The PhilStockWorld.com May Money Talk Portfolio Review

Are we weathering the storm?

So far, not so bad as we're down $14,755 from our April Review, when the overall market was 5% higher.  Options tend to be very volatile, of course and the Volatility Index (VIX) is higher now, which inflates the asking price of the options we sold.  This doesn't matter as long as we're not buying them back at the moment, but it can make our balances look ugly.  

Not that being up 125.8% is "ugly", of course, but we were up 155.3% and it sucks to backslide.  Another problem we have at the moment is our hedges certainly don't kick in on a 5% market drop – so they are not helping but, since I can only adjust this portfolio when I'm live on BNN's Money Talk (here's the April show), I needed hedges that would keep us safe all the way into July, which will be the next time I'm on the show (once a quarter it becomes the Phil Show).

Since our longs were on track to make $83,104 in a flat to slightly down market – we don't mind losing a bit of money on our hedges to take us through a rough quarter – like this one.  As I said on the show, we expected at least a minor correction but there's a fear of missing out (FOMO) as this portfolio was only at $88,922 on Feb 15th, so of course we were going to give back some of those ridiculous gains – but that doesn't invalidate our long-term positions, so we choose to ride out the rough spots.  

As FUNDAMENTAL VALUE INVESTORS we believe that stocks – even the ones we like – can be too expensive, as well as too cheap.  When they are too cheap, we buy them – when they are too expensive, we sell them.  It sounds logical but how many traders actually do it when the time comes?  Unfortunately, we can't make adjustments until July but we can certainly check in our our positions – so let's do that.

  • Nasdaq Ultra-Short ETF (SQQQ) - A hedge we


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Will We Hold It Wednesday – Weak Bounce Edition

This is not pretty.

We're down in the Futures and pretty much back where we were at Monday's close – a bit higher but, more importantly, failing our weak bounce lines 2 days after the drop and that's generally a sign that we're consolidating for a move lower – not recovering.  

I mentioned last week that there's nothing the Russell could do to avoid a "death cross", where the 50-day moving average crosses below the 200-day moving average and that's a bearish sign and, as of this morning, the 50 dma is 1,562 and that's now below the 200 dma at 1,561 and that's 1 point away from a Death Cross! 

Since the 50 dma moves 4x faster than the 200 dma, all it will take is a single down day on the Russell to trigger this extremely bearish technical indicator and that will then trigger selling programs that will affect all the indexes so hedging with the Russell (which we do) is a pretty good idea at the moment – especially as it was down at 1,266 in December and that's 272 points (17.6%) down from here and that would pay $13,600 per contract on the /RTY Futures OR, you could play  the Ultra-Short Russell ETF (TZA) like we are in our Short-Term Portfolio with the following spread:

TZA Short Put 2020 17-JAN 10.00 PUT [TZA @ $9.66 $0.00] -40 8/29/2018 (247) $-13,000 $3.25


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What Trade War Tuesday – Markets Fuggedaboutit Already

MAD About the Trump EraWhat, us worry?  

1, 2, 3, 4 Trump declared a trade war and then announced he's going to have fun in the sun at the G20 with his pal Putin but also plans to see China's President Xi in late June and force him to accept US terms of face SEVERE CONSEQUENCES.  This is the mindset of a 75 year-old racist schmuck who has a 1950s view of China and thinks we just won WWII and get to dictate terms to all the inferior races – not the rational strategy of a United States President!  

Nonetheless, the markets love it when Trump lies to them and we're up almost 200 points pre-market after being down 600 points yesterday so YAY!!!, I guess…

If you remember, way back on Friday morning, in our PSW Report, I told you "it's more likely we're consolidating for a move down" and we put up our anticipated levels, which all failed yesterday but we don't count Mondays (and the volume wasn't very strong either) so TODAY is the day that matters and I'm going to highlight the pre-market (7:30) positions so we can see where we are:

  • Dow 25,200 is the 5% line and the bounce lines are 25,450 (weak) and 25,700 (strong) 

 

  • S&P 2,860 is the 5% line and the bounce lines are 2,875 (weak) and 2,890 (strong)


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Monday Market Mayhem – Trade Lies Unravel and Take the Market with Them

Image result for white house lies cartoon

Telling lies is all you know

You had me believing they were so

Nothing new, yeah, the same old thing


You got me singing the blues againFats Domino

Well it turns out everything the White House said on Friday was BS.

That's not too suprising but the market is acting like it's surprised now that China has stated that no progress was made last week and there are no further meetings scheduled and now the White House is trying to spin the G20 Meeting in June as a summit between Trump and Xi because Xi WILL be there and Trump WILL be there but, at the moment, it doesn't seem like Xi is very eager to speak to Trump, especially after Trump was blatantly insulting in his weekend tweet-storm:


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Tariffic Friday – Trump Taxes Americans, Claims Victory

No deal!!! 

