Thrilling Thursday – Dow 25,000, Russell 1,500 – What Could Go Wrong?

Wheee, what a ride!  

We came all the way back to Dow 25,000 yesterday as Apple and Boeing (BA) accounted for 2/3 of the gains on the day, both with strong earnings reports that beat expectations.  Both are also major S&P components and Apple (AAPL) is over 15% of the Nasdaq's weighting as well so all the indexes flew higher but we shorted the Dow (/YM) Futures at the 25,000 line, expecting at least some pullback off the run from 24,300 on Monday.

25,000 is up 2.88% from 24,300 and the 2.5% line is 24,907.50 though really the main support line for the Dow is 24,000 (8,000, 16,000, 24,000…) so it's more like a 1,000-point rally since mid-Jan and that means we can expect to see a 200-point pullback (weak) to 23,800 and, at $5 per point per contract – that's a $1,000 per contract upside potential vs losing maybe $50 if /YM pops over 25,010 and stops you out so I certainly like the risk/reward on the play – which is how we like to play the Futures.  

We are, of course, very pleased with AAPL, which I STRONGLY recommended buying back on Dec 20th in "Market Panic Gives Us An Opportunity To Load Up On Apple (AAPL)" – nothing ambiguous about that one!  My trade idea at the time was:

While other retailers are struggling, Apple has been setting new records year after year for retail sales with the average Apple Store generating $5,546 per square foot in revenues. Tiffany is #2 at $2,951 and they sell diamonds! Unlike diamonds, no one has been successful so far in making artificial iPhones that pass for the real thing so it's amazing to me that AAPL's stock is back at $160, $70 (30%) off it's peak.

We are long APPL in our portfolios and we just made an even more bullish call to buy back all our short calls and wait for the bounce. However, as a new play on AAPL, I like the following and we're going


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The PhilStockWorld.com Money Talk Portfolio Review – Jan 30, 2019

I'll be on BNN's Money Talk tonight at 7pm

For the past year, we've been keeping a Money Talk Portfolio, which we only adjust live on their show, once per quarter so we have to keep it well-balanced and self-hedging.  We rode out the recent downturn with style as our last review, on Oct 24th (the last time I was on the show) we were at $95,645, up $45,645 (91.3%) from our $50,000 start and we projected that our remaining positions would gain $70,015 by Jan, 2021 (the time-frame for our spreads). 

Not content with that, we added two new trades (MU and MJ) and one hedge (TZA and CAT), adding another $50,000 of upside potential over the same time-frame.  So, with $120,000 of upside potential over the next 24 months, we expect to make about $5,000 per month but the market took a nasty downturn and we're only just recovering so I'm sorry to report that we're only up to $105,845, which is up $55,845 (111.7%) and "only" up $10,200 (20.4%) in the past 3 months.  

We were unable to make adjustments during the downturn, which we did call very well in our Live Member Portfolios (see our Jan 21st Portfolio Review), so the performance is not quite as good as our Live Trading Portfolios but it's the perfect portfolio for less active traders, who just like to check on their progress every few months.  

 

IN PROGRESS

 

 

Testy Tuesday – Finding Support at the 50 DMA’s

Well, we're holding up so far…

As I said last week, nothing really matters as long as we hold the 50-day moving averages and that's not really that hard to do as they are still in decline – so the targets are lower every day.  As of this morning our 50 dmas are:

  • Dow 24,199, now 24,528, 200 dma – 24,977
  • S&P 2,612, now 2,644, 200 dma – 2,741
  • Nasdaq (100) 6,597, now 6,712, 200 dma – 7,034
  • NYSE 11,864, now 12,100, 200 dma – 12,315
  • Russell 1,438. now 1,475, 200 dma – 1,590

So we're right in the middle and all these up and down gyrations are just consolidation as we prepare to break out but will we break out to the upside or the downside?  That is the question that can be worth Millions in your portfolio!  

Unlike the moving averages, which move, our 5% Rule™ remains the same – only changing in the short-run when long-term supports are found but never changing in the long run – unless we do a full re-valuation of an indexes base-case (the Must Hold levels). 

