Technical Tuesday – Dollar Down, Markets Up – Duh!

So what?

The Dollar plunged from 93.95 to 93.25, which is 7.5% and the S&P 500 went up from 2,713 to 2,733, which is 7.5% – that is not a rally, that is the repricing of mechandise against a falling currency!  If you don't keep an eye on the Dollar, you are missing half the story on any market and also missing valuable trading signals that can make you lots of money!

In last Thursday's Report, we noted that the 5% Line™ on the Dollar was at 93.45 and you can see that line acting like a magnet, pulling the index back down for consolidation before going any higher.  While day to day news may pop the Dollar up or down, over the longer-term, it pretty reliably reacts to longer-term macros as the Dollar is the blood that flows through the global economy – it generally stays in a temperate and reliable band as the Global Economy breathes in and out over time.

Meanwhile, WTF is with Donald Trump?  Oh wait, I guess I should specify – WTF is with Donald Trump and this completely crap deal he made with China?  The trade deal he's walking away with is SO TERRIBLE for the US that even the Wall Street Journal has titled their front-page article:  "Beijing Outplays the U.S. in Trade War".  That's right, we got played as China gets everything they wanted in exchange for….  wait for it…  Cutting Import Tariffs on Cars from 25% to 15%.  Ta f'ing da!  

Aside from the fact that this "negotiating point" is one President Xi already said he was cutting way back in April, when it was noted in the WSJ: "Even so, people in the industry said the reshaping of China’s auto industry wouldn’t necessarily hand an advantage to entrenched foreign players that have come to rely on their Chinese partners, many of which are influential state-owned enterprises. Although overseas car companies entered the joint ventures reluctantly, some say they have come to accept them as a fact of life in a country where foreign businesses can struggle without local allies." 

In other words, after a month of tense negotiations by our Business Genius President, we got ZERO
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Just Another Manic Monday – S&P 2,728 – Again…

Wow, what a "rally".  

Half of Europe is closed and the Dow Futures (/YM) are up 225 points – back to 25,000 (again) and the S&P (/ES) are right back at good old 2,728 (our 20% line) with 6,925 on the Nasdaq (/NQ), again and 1,632.50 on the Russell (/TF) – so same old, same old and happy Monday.  The reason we're up is because China's $500M bribe for President Trump did the trick and suddenly we're rolling over on trade.  I'm glad – trade wars are terrible for the economy and we should give Trump credit if the whole thing was just a ruse to line his own pockets and not just the mindless pursuit of an iditotic policy that was doomed to fail…

Speaking of idiotic policies – we have the FOMC Minutes this Wednesday and 10 Fed Speakers into the 3-day Holiday Weekend (US markets closed next Monday).  I used to run down who was a hawk and who was a dove but they all sound like doves since Powell took over and we'll see if the minutes to the last meeting indicate the Fed is still on track to raise rates 3 times with only 5 meetings left this year. 

As earnings season begins to wind down, we're seeing analysts projecting that the 20% pop in earnings caused by the Trump Tax Cuts for Corporations will somehow happen again next year (it is certainly possible that, if the GOP keeps the House and Senate, they may pass another round of cuts for the Top 1% – crazy as that may seem).  Edward Yardeni of Yardeni research asks "What are Stock Industry Analysts Smoking" and his own 2019 estimates are $166/S&P share, about 5% below consensus.

Of course, all this is assuming nothing goes wrong and the President won't be impeached and we amicably resolve all our differences on Trade with China, Japan, Europe, Mexico and Canada and we peacefully disarm Iran and North Korea and prove Global Warming isn't a problem so Hawaii won't melt and neither will the ice caps and glaciers and Russia won't meddle in the November election (because we haven't done anying about their meddling in the last election, have we?), etc….

So, if none of those things go wrong – what is there to worry about?  

 

IN PROGRESS

 

 

 

Philstockworld May Portfolio Review (Members Only)

Image result for one million dollars animated gif$773,776! 

That's up $173,776 (28.9%) in our paired Long-Term and Short-Term Portfolios.  30% is a healthy goal for an entire year (and Berkshire Hathaway averages 16.3% per year) so I really, Really, REALLY would love to cash out at this point and take the summer off.  As I have said for the past two weeks, if it wasn't my job to teach people how to trade – including running portfolios during downturns – I would absolutely be cashing out and, to that point, both of my kids' college accounts are in CASH!!! and our Hedge Fund is 90% CASH!!! at the moment so, yes, that is what I would do with my own accounts!  

