Monday Market Movement – Another Week at the Top

Up and up we go – so far. 

As I said two weeks ago: "Notice how well the 5% Rule is being obeyed.  That also tells us that 2,835 is the 1.25% line but we haven't made that and we are finding resistance at the 0.625% line, which is 2,817.50.  We don't usually bother at that level but it is ineresting that that's exactly where we topped out yesteday, which indicates there is a LOT of technical resistance over 2,800 and it's going to take a lot more than promises of trade progress to get us over that hump."    

So here we are, two weeks later, finally up to the goal line we set way back on March 5th after exactly nailing our downside goal of 2,730, or, as I said at the time:

As you can see, almost all the rejections sent us down 100-200 points so let's not get too bullish as all we got yesterday was a bounce off the fall from 2,820 on Monday to 2,770 yesterday so that's 50 points and that means, per the Fabulous 5% Rule™, that we can expect 10-point bounces to 2,780 (weak) and 2,790 (strong) so now we're watching 2,790 as the fail line and, if we can't hold that, we'll be back to 2,770 and likely on the way to a full 1.25% pullback from 2,800 to 2,765 and, failing that, the next stop is the 2.5% line at 2,730, which we last tested on 2/15.  

Image result for stock market crystal ballRemember, I can only tell you what is likely to happen and how to make money playing it – the rest is up to you!  

So it's taken one month to cycle from 2,730 (2/15) to 2,920 (3/4) back to 2,730 (3/8) and now 2,835 and there's very little data this week and little earnings and the Fed is meeting on Weds but they can't possibly be more doveish so what's the catalyst going to be?  On the other hand – there's not likely to be a downside catalyst either so maybe we'll drift along at the top – which might be bullish – but any move below 2,800 on /ES would be a
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TGIF – Terrific Week Ends with a Bang

Up and up we go! 

It's been an all bull week after Monday's weak start and we're up 600 points (2.4%) on the Dow (despite BA falling apart), to 25,900 though that's nothing compared to the S&P 500's 5.5% rise from 2,730 on Friday to 2,825 at yesterday's close.  

Are things 5.5% better than they were last Friday?  What can you think of that's changed for the better?  If you can't think of 3 things – or at least one really good one – you have to question WTF the market is doing…

The Nasdaq was at 6,975 last Friday and this morning we're looking at 7,310, which is up 335 points and that's 4.8% while the Russell bottomed out at 1,520 and is now 1,560 – that's just 2.6% and we can't blame Boeing for that one, can we?  And, let's not forget that a 2.5% gain in the Dow still doesn't get us back to where we were at February Expiration Day (15th):

Still, without BA dragging the Dow, we'd be up 5% on the majors and that's a pretty good week though today is Options Expiration Day so it's not over yet.  We do have strong-looking Futures at the moment (8:30) and I don't see any news likely to derail things though there was a terrorist attack against 2 New Zealand Mosques where 49 people were killed and dozens more injured by explosions.  

Not that the market cares about such things – especially when they happen far away to people we don't know but it should remind us that the World is still a bit unstable and we shouldn't be pricing stocks as if we don't have a care in the World about the future…

 

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Thrilling Thursday – The View From the Top

Here we are again.

For the past year we've been topping out around 2,800 on the S&P 500 (/ES) and yesterday we closed over at 2,820 and, if we can hold it through the weekend, we may be looking at a real move above the line and the top of the range may become the new bottom BUT, I don't see the economic data to support that yet – so I remain a bit skeptical.

Fortunately, not too skeptical and our Long-Term Portfolio added $42,172 (8%)  since our 2/15 Review while our Short-Term Portfolio (where we keep our hedges) has remained fairly flat and that's exactly what we like to see in our paired portfolios.  

 

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Why Worry Wednesday – Market Continues to “Soar and Ignore”

No Brexit deal again.

Not that the markets seem to care but, at the moment, Britain is scheduled to leave the EU on March 29th and, as you can see from yesterday's vote, they are nowhere close to agreeing on a divorce settlement with the EU.  

Without a deal, the UK must depend on the EU to simply give them an extention and restart negotiations but, if the EU plays hardball – the UK could be cut adrift, with no trade agreements with ANY country.  Since all the EU nations have negotiated as a block for the last 30 years, the UK doesn't have any individual trade deals with any nation so, effectively, they can't trade.  