We were going to bump up our Must Hold lines by 10% due to the tax changes late last year but the NYSE and Russell never confirmed the move higher and then the crash came but now, if we do hold those 10% lines, we will be bumping the Big 3 up, who benefit the most from the lower tax rates and the weaker Dollar that comes with them (we don't pay our bills, we're a dead-beat currency).  Current levels are:

  • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 
  • S&P 2,950 to 


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Monday Market Movement – Reviewing Last Year’s Top Trades

Not much happend over the weekend

That being the case, I'm going to take the time to catch up on our Top Trade Reviews, as we haven't done one since Sept 13th, which closed out 2017's trade ideas at 54 winners and 9 losers for an overall 85.7% winning percentage for the year.  This is why Top Trades is such a successful part of our subscriber base while, in fact, Top Trades only represent a small fraction of the trade ideas we discuss in our Live Member Chat Room – which you can SIGN UP FOR HERE (subtle marketing ploy).  

Of course, one of the reasons we like to do reviews is to look at the losers, as they are often the ones that offer great new entries with a chance to turn around.  As Fundamental Investors, we are more likely to be wrong about our timing than wrong about a position in general so a stock that goes the wrong way after our pick can be a great opportunity to jump in for a better price. 

Top Trade Alerts are sent out from our Live Member Chat room and are usually the trade of the week that I think has the highest likelihood of being successful.  We are developing a platform called "Trade Exchange" that will roll out this year to make our text alerts actionable so the pressure will really be on to perform in this segment.

Our first Top Trade Idea of 2018 came right on Tuesday, Jan 2nd with Chipotle (CMG), which had been crushed on another food poisoning scare but we thought the damage was overdone but, as noted, I didn't expect the kind of rebound we had – we played it conservatively, though we did play it more aggressively later in the year.

MG/Streth – It's tricky as sales are up 10% from 2016 but profits ($187M) not even half of what they were in 2015 ($475M) and they are getting, at $292, $8.2Bn for the company so at POTENTIAL profit, it's a very reasonable 17 p/e but, at actual profit, it's a ridiculous 44 that you could never justify for a full-grown chain.  How long will


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Federally Funded Friday – China Talks and Fed Spending get us Back Over our Lines

You HAVE to be bullish.

If there's anything the last 8 years of stimulus have taught us it's that you HAVE to be bullish.  We have tried one short list since 2008 and we quickly gave it up as we could not catch a break and it's been very rare in the past 10 years that we've found anything we were comfortable shorting (Oil, Netflix, Tesla) for more than a brief period of time and you can see from the action this morning why that's still the case.  Yesterday, Commerce Secretary Wilbur Ross had his "Let them eat cake" moment but he was quickly bailed out with more talk of progress with China Trade Talks as well as the Fed jumping in to now say they won't be selling so many bonds after all.

While the Fed was spending Billions making sure that wealthy people's portfolios didn't suffer during the Government shutdown, Trump vowed to keep the shutdown going as long as it takes to get his wall while insisting the 800,000 Federal Workers who aren't getting paid for a second week were behind him:  “I love them,” Trump said to reporters on Thursday, “Many of those people that are not getting paid are totally in favor of what we’re doing because they know the future of this country is dependent on having a strong border.”  

Ross, on the other hand, who walks around Washington in $600 slippers (with a custom Commerce Department logo, no less!) and is often found in the most expensive restaurants in town, went on CNBC in a $5,000 suit yesterday to complain about Speaker Nancy Pelosi volunteering in a Food Bank, helping the furloughed workers when, instead, she should be capitulating to Trump and giving him his wall:

“I don’t really quite understand why” the food bank visits were happening, Mr. Ross, 81, said on CNBC. Some banks were offering interest-free loans, he said, and because the workers would eventually get their back pay, “there’s no real reason why they shouldn’t be able to get a loan against it.”

Asked by reporters to respond to Mr. Ross’s comments, Mr. Trump said that he had not heard…
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Flailing Thursday – Indexes Struggle at the 50-Day Moving Averages

Hold that line!

