TGIF – Markets Close Q2 In the Red for the Year

What a rally, right?

It's funny how excited people can get over nothing and, if you listen to CNBC or the rest of the Financial Media, you would think this market is completely unstoppable because we bounced off 24,000 on the Dow yesterday but that's only because they assume you are an uncritical viewer with no memory and no ability to step back and look at the big picutre which, as you can see from this Dow chart – does not actually look all that thrilling – even with this morning's 0.5% pop in the Futures.

The Dow opened 2018 at 25,250 so we're about 1,000 points lower (4%) at the moment and the S&P is basically flat at our 2,728 line and the Nasdaq is higher at 7,100 from 6,700 so call it 6.5% and the Russell is up 100 at 1,650 (also 6.5%) and the NYSE (the broadest index) started the year at 12,900 and sits at 12,500 so down 400 is -3% for the year.

So it's a mixed bag and not too exciting and, of course, this is the last day of Q2 with a very low-volume holiday week approaching which means a lot of the action we're seeing now is window-dressing and not at all to be taken seriously.  Also, notice that, this morning, 

 

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Thursday Thoughts – Wild Market Gyrations Continue

Wheeee!  That was exciting!  

Fortunately, we were expecting the bounces yesterday morning and, even more fortunately, we expected them just to be bounces and my opening call in our Live Member Chat Room was 

Looks like a bit of a bounce this morning and we'll see how far but the Dow is the laggard to the upside and, if we get over 24,350, you can play /YM bullish with tight stops as long as the VIX keeps going down (now 1,580) and the Dollar stays under 95 (now 94.75).

The Dow flew higher but we were already taking it off the table at 10:16 with a non-greedy exit:

Don't be greedy on /YM longs, of course, 150 points is a quick $750 per contract and you can get back in over 24,500 with tight stops below that line if you are worried about missing out.

Forutnately, we had laid out the likely bounce lines in Tuesday Morning's Report so our Members were prepared for AND NOT FOOLED BY the morning "rally".  My comment on Tuesday was:  

Notice how technically neat the S&P is behaving, bouncing right off the 50-day moving average at 2,716 and that's exactly down 2.5% from the high at 2,785 so we're right on the money with our 5% Rule™ and that means we'll watch for 14-point bounces to 2,730 (weak) and 2,744 (strong) though anything over our 2,728 line is a pretty bullish recovery for the moment.

Other bounce lines will be:

  • Dow 25,400 to 24,200 is 1,200 points (4.7%) and we'll call the bounces 250 points to 24,450 (weak) and 24,700 (strong)
  • Nasdaq 7,350 to 7,000 is 4.7% but really 350 was a 5% overshoot of 7,000 (and we're on the way to 6,500) but the Nas will bounce 75


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Will We Hold It Wednesday – 24,000, 2,700, 7,000 and 1,650 Edition

Lines in the sand.

The above levels for the Dow 30, S&P 500, Nasdaq 100 and Russell 2,000 are lines in the sand that the bulls dare not cross or we will, like China already has, enter bearish correction territory.  As I have been saying all month, we're expecting at least a 10% correction from the top and that's 22,850, 2,550, 6,500 and 1,600 – so we still have about another 5% to fall before we get interested in bottom-fishing.  

We did pick up a couple of longs yesterday, in our Live Member Chat Room as we caught CitiGroup (C) down at $65 and Royal Caribbean (RCL) at $105 – so we sent out a Top Trade Alert with bullish plays on both of them.   We have to be careful with banks as European and Asian Banks are off a cliff and the fact that it's being ignored in the US reminds me very much of 2007 – when we acted as if nothing that happened in Europe or Asia would affect us.  Here's a list of 16 of the 39 Global Sifis (Systemically important Global Banks) that are already down 20%:

Deutsche Bank, Nordea, ICBC, UniCredit, Crédit Agricole, ING, Santander, Société Générale, BNP Paribas, UBS, Agricultural Bank of China, AXA, Mitsubishi UFJ Financial Group, Bank of China, Credit Suisse and Prudential Financial.

