Entries by Phil

What Now Wednesday – Jeff Flake Joins the Resistance

Viva la Resistance! 

Senator Jeff Flake gave a Hell of a speech on the Senate floor yesterday, calling for his fellow Senators to stand with him against the "impulses to threaten and scapegoat" which could turn the GOP into a party of "fearful, backward-looking people, " saying:

Reckless, outrageous, and undignified behavior has become excused and countenanced as "telling it like it is," when it is actually just reckless, outrageous, and undignified.

The notion that one should stay silent as the norms and values that keep America strong are undermined and as the alliances and agreements that ensure the stability of the entire world are routinely threatened by the level of thought that goes into 140 characters – the notion that one should say and do nothing in the face of such mercurial behavior is ahistoric and, I believe, profoundly misguided.

To which the President, of course, replied by theatening and scapegoating in a tweet:

This would be funny if it wasn't so tragic.  And don't think this doesn't affect the markets as losing 2 reliable Senate votes means Trump needs ALL 50 of the other Republican Senators to line up behind his agenda or nothing will be done – even with Pence's tie-breaker.  What that effectively does is put any one of those 50 Senators in the drivers seat to make demands because they can't afford to lose a single vote and, if one more Senator joins The Resistance – Trump effectively becomes a lame duck and his agenda goes out the Window. 

Remember how the Republicans told the Democrats they had to wait 18 months until the next election and "let the voters decide" who sits in the Supreme Court?  Well, now that turns around on them and Trump may not get those appointments he's been salivating over.  More to the point, why are we investing in stocks at all-time high valuations while our Government…
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Terrific Tuesday – Dow Blasts Higher on Caterpillar, 3M Earnings

2 companies.  

That's all it took this morning to blast the Dow 130 points higher pre-market.  Caterpillar (CAT) was up $10 (7%) and that added 85 Dow points and 3M (MMM) jumped $8 (3.5%) and added 64 points so that's 149 of 130 points added by just 2 of the Dow's 30 components – the rest are net negative.  What a silly index!  The combined market cap of CAT and MMM is $200Bn, only as much as GE but if GE dropped 10%, that would only subtract about 20 Dow points, because GE is a $22.50 stock.

So a $22.50 stock worth $200Bn dropping 10% on the Dow has 1/7th the impact of 2 other stocks with the same TOTAL market cap rising an average of 5.75% between them.  That doesn't just not make sense – it's stupid!  Think how easy it is to manipulate an index that has those kind of price distortions.  

Fortunately, we love these easily manipulated distortions.  Yesterday morning, in our Live Member Chat Room, we shorted the Dow (/YM) Futures as they tested 23,300 and we got a great drop to 23,225 which was good for gains of $375 per contract. 

Even if you don't have access to the Member Chat Room, in our morning's PSW Report, we gave you the long trade idea for /KC at $1.28 and that was good for $375 per contract by 10 am (and today it's back and we can play it again).   

Our other Trade Idea from the Monday Morning Report was:

Silver (/SI) is back to $16.90 and that's down 0.40 from Thursday's close but back to where we went long on Wednesday so why wouldn't we play it again (with tight stops below) as it was a $1,500/contract winner last time?  $16.75 should be the low-low, so that's where I'd look to try again if $16.90 fails and we'll follow up on this one into Wednesday's Live Trading Webinar.  

As you can see, a
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Just Another Manic Monday – Abenomic Edition

Go Japan!  

As you can see from the chart, the Nikkei is up 600 points (2.8%) since Thursday's close as Prime Minister Shinzo Abe's party retained its 2/3 majority in the Diet (Parliament) – though it doesn't REALLY matter as Japan, like the US, is actually controlled by large Corporations.  “Corporate Japan is determined to play a role in rebuilding our economy and is cooperating with the Abe administration’s strategy,” Sadayuki Sakakibara, chairman of Japan’s main business lobby Keidanren, said in a statement.. 

Either way, the end result is a continuation of Japan's ultra-easy money policies that have led the nation to over 1.2 QUADRILLION Yen of Debt, which is $12.5Tn(ish) and 250% of their annual GDP.  