It's a football term but approprate for the indexes as the moving averages indicate the line at which the bulls and bears are both struggling to gain ground.  As in a football game, sometimes the bulls cross into bear territory and sometimes the bears cross into bull territory but even a game that seems certainly won by one side or the other can suddenly reverse in a last-minute rally.  

While anyone can win a single game, the real measure of a team's strenght is how they persevere over a whole season or even seasons – as that is the way dynasties are born.  The 1927 Yankees were considered the greatest baseball team in history, not just because of that one season but because, between 1921 and 1928 they were in 6 of 8 World Series and won 3 of them (3 of the last 4 as they got better and better).  

No matter how good a baseball team may look during the season, once they enter the playoffs and the World Series, they come up against the best of the best from other divisions and other leagues and that's where they are truly tested.  The moving averages are like that – on one side you have bulls and on the other side you have bears and it's very easy for the bulls to approach the moving averages from below and it's very easy for the bears to approach the moving averages from above but, once they hit those lines – they face only the most determined bulls and bears and that's where the championships are won or lost.

The 50-day moving average is like the playoffs and the 200-day moving average is like the World Series – played for all the marbles.  But, before your team can get to the World Series they have to win the playoffs and, at the moment, that's where the bulls are – struggling to get over the 50-day moving averages before they can even think about taking on the 200-day bears, who took the market down 20% in a single quarter and, though the bulls have rallied back – don't count those bears out just yet.

When we see our 5% Rule™
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Whipsaw Wednesday – Our Stock of the Year (IBM) Leads the Recovery

Good morning! 

Our Stock of the Year off to a good start – especially as our 2-year target is only $140!  That was part of the reason we chose IBM, the spread was so compelling because IBM was collapsing on news they bought RHAT, which I thought was a clever idea and everyone else seemed to think meant IBM was going bankrupt or something.

Monday Market Madness – IBM’s $33Bn Shopping Spree Gives Tech Investors Hope

It's a powerful thing.  IBM (IBM) announced over the weekend that they will be buying Red Hat Softwars (RHT) for $33Bn which is more than 50% over Friday's $20 close at $116.  I noted in our chat room this morning that $33Bn may have seemed less ridiculous as IBM began negotiating with RHT, probably over the summer as RHT had just been at that valuation – though the people who valued them there were IDIOTS, of course.  

RHT has $3Bn in earnings and $250M in profit.  If it were an IBM division it would have been shut down years ago as not worth keeping but IBM sees RHT as leverage as their customers are the customers of Amazon (AMZN), Microsoft (MSFT) and pretty much all the other cloud providers and that gives the mighty IBM sales force a foot in the door to leverage the 10s of Billions of Dollars they spend on cloud services and THAT is why this deal makes sense for IBM. 

It's also a brave and confident move by IBM CEO Ginny Rometty and it's the kind of thing woman CEOs do that men almost certainly would not, which is make a move that carries a lot of personal risk for them, has no immediate payback but paves the way for the company to be much healthier in the distant future.  It's a nurturing move and the question now is whether she will be tarred and feathered for making it but predominantly male investors and


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Troubling Tuesday – China Slows Down While IMF Warns of Global Contagion

Da-vos, Da-ay-ay-vos.

So the World leaders (the ones that matter) are gathered at Davos this week and, so far, they are not too optimisitc about the economy with China's economy posting the weakest growth in 28 years and the IMF taking the entire Global Growth forecast down to 3.5%, from 3.7% last quarter, knocking 0.3% off Europe and 0.6% off Germany in particular – all the way down to 1.3% for Europe's largest economy.    

According to Price-Waterhouse, the number of US CEOs feeling optimistic about the economy also fell off a cliff – from 63% last year to a current 37%, barely over 1/3.  “It is important to take stock of the many rising risks,” said Gita Gopinath, the IMF's new chief economist. “Given this backdrop, policymakers need to act now to reverse headwinds to growth and prepare for the next downturn.”  The IMF also warned the US GDP will fall to 1.8% in 2020 as stimulus from the tax cuts fades and the economy begins to feel the pressure of higher rates – so we have that to look forward to.

