Entries by Phil

TGIF – Stop the Week – We Want to Get Off!

Well, you can't say we didn't see this coming.  

On the right is where we closed last Friday, just shy of 26,000 on the Dow, just shy of 2,800 on the S&P, 7,039 on the Nasdaq, 12,573 on the NYSe and 1,550 on the Russell.  It may have seemed like we were recovering but this is why we have to ignore our instincts (bullish or bearish) and just watch the bounce lines according to our 5% Rule™ before making drastic changes to our portfolios.

I had warned about being fooled by the bounces in Friday's Morning Report and on Monday we laid out our game plan for the week and I don't go over them to show how right we were but it's good to reveiw what we said then in retrospect so the next time we tell you what is likely to happen, you have better context for how our predictions play out.  

We went long on Gold (/YG) and Silver (/SI) Futures on Monday and that was BRILLIANT but we were way too early getting bullish on Oil (/CL) and Gasoline (/RB) though, fortunately, we did have a plan to lose "just" $420 at each nickel stop on the way down ($1.65, $1.60 and $1.55) as we played for the eventual turn. 

As it stands now, we're long 4 /RB contracts at $1.55 after losing $420 on the first penny at $1.64 and then $840 (2 contracts) at $1.60 but now 4 contracts at $1.55 seem to be working and we're back to $1.585 with a $1,470 gain and, of course, we are taking 3 off the table, leaving us with just the original one long contract at the much better price of $1.55 while we're up net $210 overall on the closed contracts. 

We were wrong on SLW on earnings, they went $1 lower but we still love them long-term and our warning for the week played out as I said on Monday:

We're still playing the markets very cautiously and very skeptically but we also have PLENTY of (well-hedged) bullish positions and our portfolios seem very well-balanced so we'll just continue to


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Thursday Failure – Warning Lights Flashing on our Market Dashboard

chartWe're still painting the bounce lines red 

As I warned you on Tuesday, there's blood on the streets and we have now picked up 4 red boxes as each index has been taken down a notch this week and, with the Nasdaq (/NQ) failing it's 10% correction AGAIN at 6,870 and the Russell (/RTY) right on the -10% line at 1,495 – will the Dow (/YM) and S&P (/ES) be far behind?  For the Dow, that's a 700-point drop to 24,300 and the Dow (/YM) futures pay $5 per point per contract so I love shorting /YM below the 25,000 line with tight stops above.  

  • Dow 24,300 with a weak bounce at 24,800 and a strong bounce at 25,300
  • S&P 2,640 with a weak bounce at 2,710 and a strong bounce at 2,780
  • Nasdaq 6,870 with a weak bounce at 7,080 and a strong bounce at 7,230
  • Russell 1,485 with a weak bounce at 1,530 and a strong bounce at 1,575

For the S&P (/ES) we're at 2,696 this morning so another 56 point-drop and we're all red on that index too.  On the other hand, if /ES can get back over 2,710, then playing /YM bullish ABOVE 25,000 with tight stops below would be the smart play – but even fixing Brexit wasn't enough to hold the weak bounce line yesterday for the S&P and Powell didn't save us last night so it's all up to President Trump to make a deal with China that will save the markets – what could possibly go wrong?

Oil and gasoline are also playing out our worst-case scenario from Tuesday, where I said:

Oil fell for the 11th consecutive day and is back at the $60 line this morning and we still like it for a bounce but tight stops below.  As noted yesterday, $60 is 20% down from $75 and we could overshoot to $57 but, either way, we expect to see at least $63 into Thanksgiving and we did go long on Gasoline (/RB) as well at $1.615 but, so far, that's not working and we'll have to take a loss below $1.60 and wait to see if $57 gets tested on oil, probably lining up with $1.55 on /RB for our next opportunity to take a long poke.

 

IN PROGRESS

 

 

Wobbling World Wednesday – Global Indexes Consolidate for the Next Move Down

Reuters GraphicI think we're heading lower.

