Friday Fade Out – A Wild Week Comes to a Close

What a week it has been.

For the 3rd time in a month we have tested the highs of the Dow only this time we also tested lows that go back to early July, when we ran up from a test of 24,000.  To some extent, we would call this a bullish test of the 50-day moving average at 25,000 (this is an hourly chart, so those are the hourly moving averages) but we also bounced off that in May and went back to 25,400 before falling back to 24,000.

Needless to say, we're still well-hedged in all 5 of our Member Portfolios with strong cash balances for additional protection.  We did use some of that cash to add positions we thought were a bit too low – but they only replaced some too high positions we cashed out during July's expiration week.

Keep in mind, the market has actually gone NOWHERE since the February high of 26,600 and we're still a good 1,000 points below that so perhaps people who say I'm too bearish during this "amazing" bull market need to get a bit of perspective.  I'm not bearish – we have 50 long positions in our Long-Term Portfolios – I'm just CAUTIOUS because cautious traders live to trade another day, and I like trading! 

Even if it's a rising channel, the market is still in a channel and we've been beating the Dow and the S&P and even the Nasdaw all year long by not going crazy at the top of the channel and not panicking at the bottom of the channel.  Just yesterday, at 3:02 pm, I said to our Members:

/YM 25,600 is a very tempting short after this madness.  If I weren't on a ship, I think I'd play it with tight stops above.  

That trade idea isn't rocket science, we're just thinking that a 600-point run from 25,000 (which is just under the 2.5% line at 25,625) should give us a small retrace.  In fact, using the 25,625 line predicted by our 5% Rule™, we expect a retrace of 125, back to 25,500 (weak) or another 125, down to 25,375.  So all we're doing is
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Thrilling Thursday – Markets Make a Remarkable Comeback While You Sleep

Nice reversal!  

The Dow is actually 100 points higher this morning than it was yesterday after falling 300 points at yesterday's lows.  Kudos to Doug, our Hedge Fund trader at Capital Ideas, who actually said to me yesterday morning that "this whole thing can end the day with the Dow higher" – he was only off by 12 hours…

Our first attempt at going long, from the Morning Report, was a failure as we blasted through all those levels but what fantastic entries we got during the day, as noted in our Live Member Chat Room:

August 15th, 2018 at 10:37 am | (Unlocked) | Permalink

Indexes getting worse, not even going to attempt to go long again.  Gold and silver way off too.  /SI at $14.50, WPM getting killed so good time to sell the 2020 $20 puts for $3+. 

/SI $14.40?  Wow!  /NQ just hit 7,340, that's down 120 for the day, about 1.5% so look for 25-point bounces to 7,365 (weak) and 7,405 (strong) but OUCH!

August 15th, 2018 at 11:18 am | (Unlocked) | Permalink

Huge 10MB build is very, very bad but note /RB had a draw so best bet to play at $1.99 but VERY DANGEROUS TRADE as the market is crazy at the moment and it's still more than two weeks to the holiday and we have a rollover in between

We really want to play /RBV8, long which is Oct at $1.884 at the moment! 

August 15th, 2018 at 11:32 am | (Unlocked) | Permalink 

/KC/Palotay – Ugh, I forgot I have 3 long /KCN9 that are getting clobbered.  Same as /SI though – great chance to get in at a cheap price ($114), if you can stand the pain.


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Turnaround Tuesday – US Markets Run Up in the Futures Just Because

Yet another meaningless Monday erased from history.

After all of yesterday's excitement, the Futures have taken us right back to where we finished on Friday, 2,832 on the S&P 500 and 25,300 on the Dow – as if yesterday never happened.  I'm not sure it will last as Europe is flat, not up and China was down yet again this morning so there's nothing really to get too excited about and 25,300 is a good shorting line on the Dow Futures (/YM) with tight stops above – if you feel like playing.

We felt like playing yesterday as Gasoline (/RB) dipped down to the $2 line and Oil (/CL) fell to $66 and I said to our Members at 1:48 in our Live Chat Room:

Wow, Oil etc went down hard and fast, good chance to get back in for the bounce off $66 on /CL and $1.99 on /RB (tight stops below).  

I know, so complicated, right?  How will you ever learn the jargon?  Well, I would think our results would motivated you as those Gasoline contracts made a quick $1,000 each at $2.02 (and back to $2.05 this morning for another $1,260 per contract since) while Oil Futures (/CL) blasted back over $68 for a $2,000 per contract gain ($67.50 in yesterday's close was $1,500 per contract – also very nice!  