According to the Financial Times, the synchronised dips were a sign of global financial stress.  Ian Harnett, the managing director of global strategy at Absolute Strategy Research in London, used the data this week to send out his first “Black Swan” alert since 2009.  The alert he put out on Monday was his first since a warning on inflationary risks in June 2009, as oil prices climbed higher. Mr Harnett drew parallels to another bearish note he wrote in March 2007, when European banks began to sink while non-banks marched higher.

We'll keep an eye on that into the holiday weekend but, on the bright side, Trump has already folded on his tough talk on China and is now falling back on our existing restrictions placed by Congress' Committee on Foreign Investment in the United States, or Cfius, which reviews investments for security threats.  “We have the great scientists, we have the great brains,”
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Tarrific Tuesday – Trump Tweets Tariff Talk (again)

First of all – you're welcome!  

Our trade idea in yesterday morning's PSW Report was:

"We'll probably test good old 2,728 on the S&P (/ES) and here's a chance to prove a bullish consolidation if it holds.  The Nasdaq (/NQ) is down to 7,159 and still almost 10% above our 6,500 target but the Dow (/YM) is falling fast at 24,400 – just another 1,000 points to hit a proper retrace there and, of course, the Russell (/TF) thinks Trade Wars don't matter but, if the VIX is over 15 – I'd short the crap out of /TF – now 1,683 with tight stops over 1,700.  "

Aside from gaining $1,400 for each short contract on the Russell Futures, our Nasdaq shorts from last week's Live Trading Webinar at 7,350 made $3,000 per contract at the 7,000 line and now we're watching to see what kind of bounces we get but, just this morning, the S&P failed EXACTLY at our predicted and long-standing 2,728 line, which is where we consider the proper TOP of the S&P's range for the summer:

Notice how technically neat the S&P is behaving, bouncing right off the 50-day moving average at 2,716 and that's exactly down 2.5% from the high at 2,785 so we're right on the money with our 5% Rule™ and that means we'll watch for 14-point bounces to 2,730 (weak) and 2,744 (strong) though anything over our 2,728 line is a pretty bullish recovery for the moment.

 

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Monday Market Madness – Trade Wars Escalate

Now what has President Trump done?

You know, you shouldn't have to wake up in the morning and have that be your number one concern.   The President of the United State of America is, traditionally, a stabilizing force in the World, not an agent of chaos!  While, Republican voters seem to be loving the chaos so far (90% of them approve of the President) – how many times can he roll the dice before he craps out and pisses off the whole table?

Aside from escalating the Trade War this weekend by barring Chinese investments in US tech firms (sending the markets tumbiling again), Trump has decided to suspend Due Process, which is in both the 4th and 15th Amendments to the Constitution because that's how important people used to think it is!  Now, ordinarilly we'd say "Well the President can't just suspend due process, this isn't a dictatorship, we have a system of checks and balances to reign in a President from having absolute power.  Even if he could get a Republican Congress to go along with something so outrageous, we have a Supreme Court full of lifetime apointees who will prevent him from violating the Constitution."

Did you manage to make it through that without laughing?  Well, that's the situation we have now, unchecked power in the hands of Donald Trump and today he's using it to suspend due process.  Of course, it's only being used against immigrants at the moment but that's kind of the point of that famous poem by Pastor Niemoller about the Holocost:

"

First they came for the Socialists, and I did not speak out—

Because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out— 

Because I was not a Trade Unionist.

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TGIF – Dow’s Down Week Comes to a Close

8 days a week

Well, 8 days in a row that the Dow has been down after topping out at 25,400 back on June 11th and having tested 24,400 for an even 1,000-point drop yesterday afternoon.  That's right about a 4% correction on the nose and the 5% line is 24,130 so, if we assume that is the full pullback (not yet completed), then the fall is 1,270 points and we'll call that 1,250 and look for 250-point bounces so a weak bounce would be 24,380, which is the 4% line again and the strong bounce, to the 3% line, would be 24,630 so that's the line we need to see the Dow take and hold today in order to be impressed.  In fact, 24,658 is the 50-day moving average on the Dow – so let's make sure we get those extra 28 points too! 