EU President, Donald Tusk, said that the 27 EU governments would consider a “reasoned request” from the U.K. for an extension, noting they would need to agree unanimously. The leaders, he said, “will expect a credible justification for a possible extension and its duration.”  Meanwhile, Jeremy Corbyn, leader of the main opposition Labour Party, said: “The government has been defeated again, they must accept that their deal…is clearly dead,” adding the U.K. should stay in a customs union with the EU.

 

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Testy Tuesday – Trouble at 2,800 – As Usual

Here we go again.

We made it back to our favorite shorting line yesterday as the S&P 500 (/ES) once again tested the 2,800 mark, failing to cross it into the very fake, Fake, FAKE close and already down 14 points this morning but still up 35 from the 2,750 open so we'll have to see how things go on the first real day's trading of the week.

Boeing (BA) came all the way back to $400 at the day's end, down "just" 5% after being down 12.5% at the open but we're not bottom-fishing BA as there remains an open question as to whether their primary plane is safe enough to fly and it probably is, but BA is no bargain at $400, which is $225Bn for a company making $10Bn a year so p/e about 22.5 and I'm certainly more than 10% less sure BA will be able to justify that multiple than I was last week.  Other investors seem to feel differently but there's no way I'd take that risk right now.

As noted, this is a political issue as much as a corporate one and we can't really trust the FAA under Trump to make an impartial decision so we can expect a lot of countries (who don't trust Trump either – see why we watch those polls?) to ground 737 Max planes until their own agencies can re-certify the aircraft.

To some extent, the behavior of BA stock is very similar to the behavior of the S&P 500 and the other major indexes.   We made it to all-time highs and, despite numerous new risk factors popping up – the indexes keep recovering back towards the highs – as if that's where they belong – despite all the problems we are now seeing in the Global Economy.  Apparently we've learned nothing at all since 2008.

Image result for 2008 crash vs todayCertainly investors haven't learned NOT to buy stocks on margin as Margin Debt is 25% higher than it was in 2007 – despite being drastically reduced over the past quarter.  First Margin Debt contracts and then the Indexes contract is pretty much the market norm – as people have to buy stocks with real money and begin demanding real performance and we'd better keep our eye on this chart because it seems to indicate we're pretty close to a significant correction.

 

 

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Monday Market Madness – Boeing’s 2nd Crash Since October Takes The Dow Down With It

Is China over-reacting or are we under-reacting?

Aviation safety is one of those things you would hope don't get politicized but that's what we're getting this morning as an Ethiopian Airlines 737 Max crashed on take-off, killing all 157 on board less than 6 months after Indonesia's Lion Air 737 Max crashed on take-off, killing all 189 on board that plane.   The FAA was supposed to be looking into the matter in January but, you know – the Government shut-down and the investigation was delayed.

It's POSSIBLE (nothing is proven) that the 737 Max has problems with it's software automation and that means China and Ethiopia are right to ground the fleet immediately but it's also possible that China and their trading partner are sticking it to Trump and BA, using America's largest exporter as a negotiating chip – exactly the same way Trump has been using Huawei to put pressure on China.  

That's how dysfunctional and unstable the World has become – we have no way of knowing if Governments are acting in the people's best interest or if they are simply playing Cold War-style Economic Brinksmanship.  

Image result for boeing crashIn the Lion Air crash, investigators have indicated the pilots fought the MCAS system as it strongly and repeatedly pushed down the plane’s nose, but didn’t follow an existing procedure to deactivate it.  On MAX 8 models, under certain conditions, pilots may be unable to pull the plane out of a dive unless they react quickly and proceed to the most relevant portion of their emergency checklist. Outside safety experts have questioned how the FAA gave the green light for such a design lacking redundant software or hardware safeguards.

One malfunctioning sensor or a single stream of faulty signals—called a “single point failure” in engineering lingo—can lead to a catastrophic dive, if pilots react improperly, so China may have a very good point and maybe it's the US who is politicizing the issue by NOT grounding the 737 Max's pending a full investigation – who the F knows anymore???

There's a lot at stake here as Boeing is a large part of US Exports and, while only…
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TGIF – Stocks Slide into the Weekend – What’s Next?

Wheeeee!  

I love a good sell-off – especially when we called it and we're well-prepared.  We were skeptical of the market rally on Monday and, in our PSW Morning Report (which can be delivered to you pre-market for a small fee), I said:

"We'll see if the market is ablfe to get excited about more Trade Talks and we still haven't cracked 1,600 on the Russell (/RTY) but as long as the S&P (/ES) is over 2,800 – all is technically well in the markets…  7,200 on the Nasdaq (/NQ is a good shorting line for today as is 1,590 on /RTY, since that's the 200 dma – tight stops above!"  

