Fabulous Friday – Finishing the Month with a Bang!

Image result for trump hamlet cartoonTo trade or not to trade?

Trump said yesterday that the US and China are scheduled to have a "conversation about trade" without giving any actual details after China said what the media are interpreting as signals they won't retaliate against the latest US increase but I interpreted as the usually vague niceties China tends to utter when they are about to crush you (see yesterday's report).  Trump is like a cartoon character – with his economy going off a cliff and an election looming but, standing at the edge of the cliff with China about to push him off he says – NOW I have them right where I want them!   

Sadly, this is not how it works in real life yet you can't tell that to investors who are being herded back into stocks by MSM pundits who are screaming BUYBUYBUY – as if this is the opportunity of a lifetime with stocks 2.5% below their all-time highs.  I for one am disappointed, traders are supposed to be smarter than the average American yet they fall for this BS?  Of course, the very, very low volumes on the S&P indicate not many people are really falling for it.  The pattern continues that we have low-volume rallies and high-volume sell-offs so there are actually more sellers than buyers – they are just reeling in the buyers like fish on a hook.

S&P ETF (SPY) volume:

Date Open High Low Close* Adj Close** Volume


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Thrilling Thursday – 5 Trade Ideas to Make $25,000 in 5 Months

Image result for trump china cartoonThere's a huge move up in the Futures this morning simply because China said they wished to resolve the trade dispute with a "calm" attitude.  I've never seen a market move up and down 1% on words before.

  • “We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with calm attitude,” Gao Feng, spokesman for China’s Ministry of Commerce, says Thursday, according to a CNBC translation of his Mandarin-language remarks.
  • Gao noted the Chinese and U.S. trade delegations have maintained “effective” communication.
  • But he did not confirm U.S. President Donald Trump’s claim on Monday that the Chinese team called the U.S. over the weekend with the desire of reaching a deal soon.

So that's hitting the headlines but, as I'm sure you read in the People's Daily (Government Publication) this morning:

US risks losing big for fighting trade war with China

The trade war has already affected both sides. However, all you need to do is look at the videos of Chinese shoppers crowding the aisles of the Costco store in Shanghai to know that the United States has a lot to gain from greater cooperation with China and a lot to lose if it erects a wall between the world’s two largest economies.

China saying they firmly reject an escalation of the trade war ahead of Trump's plans to escalate the trade war…
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Window-Dressing Wednesday – Can the Indexes End August on a Positive Note?

We're down a lot for the month.

We're down a lot for the summer, in fact as the S&P 500 (/ES) was at 2,971 on July 1st, 2,980 on August 1st and on May 1st, we were at 2,952 and today at 2,860 so we could have, in fact, sold in May, gone away and had a great, long vacation – instead of feeling very much like we need one after treading water all summer.  

In our Mid-Year Portfolio Review our main Long-Term and Short-Term paired portfolios were at $2,093,568 (from a $500,000/$100,000 start in Jan, 2018) and our strategy was to stay neutral in what we thought would be a choppy market and now, two months later, the LTP/STP stand at $2,075,462 but we've moved $100,000 more towards cash in the LTP and $75,000 more to cash in the STP so we've lowered our exposure while also taking advantage of dips to roll our long positions as planned when I said in early July:

That's our very simple long-term investing strategy in a nutshell.  Stocks cycle up and down and we almost automatically take advantage of the dips buy buying bigger positions and because we usually sell calls to cover our positions, we tend to set realistic targets for our exits though that doesn't prevent us from setting up new positions using SOME of the cash we made on the first round.  The bottom line is we don't just let our risk expand – the system keeps the cash moving down to the bottom line…

So staying even(ish) and moving $175,000 (8.3%) back to CASH!!!, where it's safe, was a reasonable way to spend our summer but, on the whole, I would have been happier hiking in Norway or something else far away from all the nonsense going on in this country.  Then I could have come back to work on Tuesday (Monday's a holiday!) and said "Oh, is Trump still President?"   

We did a little bit better with our Options Opportunity Portfolio, which was featured over at Seeking Alpha and was initiated on Jan 2nd, 2018 with $100,000 and, as of June 17th, we had run it up to $276,735 and, though we were also cautious with the OOP over the summer, we didn't take as many…
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Turnaround Tuesday – Trade Talk Turns Positive

And up we go again!  

As you can see from our S&P (/ES) chart, we made a perfect weak bounce yesterday so today we see if we can get follow-through to the strong bounce line at 2,910 but keep in mind that it's easy to manipulate the indexes within their bounce lines – the hard part is breaking over them.  Also, the end of the month is coming so we have the usual window-dressing to prop up the markets along with the Government and Fed meddling – everyone wants the market to go higher – so why isn't it?

Clearly SOMEONE is selling and they seem to be selling hard as these low-volume rallies exhaust themselves and it doesn't have to be one person but someone or some group clearly is cashing out of the market and then the suckers come in and buy the dips until it's time for the sellers to dump their shares again.  Wash, rinse, repeat after that.  