 The Dow is down 1% for the year so up 1% (250 points to 24,750) is also very important to make.  Meanwhile, as you can see from the chart above, the Nasdaq is still up 12% for the year – though we made a lovely $5,535 on Wednesday's short position (see yesterday's Morning Report) and we HOPE it bounces back towards our shorting line at 7,300 so we can do it again.  

As I said to our Members in our Live Chat Room yesterday morning:

I'm still on the 6,500 bandwagon but I don't know when so better to make $1,000 80 times than spend 3 months waiting for a big drop! 

Well, now we can cross 5 of those 80 times off the list!  Overall, it's just been a small correction but it's more the failure at the top that we're watching, and we'll see if we can retest that next week.  As I noted earlier in the week – nothing really matters unless the NYSE can retake 12,800 and I doubt we'll even get to test that today so it's a "watch and wait" day into the weekend.

The big news today is, of…
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Thrilling Thursday – Asia Takes Trade War Seriously, Americans Oblivious

Image result for quiet placeAs long as you are quiet, the monsters can't get you.

While it's a fun plot for a movie, it dosn't play out very well as a trading premise and just because we choose to ignore problems, doesn't mean they will go away – or leave us alone.  The market was heading back up into the close and again in the Futures but then those dummies at Dailmer had to make a sound (a profit warning due to tariffs) that sent all the EU auto-makers lower

This isn't about Trump's tariffs, this is about the Chinese tariffs that are a retaliation to Trump's tariffs to which he has threatened to retaliate with more tariffs which will, of course, cause China to retaliate with even more tariffs and so on and so on – we're only in the first inning of this game!  Both Dailmer and BMW are down over 5% for the week now after dropping 4% this morning in EU trading and EU markets are down about 1% but the US Futures are flat because we still think we can sneak past all the monsters without getting hurt.

Yesterday, in our Live Trading Webinar, we discussed some of the many reasons we were not going to chase the indexes higher and, in fact, we took a short on the Nasdaq as it tested 7,330 and caught a nice dip back to 7,300 for a $600 per contract gain and this morning we'll look for a chance to short it again as it's up for no reason.

We're still not a believer in the "rally" until we see the NYSE get back over that 12,800 line and we're about 1% away from it now and it's very, very doubtful that we'll get there today, no matter how quiet the US investors are.  

 

In fact, on the NYSE, we are wathing for a failure at 12,600 (the 200-dma), which would signal the very strong possibility of a leg down for the indexes.  We still have our long hedge on the Nasdaq and our 10 QQQ 2020 $220 calls from our June 12th Morning Report at $2,000 are already $2,550 for a 27.5% gain even though QQQ is only at $177.25, up $2.25 or 1.3% so we…
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Will We Hold It Wednesday – NYSE 12,800 Edition

Coming back or just bouncing?  

12,800 is the Must Hold line on the NYSE, meaning it's very bearish to be below that on the broad index and we finished the day yesterday at 12,638 and, so far, this morning's bounce isn't going to fix things.  Back on May 26th, when the NYSE last tested 12,800, my notes from the Morning Report were:

It's still all about the NYSE and whether it's over or under that 12,800 line but I remember a time when the Dow and the NYSE would run completely neck and neck.  That has gone completely out the Window as the headline index has been jammed 17% higher since Donald Trump was put in power by the USSR so thank you Putin – I guess…

The NYSE is right where we expected the market to be given that tax cuts, repatriation of capital and buybacks that have boosted the indexes over the past year plus.  On the other hand, the Dow is silly and the Nasdaq is sillier and we're back to a 1998/1999 market, where Fundamentals don't matter (for now) and people are paying ridiculous forward multiples for stocks in the belief that this party is never going to stop and there's no piper to be paid.  Is this time different?  Don't bet on it!  