Related imageThe reason no one is worried about the US being $20Tn in debt is because it's "only" 110% of our GDP and that means we can borrow another $20Tn and STILL look better than Japan but Japan is a ticking time bomb, where 24.3% of Government revenues went to debt service alone last year – and that's at these ultra-low interest rates.  Japan, by the way, like the US, gets 41% of their tax revenues from the Social Security contributions of an aging population and only gives back 17.9% but the people don't seem to mind – they just voted for much more of the same.  

Japan is able, so far, to sustain their massive debts because their current borrowing rate is essentially negative.  The Japanese people and even the Corporations consider it their duty to support the Government by buying bonds, and they do so at any price – even when the rates are costing them money to save.  Things will be fine for Japan as long as the rates stay below 0.5%, where they have been for the last 5 years but, over that, and the share of debt service goes up 12.5% with each half point of intererst – Japan is one credit downgrade away from a real catastrophe.

In theory, the negative rates are supposed to spur consumer borrowing and spending but, like in the US, low wages for the Bottom 90% have kept spending and prices stagnant and, like in the US, the Top 10%
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Fabulous Friday Finish – Markets Make New Highs

GE (GE) dropped guidance by 33%.

Not sure why I bother mentioning it, it's only a $200Bn leading industrial company so why shouldn't the Dow be up 100 points pre-market?  Makes perfect sense, right?  GE is a Dow component but it's stock is only at $23.50 so a 6.5% drop to $22 is only $1.50 and that's just 14 Dow points vs a 10% drop in IBM being $15 and adding 127 points the other day.  Get it?  No, nobody does, but it's still our leading market indicator so just play the game and don't ask too many questions.

We have been long on GE since June 27th and we have 2,000 shares at $27.40 in our Long-Term Portfolio but we sold the 2019 $25 calls for $3.75 and the $28 puts for $3.10 so our net entry on 2,000 shares was $20.55 but, if we get assigned another 2,000 at $28 (seems likely now), we'll have 4,000 shares at an average of $24.275.  Of course, then we will sell another round of calls – the 2019 $23 calls are now $2.40 so hopefully we'll get more like $3.50 for the 2020s when they come out.  That will keep our basis around $20 while we collect GE's fat 0.94 dividend so, as long as they don't cut it, we're happy to accumulate down here.  

Image result for dow jones original 12Either GE is going the wrong way or the Dow is and, this morning, we shorted the Dow Futures (/YM) in our Live Member Chat Room at 23,200.  If it turns out the Dow SHOULD be up 28% for the year, then I have to believe GE will find a way to reverse their 20% decline over the same period.  It's not just unusual that GE would diverge from the Dow by over 40% (almost 50% now) – it has NEVER happened, in the entire 121-year history (1896) of the Index (GE was one of the original 12 companies).  Never is a long time, folks – this time sure is different, isn't it?  

As we discussed in Wednesday's Live Trading Webinar – we're not "bearish" on the market, we're simply looking for a nice 5-10% correction that will make us feel better about…
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Faltering Thursday – Terror at Dow 26,000

Have we finally gone too far?  

Of course we have, what kind of question is that?  On the right is the SPY volume for the week and we haven't cracked 40M shares trading vs. an average of 62M this year, which is already half of last year.  This came on a day, yesterday, when the Dow popped 160 points but, as we noted in yesterday morning's PSW Report (and in our Live Trading Webinar), it was on the backs of just IBM and GS, while the other 28 stocks in the index were effectively flat.  So the very, very narrow "rally" continues but it can very easily be overwhelmed by any kind of volume selling and we called for more CASH!!! in our porfolios during yesterday's webinar – as this market may finally be approaching peak ridiculous.  

If it's not, we'll get back in but yesterday our Webinar Trade Idea was to short the Russell (/TF), which was 1,510 at the time (1-3pm) and this morning we fell all the way to 1,495, which is up $750 per contract and we took a $7,320 gain and ran in our Morning Alert to Members (also tweeted out) on our 12 contract play near the bottom (our average entry was 1,503.27 as we started earlier than the Webinar).  Still, it's not bad for a day-trade, right?  