Probably about 10% lower and yesterday's 8% drop in oil is a good indicator of how fast the "value" can come out of the markets – or any other asset you think is "stable" these days.  There are still MANY signs of Global Economic Weakness, including Japan's negative GDP, which we noted yesterday.  Even worse, Japan's Central Bank owns $5Tn worth of assets – the entire GDP of the country, including 45% of all Government bonds paying near 0% interest that will quickly become worthless if rates rise.

“The Bank of Japan’s policy is clearly not sustainable. The BOJ would suffer losses if it would have to raise interest rates to, say, two percent,” said Hidenori Suezawa, a fiscal analyst at SMBC Nikko Securities. “Also, in case of emergencies, such as a natural disaster or a war, the BOJ won’t be able to finance government bonds any longer.”

The BOJ has also been a very aggressive buyer of Japanese stocks and is now the largest holder of most of the Nikkei 225 stocks – over 10% on average.   This buying spree pushed the Nikkei up from 16,000 when Abe and Koroda unleashed this mad shceme in order to reverse that 20% correction.

Well, what if the 20% correction was correct and Japanese stocks, in an aging population with Government debts that exceed 250% of their GDP, are really only worth Nikke 16,000.  That means that, at 24,000, 33% of the money the BOJ spent to prop up the market was wasted and that's very likely the case as the BOJ shouldn't have to be a buyer and their actions created a false sense of demand for Japanese stocks and artificially raised the prices and those prices, in turn, encouraged other Global markets to move higher and now the whole World is a good 10% (still) too expensive but Japan has barely corrected 10% and easily has another 10% to go (19,500) before anything like real buyers begin to show up.

Image result for japan bubble 2018It's not even possible for the BOJ to
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Monday Market Madness – Trump Leaves G20 Early, Skips Asia Summit Entirely

Oh what a beautiful morning!  

We went long on Gasolione (/RB) into the weekend as we expected OPEC to do SOMETHING to prop up Oil (/CL) at the $60 mark and we thought /RB Futures would make a good play into Thanksgiving regardless.  We did, in fact, get noise over the weekend that our freinds the Saudis see the need to cut oil ouput by another 1Mb/d next year to maintain "price stability".   

I had predicted we'd get down to $62 when I was interviewed on Nov 1st at Investing.com, but our first attempt to go long on oil and gasoline failed but this time /RB made the big payout with an almost $5,000 gain on 6 long contracts as we stopped out our last contracts at $1.64 - a nice way to start our week…

The next long attempt can be made over $1.65 on /RB or back at the $1.625 line and, of course, we'd love to give $1.60 another try but you have to use tight stops on Gasoline as the contracs pay OR LOSE $420 per penny of movement on each contract.

When you get a strong move based on a quote – even from a very reliable source – you have to look to take quick profits because, as is the case with Gasoline – nothing has Fundamentally changed – just some Saudi Oil minister says (while oil is failing $60 and US inventories alone are climbing by 5Mb/week) that they "might" need to cut Global Production by 7Mb/week – a month from now – if the other OPEC members agree. 

So, for future reference (and we've done this before but it's like school, I have to repeat things many times before a light bulb appears above the students' heads):  OPEC (now called the new and improved OPEC+ in an effort to rebrand and include Russia, Mexico and Kazakhstan) generally acts to support oil at $60 ($70 for Brent) like it's an emergency so wherever Gasoline is at the time tends to benefit as well and especially when you have a major down move, you can play the 5% Rule™ for a bounce:


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Faltering Friday – Market Tries to Reconcile Election, Fed, White House Turmoil

Image result for china cyber crime cartoonAll kinds of stuff is happening.

At the moment (7:30) the futures are down a bit but not very much and we're still holding those huge gains from Wednesday – so all is well (ish).  There's new tensions with China as the NSA says Chinese Internet stocks are violating a 2015 Cybersecurity Agreement regarding intellectual property theft and that's a charge that should, techincally lead to even more sanctions against China.  Most likely, this is one of Trump's "negotiating tools" as he prepares for trade talks with Xi – another chip he has to bargain with.

