Thursday Market Folly – You Need an AAPL a Day to Maintain Dow 22,000

So far, so good.

After a quick rejection, the Dow is drifiting along under the 22,000 line and it LOOKS bullish but let's remember that it took big moves by Caterpillar ($10), Goldman Sachs ($10), JP Morgan ($8), Boeing ($30) and Apple ($7) on earnings to give the Dow it's last 500 points.  That's a tough act to follow for sure.

And it's been a sort of a feedback loop because each earnings win pops the index, which raises all the Dow components and then the next one hits and reinforces the gains from the last win and then the index makes a new high and more money pours into the ETFs, etc.  All very nice if you are bullish but the rally, on the whole, has come on fairly low volume and, now that earnings are over, we'll have to wonder what catalysts is going to take us over 22,000 (our shorting target), let alone hold us up here.

Over in Europe, they have earnings too and the Europeans were not as impressed with earnings as the US investors were.  In fact, Germany's DAX is down 5% from their June highs along with the Euro Stoxx Index, which fell from 3,650 to 3,450 while the S&P added 50 points (2%).  

Major Global Indexes don't usually diverge from each other that much and the Nikkei has been trending down as well so someone is delusional and it's probably the country that elected a reality show host to be their President – I'm just saying…

The Dow is up 600 points since it's June high and that's 2.8% but, more importantly, since the election, the Dow is up from 18,000 so 4,000 points is 22% and I have to ask you – has Trump made things 22% better in 9 months?  And we're not taking about a 22% rebound after a sell-off, the Dow had already gained 50% since 2012 (4 years) from 12,000 to 18,000 so this 22% is just a cherry on top of all that fudge and whipped cream that was already piled on the QE sundae that had already taken us from 6,000 to 12,000 in the 4 years before that. 

Granted we were at
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Whipsaw Wednesday – The View from Dow 22,000

Wheeeeeee – This is fun!  

Dow 22,000 is our shorting spot (predicted last week) and we hit that that yesterday after Apple (AAPL) announced their earnings and popped $10 after hours, adding 85 points to the Dow.  This gave institutional sellers the perfect cover to dump everything else and the index is back below 21,950, despite Apple's help.  50 points on the Dow (/YM) Futures is $250 (you're welcome) but we can do much better than that and we will be taking advantage of today's pop to add to our hedges (while it's cheap) and that's for Members Only but, for you, the cheapskate reader, we can give you a new hedging idea using the Dow Ultra-Short (DXD), which is a 2x inverse ETF:

  • Buy 100 DXD Oct $11 calls for 0.45 ($4,500)
  • Sell 100 DXD Oct $13 calls for 0.12 ($1,200) 
  • Sell 5 AAPL 2019 $120 puts for $4 ($2,000) 

DXD is at $11.24 so in the money and $13 is $1.66 away or 15% so a 7.5% drop in the Dow will pay you back $2 x 10,000 options (100 per contract) or $20,000 and the net cost of the spread is $1,300.  That's a profit of $18,700 (1,438%) if the Dow drops 7.5%, and stays down, into the October expirations.  You are obligating yourself to buy 500 shares of AAPL at $120 ($60,000) so make sure you REALLY want to own AAPL if it drops 20% but, chances are your will be safe with that bet if the Dow stays up and, if the Dow falls and puts AAPL in the money, then you have an extra $20,000 to buy the shares with!  

Meanwhile, we could not be more pleased with the AAPL options we do have.  AAPL is the largest holding in our Options Opportunity Portfolio and we had already gained $15,800 on our net $5,600 credit position so up $21,400 but that's nothing as our profit potential for AAPL is $185,600 so we're merely "on track" to our goal of $170.  No wonder the Options Opportunity Portfolio is up 200% in two years!  

We will have to roll out the short callers but,
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Toppy Tuesday – Back to our Shorting Line on the S&P 500

2,480! 

That's where we called the short on S&P (/ES) Futures last week and we fell back to 2,460 ($1,000 per contract gained!) and now we're back at 2,480 so what do you think we're doing?  I already put a note out to our Members this morning in our Live Chat Room, saying:

Markets blasting up yet again for no particular reason.  Now I like /YM short at 21,950 with tight stops but then again at 22,000, /NQ 5,900 is good as well and you know 2,480 was my target short on /ES and that's lined up with 1,430 on /TF – definitely a short the laggard day.  

We're also shorting Oil (/CL) at $50 but long on Natural Gas (/NGZ7) at $3.07 and long on the Dollar (/DX) at $92.75 – all fun trades for a Tuesday morning.

 

IN PROGRESS