Unsurprisingly, the Futures are down a bit this morning but only half a percent and that's nothing after the recent rallies.  What matters this week is whether or not we hold those 50-day moving averages as well as the Must Hold line on the Russell on our Big Chart – which really MUST hold if we are to truly reverse our market downturn.  These are just the strong bounces we expected so far – at this point, we're really not expecting much more lift from the markets without re-opening the US Government and establishing a workable trade arrangement with China which, according to recent reports – is at an impasse over Intellectual Property Issues.  

Meanwhile, Brexit continues to drag on with Theresa May barely surviving a vote of confidence and now Parliament is asking the EU to extend the March 29th deadline while they negotiate for changes in Irish border rules, which seem to be the main blockage at the moment.  Italy's economic growth forecast has been cut to just 0.6% from an October estimate of 1% and likely down to 0.9% in 2020 BUT – at…
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Philstockworld January Portfolio Review (Members Only)

Image result for one million dollars animated gifWhat an amazing first year!  

As of Friday's close, the LTP alone is at $1 Million, finishing the day up 101.1% from our Jan 2nd, 2018 start date.  We've spent a lot of time in December discussing our system as we had a lovely real-World situation to see how it works in action in a market reversal that occurred in weeks, rather than months.  

The way our system is designed to work is to force you to buy low and sell high through the discipline designed into our trading pattern.  First of all, we SCALE into our positions, usually starting with a short put sale and then, if the stock gets cheaper – we initiate our initial long position but it's usually just a 1/4 allocation and we don't get to a 1/2 allocation unless the stock gets EVEN CHEAPER as we roll and scale into a larger position.  

That means we are buying when things are low – that's the plan from the minute we buy and we don't buy unless we think we have a bargain in the first place.  If we get our Fundamentals right and the stock does turn back around – the rewards can be incredible – especially as we're using option positions to greatly leverage the stocks bullish recovery.  

But, in order to ride out a 10-20% market correction, you have to have CASH!!! and you have to have margin in reserve and that means you have to NOT over-extend – even when things are going very well and that means we are also forced to cash in our positions when the market goes too high as well.  So, following our system simply forces you to do the most basic thing any stock guru tells you to do (more or less) – buy low and sell high!  What can be simpler than that?  

As you can see from the S&P chart for this year, we've had 3 times when the market has fallen 10% along with one 6.66% correction so it's not at all rare that we get a chance to add to our positions on dips.  Also you'll note that the 2,600 line on the S&P (…
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TGIF – Trade Progress Trumps Government Shutdown – Again

500 points!  

That's how far the Dow (/YM) Futures have climbed since yesterday morning on rumors that trade negotiations with China are progressing but China but we've seen this fade before so we reserve judgment for the moment and we're not going to get all bullish into a Holiday Weekend (Martin Luthor King Day on Monday), not with all this uncertainty still in the air. 

We have been, however, very bullish since the bottom on 12/26, only the second time all year we've been very bullish and it's paid off nicely in our Member Portfolios so now is the time to protect our gains – not to add to the risks.  We added hedges to our Short-Term Portfolio and our Options Opportunity Portfolio this week to lock in the month's gains and now we can happily enjoy the long weekend ahead.  

While the headlines on China SOUND good, let's consider it from China's perspective.  Apparently Treasury Secretary, Steve Mnuchin, has floated the idea of pulling back some tariffs in exchange for China doing the same as long as China makes some long-term concessions on policy.  US Trade Rep, Robert Lighthizer is against this but, then again, he has spent his whole career telling people how evil China is (and he's the guy Trump put in charge of the negotiations), so what else would you expect from him?

So ignoring Lighthizer and focusing on what Mnuchin proposes, he's essentially saying to China that we began tariffs to make them change their policy and then China said "no, we're not changing our policy" and placed retaliatory tariffs on US and now Mnuchin says, "how about we drop the tariffs and you change your policy?"  My kids were better negotiators when they were toddlers!  Certainly they were not so transparent about their motives.   

Image result for lighthizer trump china cartoonIf we were serious about Trade, we'd also be making concessions, not simply saying we'd stop doing something we only started doing so we could use it as a negotiating tool down the road – which is now.  Even if China were that stupid (and they are not), Lighthizer didn't come all this way just to make a deal.  His goal is the economic destruction of China and he
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