Still, real or fake, these accusations are having very real effects on Chinese cyber-stocks, which are all heading lower pre-market, including AliBaba (BABA) who we would like to play bullish into their "Singles Day" on Sunday, but now we'll have to wait and see how the morning plays out.  Don't forget, Trump's unilateral sanctions are illegal unless he can cite "National Security Issues" and, if those don't exist – just make them up!  

 

IN PROGRESS

 

 

Fed Fired Thursday – Sessions Gone, Powell Speaks

Image result for trump nixon cartoonNow Trump has gone full Nixon.  

Trump finally fired his whipping boy, Jeff Sessions and, while we may forget it because he's become a National joke, thanks in large part to the way Trump has demeaned him for two years, he is/was the Attorney General of the United States of America and firing him is a big deal.  And Trump's reasons for firing him are very similar to Nixon's reason for firing AG Archibald Cox in the summer of '73 – to derail an investigation into the President's corrupt dealings

Like Nixon, Trump is placing a loyal stooge in Sessions' place (one who is not technically qualified to be the AG, in fact),  Acting AG, Mattthew Whitaker, was hand-picked by Trump and was once a US Attorney in Iowa but then joined the board of World Patent Marketing in 2014 saying:

“As a former US Attorney, I would only align myself with a first class organization. World Patent Marketing goes beyond making statements about doing business ‘ethically’ and translates them into action.”

The Federal Trade Commission last year accused World Patent Marketing Inc., of Miami Beach, Fla., of scamming would-be inventors by charging them thousands of dollars to patent and promote their inventions. The company “provided almost no service in return” and threatened people who complained, the regulator said.

The FTC alleged that the scheme, which it said was promoted through “bogus ‘success stories’ and testimonials,” began in early 2014. The agency found that consumers lost about $26 million; some allegedly ended up in debt or lost their life savings.

World Patent Marketing promotional videos and photos show Mr. Whitaker reviewing invention ideas with the company’s founder, and the FTC included in court exhibits an email from Mr. Whitaker acting on behalf of the company and threatening a customer who complained with potential “serious civil and criminal consequences.” The August 2015 email was reviewed by The Wall Street Journal.

Image result for trump sessions cartoonUsually something like that in an attorney's past would immediately derail any chance they had of becomming the Attorney General of the United States of America but this is the Trump Administration
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Which Way Wednesday – Trump Bloviates but Powell Will Have the Last Word

Is this guy delusional or what?

The Republicans got trounced in the House but kept the Senate and Trump calls it a "Big Victory" though I do have no doubt that his friend Putin did congratulate him – so maybe that part is true.  So far, the markets seem very happy with a split Congress and we're back to the 7,100 line on the Nasdaq but that's only our weak bounce line (7,080) and we're still waiting for the Nasdaq and the Russell to confirm strong bounces and, of course, the others need to hold theirs for two consecutive days or we'll have to reset the clock on them as well.  Our bounce lines are:

  • Dow 24,300 with a weak bounce at 24,800 and a strong bounce at 25,300
  • S&P 2,640 with a weak bounce at 2,710 and a strong bounce at 2,780
  • Nasdaq 6,870 with a weak bounce at 7,080 and a strong bounce at 7,230
  • Russell 1,485 with a weak bounce at 1,530 and a strong bounce at 1,575
  • NYSE 11,880 with a weak bounce at 12,150 and a strong bounce at 12,400

 

IN PROGRESS

 

 

 

 

 

 

 

 

 

 

MidTerm Tuesday – Throwing the Bums Out (hopefully)

Related imageIt's election day.

Time to erase a huge mistake that was made in 2016 or time to push America further down the path to Facism – I wonder what my fellow countrymen will choose.  If we do nothing about Global Warming for another two years – I don't think it will matter much who's in charge during America's last century, will it?  So I guess we have that to look foward too – a slow, burning extinction that erases this whole mess of species from the annals of Galactic History, just another start-up civilization that wasn't smart enough to make it.

