Faltering Friday – Triple Trouble at 2,900 on the S&P 500

"Falling, yes I am falling

And she keeps calling

Me back again"McCartney

Here we go again.  

It's always something that stops us from making new highs as we hover around our 10% line which is the TOP of our expected range into the end of the year.  What we actually expect to happen is we settle back down around 2,700 on the S&P (/ES) but the market doesn't seem to want to correct properly so we keep getting these low-volume rallies that keep us near the top.  

That's fine with us as our Long-Term Portfolio has held up nicely so far while our Short-Term Portfolio, where we have our hedges, made some nice gains on the last dip and we were wise enough to lock them in near the bottom.  We just did an STP Review where we cashed in our Russell Ultra-Short (TZA) hedges and I think, into the weekend, we should add back a new hedge to replace them.  I don't know if rising tensions with Iran and China (who just pledged to stand behind Iran) will bring us back to our DOOM!!! line at 2,800 on the S&P but we can look at hedges similar to the ones we used on May 30th to catch the last dip:

  • Sell 10 Macy's (M) 2021 $20 puts for $3.75 ($3,750) 
  • Buy 40 SDS July $31 calls for $1.50 ($6,000) 
  • Sell 40 SDS July $34 calls for 0.55 ($2,200)

The net cash outlay on the spread is just $50 and it pays $12,000 if the S&P Ultra-Short (SDS) climbs back to $34 and, of course, stays there into July 19th expirations.  SDS is a 2x ETF and currently $31.85 so we need a $2.15 move which is 6.7% so about a 3.5% drop in the S&P should do it – to just under 2,800.  

There's also the long-term obligation to buy 1,000 shares of Macy's (M) for $20 ($20,000) so make sure you REALLY want to own them and, if not, we had a few…
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$2,000 Thursday – Our Webinar Trade on Oil Pays off Big Already!

We didn't start the fire

It was always burning

Since the world's been turning

We didn't start the fire

No we didn't light it

But we tried to fight it – Billy Joel

No, we didn't start the fire…

However, we did go long on oil in yesterday's Live Trading Webinar as it tested the $51 line and now Iran has apparently attacket two tankers in the Strait of Hormuz with torpedoes, critically damaging one of them and US ships are heading in to assist and Oil (/CL) is already at $53 (up $2,000 per contract) and Gasoline (/RB) has blasted from our long position at $1.68 to $1.725 and that's up $1,890 per contract but both could squeeze higher as the shorts wake up to a nightmare scenario.  

This is a tragedy, we may end up in war and it's certainly not the way we wanted to be right (fortunately no one was hurt) - we simply bet that Oil and Gasoline had gotten way too low based on Fundamentals and the fact that they exploded higher on an incident simply proves our point.  We will keep $400, trailing stops (10% of the profit) at this point as we may end up with another $2,000 gain from here – hard to say how high the squeeze will take us at the moment.  

Another odd reaction is the stock of Frontline (FRO), whose tanker was hit.  Rather than going lower, FRO is up 8% this morning as it's an old tanker and they'll be happy to get the insurance and it's one of 61 tankers they own and, with oil higher, they'll be making more money – especially if trips get longer as tankers try to avoid Iranian waters.

In other commodity news, Soybeans have really taken off, and the September contracts (/ZSU19) which we had featured over at Seeking
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What Now Wednesday? Trump Talks Tough on Trade – Tanks Markets

Oops I Did It Again Snl GIF by Saturday Night LiveOops, he did it again

For some reason, last night, Trump decided to place more tariffs on China – again – and said he was "personally holding up a trade deal with China and that he won’t complete the agreement unless Beijing returns to terms negotiated earlier in the year."

“It’s me right now that’s holding up the deal,” Trump said at the White House before he left on a trip to Iowa. “And we’re going to either do a great deal with China or we’re not going to do a deal at all.”

