Which Way Wednesday – Testing the 50 DMAs from Above

Wheeee, that was fun!  

Huge fun, of course, for anyone who took our advice and shorted the Nasdaq Futures (/NQ) at 7,000 yesterday morning.  Those Nasdaq Futures pay $20 per point and the Nasdaq plunged 100 points to 6,900 for a $2,000 per contract gain on the day – you're welcome!  That was the same call I made the morning before at the Trader's Expo Live Trading Challenge – it just took longer than I thought for us to cash in!  

We also cashed in our 0.95 GE March $13.50 calls for $1.60 for a 0.65 (68%) gain on 100 contracts (up $6,500) – also from the Trading Challenge.  Gasoline (/RB) fell to $1.975 for gains of $500 per contract – also from the Trading Challenge and the the Dow dropped 200 points from our Trading Challenge entry (25,650) for gains of $1,000 per contract but, sadly, the challenge ended at 10:30 yesterday – so I still lost.  I'm just not a day-trader but the Fundamental picks tend to work out – eventually.  

Best of all, our Long-Term Portfolio finished the day at $551,871 (up 10.4%) which is up $1,008 (0.2%) on a bad day – so we know we're doing something right there while our Short-Term Portfolio, which hedges the LTP, did it's job and gained $6,600 (6.6%) on the market drop so, as we intended, we're very well-hedged for the coming market chop into the month's end.  It is ALL about balance in an uncertain market!  

What we're looking for, at the moment, is whether or not the indexes can hold their 50-day moving averages from above. 

 

IN PROGRESS

 

 

Testifying Tuesday – Powell’s First Speech to Congress Looms Large

Powell speaks! 

We have a new Fed Chairman and clearly the bets are he'll be the same as the old boss as the markets have now recovered to within 3% of their all-time highs ahead of his 10 am address to Congress, led by Global Tech stocks Facebook (FB), Alibaba (BABA), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOGL) as well as Bidu (BIDU), Nvidia (NVDA), Tesla (TSLA) and Twitter (TWTR).  

Those stocks are up just under 20% for the year, more than recovering from the 10% dip we had earlier in the month – up almost 15% since Feb 7th though, once again, I feel like we're simply back to being overbought and haven't learned any lessons.  We'll have to see though, clearly we broke over our bullish technical "strong bounce" lines and now we'll see if the indexes can complete the round-trip back to their highs or if Powell sends us scurrying back below where we started the day yesterday.

"I would think there's no upside for [Powell] making a splash because he's dealing with a committee that's in flux, just coming together," said Robert Tipp, chief investment strategist at PGIM Fixed Income. "The market tends to do a good job of panicking and defining the range you're likely to be in … Once the taper tantrum got going, 3 percent was the watermark."  That seems to sum up the general sentiment, which is assuming a very gradual return to normal interest rates.  

What we're expecting to hear from Powell is whether the Fed is more worried about overshooting (too loose) or undershooting (too tight) their 2% inflation target (just right) and the nuance will be whether Powell indicates concern about the recent bump in inflation – especially ahead of Thursday's PCE numbers, which are expected to come in hot, around 0.4%, which would pop the Fed's chart from 113.9 to 114.3 and that would be up 2.1% for the year – magic time! 

Since the PCE was at 105.4 in Jan 2013 and took 4 years to get to 112.2 (6.8), the prior pace of PCE inflation has been 1.7% so jumping to 2.1% is already a 23% increase in rate and jumping 0.4% in a month, as expected, is pointing…
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Monday Money Show Special – Live Trading Challenge

Image result for live trader challengeI'm participating in the Live Trading Challenge this morning.

After giving a 4-hour seminar yesterday morning, today I'm going head to head with other speakers to see who can make the most money in one hour of trading.  If you lose $10,000 you're out but, other than that, there aren't too many rules. I know I can lose $10,000 (that's easy!), it's the random hour thing that bothers me.  

As you know, though we do like to have fun playing the Futures, I'm a long-term Fundamental Investor at heart and the most important thing I teach people about day-trading, especially the Futures – is knowing when not to play.  We like to see a good set-up and have news AND strong resistance lines to back up our play and, when we have them, I call them out – but certainly not on demand on 10:30 on a Monday morning – so we'll see how it goes.  

