Entries by Phil

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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Which Way Wednesday – Are the Markets Now Too Big to Fail?

What a long, strange trip it's been.  

This morning the Nikkei is back to its 20-year high of 20,900 but still far shy of the all-time high of 39,000 – hit way back in 1989.  We'll forget ancient history and focus on the current move, which is now up 5,000 points since the summer of 2016 – just barely over a year ago.  There's nothing too strange about that, the other Global markets have similar gains and Japan's Corporate Profits are up 23% over the same period – so 2/3 of the move may even be justified.  

Japan, along with most of the World's markets, has been quite the under-performer for the past decade.  Back in May, I was interviewed on China Global Television and we were discussing Brazil's scandals and we decided we liked Brazil's ETF (EWZ) for a bullish play, saying:

So I like EWZ down here ($32.75) and we can take advantage of this dip with the following:

  • Sell 5 EWZ 2019 $25 puts for $2 ($1,000) 
  • Buy 10 EWZ 2019 $25 calls for $11.50 ($11,500) 
  • Sell 10 EWZ 2019 $35 calls for $5.50 ($5,500) 

That's net $5,000 on the $10,000 spread that's over $7,000 in the money to start.  The upside potential is $5,000 which would be a 100% return on your money and your worst-case downside would be owning 500 shares of EWZ for net $30/share ($15,000).   The ordinary margin on the short puts is just $780 so it's a very margin-efficient play as well.


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Tricky Tuesday – Markets Flat Ahead of the Fed

What an exciting rally!

As you can see from our Big Chart, our indexes are up about 5% in the past 6 weeks and, so far, no sign of slowing down despite declining volumes.  The Russell (small caps) is our leader, with a 10% move in 6 weeks and only the one little pullback in early Sept – before a solid 7.5% move straight up since.  

As I noted on Thursday, we pressed our Russell (IWM) short positions using the Ultra-Short ETF (TZA) with Nov $12 calls, which were $1.35 at the time and are now $1.45.  Per our fabulous 5% Rule™, we expect a 2% (weak) retrace of the 10% run from 1,368 to 1,512, which was 54 points so 11-points back we'll call the 1,500 line and a stronger retrace of 4% would take us back to 1,490 (rounding again).  

We weren't too far off yesterday, bottoming out at 1,503 but we're pretty confident we'll hit our goal as the other indexes are at their 5% lines and not looking like they won't pull back a bit (1%) as well.  Not yet though, because tomorrow we get the Fed Minutes, which will tell us nothing new but will still be a good excuse to rally back a bit.  Also, the Dollar has dropped 1% since Friday and that is supportive of the indexes – as well as commodities and oil above $50 boosts the Energy Sector, which boosts the S&P, etc…

Anoter way to manipulate the markets is to throw out a bunch of upgrades like BAC upgrading Apple (AAPL) to $180.  AAPL is a major market-mover and BAC timed their report to come out on a very slow day, maximizing the impact of their report.  The reasoning is as bogus as the timing as BAC apparently JUST found out that AAPL will be able to repatriate some of it's cash from overseas at a low tax rate.  As I noted in our Live Member Chat Room this morning:

AAPL/Maya – If that isn't baked in by now, people are idiots.  Also, it's not true that AAPL somehow can't access their cash – obviously,


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Meaningless Monday Market Movement – Happy Columbus Day

In fourteen hundred and ninety two

Columbus sailed the ocean blue – and got totally lost, missed India by 6,000 miles but called the Native American Islanders Indians anyway, slaughtered them and stole their gold and, lacking any real wealth to go back to Spain with, instituted a slave trade that lasted 250 years and ruined the lives of tens millions of people.  Yay!  

I got called into the Principal's office when my daughter gave a report like that in 7th grade – just 5 year ago.  Suddenly, it's in vogue to question our "heritage" and the legends of the founders and that's a good thing.  You want Russians to question Marx and Lennin and you want the Chinese to question Mao so why shouldn't our children question Columbus and Jefferson?  Either you want to raise critical thinkers or you don't.

There aren't many critical thinkers playing the markets these days.  Over the weekend, Trump and North Korea continued their Twitter War after Trump's "calm before the storm" comments on Friday and Saturday afternoon, the President of the United States tweeted "Presidents and their administrations have been talking to North Korea for 25 years, agreements made and massive amounts of money paid…hasn't worked, agreements violated before the ink was dry, makings fools of U.S. negotiators. Sorry, but only one thing will work!" to which Kim Jong Un said that proved it was necessary to protect themselves against the “nuclear threats of the U.S. imperialists.” Kim Jong-un also said that North Korea’s nuclear weapons are a “powerful deterrent firmly safeguarding the peace and security in the Korean peninsula and Northeast Asia.” 

Senator Bob Corker, the Republican chairman of the Senate Foreign Relations Committee, charged in an interview on Sunday that President Trump was treating his office like “a reality show,” with reckless threats toward other countries that could set the nation “on the path to World War III.”  Other key quotes from that interview were:

  • "I know for a fact that every single day at the White House, it's a situation of trying to contain him."


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