Futures trading is the only kind of day trading I like to do as it's a nice quick way to take advantage of market stupidity without incurring a lot of trading fees and, more importantly, without consuming your attention.  As Fundamental Investors, we KNEW $2 was too low for /RB (that did not stop it from hitting $1.98, of course) and we KNEW $66 was too low for oil with 2 weeks until a holiday weekend so it made good sense to take a chance at those levels and notice we waited until AFTER it bottomed – you don't get rich trying to call exact bottoms or tops in the Futures!

 As I was saying in last week's webinar,…
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Monday Market Movement – Bouncing Back to Highs?

Image result for trade war market highsTrade War – so what?

Despite Friday's sell-off, which was more a result of Turkey's currency issues than the escalating Trade Wars, the markets are still generally shrugging off any and all bad news as they continue to march into uncharted territories.  Nothing has changed today – the Turkish Lira is still collapsing only now it's taking other currencies with it and the Trade War talk is heating up between the US and China, the US and Japan, the US and Russia, the US and Europe, the US and Canada and the US and Mexico and I THINK that's all the countries we're fighting with at the momen- all I know is I'm on a cruise with people from all over the World and they all ask me "What the f*ck is wrong with your President?"

So far, we're only scratching the surface of Trump's actions compared to Trump's threats.  About $700Bn worth of tariffs have been threatened which would tax the American consumers $175Bn at 25% but, so far, "only" $63Bn worth of tariffs have been enacted so 1/10th of the way there and look at all the chaos it's already causing.  Want to stay for rounds 2-10?

Image result for trade war market highsYet traders seem perfectly happy to ignore the multiple elephants in the room as we party like it's 1999 and now we'll see if last week's dip was the start of a correction or yet another pullback we bounce right back from.  Bounce lines to watch are:

  • Dow (/YM) 25,650 to 25,175 is a 475 drop so we'll call it 100-point bounces to 25,275 (weak) and 25,375 (strong)
  • S&P (/ES) 2,860 to 2,820 is a 40-point drop so call them 10-point bounces to 2,830 (weak) and 2,840 (strong)
  • Nasdaq (/NQ) 7,500 to 7,375 is 125 so we get 25-point bounces to 7,400 (weak) and 7,425 (strong)
  • Russell (/RTY) 1,700 to 1,675 is 25 points so 5-point bounces to 1,680 (weak) and 1,685 (strong)

We're certainly going to get our weak bounces and probably strong bounces into the open but what matters is what holds for the day
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Flip Flop Friday – Nasdaq Fails at 7,500 on Turkey, Russia Issues

Image result for putin poison cartoonEconomic War!  

That's what Russian Prime Minister, Dmitry Medvedev called US sanctions early this morning and he threatened "other means" of retaliation so Congresspeople better invite some Food Tasters to their barbeques this summer as this whole thing started over Russias use of nerve agents (allegedly) to murder former spys in the UK, which recently killed a bystander who thought a bottle of poison was perfume.   

These sanctions are not coming from the White House – Trump says Russia denies it and that's good enough for him.  The Senate and the House are not convinced though, and they have proposed sweeping sanctions against Russia on August 2nd, which are slated to go into effect on August 22nd and get much worse 90 days later if Rusia does not provide "reliable assurances"  it will no longer use chemical weapons, allow on-site inspections by the UN or other international observer groups, and respond to other U.S. demands.

The Ruble crashed yesterday and Medvedev said this morning that Moscow would consider it a "declaration of economic war" and would retaliate "economically, politically, or, if needed, by other means" if the United States imposes bans on Russian banks or their use of a particular currency.  While he did not go into detail, Medvedev's reference to "other means" appeared to have been aimed to raise the prospect that Russia could respond with military force or some other form of warfare, such as a cyberattack or even more nerve gas.

In other Cyrillic news, Turkey's Lira is also crashing as negotiations bread down over the jailing of an American Pastor, Craig Brunson, who has been held there for two years on terrorism charges for his involvement in an attempted coup in July of 2016.  Turkish officials have accused Mr. Brunson of aiding the group accused of orchestrating the coup and another Kurdish separatist movement, charges that the American pastor and U.S. officials have denied.  