As I will be the sole Fundamentalist, I'm intending to grab stocks that are likely to move in the morning so, looking at the morning's news, we have:

Image result for Fed speakOverriding all that is the Fed's Bullard speaking at 8:30 and he has been reliably doveish recently, boosting the markets but the Futures are already up 166 points on the Dow 25,500 with the S&P (/ES) testing 2,760 and Russell (/TF) is back at our shorting line at 1,555 so I'll be a lot happier shorting than going long – but who knows where we'll be at 9:30 (3 hours from now)?

On the earnings, none of those companies really interest me but we'll still see if there's some kind of overreaction we can play against.   I heard a good…
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Friday Market Flip-Flop – Wake Up and Smell the Coffee Futures!

What a fun market this is!

After being totally bored making money on bullish bets in 2017, 2018 has been a non-stop thrill-ride with money to be made in both directions.  Yesterday, we got yet another chance to short the Russell (/TF) at our 1,550 line and we got another 20-point drop to 1,530, which was good for gains of $1,000 per contract and our call to go long on Coffee (/KCH8) at $119 from yesterday's Morning Report is already percolating at $120.50 and that's good for gains of $562.50 per contract already and gold (/YG, also from yesterday's Report) has jumped from $1,327.50 to $1,330.50 but that's only good for gains of $96.60 per contract, as it's a cheap contract.  

These are just the quick trade ideas we give away for free folks!  If you want more trade ideas, I'll be on Benzinga TV's Pre-Market Prep Show at 8:35 this morning – Tune in here.

Meanwhile, we're not at all fooled by the pre-market bounce in the indexes as we're still not clearing those strong bounce lines and it's the same lines we've been using since the crash, which I last updated in Wednesday's Report:

Since then, have we made any improvements?

No, apparently not, so don't lose perspective and, most importantly, don't get excited when the market, like a ball, bounces less than half of what it fell – especially when it's two weeks later and you're still not moving higher.  It's more likely, at this point, that we're consolidating for a move down than a move up but +180 on the Dow at the open is the pre-market push that reels the Retail Suckers in while the Institutional Investors dump their holdings into the weekend.  

Last time I was on Benzinga, we talked about GreenCoin, which was 0.001 at the time and I don't know if it's just because I'm scheduled to be on again today but GreenCoin has shot up to 0.004, which is up 300% in a month so you're welcome for that one!  

Keep in mind all cryptocurrencies are silly so, if you have more than a double and don't take half off the table (leaving you with half for free) – you are simply being a fool, who is likely to soon be parted with his money.  

 

 

IN PROGRESS

 

 

 

 

 

Thursday Thrills as the Markets Try to Hold Our Bounce Lines

Wheeee, this is fun!  

We had a lot of fun in our Live Trading Webinar yesterday as we shorted the Russell (/TF) Futures at 1,550 after the release of the Fed Minutes led to an inexplicable rally and the Russell fell all the way back to 1,520 at the close for gains of $1,500 per contract in less than two hours – you're welcome!  

What we saw in the minutes was a Fed that is firmly on pace to raise rates 3-4 times in 2018 and, as I predicted in the Morning Report, these was nothing to get excited about and the silly morning rally completely unwound over the course of an hour's trading.  The S&P (/ES) Futures went over our 2,728 "strong bounce" line and topped out at 2,747 on a spike after the Minutes were rolled out (2pm) but then quickly fell back all the way to 2,701, good for gains of $1,350 per contract below our line and, after hours, it drifted even lower, all the way to 2,685 for another $1,300 per contract gain!  

This morning, in an effort to spin the reaction to the Minutes (as we predicted they would on Tuesday), the Fed's Bullard attempted to soften the blow, saying:

The neutral rate is "still pretty low" and the Fed shouldn't hike interest rates based on the conception from the last two decades of the twentieth century, Bullard added. It is "not the world we're living in today," he stated. In the policymaker's words, the Phillips curve effects are so weak that unemployment at 4%, compared to the natural sustainable rate of 5%, adds only seven basis points to inflation. "A lot" would need to happen for four quarter-point hikes in the benchmark rate this year instead of three, he concluded.

The key here is 3.  There WILL be three (3) rate hikes in 2018 – AT LEAST – and that's 1.5 more rate hikes than were anticipated when the market decided to get silly in November.  Yes there are tax cuts, but do tax cuts trump rate hikes?  The Fed MUST hike rates, they can't
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Which Way Wednesday – Fed Minutes Edition

So far, so predictable.