That's right, as we expected Team Trump has not been able to make a deal with China and, as of midnight, tariffs increased on $200Bn (not $250Bn) worth of Chinese goods from 10% to 25%, which isn't really that terrible ($30Bn) but President Crazy Train is also looking to add taxes to another $350Bn worth of goods but, to do that one (legally), the U.S. trade representative’s office would need to identify the goods, seek comments on its choices and hold hearings – so it's very possibly just an empty threat from the President and China knows it because they study US law a lot more closely than Trump and his advisers seem to.

So, in the grand scheme of things, $30Bn more tariffs isn't going to break anyone and the total revenues would be $50Bn (25% of $200Bn), not "over $100Bn" that Trump is fantasizing about and how pissed off do you think Puerto Rico is to have Trump BS'ing about sending humanitarian assistance to "poor and starving countries" when they've been waiting almost two years for something besides paper towels to clean up after their disastrous hurricane?

The Futures are down again today and we may revisit yesterday's lows but we went long on Dow (/YM) Futures at 25,600 in yesterday's Live Member Chat Rooom caught a ride back to 25,850 into the close, which gave us gains of $1,250 per contract while our bullish play on the S&P (/ES) Futures also gained $1,250 per contract on a 25-point move back to 2,875.  

Of course, those same levels will be in play again today but keep in mind we made the call at 11:58 for our Members – as the indexes were crossing back OVER the lines and momentum was on our side – don't try to be a hero and catch the index while it's moving against you – that can lead to big losses if your line doesn't hold.  

In fact, later in the afternoon we analyzed the index moves and determined they were only making bounces off the 5% drop lines according to our fabulous 5% Rule™, which is not TA – just math.  Failing the bounce lines means it's more…
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Faltering Thursday (as usual) – Investors Hold Out Hope on Trade Talks

dafafdThe art of the deal?

The best deal Team Trump can hope for this week is to keep the Trade Talks with China from completely collapsing and sending the markets into a tailspin.  While you hear idiots on TV saying China is coming to negotiate, Trump has set a midnight TONIGHT deadline on more tariffs and the Chinese response has been to reschedule their arrival from Tuesday to today and I want you to contemplate what unrealistic idiots the TV pundits are when they tell you a guy who just got off a flight all the way from China is going to hit the ground running in order to bend over for Trump and concede on all his points in order to get a deal done by 11:59 tonight.

China's Vice Premier Lui He is landing in DC this morning and is scheduled to have dinner with China-hating Robert Lighthizer this evening but don't be surprised if Lui doesn't even spend the night in Washington because, as Tom Hagen sort of said, "Chairman Xi is a man who insists on hearning bad news immediately."  

The die is already cast as Mr. Lui, unlike in previous visits, has not been given the title of "special envoy", which suggests he is no longer empowered to make any trade concessions on behalf of the Chairman.  In other words, Xi has already told Trump to shove his tactics and has left no room for negotiation on the contract they sent over to Washington last week so now it's up to Trump to either bend over and accept China's terms or throw a tantrum and penalize Americans with more tariffs.  

 

IN PROGRESS

 

 

Wednesday Weakness – Selling Pressure Continues

Down and down we go

I said last week that we'd more likely to see 2,800 on the S&P before we see 3,000 but I didn't think things would fall apart so hard and fast.  Still, a correction is a correction and this one is long overdue and it's still very mild as 2,850 is only down 5% from the 3,000 line and that means we expect 30-point bounces to 2,880 (weak) and 2,910 (strong) from there so we know exactly what range to watch and, conveniently, 2,855 is now the 200-day moving average – so it's a perfect level to test to see how real this rally is.

As you can see from this S&P chart, we're moving right within the 5% Rule™ around 2,850 as we predict 30-point incriments to drive the index in either direction.  If we can stay in the top of the range and hold the 2,850 line and get back over the strong bounce line – then we're be consolidating for a move over 3,000 but anything below 2,850 and we'll have to consider another 5% drop (2,700) before this correction is over. 

We're happy either way as we've considerably lightened up our portfolios as of last month, taking 1/3 of our gains off the table in the Long-Term Portfolio and bulking up our hedges – just in case.  Having more cash on the sidelines allows us to take advantage of new trade opportunities, like yesterday's UGA spread and, in our Live Member Chat Room, we decided to buy the long July $29 calls for $2.75 as they weren't getting lower while the $32 puts were an easy sale at $2+ and we're waiting for a bounce to sell the July $32 calls for $1.70 now (to make up for the extra quarter we spent on the calls).  

The July $32 calls are now $1.15 after bottoming at $1.10 and, since we expect $1.70, that's a 0.55 (48%) gain from here so actually it's good for a long play at this point too!  We're nothing if not flexible in our outlook because we're Fundamental Investors which means we know the value of an option and, since we fell the July $32s are worth $1.70, but not more – just…
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Tuesday Trade Turmoil – Rumors Drive the Market

Is this fun or what?

After being down 500 points in the morning, the Dow almost fully recovered into the close, getting all the way back to 26,400, which was a lovely $2,000 per contract gain on our Futures play from yesterday's Morning Report.  Playing a pre-market move like that for a bounce off support – especially when the "news" was a tweet from the President that had no official standing ("the whim of a madman").