Last week, the Trump administration accused Turkey’s justice and interior ministers of human rights abuses and imposed economic sanctions on both men. The crisis sent Turkey’s lira plunging to record lows. Publicly, Mr. Erdogan was defiant. Privately, his government was trying to secure a face-saving way to end the standoff.  On Monday, Turkey’s currency plunged…
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Thursday Thoughts – The Trade War We Choose to Ignore

Image result for tariffs chartAnother $16Bn in tariffs

Or, should I say, another $4Bn in taxes against the American Consumer placed by Trump causes another $4Bn of Import Duties to be place on US goods we are trying to sell to China.  That's the real impact of the announced "$16Bn in tariffs" that Trump gleefully announced on Tuesday, which was immediately followed by an exact retailiation by China yesterday.   

“This is very unreasonable,” China's Ministry of Commerce said, “In order to defend China’s rightful interests and the multilateral trade system, China has to retaliate as necessary.”

This brings our cross-tariffs with China up to $50Bn and we already know there were painful effects from the first $20Bn so this is 150% more pain for US companies and 150% more taxes on US Consumers but still a drop in the bucket compared to the $500Bn in taxes Trump has threatened to place on US Consumers who buy Chinese goods.  That's all a tariff is, it's a tax that punshes consumers for buying certain items from certain countries – the behavior they are trying to change is yours – not China's!  

Now, who do you think will be more successful in getting their people to change their habits?  If it were Japan, we would have already lost this trade war as they Japanese people tend to obey Government edicts but Chinese people are a bit more like Americans, making independent choices though, on the whole, they tend not to fight the Government unless it's important while Americans generally ignore the Government and do whatever they want.

Image result for china rare earth metals 2017We're not there yet but if the Chinese Government declares it "unpatriotic" to buy American goods – our exports to China can ground to a very quick halt.  China can also hit us where it hurts on Rare Earth Materials, which China makes 90% of for the Planet Earth, not because they are actually rare but because producing them causes levels of pollution that most countries find unacceptable.  

Now, you can say that Trump can lift restrictions on strip-mining and lift all enviromental protections "for the sake of
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Toppy Tuesday – Markets Continue to “Ignore and Soar”

Up and up we go.

The volume on the up moves is negligible but what does it matter if you can fool some of the people some of the time and all of the people all of the time?  Yesterday's volume was the lowest since the Friday after Thanksgiving though it was not a holiday yet we spiked up to make a new all-time high on the S&P at 2,855 and this morning, on even less volume, we're testing 2,860 where I'm putting my foot down and shorting /ES.

Well, it's a light foot, with tight stops over the line as none of our Futures shorts have been working for the past week but they are, primarilly, hedges against our long positions, so it's OK to take small, manageable losses on the way up – as they lock in our ill-gotten gains.  

The real question is, why is nobody trading?  I know I'm on vacation and a lot of our Members are on vacation but surely, we can't be the only ones trading the market, can we?  Well, considering this volume, maybe we are!  Also interesting yesterday was a strong uptick in VIX volume, as well as VIX options, where call volume outpaced puts by 6.5 to 1.

That's not the kind of action you expect in a "healthy" market but it's hard to argue with the headlines, which are relentlessly UP, pretty much since July 1st, when the S&P was testing the 2,700 line (6% ago).  According to our 5% rule, this is a 5% run with a 1% (20% of the run) overshoot and, while 2% (strong) overshoots can happen – they are pretty rare and need a catalyst and I don't see one likely to turn off the SellBots this morning so let the market open and then we can start shorting.

 

 

IN PROGRESS

 

 

 

 

 

 

Monday Market Movement – August Vacations Kill the Volume

Image result for trump trade war tweets cartoonIt's vacation time! 

I'm on vacation and Europe is on vacation which leaves no one to trade the market, so don't expect much this week or next.  Even the President is on vacation but, sadly, not away from Twitter, where he's having a busy weekend claiming victory in the Trade Wars and attacking the media.  So far, the markets have been oblivious to the escalating Trade War, which is very, very dangerous and the reason we pressed our hedges at the last options rollover.

Another guy who can't stop tweeting is Elon Musk and, following the Presendential tradition of inappropriate tweeting, Musk sent out a parody video of Hitler shorting Tesla stock which is, frankly funny and, coincidentally, I once made a paradoy using the same video on the same subject when the company was much smaller ($150 and we were long) but, then again, I don't run a $60Bn company.  Actually, if you read my 2013 parody's text – it does lay out exactly what Musk had to accomplish to get to this stage of success.