And that's the way we like our markets, right?  It was two weeks ago (2/6) that we prediced the market would bounce back from 2,550 to at least 2,650 (strong bounce) for the week and then, on 2/9, we broadened our lines and came up with the following predicted range for the S&P (/ES) Futures using our fabulous 5% Rule™:

Here's how those lines are holding up two weeks later:

We're testing the top of the bounce range but remember that range tops out still only 40% back to the 30% line, which doesn't even register on the chart anymore as the trading range has narrowed – as we predicted – at the lower levels.  As I said in yesterday's Morning Report, evidence suggests that 20% line may be the top of the range for rest of the year, not the bottom or even the middle and we will need to look down to the 10% line, at 2,420, for proper support after the next correction.  Hopefully, we'll consolidate around there for a proper move up later in the year (assuming things hold up in the economy).

This isn't about TA (I HATE TA), the 5% Rule is just a mathemetical representation of the Fundamental Value of the S&P 500 and we simply use the chart to illustrate it.  Stocks can go a very long time 10% overvalued and even grow into that valuation without a correction but 20% over-valued is strething it and, as we're seeing this earnings season, we set the high-flyers up for big punishments when they miss.  Here's the Big Picture on our other indexes from our Big Chart:

Those 50 and 200 dmas are the only TA I do pay attention to because those represent the average that a large sampling of investors have been willing to pay for a stock (or index) and, as you can see, we're still miles over the 200-day moving averages for our indexes so, the question is, what changed in the last 50 days to justify a 10% bump in the indexes?  I guess you can kind of say the taxes but,
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Tumblin’ Tuesday – Thursday and Friday’s Low-Volume Gains Erased at the Open

You can't say we didn't tell you so.  

In Friday's report I said: "We're now only 5% below the "obviously overbought" market top.  What changed in the past 7 days?…  The reason I'm skeptical of the rally is that we've bounced back on 1/3 the volume at which we sold off and forming a weak base is why we were shorting the market in the first place a few weaks ago.  Apparently, traders have learned nothing at all this month and we're right back to the madness of the Dow moving up 1,500 points on ridiculously low volume.  This is simply a lack of sellers at the moment and God help us all if they come back!"  Fortunately, we also followed through with our hedges and went into the weekend with a bearish tilt to our portfolios – locking in last week's silly gains.

Even better, of course, were the Futures Trade Ideas we featured in Friday morning's Report, in which I said:  "As I noted in yesterday's Report, we amped up our hedges into the weekend and, this morning, I put out a note to our Members saying":

/YM is 25,300, that's my favorite short and we have /ES 2,740, /NQ 6,845 and /TF1,545 and my stop-outs are if we get over 2,750, 6,850 or 1,550 but, otherwise, I want to accumulate /YM shorts.  

As you can see, we already had a nice $4,385 gain on the /YM shorts by 1:15 on Friday – not bad for 4 hours' work!  After that we were able to rely on our index hedges to protect us and, into the close, we addred the following trade idea for the Russell Ultra-Short (TZA):

I'd go TZA July $11 ($2)/15 (0.90) for $1.10 you get $5 in protection and it's almost $1 in the money to start.  

TZA closed Friday at $11.84 and is should still be a playable hedge this morning if you think your portfolio is too vunerable.  A $3.14 gain in TZA would be 26% and, since TZA is a 3x short for the Russell, that would mean a 9% dip in the Russell should correspond to…
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50 DMA Friday – S&P Struggles to Stay Technically Positive

Is overbought the right price now?  

Just a week ago, there were literally thousands of articles saying: "Well, of course we had a sell-off, the markets were so overbought it was bound to happen." Yet here we are, a week later and now they are saying what a great buying opportunity this is.  Seriously?  We're now only 5% below the "obviously overbought" market top.  What changed in the past 7 days?

The market has gone nuts since August, rising from S&P 2,400 to 2,872, which is a 20% run in 5 months.  Markets don't go up 20% a year, let alone in 5 months.  Hell, they hardly even go up 20% in two years and, of course, the logic is TAX CUTS – which seems to justify everything but let's consider that very few companies drop more than 20% to the bottom line (14.6% is the average) and that they are taxed on their profits, not their income so, even if the taxes were as much as the profits (they are about 20% of profits on average) and the taxes were eliminated ENTIRELY, then the companies would only make 14.6% more money.  