This morning we have Team Trump accusing China of reneging in it's trade commitments, which is an odd thing to say as they are in the middle of negotiating so nothing is actually commited yet.  Also, unfortunately, the Trump Administration says many, many things that are not true – so it's kind of hard to take their word over China's – even though they are "on our side".  In fact, this past weekend, Trump celebrated his 10,000th false statement since he took office less than 1,000 days ago.  Trump has single-handedly created an entire division of fact-checkers, now employed at almost every media outlet and he does keep them busy at over 10 lies per day.  

Yesterday's briefing from Lighthizer (the anti-China fanatic) and Mnuchin (withholder of Trump's tax returns), which took place after U.S. markets closed on Monday, made it clear there are deep concerns about the direction of the talks and the Futures tanked again and are still down more than half a point this morning but not so low that we want to go long again.   

Image result for trump china trade cartoonThe level of brinkmanship on both sides and their obvious mutual distrust has made the path to even a temporary cease-fire a lot murkier than just a few days ago,” said Eswar Prasad, professor of trade policy at Cornell University. “It is likely a cooling-off period will be needed to get the talks back on track, but the imposition of additional tariffs by the U.S. later this week could keep the talks derailed for a while to come.”

I love the fact that we have actual Ivy League Professors of Trade Policy but they comment from the sidelines while people with no experience whatsoever are


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Monday Mayhem – Trump Trade Tantrum Tanks Markets

Wheeeeee – down we go! 

Who says the market never sells off, we dropped 100 S&P points this morning and 500 Dow points after President Trump THREATENED (didn't actually do anything) to put more tariffs on China if they didn't give him a trade deal this week.  Negotiating like a toddler is the President's sweet spot, so I don't know what the market is so surprised about though this is downright rude behavior as China has/had a delegation on the way to attempt to hammer out a deal.

Changing the rules and moving the goal posts in the middle of a negotiation shows a total lack of respect for your trade partner and we can only conclude that Trump doesn't actually want a deal (something I've been concerned about the whole time) and is only interested in collecting more taxes (ie tariffs) to pay for his tax cuts.  And, of course, China doesn't pay a penny of these tariffs – the Amerian people do as it's a tax on the goods we purchase.

According to the WSJ: Negotiations were initially scheduled to resume Wednesday.  Some working-level Chinese officials who were supposed to leave for Washington on Monday were staying put instead, waiting for further instructions.  The threat of renewed trade tensions sent mainland China markets downward, undoing some of the gains made this year. The Shanghai Composite Index fell 5.6% while its counterpart in Shenzhen tumbled 7.4% -their biggest single-day declines since 2016.

“Turning the heat on China would only lead to rising nationalist sentiment,” a Chinese regulator said Monday. “It’s really not conducive to reaching a deal.”

So it's hard to say what Trump is up to but it's clearly messing with the markets but it's nice to have a test to see if our hedges are doing thier jobs so thanks, Mr. President – we've been waiting for a nice dip.  The Dow (/YM) Futures can be played for a bounce off the 26,000 line with tight stops below.  Down from 26,500 on Friday means we're looking for at least a 100-point (weak) bounce and, if that fails – then we may be looking ahead to a 5% correction – back to 25,175, in which case we…
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Non-Farm Friday – Is America Working?

Though it may seem like we're treading water, we're actually rotating our sectors.

3 weeks into Q1 earnings that have generally been strong the "safety" sectors have fallen back out of favor and the usual suspects (Tech, Finance) are back in favor, joined by Contstruction, Media and Industrials, which have come back in favor.  With the cyclicals moving up, it's odd that materials are not and, if the rally is real – that's a sector we'll expect to see improvement in.  

To some extent, I'm worried that we are confusing increased efficiency for a good economy.  Automation and AI are driving earnings gains while sectors that actually serve the consumers like Travel,  Retail, Personal Goods, Real Estate, Utilities, Telcos – even Healthcare – are falling off because, as I noted earlier in the week, consumers have less and less disposable income.

You can have an earnings recovery without actually selling more stuff and that's what's going on now but, ultimately, you can't grow if you don't sell more stuff and Trump's Tax Cuts have done nothing to improve the buying power of the consumers that ultimately drive this economy.  Sadly, as we may see today, you can have a nice economic recovery without having to hire people these days.

Woops – there goes another couple of million jobs!  

Honeywell says their robot will unload 1,500 cases per hour, enough to replace 6 workers with just one worker overseeing 3 or 4 robots so let's say 15 $35,000 workers ($525,000) replaced by 3 $200,000 robots ($600,000) and one $60,000 superviser (though I guess the workers had a superviser too) but the robots are a once in 5 years cost and work 3 shifts a day so really you're replacing 45 workers ($1,575,000) per year with $150,000/yr in robot expenses.  See how great corporations can do while humans are being discarded?  

Related imageThat's how we're seeing all these companies, without the benefit of having more sales, dropping more and more money to the bottom line and we're only in the very early stage of this automation cycle – like the beginning of the Industrial Revolution – which led to World Wars 1…
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