I keep saying that Trump doesn't actually want a trade deal and simply wants an excuse to tax the American People (who pay for the tariffs – not China) to offset the taxes he and his rich friends are no longer paying as well as to give him Billions of Dollars to hand out to voters in the form of "tariff relief" – which is simply a way to alleviate the damage HE is causing.

Related imageTrump has already threatened to raise tariffs on China if President Xi doesn't meet with him at the G20 at the end of the month and even Trump's most loyal supporters must understand that this is not the way World leaders usually schedule appointments but the good news is Xi will be at the G20 and Trump will be at the G20, so Trump will be able to claim he "met" with Xi – regardless of what actually happens – an easy win for Trump to claim.

Meanwhile, Xi allowing Trump to be an ass and make ridiculous demands and accusations is hurting him at home and emboldening opponents, many of which would take a much harsher stance on the US than Xi, as well as protesters like in Hong Kong, where over 1M people (15% of the entire population) hit the streets.  This morning the protesters managed to delay the voting on the extradition bill, which would allow Hong Kong residents to be transported to mainland China for trials, which is like Trump passing a bill that forces you to appear before his court in Washington if he doesn't like something you
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Terrific Tuesday – Up and Up We Go

Day 6 of the rally.

I'm not upset because I wanted to crash, I'm upset because we didn't get a proper correction and now, this low-volume move back up doesn't give me enough confidence to enjoy the rally or assume we'll get to higher highs than the ones that have been rejected before.  

How many times can we rally because we made progress on fixing things that weren't broken in the first place?  What's next: 

  1. Mars is invading
  2. Trump is talking to Mars
  3. Mars is not invading – market soars to new highs

Have we really gotten this stupid?  What happened to trading on earnings and performance?  I'm a Fundamental Investor so of course I don't like it when the Fundamentals are ignored – it's very annoying.  It doesn't stop us from making money, however as yesterday, right in the PSW Morning Report, I said:  "The Russell (/RTY) is lagging in the recovery and can be played long over the 1,520 line but with tight stops below because NOTHING actually happened since the Russell was at 1,620."  As you can see, we got a lovely pop off that line at the open:

Oh yes, I should clarify, that was early in the Morning Report (it's sent out to our Members while in progress) but, at the end of the morning report, I said:

We're well over all our bounce lines now so we can't make any bearish bets but what the Nasdaq 100 (/NQ) for a possible rejection at 7,500 and, of course, 2,900 on the S&P (/ES) and 26,200 on the Dow (/YM) also seems to get rejected a lot but we should still squeeze out a quick 15 points on the Russell (/RTY) at 1,535 before that happens and +$750 per contract is a great way to start the week off.

So 1,535 was our target and it was a pretty good one – as you can see from the chart.  At 12:24, in our Live Member Chat Room, we flipped bearish and played the Nasdaq Futures to go lower:

With the

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Made Up Monday – Trump’s Fake Mexican Melt-Down Ends

All is well, again.

How many times are we going to fall for this BS?  Turns out Trump had already gotten concessions out of Mexico months ago and his "demands" for border security has already been agreed to so there were never going to be any tariffs on Mexico – it was just Trump stomping his feet and beating his chest in order to look like he actually accopmplished something – as well as to distract us from all the crimes he's about to be indicted for.

The Futures are up another 100+ points this morning and we're just 500 points away from a full recover – back to our record highs after a 1,000-point drop in May – and it's only June 10th.

The Russell (/RTY) is lagging in the recovery and can be played long over the 1,520 line but with tight stops below because NOTHING actually happened since the Russell was at 1,620 ($5,000 per contract higher than 1,520) – except the fact that the President has once again shows how completely unstable he is and THAT remains a bit of a concern to me – and it should to anyone who has money at risk in the markets.

We completely ignored last week's TERRIBLE Non-Farm Payroll Report and the downward adjustments to the last two reports and the ecitement over possible Fed Rate Cuts was over statements the Fed made that assumed we were placing tariffs against Mexico that would crash the economy – that's now off the table because the Fed, like us, made the mistake of believing something Trump said he would do (10,796 lies in 869 days so far).