As long as the indexes are holding above their 50-day moving averages, we're not in immediate danger so, with what we're playing, I'm not going to hedge too heavily either – unless we get signs of a deeper breakdown.  This market seems to bounce back from everything but so did the market in 2007 – until it finally didn't.  It sure would have been nice to be sitting on the sidelines with 128.9% of your money back then, right!

As it stands, our Long-Term Portfolio has 62% of it's cash on the sideline while the STP has 90% on the sideline so we've got plenty to deploy in a downturn.  We just finished our reviews and, in the LTP, there was only one adjustment to make so we like all of our positions and are happy to add more to them if they get cheaper and there were no adjustments to make to the STP, so we're happy with our hedges as well…

Also, these are new portfolios, started Jan 2nd this year as we decided to cash in after our November Portfolio Review last year but we did follow through with my plan, which is why we're doing so well after just 4.5 months of trading in the new portfolios:

Really, I am sorry I've been so cautious but I could not, in good conscience, risk those spectacular gains into Q3 earnings and the Holidays.  We have a lot of open positions and they'd be difficult


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TGIF – A Weak Week in the Markets Drifts to a Close

Same old, same old…

We're at the same levels we were at on Tuesday (a bit weaker), when we extensively went over the technicals, so we're not going to do that again.  As you can see on the S&P chart, our short at 2,728 on the S&P Futures (/ES) is still holding up and we see no reason to change it today or over the weekend.  Similarly, our big shorting hedge on the Nasdaq (/NQ) is still up $2,000 per contract (from 7,000) at 6,900 and our predicted bottom is a $10,000 per contract gain at 6,500 if "sell in May" becomes a thing around the holiday weekend.

We primarily use the Futures for hedges as we are generally bullish in our 5 Member Portfolios and that means we like to have a little extra protection – especially when the broad market is shut down and we can't make any adjustments.  We're very happy with the portfolio performance so far this year and, in fact, we're too happy so, as we've been discussing in our recent Morning Reports as well as our weekly Live Trading Webinars, I think it would be far wiser to go to CASH!!! into the summer and we'll see if July earnings make us want to buy again.

We're not officially doing that because PSW is a teaching site so we teach people how to manage portfolios in good markets and bad but CASH!!! is a very valid strategy and allows you to take a nice vacation and have a life – those are good things!  Personally, our Hedge Fund is over 90% in cash and my kids' college accounts are 100% in cash into the summer – but you can play the market any way you want!  

One portfolio that we make available to the general public is our Money Talk Portfolio, where every trade idea is announced live on the show and we make no adjustments other than on those appearances.  I haven't been on since Feb 1st but, even so, the trade ideas in this ultra low-touch portfolio are already up 73.4% since September – not bad for 8 months and only a few adjustments.  

 

Being well-balanced is the key…
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Thursday Thrust – Russell Small Cap Index Rockets Away from Reality

WTF?

The Russell 2,000 Index is often disconnected from the other indexes but lately it's become disconnected from the economic data, which has turned substantially lower in Q2 while the index has rocketed from 1,500 on April 1st to 1,620 yesterday – not quite 10% in not quite 2 months.

As you can see from Zero Hedge's chart, this is the widest disconnect between the Russell and the Economic Surprise Index (data better or worse than expected) since last October, when the Russell topped out at 1,520 and then corrected 50 points to 1,470 but it only stopped when the Data turned more positive.  What's propelling the Russell to unreality this week is the suddenly strong Dollar, which is great for small cap companies who do the vast majority of their business locally, in US Dollars.  

But the Dollar can't keep up this pace and, in fact, just yesterday, the Hong Kong Monetary Authority stepped in to put a floor on their currency's slide and we can expect the PBOC and other Central Banks to follow as the Dollar hits the 5% Rule™ at  93.45.

Given the 4.45 run from 89, we can expect a weak retrace of 20% of that run (0.89) so call it 0.9 and that takes us back to 92.55 and a stronger retrace would be 91.65 – so that's what we'll look for to see if the Central Bank Interventions are enough to stop people from running to the relative safety of the Dollar while the World is in turmoil (see yesteday's Morning Report).  

