollar (good for exports), and the Dollar is nice and low in its channel at 93.35 so a higher Dollar gives us a greenlight on that bounce play.  

With the Nikkei falling from 20,300, a 5% pullback takes them to 19,285 and the low was actually 19,265, so a bit of an overshoot
continue reading

Monday Market Momentum – Halfway to 5%

Well, you can't say I didn't tell you so.

Back on Aug 3rd our PSW Morning Report was titled: "Thursday Market Folly – You Need an AAPL a Day to Maintain Dow 22,000" and we began looking for AT LEAST a 500-point (2.5%) correction in the Dow as well as a 2.5% correction in the other indexes.  My logic was that, without some market-moving stock like Apple (AAPL) pushing up every day, at this point we'd have a tendency to drift lower.  We went over the monetary physics of the problem in this weekend's PSW August Portfolio Review as well.

As we approach year 4 (11/26) for our paired Long-Term/Short-Term Porfolios, we are well on track to making 40% compounded gains off our original $600,000 investment, which should take us to $2.3M but next year – to make another 40%, we need $922,000.  This is not a sustainable model because the economy isn't growing at a 40% pace yet the broad market is not that far behind us, having turned S&P 666 in 2009 to S&P 2,450 in 2017 – up 267% in 8 years which is a straight average of 33.37% a year.

If the US market cap is now $85Tn, then a 20% gain requires $17Tn – that is just shy of the US's entire $18.5Tn GDP that needs to go into the stock market, just to feed a significant slowdown in growth.  The market has become too big to succeed and that is why it's a bubble – we simply don't have the economy to feed such a beast!  

The net effect is that every market misstep is now magnified and we're already seeing that as individual earnings reports are routinely sending companies down 10-25% if they displease.  That's why I said in that 8/3 Report, to stay away from Tesla (TSLA), who are back below $350 and to buy Copper (/HG) instead, along with "Graphite, Nickel, Aluminum, Lithium, Cobalt and Manganese – that's what electric cars are made of."  As you can see, copper has done well this month, adding 0.12 at $250 per penny, per contract and that's good for a gain of $3,000 per contract playing the better hedge of…
continue reading

PSW August Portfolio Review

$2 MILLION Dollars.  

Well, actually it's $1,960,061 but that's still up 326% from our $600,000 start in our paired Long-Term and Short-Term Portfolios since their inception on 11/26/13.  We're "only' up $440,607 (29%) in 13 months (see our July, 2016 portfolio review) as, even at that time, I wondered "Are We Too Bullish".  

The S&P was at 2,120 last July and now at 2,425 so up 14% which means we're outperforming the S&P by 100% so I certainly don't think we've become too bearish, we've simply tapered our 40%+ annual growth of the first 3 years in favor of spening more money on hedges – to lock in these ridiculous gains.  

And they are ridiculous.  As I noted on Friday, there isn't enough money in the World, nor are the Central Banks printing money fast enough to pay everyone 40% annual gains.  In fact, if you start with $600,000 and make 40% a year for just 10 years, that's $17.3 MILLION!  So, I will ask you again, do you think it's likely or unlikely we continue along this path?

No, that would be silly, right?  No matter how confident we are in our own abilities to make money, we have to recognize that this is a unique market situation that is inherently unsustainable.  It's a lot like catching a really good wave while you are surfing – we're good surfers and we will take full advantage of it but you can't fool yourself into betting the next wave will be even bigger, and the one after that and the one after that – it's simply not how the universe works.

Of course, we know what's causing these giant wavers – Central Bank Policies – but then we have to consider if those are sustainable and, as you can see from the rate chart – the amount of money they need to pump into the system begins to grow exponentially to susstain these asset gains.  We started with $600,000 but the S&P 500 is now at about $21Tn alone so it will cost SOMEONE $8Tn to add 40% to it.  The entire GDP of the United States is $18.5Tn and is growing at MAYBE 3%, which is $242Bn – far shy of…
continue reading