Toppy Tuesday – Markets Bounce Back Ahead of the Fed

And we're back!

The Dow is up 75 points pre-market, back at 26,700 and the Nasdaq is testing the 7,600 line, which will certainly be bullish if they break over it but, until then, I like /NQ as a short with tight stops above.  We also re-shorted Oil (/CL) Futures at $72.50 this morning – also with tight stops above as it sets a nice, positive risk/reward ratio to do so.  We made $500 shorting /CL yesterday on an 0.50 drop and about the same on Gasoline (/RB) as it fell so no reason not to give them another chance to make us money, right?

Trade Wars are not good for oil demand and 74 out of 98 S&P Companies that have issued Q3 guidance so far have isssued negative guidance and that's already the worst rate since Q1 of 2016 when the S&P fell 15% from 2,100 to 1,800 as earnings rolled over.  It's still early in the cycle but negatives outpacing positives 3:1 is certainly something we should be taking note of.  Or, we can add it to the ever-growing list of negatives that investors are ignoring in this rally… 

Percentage of Companies Issuing Negative EPS Guidance

Keep in mind that figure is WITH all the buybacks and WITH all the M&A activity and WITH the still-low interest rates and WITH what is still $60Bn/month in QE, though that may change on Wednesday if the Fed begins to pull back – as it has said it was planning to do.  

Related imageThough our Fed has begun to somewhat unwind their QE program, the rest of the World's QE is only just now hitting its peak, so of course the markets are at record highs when there are record amounts of money chasing equities but this (2018) should mark the end of the Global Liquidity Boom and now comes the reduction – a slow and painful process that will be with us for years as the Central Banksters race to drain the monetary swamp before all those Dollars lying around begin to turn inflationary.

This is the greater market picture you need to be concerned with – it's the macro that will be driving the market
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Monday Market Movement – OPEC Blasts Oil Higher, China Walks from Trade Talks

Move along folks, nothing to see here.

Despite a run of bad news over the weekend, so far, the market indexes seem unphased by negative news reports.  Of course it is the last week of the quarter and windows need to be dressed so we'll see what happens when October rolls in, along with Q3 earnings, when we may begin to see some companies begin to choke on higher wages and trade concerns.  As noted in the Wall Street Journal, Industrial and Material stocks are in their own private bear market yet no one is taking it seriously at all.

There’s a number of money managers who’ve been hesitant to be involved with the [companies] that are going to be potentially affected by the tariffs, whether they’ll be able to export fewer goods or be buying less from China,” said Mark Grant, managing director and chief global strategist at B. Riley FBR Inc.

As I noted last week, China's Shanghai Composite is down 20% for the year and would likely have been down more today as China withdrew from trade negotiations over the weekend but that market is closed today for a holiday.  THESE ARE THE SAME KIND OF THINGS PEOPLE IGNORED IN 2007/8!

Image result for trump china trade warAnalysts caution that while investors have been pricing the risk of a trade war into shares of manufacturers, mining firms, home builders and others, they mostly have ignored the glaring risks associated with major tech companies, such as potential punitive measures that could affect Apple’s manufacturing in China or cost increases that could hurt Amazon’s e-commerce sales. That puts the S&P 500’s narrow leadership at risk of a sharp pullback if trade tensions reach a boiling point, similar to the swift correction that stocks suffered in February on worries about a potential pickup in inflation.  

Last night, China cancelled this week's trade negotiations with the Trump Administration and no further talks are scheduled as the US insisted on moving forward with $200Bn in additional tariffs that take effect today.  That makes it very doubtful there will be any resolution before the election as China has no reason not to wait and see if they will have more a more reasonable…
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PhilStockWorld September Portfolio Review (Members Only)

Image result for one million dollars animated gif$1,140,516!  

It's been two months since we did our July Portfolio Review as I was on a cruise in August and skipped that review and, in fact, we made very few changes to our portfolios over the summer but that didn't stop them from chugging along to fantastic gains.  Most of the changes we made were to get more bullish as, back in June, we cashed out a lot of our winning positions in an attempt to get more defensive into the summer.  