Yesterday, at the G7 conference, Trump was a bit more flexible-sounding on the China Trade deal and China said they would love to negotiate a deal but this is what they all say all the time – and we're now into year 2 of these "negotiations".  The US and China both wanted peace in Vietnam and then Korea – remember how that worked out?  These are two stubborn super-powers and, after two years, China has no reason to give into Trump as it's 50/50 that he'll be gone in a year – why would they give him concessions?  No one in China is up for re-election next year.

 

IN PROGRESS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PhilStockWorld August Portfolio Review (Members Only)

Image result for one million dollars animated gif$2,075,462! 

That's down $209,538 since our July 28th review and back to where we were at the beginning of July so, as we expected, a bit of a wasted summer as we've had a hard time gaining advantage in the market chop.  The challenge has been protecting the positions we have while trying to position ourselves to take advantage of a China Trade Deal that never actually comes.  

As you know, I'm very skeptical of a deal getting done and I wanted to cash out as even $1.4M (233%) is a silly amount of money to gain in less than 2 years in our paired LTP/STP portfolios.  Our aim is to make 60-80% in two years and we usually cash in and reset our portfolios when they are up 100% so we're miles ahead of our normal pace, thanks to the huge rally and also to our timing which turned the STP, which usually treads water when the LTP does well, into a bigger winner than the LTP.  

Since we are "going for it" and not cashing out (and see last week's webinar where I made an impassioned case for cashing out), we made a lot of aggressive moves this month to take advantage of the recent sell-off and, though we did add another hedge, I think our risk to the downside is substantially higher now so I'm setting a stop at $1.2M in the LTP (now $1,283,604) as it would be idiotic to let these gains slip away – I'd much rather cash in the whole thing and start from scratch.  And yes, if we're cashing in the LTP, we'll cash out the rest as well.

CASH!!! is a valid position.   In fact, since early July, the US Dollar has gained 2.5% so, had we cashed out early in the summer, we'd be better off than we are now.  I know that, as traders, you feel like you're not doing your job if you are not trading but WAITING is part of trading – or at least it should be.  We wait, patiently, for better prices on stocks we love – there's always something going on sale.

As much as I love our LTP positions,…
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Manic Monday Market Movement

How crazy is this?

After trading over the top of the Strong Bounce line at 26,100 for 3 straight days, the Dow (/YM) and all the other indexes dover right back below their weak bounce lines and almost made it back to our baselines – with the Russell (/RTY) bouncing exactly off it last night and the S&P (/ES) failing theirs.  But it was all pre-market nonsense, as is this morning's "rally" so we ignore it all and just focus on the same old levels we've been watching for a month thanks to our fabulous 5% Rule™:

  • Dow 25,000 is the mid-point and bounce lines are 25,550 (weak) and 26,100 (strong)
  • S&P 2,850 is the mid-point and bounce lines are 2,880 (weak) and 2,910 (strong)
  • Nasdaq 7,200 is the mid-point and bounce lines are 7,360 (weak) and 7,520 (strong)
  • Russell 1,440 is the mid-point and bounce lines are 1,472 (weak) and 1,504 (strong) 

All except the Russell were green on Friday morning so a lot of damage has been done Friday's sell-off and that's AFTER the pre-market bounce is taken into effect.  Trump (it's always Trump) at the G7 this morning, has been palling around with UK's Boris Johnson and promising a "very big tade deal" with the UIK and "lots of fantastic mini-deals" so of course, since Donald Trump would never lie to us, the market jumps up (again) on the President's word.  …
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Friday Follies – The Empire Strikes Back with New Tariffs

Wheee, what a fun ride this is! 

Things were going along nicely for a while but, this morning, China announced they will be retaliating against Trump's tariffs (as opposed to some fantasy World people live in where China takes Trump's crap lying down?) with tariffs on $75Bn worth of US Goods (which the US will pay for, of course) AND a 25% tariff on US autos beginning Dec 15th.  

Don't worry though, Powell is making a speech at 10am from Jackso Hole and it's widely expected he will wave the money wand and "fix" things so we'lll take this pre-market dip about as seriously as we took the pre-market rallies this week – just more nonsens to make the Futures trades money.  Like this morning, we can go long on the S&P (/ES) at 2,900 as it should at least be bouncy and tight stops below the line, of course.  S&P Futures pay $50 per point, so it could easily be good for a quick $500 per contract. 

The same goes for the Russell (/RTY) if it gets back over the 1,500 line – that makes for a good long bet too but only with tight stops below and only looking for a quick gain as it's too risky to hold into Powell's speech as there's little he can do but disappoint as the expectations are widely held now that the Fed will drop rates 0.5% when they next meet on Sept 18th and I don't think that's realistic.