We also played the Dow (/YM) Futures short at 23,100 and the Dow fell below 22,900 this morning and that was good for gains of $1,000 per contract and Oil (/CL), which we discussed shorting in yesterday morning's report (subscribe here so you don't miss them) which fell from our predicted spike of $52.50 on inventories all the way back to $51.50 this morning, also good for $1,000 per contract gain while our Webinar Gasoline shorts (/RB) at $1.65 are already up $840 per contract at $1.63 so – you're welcome!  

We also called a long on Silver (/SI) at $17 and that's popping this morning and Coffee (/KCH8) is already moving up but Natural Gas (/NGV8) is still under $3 and we love those next October contracts, especially
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Wonderful Wednesday – Dow 23,000 or Bust!

a chart of corporate guidance announcements over the past yearDoes anything matter?  

On the right is the Daily Guidance Oscillator, which shows how forward guidance is fading fast, unraveling the enthusiasm of August with only 28% of companies reporting issuing positive guidance and a whopping 39.4% going negative and the chart you see is the net trend difference between postive and negative guidance

The trend was this bad in July and the markets took a very small dip (2.5%) and in March it was worse and we dipped about 5% but we're up 10% from the March lows now and up 15% for the year so we'll stay on our toes and keep an eye on this indicator as more earnings reports come in.  80 of the S&P 500 report next week and another 240 next week so it's definitely crunch time.  

Another indicator we're watching closely is the Advance/Decline lines as we're seeing the game we discussed yesterday playing out where major index weights, like Apple (AAPL) are being used to prop up the indexes while the Fund Managers and Banksters sell off the bulk of their holdings.  The reason they do this is because holding up the index keeps the ETF money flowing in (from 401Ks, IRAs, etc.), which creates plenty of buyers for their small positions while they spend their money accumulating stocks they don't mind holding through a correction – like AAPL.

Notice that the number of stocks that were being sold and the volume of selling far outweighed the buying yesterday and also notice the most of our market gains come in the early morning Futures – where trading is very thin.  That's another Fund Manager trick – jack up the futures and the retail suckers rush in to chase the move while you sell off your holdings into higher volume.  

Jim Cramer had a nice video explaining how fund managers manipulate the market, noting it doesn't take much money to manipulate the markets using the Futures noting "It's a fun game, and it's a lucrative game" and "I would encourage anyone who is in the hedge fund game to do it because it's legal and a quick way to make money – and very satisfying." 


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Terrific Tuesday – Apple (AAPL) Tests $160 Again

The bull is back! 

Well, it never left but it paused for a day and that's something, right?  As is often the case when the markets need a lift, Apple (AAPL) is getting a boost and, since it's in the Dow, the $10 run this month has added 85 of the Dow's 1,000 points but, in the S&P 500, AAPL is a whopping 4% of the S&P 500's weight so the 6.66% run from $150 to $160 adds 0.25% to the S&P, which is up 100 points (4%) over that time.  In the Nasdaq, fuggedaboutit, as AAPL is closing in on 15% of the Nasdaq's total weight so adding 1% to the index all by itself from that run while the entire index is up 4% so 25% of the move comes from AAPL and probably another 25% from AAPL suppliers!  

Boosting some of the key components in an index through upgrades, M&A rumors or straight-up buying of the stocks is a great way to mask selling by Fund Managers and Banksters when they don't want to scare off the Retail Investors while they move to CASH!!! (have I mentioned how much I love CASH!!! lately?).  Yesterday, for example, the Nasdaq finished up but 1,514 stocks declined while only 1,370 advanced in the index.  A falling Advance/Decline Line is one of the things we watch for if there's going to be a correction, so we'll be keeping an eye on it during earnings but nothing to worry about… yet.

Meanwhile, it's earnings season and yesterday we got a beat from Schwab (SCHW) and SONC (SONC) although the latter blamed the hurricanes for any shortfalls.  KMG (KMG) and Netflix (NFLX) missed but Netflix was immediately forgiven by rabid fans, who are happily paying the 10% rate hike which will, hopefully, compensate for their profligate spending.  NFLX did add 4.5M new subscribers and, at $13/month, that's $702M/yr in new revenues added in just one quarter – not bad!  Unfortunately, they have also increased content spending by $1Bn/yr ($8Bn now) – so we'll see how things go for them but the bottom line is they burned $465M in cash last Q – not good.  