30 points is a 1% pullback on the S&P Futures (/ES) and, at $50 per point per contract, it pays $1,500 – making it an excellent portfolio hedge (using $6,600 of margin per contract).  What makes Futures Trading such a valuable tool is that you don't have to wait for the market to open to make an adjustment.  Also, there's very little friction cost (the cost of entering or exiting the trade, including fees) so you can use it to very quickly adjust your portfolio at a moment's notice.  

Generally, at PSW, we don't like to enter a Futures trade unless there is a significant support or resistance line we can use as a stop because Futures contracts tend to move quickly and erratically EXCEPT when they run into significant support or resistance, where they slow down enough for you to catch your breath and see what's real.  Since we are not technical traders but Fundamental ones – having the time to check the news flow is critical in deciding when to get in and out of a Futures trade.  In fact, we took the quick $1,500 gain on Monday and we concentrated on the Russell (/RTY) shorts on Tuesday as I said in that Morning Report:

/RTY 1,568 should be support but, if not, could see 1,550.   Tight stops in any case but I'm happy with these gains!

As you can see, almost all the rejections sent us down 100-200 points so let's


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Flailing Thursday – Markets Look More Toppy With Each Passing Day

This is sad:

We've been going nowhere for a month and there's nothing wrong with healthy consolidation but, if you listen to the Financial Media, you would think you are missing out on some huge rally.  FOMO, or "Fear of Missing Out" is the new driver for market behavior though I can't imagine what it is people fear, when you consider the S&P 500 is up 1,000 points 55% in the last 3 years though we're actually lower now than we were a year ago.

That's why we've been "Cashy and Cautious" since we cashed our our 5 Member Portfolios in December of 2017, when I decided the risk of holding through the holidays wasn't worth it after a year of such spectacular gains.  I was a little early with that call but we got a great sell-off last January and we jumped in with our new Portfolios and now they have made ridiculous gains – especially our skeptical Short-Term Portfolio, which we use to hedge our Long-Term Portfolio.

I went over the STP and gave my thoughts on it in yesterday's Live Trading Webinar (replay available here) and we feel our current hedges adequately protect us from what we think will be a minor (2.5-5%) correction that shouldn't take us lower than 2,640 on the S&P (/ES), which is the 20% line on our Big Chart, which is still using the 5% Rule™ calculations we applied way back in 2015 so we're right on track but we also need to adjust those brackets 10% higher (Dow, Nas and S&P only) to account for the new, lower, Corporate Taxes and their effect on large-cap earnings.  

 

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Which Way Wednesday – Beige Book Edition

More Fed data.

That's what we're waiting for today as the Fed will release their Beige Book, which covers the end of the shutdown period and should give us a read on how damaging the shutdown has been to Q1 earnings.  As you can see from the chart, the Atlanta Fed's estimate of growth in Q1 is pretty close to zero while the "consensus" estimate of leading economorons is just under 2% – that's a pretty wide gap and it's going to matter A LOT which way that line begins to bend.

For the moment, the markets are hanging onto hope that the US and China have finally worked out their differences and that the Governement won't shut down again this year and Brexit won't be a total disaster and, of course, that all those warning signs that have been flashing in the economy are temporary (from our self-inflicted wounds) and we will get back to growth very quickly.  Despite my skepticism, that is how we've been playing the market as our Member Portfolios are generally bullish – with a few hedges – "just in case".

I would still be happier if the market made a nice 10-20% correction and stayed down long enough to consolidate for a proper move up but it doesn't look like the powers that be are willing to let that happen – and that includes China – who went to great lengths to prop up their own markets this week as well.

 

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Testy Tuesday – Trouble at 2,800 – Again!

You're welcome!  

In yesterday's PSW Morning Report (subscribe here) I said:

7,200 on the Nasdaq (/NQ is a good shorting line for today as is 1,590 on /RTY, since that's the 200 dma – tight stops above!

As you can see, the Nasdaq (/NQ) shorts were good for gains $2,000 for each Futures contract shorted while the Russell (/RTY) fell to 1,565 and that was good for gains of $1,500 per contract – not a bad way to start the week.  In case you are wondering – in our Live Member Chat Room, at 12:16, I also called the bottom, saying:

Hopefully that will be it, 2,780 though is a terrible fail of 2,800 and down 100 points on the Nas is a quick $2,000 and /RTY 1,568 should be support but, if not, could see 1,550.   Tight stops in any case but I'm happy with these gains! 

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