 

IN PROGRESS

 

 

 

 

 

 

 

 

 

 

Weakening Wednesday – Global Markets Retreat as Tensions Ratchet Higher

I told you I like CASH!!!

In fact, I told you on Friday morning in our Report titled:  "TGIF – Silly, Low-Volume, Pumped-Up Week Finally Ends", saying:

"Volume has been anemic this week too with, 55M SPY shares trading on Monday, 67M shares on Tuesday, 59M shares on Weds and 68M shares yesterday vs an average volume of 101M shares so about 35% below "normal" volume, which is already close to half of last year's volume.  Why is volume drying up like this?  Because stocks are more expensive so the same money buys less and less stock and, because the economy isn't really growing – there is no more money to pay for the stocks – just a lot of idiots SPECULATING that there will be money to pay these ridiculous prices one day, so it's not important to actually earn any money because the greater fool theory will fix everything. 

"The greatest fools, of course, are the last people to buy at the top – we call them bag-holders and I have been saying all week that this test of our Strong Bounce Lines is a good time to dump your stocks on the bagholders that are coming in and get back to CASH!!!.  Again, I can only tell you what is likely to happen and how to make money trading it – the rest is up to you!"  

So far this week, the markets are down and the Dollar is up 1.5% and still cimbing this morning at 93.50, that's putting pressure on the indexes and commodities which makes people panic out of those and they then demand more CASH!!!, which drives up the price of Dollars (as they get scarce) and the cycle continues.  People are also trying to trade in their dying TBills for cash – so even more demand for cash.  Thank goodness housing is still dead or the Dollar would be back over 100!  

Image result for cash animated gifWe're thrilled to have a nice little pullback and we even bought a couple of stocks yesterday but, on the whole, we're even more thrilled to be mainly in CASH!!! during this period of market uncertainty.  You
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Technical Tuesday – Trouble at 2,728, Again!

The market is so predictable.  

There's a ton of money to be made from predictable, so we're certainly not complaining.  After a meaningless spike higher, the S&P calmed right down and finished right at our 2,782 line (2,730, actually) and this morning, as expected, the index is pulling back as the Dollar rises back to the top of it's range.  Eventually, one of these will break out and the other will fall – but which one will prevail?

We had a good run on /ES, all the way from 2,600 (barely touched two weeks ago) back to 2,728 and a 28-point run means we're looking for a 5.6-point retrace back to 2,723 (weak) and 2,717 (strong) and, even as I write this (7:30), the Futures bounced off 2,723, failed 2,728 again and are now testing 2,723 again but I think they'll fail as the Dollar is at 92.87 and rising and that's up half a point so we'll look for 2,717 and see how that's doing.  The Futures on the S&P (/ES) pay $50 per point so it's a quick $300 if that bet plays out and, of course, simply stop out over 2,723 to limit the risk.

The Dow is also having fun around it's own 20% line but, in this case, it's been unable to get over the line (25,200).  26,250 is the 25% line and that's 1,050 away but we'll call it 1,000 so we can call the bounce lines 200 points and that makes our up and down range from 25,200: 24,800, 25,000, 25,400 and 25,600 so we can chart that like this:

The Dow strayed down to the 200 dma at 23,750 so the run to 24,950 yesterday was 1,200 points and we'll call those rejection lines 250 points to 24,700 (weak) and 24,450 (strong) but that would take us back below the 20% line and that would be a big negative so very bad if 24,700 does not hold.  

Exxon (XOM) and Chevron (CVX) have been boosting the Dow as oil and gasoline test new highs but what's great for them is not so good for the industrials that use oil and gas to produce goods but, fortunately, there are not too many
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Just Another Manic Monday

Palestinian protesters run for cover from tear gas during clashes with Israeli forces near the border between the Gaza strip and Israel.28 protesters were killed in Israel and 1,000 wounded this morning (so far).

Jared and Ivanka were on-hand for the opening of the new US Embassy in Jerusalem and, to no rational person's surprise, things did not go well and now tensions are escalating and Hamas claims they will have 100,000 people ready to storm the fence between those two countries – this is, of course, the kind of tension Trump wants to bring to this country along our Mexican boarder.

In more anti-American news, Iraqis voted for populist cleric Maqtada al-Sadr, who openly fought against US forces and has allied himself with the Communist Party but he ran on the Trumpian platform of "draining the swamp", which plays just as well with ignorant Iraquis as it does with ignorant Americans.  This election puts al-Sadr on track to possibly become the next Prime Minister, which would be a tremendous blow that undoes all the progress the US has made in Iraq since the Bush years – yet another Obam policy Trump is completely reversing!