As we started the year with $500,000 in the Long-Term Portfolio and $100,000 in the Short-Term Portfolio to protect it with, we're getting very close to an overall double as we're already up $540,516 (90%) but our moves this month have once again led towards taking money off the table and adding more hedges and you may think that's being too defensive in this runaway bull market but it's the same thing we did in July, when we pressed our hedges and cashed in winners as well.

The thing about cashing in winners is, when you do it right, you also improve your losing positions and then, when they turn around, you can really turbo-charge your returns.  We benefitted this summer from a rising tide that lifted most ships over the summer – even the ones we had left on the bottom.  The S&P, for its part, is up just under 10% since the June dip as we keep waiting for the correction that never comes.  Still, that doesn't stop us from adding hedges in the Short-Term Portfolio to lock in these ill-gotten gains in the LTP:

Short-Term Portfolio Review (STP):  We added the AMZN shorts, but that's the only change since our 8/27 review, when we were at $225,802 and now we're at $232,125 which is up 132.1% for the year and up $6,323 for the month (6.3%) as our TSLA and AMZN shorts more than offset the losses from our hedges (and we cashed out AAPL too).     

Now we have $173,350 in CASH!!! and, as calculated last month, about $200,000 in protection for our LTP – which we only pray is going to…
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TGIF – Quad Witching Today, Window Dressing Next Week

China turned around this morning.  

It's funny because everyone thinks they are "winning" the trade war.  The Chinese Government is planning to cut tariffs on imports to their favored trading partners, which we assume will no longer include the US.  This will disadvantage US exporters to China and encourage Chinese firms and consumers to buy goods and services from other trading partners but it's also a nice tax break so it's boosting the Shanghai this morning, up 2.5% for the day at the close.  

Other than that, the news has been very quiet and we're expecting to drift along into the close today as it's a Quad Witching Day in which quarterly options and futures contracts expire (there are 4 kinds), which is often punchuated by high-volume (what is that?) moves and yesterday was already a busy day on SPY as we punched in a new high at 2,945 and we would have liked to short 2,950 but we'll take a cross below 2,940 on /ES to short that with tight stops:

Date Open High Low Close* Adj Close** Volume
Sep 20, 2018 292.64 293.94 291.24 293.58 293.58 100,288,900


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Thursday Failure – Shanghai Stocks Down 20% for the Year

Harmless trade war?

That's how the Conservatives are spinning it and many are drinking the Kool Aid and ignoring the stress and strain we are putting on the rest of the World – especially China, where the Shanghai Composite is officially a bear market, down 20% for the year and almost 50% off it's 2015 highs.  2015 was another crisis we ignored in China – until we had a "flash crash" in August and a proper 10% correction in the beginning of 2016 – even as China was "recovering" a bit.

When people tell you that what happens to the second largest economy in the World doesn't effect the largest economy in the World, those people are idiots and you should never listen to anything they say to you – ever again.  Jamie Dimon of JP Morgan, for his part, is doing his best to minimize the concerns of retail investors so he can keep dumping stocks on them:

"If you look at tariffs on $200 billion (worth of Chinese goods), and this may all get passed on to American consumers and they have to pay another $20 billion (on Chinese imports), it's a $20 trillion economy, so the actual economic effect is not dramatic," Dimon said.

"We can add tariffs to more things and the Chinese can retaliate in other ways and I don't think all that's good. It's not a devastating thing, it's not a war, it's a trade skirmish that can have negative economic effects."

Dimon is not going to say what happens in China has no effect but he's mimizing the impact and misleading traders by using the 10% figure that costs $20Bn but that 10% tariff escalates to 25% at the end of the year ($50Bn) and then Trump plans to double the number of goods that are taxed ($100Bn) so a smart reporter would ask Dimon – does $100Bn matter then?