Factory Output drops most since 2002 as boost from Brexit stockpiling evaporatesUK Manufacturing Output fell 3.9% in April and that is a REAL thing that actually happened.  GDP fell 0.4% in April and puts the entire quarter on track for a 0.3% recessionary drop – adjusted from +0.5% expected just two months ago.  These numbers may be skewed by the original Brexit deadline of March 29th, which may have pushed a lot of production and orders into Q1 – ahead of that deadline. 

Unfortuantaly, we won't know the truth until…
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Non-Farm Friday – Markets Bounce Back Despite Trade Deadline

Hope reigns eternal.  

Today we'll see how well the Non-Farm Payroll Report goes at 8:30 but we're up another quarter-point at the moment (7:30) in anticipation of a strong report, led by Government hiring for the 2020 census.  Even with the extra workers, only 180,000 jobs are expected so it's going to be an easy upside surprise and wages are expected to be up at a 3.2% annualized pace with, of course, no sign of inflation – that the Fed can see, anyway…

On the right is the ShadowStats chart of REAL Inflation, which is pegging near 10% using a consistent methodology since 1980 – before the Government began tweaking the measurments to make sure the Data was no longer able to show inflation.  In essence, what the Government has done is like measuring the temperature in Celcius instead of Farenheit in order to show you how they have cooled off the planet because they didn't bother changing the units on the chart – it's a huge scam and it's getting more and more out of control as the lies get bigger and bigger to cover it up.  As noted by ShadowStats:

Consumer Price Index Has Been Reconfigured Since Early-1980s
So As to Understate Inflation versus Common Experience

  • CPI no longer measures the cost of maintaining a constant standard of living.
  • CPI no longer measures full inflation for out-of-pocket expenditures.
  • With the misused cover of academic theory, politicians forced significant underreporting of official inflation, so as to cut annual cost-of-living adjustments to Social Security, etc.
  •  Politicians look to expand further the concept of artificially-suppressed cost-of-living adjustments in current budget-deficit negotiations, through the use of the Chained-CPI.
  • Use of the CPI to adjust retirement benefits, private income or to set investment goals impairs the ability of retirees, income earners and investors to stay ahead of inflation.
  • Understated inflation used in estimating inflation-adjusted growth has created

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Trilling Thursday – Bouncy Markets Face a Test into the Weekend

We are hitting our goals.

The Dow is over the strong bounce line at 25,500 by 160 points (at 200 points it's a 50% recovery), the S&P 500 is right at the strong bounce line of 2,830 and Futures indicated 5 points higher, the Nasdaq 100 is right at it's weak bounce line at 7,250 and the Russell is right at the strong bounce line at 1,510.  With 3 indexes over the bounce line we like to go long on the laggard so this morning's Futures Trade Idea is to go long the Nasdaq over the 7,250 line – with tight stops below OR short the Dow (as it's the over-achiever) if the others fail their lines and the Dow fails 25,600 – with tight stops above.  

That way, we can make nice money in either direction while we watch and wait to see which way our bounce lines resolve themselves (which then informs us whether to get more bullish or bearish into the weekend):

  • Dow 26,700 to 24,700 is 2,000 so huge 400-point bounces to 25,100 (weak) and 25,500 (strong)
  • S&P 2,950 to 2,750 is 200 so 40-point bounces (or what I said above) to 2,790 and 2,830
  • Nasdaq 7,850 to 7,100 is 750 so 150-point bounces to 7,250 and 7,400

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Wednesday Weakovery – Low Volume Rally Gives Us Hope

Quite the bounce.