That is, of course, not the case and there is nothing in Q1's earnings or guidance to give any indication that the new tax law will have a serious effect on forward earnings – mainly because US Corporations never paid 20% taxes in the first place (about 13.5% on average).  So, if they actually paid the new 20% rate, it would be a tax INCREASE for those companies who routinely park their cash overseas or pay tens of millions of Dollars to accounting firms and Investment Banks to avoid paying Billions in taxes (Apple alone is bringing back over $200Bn they had stashed overseas).  

Trump is taking credit for repatriating funds from overseas but what he's really doing is giving companies a tax incentive (15%) for bringing back money they earned under the Obama Administration (because he was mean and would have taxed them) and for not paying their taxes under Obama's budgets.  In fact, Trump is REWARDING the corporations for hiding money from Democrats and letting future CEOs know that any time a Democrat tries to tax them – they are free to flaunt the law until a Republican is…
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Thrilling Thursday – Yesterday’s Russell Futures Up $2,500 Per Contract!

You're welcome!  

In yesterday's Morning Report, we decided the sell-off was overdone and went for the Russell (/TF) Futures longs at 1,480 and yesterday afternoon they blasted back to 1,520 for a $2,000 per contract gain on the day and this morning at 1,530 for another $500 per contract and NOW we are flipping short – but more on that later.  Remember, we are still playing the bounce lines from the charts we made for your last week – so none of this is a surprise and none of this, so far, including this morning's pop in the Futures, is indicating a true recovery yet.  

The S&P Futures (/ES) this morning are topping out at 2,720 and our 5% Rule™ Bounce Chart from last week (2/9) has, so far, predicted the moves perfectly:

All we are doing, so far, is topping out at the same place we bounced on 2/7 and that's being mirrored on the other indexes so the lines we need to be over now – in order to call today "bullish" are Dow 25,200, S&P 2,715, Nasdaq 6,700 and Russell 1,520 and, so far, the Russell and Nasdaq are a bit over but the Dow and S&P are below.  Don't forget, we topped out at 2,872 on Jan 26th so there's really nothing impressive about 2,720 - other than the fact that we came back from 2,600 but it's only a halfway recovery (not even) at this point and, if we fail to get over these lines, it's as likely we're consolidating for a move down after 2 weeks as it is we're moving back up.

Fundamentally, nothing has changed and you saw how quickly the market can still move down (and recover) yesterday.  Our 5% Rule™ takes into account that it's easy to manipulate a rally that recovers 20% and 40% of a drop if it's done quickly enough and we take into account the idiocy of dip buyers as well.  Not that all dip buyers are idiots – we had a field day adding stocks to our portfolios over the past two weeks – it's just that we added well-hedged positions and now it is time to improve our hedges, many of which we
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Markets Get No Loving on Valentine’s Day Inflation Massacre

Related imageHappy Valentine's Day!  

There's a massacre for the markets as we're down 300 points in a massive failure of the strong bounce lines which we predicted for you a week ago, which are:

  • Dow (/YM) 24,100 is weak and 24,700 is strong
  • S&P (/ES) 2,610 is weak and 2,670 is strong
  • Nasdaq (/NQ) 6,440 is weak and 6,580 is strong
  • Russell (/TF) 1,480 is weak and 1,510 is strong

We needed to see strong bounces on all 4 indexes taken AND HELD for at least a full day before we could safely say the correction is over (it's not).  

Strong inflation numbers are killing us this morning (CPI), keeping the Fed on the table for more tightening.  There had been no real news in the past week to change what were obviously overbought conditions 2 weeks ago so there was no logic in racing back to the overbought conditions – though we're still a good 5% below the highs.  If you almost had a heart attack last week, this is a good time to consider hedges and a great example can be found from the way we adjusted our Money Talk Portfolio (which we discussed on Feb 1st in our Morning Report) by adding a Nasdaq Ultra-Short (SQQQ) hedge that has gained $5,900 in two weeks, almost exactly offsetting half the damage to the portfolio – as intended.  That trade idea was:

SQQQ is the ultra-short Nasdaq ETF that's a 3x inverse of QQQ.  So, if the Nasdaq drops 10%, SQQQ goes up 30% (in theory, it's not perfect).  I'm going to add the following trade as a hedge and WE EXPECT TO LOSE MONEY ON THIS ONE – it's like life insurance, you pay for it but you hope that, each year, it's a waste of money!  

  • Buy


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