The theme of this year's Fed Conference in Jackson Hole is "Challenges for Monetary Policy" and that seems like a bit of an understatement at the moment and Powelll's speech has the same title so there's not much to do but get ready for 10am and see how things shake out after his speech.  

Have a great weekend, 

- Phil

 

Thrilling Thursday – Markets are Half-Recovered Ahead of the Fed

"Woah, we're half way there

Woah, livin' on a prayer

Take my hand, we'll make it I swear

Woah, livin' on a prayer" – Bon Jovi

It's too early to tell if we'll have to be playing "Stuck in the Middle With You" into the weekend but we're certainly right in the center of the 50 and 200-day moving averages and exactly halfway back from our recent dip from 3,025 to 2,825 at 2,925 so all we can do is sit back and see what happens tomorrow as Jerry Powell speaks to us from Jackson Hole at 10 am.  

The volume has been anemic this week so there are simply no tea leaves to read but, as you can see from the S&P 500 chart, we've fallen comfortably below the 200-day moving average and it is going to take more than lip service to jack the indexes back over the line though it is encouraging to see the 50-day moving average curving up slightly – indicating we could have a sustainable rally if we can keep things together for the rest of the month.

Hussman Margin-Adjusted P/E (MAPE)It's all about Jackson Hole on Friday though all we're really going to get there is more Fed spin and, as I noted in yesterday's Live Trading Webinar, I'm getting more and more inclined to cash out our portfolios while we can as we're finding less and less things to buy and, as value investors – that's a pretty good sign the market is putting in a top – something John Hussman agrees with us on in his August letter.  

As you can see from Hussman's P/E chart, we've now passed the madness of 1999 and miles above where we crashed in 2008 and he has a dozen other charts and graphs to illustrate the point but my point, which I emphatically made yesterday, is that it simply isn't worth…
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Whipsaw Wednesday – Low Volume Futures Rallies Mask Market Losses

Wheeee, what a ride!  

The indexes fell off a cliff in afternoon trading but, not to worry because, as soon as the markets closes, the little manipulator gnomes went right to work and prettied things up for the Asian (9pm) and European (3am) opens – so no one even knew that the US sold off into the close and the total flat-line since 5am isn't the least bit suspicious – just normal human beings trading normally…  Move along – nothing to see here folks…

The stock market is becoming a farce and that makes for dangerous trading conditions so caution is strongly advised.  We are right back where we started the day yesterday so I won't bore you with a repeat of yesterday morning's PSW Report but I will point out that it doesn't count to get over the Strong Bounce lines if you can't hold them for 48 consecutive hours so, according to the 5% Rule™ – we're still not our of the woods on the recent correction.

This afternoon we get the FOMC Minutes from their July 31st meeting (2pm), when they gave Trump a 0.25% cut with Rosengren and Quarles objecting but the Minutes will give us color as to how supportive the rest of the Fed was as it's now widely believed that they will cut AT LEAST 0.25% at the Sept 18th meeting and Trump is asking for a 1% rate cut – which would be uprecedented and unhinged! 

Image result for fed rate cuts 2019Of course, as usual, the markets are reading it wrong and, as usual, traders have absolutely no grasp of history as, historically, the Fed raises rates in a GOOD market and LOWERS rates in a bad market – ESPECIALLY at the top of a bad market as they attempt to forestall a looming disaster so the cut of July 31st was a warning – not a bullish signal!

And notice the key is the Fed generally cuts rates about 5% during a market correction and now we are starting at 2.25% so are we going to go for -3% when the market begins to tumble?  -3% means you get paid to borrow money, which sounds good but no one is actually going to lend
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Technical Tuesday – Markets Pause at Our Strong Bounce Lines

Well, here we are

As expected, we got to our strong bounce lines on yesterday's pre-market rally but then we went nowhere and now we'll have to wait and see if we go somewhere for the rest of the week.  After getting properly spanked by Wall Street for his latest China tweets, the President has been more conciliatory – other than his continued attacks on the Fed, where he is now demanding a 1% rate cut.  That too may backfire as it will be impossible for Powell to please the market with even a 0.5% rate cut and expectations are now over 85% that the Fed will cut at the next meeting.  

As you can see from our S&P 500 chart (SPY), we're at the Strong Bounce Line – which is the same line we've been using all month, predicting both the bottom and the top of the correction.  As you can see, the 50-day moving average is just above at 2,945 and the S&P is at 2,920 this morning and MUST HOLD that bounce line at 2,910, which I think it should do into the Fed.  Our other indexes are also right around their strong bounce lines:

  • Dow 25,000 is the mid-point and bounce lines are 25,550 (weak) and 26,100 (strong)
  • S&P 2,850 is the mid-point and bounce lines are 2,880 (weak) and 2,910 (strong)
  • Nasdaq 7,200 is the mid-point and bounce lines are 7,360 (weak) and 7,520 (strong)
  • Russell 1,440 is


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