You can nod your head and agree with Dimon (after all, he's a rich guy, so he…
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Will We Hold It Wednesday – S&P 2,915 Again

"Here come those tears again

Just when I was getting over you

Just when I was going to make it through

Baby here we stand again

Like we've been so many times before


Even though you looked so sure" – J Browne

While it's been fun watching the Dow 30 blast higher, the S&P 500 has been struggling to get back to where we were at the end of August when I warned on "Toppy Tuesday – S&P 2,900 so it’s 3,000 or Bust!" as well as "Will We Hold It Wednesday – Record Highs Edition" and we were shorting the S&P (/ES) Futures at 2,915 and we got another entry yesterday as we topped out at 2,917 just before 3pm.  

At the time, we were shorting Gasoline (/RB) at $2.10 and now it's $2, which was good for gains of $4,200 per contract if you rode it out all the way (we were in and out several times since) and we shorted Oil (/CL) at $70 (and we're short again now) and went long on Coffee (/KCN9) as it tested $100, which worked at the time but now it's down to $94 so a lot of things are not improving – including the Nasdaq, which is down from 7,700 to 7,500 (2.5%) while the S&P has bounced back.

As the song asks – what's different this time?  Aren't we just setting ourselves up for more heartache as we're teased yet again by the record highs?  I believe there's a better chance in profiting from a re-test of 2,860 (our 30% Line on the Big Chart) than there is of seeing 2,920 so it's a very nice risk/reward play as stopping out at 2,921 is a $300 per contract loss while 2,870 (which we hit last time) is a $2,500 per contract gain.  Futures trading is all about looking for risk/reward scenarios that are massively in your favor and then trying not to be wrong more than 80% of the time!  

 

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Tariffic Tuesday – Markets Ignore Another $200Bn Drag on Global Trade

Image result for tariff tax cartoonSo what?

$200Bn here, $200Bn there – after a while it might add up to something but investors only react AFTER something is a problem and these tariffs don't even take effect until next week (24th).  Our wise Negotiator-In-Chief has decided to hit China (ie. the suckers who voted for him and actually have to pay this tax) with a 10% tax on $200Bn worth of Chinese goods that are bought in the US and that tax will rise to 25% – taking another $30Bn out of the pockets of the poor so Trump can continue to give tax breaks to the rich.  

But $50Bn worth of taxes on US Consumers isn't going to be enough for President Trump and he also announced his intention to put another 25% tax on another $267Bn worth of Chinese Goods, costing the suckers who voted for him another $66.7Bn and that, plus the first $50Bn – balances the budget for Trump's $100Bn additional tax cut to himself, his family and his friends.

Of course, Trump has pushed most of the bite of these ridiculous taxes posing as tariffs out past the November elections because he knows he can baffle his base with BS for another 45 days and probably keep control of the Senate, which will make it difficult for the Democrats to roll back the tortures he is inflicting on the American people. 

As you can see from the cartoon above, at the start of the Great Depression – Trump is nothing more than Herbert Hoover in a new wrapper and history is repeating itself as another one-term President embroiled in non-stop corruption scandals takes a 10-year rally and turns it into an economic catastrophe that almost destroys the country (oops – spoilers!).  Interestingly, like Trump, Hoover also made his fortune through dealings with Russians!  

As was the case in the late 1920s, the markets are shaking off all the signs of a pending Global catastrophe and continuing to move higher, albeit on the lowest volumes we've seen this century.  You can see the "smart money" moving out of the market – even as it continues to make new highs but there are plenty of suckers still out
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Fake Money Friday – Weak Dollar Makes Markets Look Like They Are Recovering

The Dollar is testing 94.

That's down over 1% since Sept 1st and 1.5% off it's highs so take the market "gains" with a Lot's wife-sized grain off salt since the indexes have gone nowhere for the month yet the Dollars they are priced in have lost 1% of their buying power – that's not good!  

We're picking up longs on /DX off the 94 line, looking for at least a $200/contract bounce to 94.20 and, of course, keeping very tight stops below the line but 94 should be nice and bounce – even if it ultimately fails.  Brexit still isn't finished and the Trade War is far from settled (despite the relief rally on White House happy talk) so it won't take much to jam the Dollar right back to 95, which would be $1,000 per contract gains if all goes well.