Oddly enough, we're getting ready to short TSLA again as it re-tests its highs as it is overpriced.  Even if they are able to further ramp up production they are still bleeding cash and, as the Trade Wars escalate, TSLA could get caught in the crossfire but, over $360, it's priced well beyond perfection.

Apple (AAPL) is still a bargain at $1Tn ($208) and people are talking $250-300/share now which suits us fine as our pre-earnings play on AAPL for our Short-Term Portfolio was:

July 30th, 2018 at 12:15 pm | (Unlocked) | Permalink

AAPL/John – I don't think anything very exciting happened in Q2 and they've beat the last 4Qs by a bit and last Q2 they made $1.67, which was an 0.10 (6.4%) beat and this Q people are expecting $2.18 which is up 0.51 (30.5%), which would be huge but last July the stock was at $154 and now $189 so up $35 is only 22%


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Non-Farm Friday – Is America Working?

Wages.

That's what it's all about today as we get the Non-Farm Payroll Report at 8:30 this morning.  Average Hourly Wages have been on a 2.7% growth path for the year and it would be surprising then, if we are below 0.2% or above 0.3%, which is the Fed's sweet spot.  The closer we are to 0.3%, the more likely the Fed is to hit the brakes before rising wages push inflation out of control (and eat into Corporate Profits – which we really can't have in this country!).  The Dollar has been flirting with the 95 line and more wages means more demand for Dollars to pay people with but the Dollar over 95 can put downward pressure on the indexes, as well as commodities.

The best short on a strong Dollar this morning would be oil (/CL) at $69, with tight stops above and we don't want to be greedy into the weekend but every 0.25 drop pays $250 so we can make some quick Egg McMuffin money on Dollar strenght.  If there are more than 250,000 jobs created (doubtful), that would be a plus for oil as more jobs, in theory, means more people driving and more factories using oil for whatever (trucks too) – so watch out for that.

On a stronger Dollar, Silver (/SI) makes a good short as it tests the $15.50 line.  We have been long on /SI but it popped nicely so now we take that profit off the table as we expect a pullback – even if it is on a run above the line (where we stop the shorts out over). 

These are simple, mechanical moves you can make on events where the Dollar is in play and no event is bigger than Non-Farm Payrolls – other than a Fed meeting and this week's was a big nothing – so we have to have a little fun before the week is out!

Despite rising wages, Consumer Credit has been rising at an alarming rate and that's something we'll pay attention to in next week's report as, last month, Consumer Credit jumped $24.5Bn, which is a pace to put Americans $300Bn more in debt for the year, a…
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Trade War Thursday – Trump Taxes $200Bn In Chinese Goods 25% – Americans Pay Him $50Bn

Image result for trump tariff cost consumersMore tariffs?

The Trump administration said that it is considering increasing the proposed tariff on $200 billion in Chinese imports to 25% from 10% – indicating there is now no possibility that there won't be tariffs at all. President Trump has asked U.S. Trade Representative Robert Lighthizer to hike the duties, which could be implemented as early as next month and are implimented as a TAX paid by the US Consumers of Chinese goods – it doesn't cost China a think yet the MSM has allowed the word tariff to go unexplained while it's the American people who pay the price and the Top 1% who reap the benefits as those tariff taxes go to pay for more tax cuts for Trump's Billionaire Buddies.

Not only are tariffs an unfair and possibly illegal tax on the American people but they also increase the costs of goods and services by removing competition from the local market.  Not only is Trump placing a $50Bn stealth tax on American Consumers and causing runaway inflation by making things more expensive but China will retailiate with their own $50Bn tax on American goods and who does $50Bn matter more to – US or Chinese Consumers?  So Chinese consumers will stop buying American goods altogether while US consumers will simply pay $50Bn more and keep buying the same stuff.  China said this morning:

“China has made full preparation for the U.S. threats to escalate the trade war, and will have to retaliate to defend national pride and the people’s interests.” 

The reason most Americans don't realize that tariffs are actually just a tax they are forced to pay or that they are one of the worst economic ideas in history is that we haven't had a tariff war since 1930 – when one started the Great Depression.  After that, people who actually went to Business School had no doubts at all that tariffs were a TERRIBLE idea – and they have been used sparingly ever since.  Until now.

Image result for trump tariff cost consumers

You would think an 80% drop in the…
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