All it took was a few words from China, Mexico and, of course, the Fed and the market was off to the races again led by the small-cap Russell Index, which is already testing the strong bounce line at 1,510 in the overnights.  We're still waiting for the Nasdaq to make it's weak bounce line at 7,250 but, on the whole, we're glad we kept our longs in play (covered with hedges, of course).  As it stands now, we've got a lot more green on the chart than we had yesterday morning:

  • Dow 26,700 to 24,700 is 2,000 so huge 400-point bounces to 25,100 (weak) and 25,500 (strong)
  • S&P 2,950 to 2,750 is 200 so 40-point bounces (or what I said above) to 2,790 and 2,830
  • Nasdaq 7,850 to 7,100 is 750 so 150-point bounces to 7,250 and 7,400
  • Russell 1,600 to 1,450 is 150 so 30-point bounces to 1,480 and 1,510

That's really about as much progress as you can expect for one day but the underperformance of the Nasdaq is a concern and, as you can see from the daily chart – even the 100-point rally off the bottom isn't enough to put much of a dent in the 850-point drop – so we'll be watching the Nasdaq very closely today to let us…
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25,000 Tuesday – Dow Tests a Critical Line from Below

25,000 or bust!

That's what we'll be watching today as the Dow Futures (/YM) rally 116 points (8am) to come back to the 25,000 mark and yesterday, in our live Member Chat Room, we drew out the following bounce lines:

  • Dow 26,700 to 24,700 is 2,000 so huge 400-point bounces to 25,100 (weak) and 25,500 (strong)
  • S&P 2,950 to 2,750 is 200 so 40-point bounces (or what I said above) to 2,790 and 2,830
  • Nasdaq 7,850 to 7,100 is 750 so 150-point bounces to 7,250 and 7,400
  • Russell 1,600 to 1,450 is 150 so 30-point bounces to 1,480 and 1,510
As you can see from the sea of red, we didn't make much progress yesterday but the Russell is back at their weak bounce line this morning so there is some hope that the dip buyers are still out there.  Yesterday's volume was good for a Monday but we ended up flat for the day so non-committal too.

The better news is the S&P 500 tested and held the 2,730 mark we predicted in the morning right on the button and that's our 5% line so a good sign if that continues to hold as it means we're still consolidating in the higher part of our expected trading range (see yesterday's notes). 

Keep in mind the index gains are far less impressive since the Dollar is down over 1% since Friday's open while 40 out of 2,730 S&P points clocks in at 1.46% so we're barely keeping up with Dollar deflation on this "rally" so far.  That also makes Oil's (/CL) drop from $66.50 to $52.50 seem even worse, as that's a 21% correction and we should be getting $2.50 bounces to $55 (weak) and $57.50 (strong) but we were firmly rejected at $55 and smacked right back to $52.50 – a very bad sign if we fail again and it's not likely the markets will recover if oil is slumping this badly.

If oil has a 21% correction and heads lower, it's very likely we'll see the S&P, Dow and NYSE follow as they have plenty
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Monday Market Mayhem – Stocks Continue Lower

Greetings from Havana!  

I'm over in Cuba checking out this Communism thing as, clearly, Capitalism just isn't cutting it anymore and we'll need a better alternative for 2020.

Before 1959, Cuba was run by a US-backed regime which was ousted by Fidel Castro, who allied himself with the Soviet Union and, ever since then, Cuba has been BAD, like Iran is BAD but for different reasons that we had to make up since they overthrew a totally different US puppet Government.  That makes it a bit confusuing as to why we're supposed to hate everyone but it seems hate is becomming a huge US export lately – there seems to be plenty for everybody.

Predient Obama and Raul Castro attempted to begin normalizing relations in 2008 and between 2009 and 2013 the number of self-employed workers in Cuba tripled thanks to reforms including decentralizing the agricultural sector, relaxing restrictions on small businesses, liberalizing real estate markets, easing Cubans’ ability to obtain permission to travel abroad, and expanding access to consumer goods.   While the state still controlls 70% of the island's $92Bn economy, they were making good progress until Trump rolled it all back – now it's unclear how Cuba is doing – so I think it's worth a look.

Cuba: Major export destinationsCuba's economy is 20 times bigger than Puerto Rico and they mostly trade with countries in South and Central America – not Russia – not at all.  Canada is 10% of Cuba's trade but it's dominated by Venezuela, more than 1/3 of the total and Venezuela's a mess and that hurts Cuba.