Meanwhile, despite the huge boost from our weak currency, the S&P (/ES) is right where we left it at the end of August and the volume has gotten even lower by 10-15% – any lower than this and the last two guys trading can just get together in person to make their few transactions.  Professional traders do not like seeing low liquidity in the markets but it sure doesn't seem to bother the Robots and ETFs that are trading the market these days.  That's becuse people think things are great and aren't trying to sell but God help us all when they do…

In Wednesday's Live Trading Webinar we were shorting Gasoline (/RB) Futures at $2.04 and we let one contract ride overnight and that one contract made a nice $2,112 yesterday afternoon so – you're welcome!  It's too risky to keep playing over the weekend so we'll just hope "THEY" spike it back up over the weekend so we can short it again next week.  

More likely we'll switch to shorting Oil (/CL), which is still at $69 

 

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Philstockworld September Top Trade Review

Image result for top trade ideasYes, this is Thursday morning's PSW Report.

We were discussing building portfolios using things like our Top Trade Alerts in yesterday's Live Trading Webinar and it occurred to me that we haven't done a review since July so I think we have some catching up to do – especially as we haven't finished reviewing 2017's trade ideas yet.  We're usually about 6-9 months behind because our Top Trade Alerts are usually for long-term opportunities, not short-term set-ups.  

So far, through October, we had 40 winning trade ideas and 6 losers for a very nice 86.9% winning percentage and the Sept/Oct trades had made $59,615 by July.  As usual, our losing trades tend to turn into winners and one of our losers was Celgene (CELG) but they popped right back from a $425 loss to, currently, a $250 gain but that's only "on track" for our projected $13,000 gain if all goes well so STILL great for a new trade entry – our losers often make the best future winners – that's why these reviews are important!  

That brings us up to 41 winners and 5 losers for an 89% winning percentage for 2017 so far and I very much doubt we'll beat that into the year's close – but let's find out together as we review our November and December Top Trade Ideas to finish out the year.  Of course, it's a fairly arbitrary snap-shot to see how 2-year trades are doing at any given point in time but I find that 6-12 months is a good time to make adjustments if necessary as you still have more than a year to recover and you have 2-3 quarters of earnings to give us better information to make our decisions on.

That's right, we are FUNDAMENTAL investors so we tend not to pay attention to the day to day BS the market does.  Often if a stock we like gets cheaper, we buy MORE because, if you're not going to buy low – when are you going to buy?  

Thursday, Nov 2nd was a busy day as we sent out a Top Trade Alert for 3 stocks;  TEVA, M & CBI:


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Will We Hold It Wednesday – Dow 26,000 Edition

Image result for dow p/e ratioNo, we won't.

I hate it when authors make you read the whole article (and look at all the ads) before answering the question posed in the title so I'm cutting to the chase and saying that no, the Dow will not hold onto 26,000 because the average Dow stock is overpriced by a fair margin, with the average p/e of a Dow stock now sitting at 23.37 vs. the historic average of 18.2.  Of course the Dow is still behind the S&P (24.20) and the Nasdaq (25.75) but that's because Apple's (AAPL) outsized earnings are bringing the average down considerably.  

"But Phil", you may say, "earnings we sooooo good, weren't they?"  I would answer you as Einstein would and tell you everything is relative and that last year, against last year's earnings, the Dow's p/e ratio was 20.24 and now it is 23.74 against this year's earnings so you are paying 17.2% more for each Dollar of earnings than you were paying last year.  That's a lot!  That's stock market hyper-inflation…

As you can see from the S&P chart (I couldn't find a Dow chart), we've only paid a higher multiple than this just before the great crash of 2000 but we also paid much, much more before the 50% collapse so there may still be room to run at the top – before the inevitable happens.

Taking out Apple makes for a very ugly picture on the Dow since AAPL made $11.5Bn last quarter vs $78Bn for the other components and that means AAPL alone is 15% of the Dow's total earnings and MSFT and JPM are also around $10Bn in earnings so over 1/3 of the Dow's earnings made by just 3 companies.  So, if you want to buy AAPL or JPM or MSFT and pay a good multiple – more power to you.  The problem is that ETF buyers drive up the price of ALL the components when they are chasing the performance of just a few.

 

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