Unfortunately, we are not likely to have a resolution today as many of the elections are so close, it will take days and maybe weeks to determine the winners.  Also, if the diffference in the House or Senate is just one or two seats, look for any close election to be challlenged.  That's the craziness that's ahead of us, plus the Fed has a statement out Thursday at 2pm and 3 Fed speakers Friday morning so we're not going to know a damned thing until next week for sure…

Meanwhile, on a bullish note, China is now saying they do want to talk trade some more – that should help a bit.  

 

 

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Meaningless Monday Market Movement – Waiting on the Election

"Nothing really matters."

That's the tag line from Queen's Bohemian Rhapsody, which is this weekend's hit movie, about a band with an outspoken gay lead singer who was a teenage Indian refugee who was granted the political aslylum that Trump would deny to others.  To this day, a guy who died of Aids has Conservative Republicans stomping their feet and clapping their hands at sporting events around the nation singing "We Will Rock You" and "We are the Champions" to this day.   Life is strange…  

Nothing matters today as the election looms large tomorrow and nothing matters tomorrow as we have a Fed Rate Decision on Tuesday so today is completely pointless so let's just see what's been going on recently that might matter:

We have the Iran Sactions kicking in but there are so many exemptions to it that it's pretty toothless at this point.  Nothetheless, it's certainly pissing Iran off and now Trump's pal Kim Jung Un is also pissed off because the US has not honored their pledge to reduce sanctions on North Korea – who did scale back their nuclearl program ages ago – so why should Iran believe a word Trump says?  US Foreign Policy plans should go further than "kick over hornet's nests."

Will US voters repudiate Trump's policies tomorrow or embrace them?  Sadly, just a day before the election – we still don't know.  Aside from the election, there are many market-moving ballot initiatives around the country.   For example, Colorado voters will decide on increasing the buffer zones around oil and gas development and could eliminate new drilling in more than half the state. Energy producers have put about $40 million into defeating the initiative - more than is spent in many Congressional races.

Electric companies in Arizona and Nevada face potential new requirements to produce more energy from renewable resources such as wind and sola and a separate measure in Nevada will ask voters to approve opening a competitive retail energy market.  In Montana, a ballot measure would require state authorities to deny a permit for any new hardrock mines that would create “perpetual pollution,” while a Washington state initiative to impose the nation’s first fee on carbon dioxide has drawn high-profile support, including from the rock band Pearl Jam…
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Thank Trump it’s Friday – President Claims Deal with China is Coming

2,763! 

We are officially back to where we were on October 12th on the S&P 500 and still below where we were on the 19th, when I wrote: "TGIF – Closing out a Weak Week in the Markets," saying:

That's right, we opened on Monday at 2,763 and closed at 2,750 on the S&P (/ES) and this morning we're at 2,782 and climbing on a supportive note out of China, whose entral bank governor and banking and securities regulators said recent volatility in Chinese stocks didn’t reflect the nation’s economic fundamentals and “stable financial system.”

That flipped the Shanghai up 2.5% into the close, reversing a sharp downturn as China released weaker (6.5%) GDP data than expected (6.7%).  Chinese exports, by the way, held steady from last quarter as they are not, so far, being affected much by Trump's tarrifs, which is actually bad because that means that there's more potential trouble for their economy ahead.

So here we are again, two weeks later, a little worse for the wear yet people, including reporters who should certainly know better, are calling me on the phone and saying "can you believe this rally?"  Well no, I really can't believe it – it seems kind of unbelievable that we rally yet again on the same "progress" in China trade that both countries trot out to boost their markets when it suits them.  

Oct 19th was options expiration day and we  opened at 2,775.66, ran up to 2,797.77 and closed at 2,767.78 so we could have another interesting day ahead of us – especially with the Non-Farm Payroll Report coming out at 8:30 to povide us with real data that might move the market.  Our last Non-Farm Payroll Report was on October 5th, when the S&P opened at 2,902.54, up a little from the previous days close  despite a big miss in payrolls but we finished that day down 7 at 2,885.57 and we WISH we were less than 120 points (5%) away from that this morning.

Even China's beleagured
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