This has sent the price of oil (/CL) and gasoline (/RB) spiking higher this morning but not before we got a nice dip in /RB back to $2.17, an $840 per contract gain from our short at $2.19 on Friday.  

Speaking of reversing:  Trump announced this morning that he will be lifting the ban on China's ZTE Corp, which had been accused of "egregious behavior" in evading sanctions the US has placed on other countries as well as having phones that were a Trojan Horse for Chinese spyware.  Trump said in a Sunday morning tweet that he and Chinese leader Xi Jinping are working together to give ZTE “a way to get back into business, fast.’’  The U.S. blockade has choked off the revenue of the No. 2 Chinese telecom company, which  regards the next two weeks as crucial as it faces potential collapse. 

Trump’s comments about the company and concern about Chinese jobs come as the U.S. and China are locked in high-stakes negotiations over trade and intellectual property.  Both countries are threatening to slap tariffs
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TGIF – Silly, Low-Volume, Pumped-Up Week Finally Ends

What a week it has been! 

The S&P 500 has blasted off our 20% line (that's 20% above fair value, by the way) to the 23.33% line at 2,728 and that's what we call a strong bounce from the fall we endured way back in late Jan/early Feb and doesn't actually mean a thing until we're over it.  Otherwise, it's just a the top of the same trading range we've been in all year.  

This morning we have the Fed's Bullard speaking at 8:30, who used to be reliably hawkish but turned doveish last year – so anything can happen when he gives a speech this morning at his local Business Development Corporation (Springfield, MO) on "US Monetary and Economic Policy."  People tend to get a bit more real when talking to their hometown crowd – like the time Trump boasted that he "could stand in the middle of 5th Avenue and shoot somebody and I wouldn't lose votes" to illustrate how blindly loyal his base was.  

In our Live Member Chat Room (my "hometown" audience), I called for shorting the S&P (/ES) at 2,725 this morning as well as the Nasdaq.  Here it is in context.  

Markets holding on to yesterday's gains so far.   All about that strong bounce line.  

Bullard speaking at 8:30 so we'll see what he has to say and then Consumer Sentiment probably decreasing a bit at 10, but nothing likely to move the market other than Trump's Drug speech later and that's bound to spook that sector so I'd short /ES here (2,725) as we know they have trouble at 2,728 so $150 loss limit but very likely to give us a little run lower (though maybe wait until Bullard to be sure).  


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Trilling Thursday – Moving Back to the High End of the Range?

I don't want to get to excited but:

As we did on April 10th, we're poking back over the weak bounce line on the S&P after a huge and silly rally that completely ignored what was actually going on both globally and locally.  That spike lasted 3 days, less than March's 5-day spike over the strong bounce line but tied with February's spike over the strong line while January spent almost the whole month over the strong line before setting the year's lows (and the strong retrace) within 10 days.  

As we expected, yesterday was a fantastic day to cash out as there were buyers for our overpriced stocks all day long.  Have a good vacation smart people who took my advice!  We're expecting to top out at 2,720 (April's high) on /ES and then we'll try a short again but, as we did in yesterday's Live Trading Webinar (replay available here), we're still shorting the Russell (/RTY) below the 1,600 line (tight stops above) and /ES if they fail 2,700 – because we'd hate to miss that fun.  Dow (/YM) below 24,500 and Nasdaq (/NQ) below 6,900 would confirm weakness. 

For the rest of you, let's smash our heads in with those copper cups they serve Moscow Mules in (after drinking it, of course!) so we can get in the right frame of mind to pretend this BS market is worth talking about.  Ah, I remember Club Maximus in New City, NY when Monday's were Kamikaze Night and they played New Wave Music and served 3 shots for $1.   A Moscow Mule is really a Kamikaze but somehow they decided Kamikaze was insensitive or something.  Anway, back then you could get in if you LOOKED 18 so I was drinking there since I was 15, in 1978 and we'd drop $5 on the bar and the bartender would line up 15 shot glass and fill them all up, spilling plenty on the bar as well – ah, good times!  Then we'd dance to these songs:

No automatic alt text available.

No automatic alt text available.Having 15 drinks in front of
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