None of that stops the company from commanding a price…
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Black Monday 30th Anniversary – Those Who Forget History…

It was 30 years ago today.

Well not today, it was the 19th but that's the closest Monday.  Anyway, it was a Monday (a day like any other day) when the Dow fell 22.6% in a single day.  That was only 508 points at the time (what inflation?) and it dropped to from 2,246 to 1,738.  That happened pretty close to the anniversary of the original Black Monday of October 28th, 1929, which kicked off the great market crash and the Great Depression.

 

 

IN PROGRESS

 

 

 

 

 

 

 

 

Fabulous Friday – Markets at (yawn) All-Time Highs

Another day, another high.

We may be too bearish into the weekend now so we'll have to play an upside hedge (in addition to RSX, which has also popped since our pick) and we'll look for something during today's Live Member Chat Room.  Today's run-up may be nothing but we're breaking over technical levels that certainly LOOK bullish enough – especially on the Russell, where we've been shorting

This morning's rally is based on Chinese Import Data, which is up 19% from last year, which sounds very impressive until you realize that the Dollar was 10% higher vs the Renimbi last year, so half of that growth is currency-related – assuming the data is accurate in the first place – which is always a question with Chinese data.

Also, think of how many parts had to be imported to be turned into new IPhones last quarter – that too bumps up the import numbers.  It's not the Chinese consumers that are buying more stuff, it's the Apple assemblers.  China is also building things with Iron Ore Imports up 10.5% (more in-line with the actual growth) and Iron Ore prices have jumped up 10.5% (what inflation) in September alone, which is good for BHP Billiton (BPH), Rio Tinto (RIO)  and Vale SA (VALE) and VALE makes a nice, bullish trade as it's still under $10/share with almost $1/share in earnings for a p/e of about 10.  As a bullish economic trade we can:

  • Sell 10 VALE 2019 $10 puts for $1.80 ($1,800) 
  • Buy 15 VALE 2019 $7 calls for $3.20 ($4,800) 
  • Sell 15 VALE 2019 $12 calls for 0.85 ($1,275)

That's net $1,725 on the $7,500 spread so the upside potential is $5,775 (334%) if VALE is up 20% by Jan, 2019.  The downside risk is owning 1,000 shares of VALE at $10 plus the potential loss of $1,725 so net $11.75 makes this an aggressive play but anything over $10 means we do not get assigned the short puts and we're already $4,500 in the money to start the trade – that's fun!  

It's a sideways play on China and we may have to consider China's ETF (FXI) for one of our longs though China Mobile (CHL) is…
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Thursday Follies – Post Fed Depression

Now what?

What can we do now to boost the markets.  We got the Fed minutes yesterday afternoon and there were no new revelations there to justify another 18 consecutive days of new highs.  Sure it's being spun that way but that's the same way these depraved Financial Networks spin every rally – at the behest of their mainly-broker sponsors.

Not that the financial press is any better – even as an independent who makes his money selling subscriptions, rather than ads, I still find that we get far less subscribers when we are cautious or negative on the market than positive so, even if you think the Networks are not being specifically paid to mislead you – you can be sure they are doing it for the ratings!  

The closer you get to a bubble top, the harder it is to get fresh money off the sidelines and the harder the market cheerleaders have to cheer to get you to put your money into the positions the sponsors are trying to wriggle out of.  Meanwhile, the sponsors play their own games – sending their analysts out to upgrade key stocks that boost the sectors they are trying to unwind.  As we pointed out yesterday – that's why you see all these upgrades on Tesla – the same week Musk is accused of fraudulent forecasting.  That's NOT going away – but their profits are! 

Since we first tested S&P 2,500 in July, I have urged caution at these levels and now we're at 2,550 and it doesn't make me feel better.  Though it's the opposite, it reminds me of what Jim Cramer said to his viewers on October 31st, 2007 (5:20 in the video):

 

"You should be buying things and accept that they're over-valued but accept that they are going to keep going higher – I know that sounds irresponsible – but that's how you're going to make the money. " – Cramer, 10/31/2007 – Dow 13,930 

"That's why the market just won't quit, no matter how poorly actual companies are doing." – Cramer, 2/1/2008 – Dow 12,743

"Very simply, I believe that it's time to BUYBUYBUY." –


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