The broad-market index has been trading in the lower part of a very tight range since February and, of course, the Dow is red for the year so the bulls are, at the moment, left with the over-priced Nasdaq and the narrowly-focused Russell 2000 Indexes to hang their hats on and we're still expecting a 10% correction in the Nasdaq, from 7,200 to 6,500 – before the summer ends.  That's why we haven't been jumping in to buy things – we don't think these little "sales" are bargains at all.

As you can see, the Nasdaq is way up in its range, over our 7,200 mark but we're not putting on the 7,500 hats just yet as that requires Apple (AAPL)…
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Trade War Tuesday – Trump Fires off Another $200Bn in Tarrifs, China Fires Back

Image result for trump china trade warWheeeeeeee!!! 

Isn't this fun?  Diplomacy via twitter is a case of voters getting exactly what they deserve and we'll see how much the market suffers for it.  We gave you hedges yesterday that can turn $2,000 into $10,000 and it's the same hedge I gave you two weeks ago that could turn $500 into $10,000 so I don't feel at all bad when I say "I told you so" as I ranted on and on all month about how this was going to escalate and end badly

This, by the way, is not the end, this is just the beginning as Trump the First has asked for ANOTHER $200Bn worth of tariffs on Chinese goods in retaliation for the $34Bn worth of tariffs they put on our goods which was a retailiation against the $50Bn we put on their goods first.   

The new duties will go into effect "if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced," the president said in a statement provided by the White House late on Monday.  Meanwhile, Trump is fighing Congress tooth and nail to REMOVE sanctions against ZTE – because he was paid $500M to do that, so the real message to China is "PAY ME!"  This is why you don't negotiate with terrorists – it only makes them come back for more…

Beijing has already said they will retailiate, saying: "This practice of extreme pressure and blackmail deviates from the consensus reached by both parties on many occasions and is disappointing for the international community. The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends," the Commerce Ministry said.

Image result for putin laughing animated gifSeriously people, let's step back for a second to consider that CHINA has just accused the US of BLACKMAIL and of violating International Laws and undermining diplomacy – all in one paragraph!  President Trump is undoing 70 years of hard-faught diplomatic steps that have given us 70 years of relative peace and prosperity.  Who actually benefits from Trump single-handedly upending the World Order? 

The clock is now…
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Monday Market Meltdown – Merkel Mayhem Makes Markets Morose

Wheeeeeee!!!

It's about time our hedges made some money!  As you know, we've remained cautious, even while making money on the long side and, just this weekend, in our June Portfolio Review, I said to our Members:  "I'm still very risk-adverse in this market and yes, we could be making more if we were more aggressive but then again, we could blow it too – and that is what we're trying to avoid."  

We're very well-hedged so a dip like this is simply amusing and it's miles to go before we even get back to the strong bounce line at 2,728, which had been the top of our range since February.  Unless we fall back below that line on the S&P (/ES) this is just a minor pullback and we're still in bullish territory though failing at the 2,800 line (again), which is where we ran into trouble in March before pulling back 200 points (7%).  

7% is right about the pullback we are expecting but we expected it from 2,728 – this move back to 2,800 has been a bonus round so far.  Above the 2,800 line, we have to capitulate and get more bullish – no matter how much we don't trust the rally but that certainly isn't a problem we'll have to deal with today, as we're down around 2,764 so far in the Futures.

If you feel under-hedged, you can use a play similar to the DXD play we gave you in our 6/7 Morning Report, when I said:

That's how hedges are supposed to work – they are insurance policies and keeping our portfolios well-hedged is the only way we can sensibly keep long positions after they've already gained 20% for the year.  

Maybe this is a full-blown 1998/1999 rally but we've got PLENTY of longs so all we're worried about now is whether or not we


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