Thrilling Thursday – Trade Talks at S&P 2,728

2,728 once again!  

It's the same bounce line we were talking about in March – and that was 4 months ago now!  At the time (3/16), I said: "That, in turn, indicates that the majority of this trading is being done by robots and those robots are not trading with emotion or enthusiasm – they are just trading their pre-programmed ranges and it won't take much of a change of human hearts to send the whole thing crashing back down another 10% from here."  As it turned out, we did fall back to 2,575, "just" a 5.6% correction. 

As Fundamentalists, we need to consider whether things have improved or not since mid-March.  Earnings were generally good but Economic Indicators have deteriorated and, of course, we have entered into a bit of a Trade War, which could destroy the entire global economy – but let's not dwell on the negatives, OK?

The Chinese markets, of course, are falling off a cliff, like they did in 2015, when our markets also ignored them, until 3 months later, when the S&P dropped 12% from 2,100 to 1,850.  Maybe this time will be different – maybe China doesn't matter, maybe Trade Wars can be won, maybe Trump is a genius and his policies will all work – even though they seem more like they are going to bankrupt us at the momnet.  Hope can spring eternal but that doesn't make me want to bet on it!  

Rising money-market rates have forced the Fed to take steps to maintain control over its key policy benchmark. With the bill issuance rising and the Fed unwinding its balance sheet, the front-end is poised to take center stage and we'll get the Fed Minutes at 2pm this afternoon and, of course, Non-Farm Payrolls come out tomorrow at 8:30 am, which can also be a market-mover.  

Note the overall p/e for the S&P 500, according to JP Morgan (JPM) is up at 20.6, about 5% over the historical norm but the forward p/e still carries inflated expectations of 16.1, which is in-line with the historical norm but a huge stretch to think earnings will improve 20% over the next 18 months but hope continues to spring eternal and the…
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Terrific Tuesday – Markets Recover into the Break

Wheeeee, what a ride!  

I told you there would be lots of action and we had it all yesterday already – from 24,450 at Friday's close to 24,050 at yesterday's lows and back to 24,450 this morning – see how meaningless Mondays are?  Today will be even more meaningless as the US Markets close at 1pm for the July 4th holiday, which is expected to be a huge travel weekend, with 47M people expected to travel for the holidays – 2.1M by plane!

That's the most in 20 years but only really a 1-2% increase over last year yet gasoline (/RB) is selling at retail for $2.87 per gallon vs $2.28 last year so up over 25% despite there being just as many barrels in storage this week (241.2M) as there were last year (241.0M).  This is complete and utter nonsense and we feel prices have been manipulated higher and will correct after the holidays. 

In fact, speaking of manipulation, you can see from the EIA Report last week that these bastards EXPORTED 3,088,000 barrels of Refined Products (gasoline) PER DAY last week – effectively stealing 21.6 MILLION barrels from Americans and creating an artificial shortage in this country to drive up prices – WHERE IS TRUMP ON THAT???

It's too scary to short Gasline Futures (/RB) but we do like shorting Oil Futures (/CL) as they test the $75 line (with tight stops above) and we're also using the Ultra-Short ETF (SCO) to short oil with Sept $15 calls we bought for the Options Opportunity Portfolio for net $2.10 (we bought back short Sept $18s we had sold as a spread) and now they are $1.65 so we're going to take the OPPORTUNITY to roll them down to the Sept $13 calls at $2.75 to put us $2.30 in the money for $1.10 more money.  If all goes well and oil moves back below $68.50, this Ultra-ETF should pop 20% to $18+ and we'll collect $5 back on our net $3.75 entries.

Keep in mind we're using tight stops on our Oil (/CL) shorts over $75 so a $200 loss on an…
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Monday Market Movement – Slow Week, Lots of Action!

Trade Wars are heating up!  

With Trump's tariffs set to take effect on July 6th, our former allies and trading partners are responding with tariffs of their own and, as we expected, that's not getting a good reaction from the stock market.  This was not a complicated premise, folks – no one wins trade wars – only psychopathic egotists and their sychophantic followers think otherwise.  Unfortunately, those are the people in power in America

The EU announced $300Bn worth of additional tariffs this weekend in retaliation for tariffs on their automakers in a written statment to the Department of Commerce (in other words, VERY serious) which pointed out what everyone but Trump seems to know – that European auto brands represent 25% of US-based auto production (4.5M cars worth $160Bn or about 30 Harley-Davidsons), providing jobs for over 1M Americans.   

Japanese automakers account for another 1/4 of US production and another 1M US workers and, in fact, the "foreign" manufacturers make more cars and employ more Americans than Ford, GM, Chrysler and Tesla combined.  Are there ANY US auto plants in China? No.  In Japan?  No?  In fact, Ford (F) employs less than 100,000 (out of 2M) production workers in other countries.  Imagine how hypocritical our trade posturning looks to people who are actually aware of the global situation? 

Image result for trump temper tantrum animated gifImagine how embarassing it is when your elected leader goes off on factless tirades launching baseless accusations at supposed allies and engaging in policies that are nothing but detrimental to the Global Economy…  We are used to having Presidents who stayed awake in school or at least learned something about the World along the way to the Presidency – being governed by effectively a selfish, clueless 5 year-old is a new experience for all of us.  Too bad it has real-life repercussions.

Unfortunately, this trade tirade is going to have devastating Global repercussions.  BMW estimates Trump Tariffs will cost it 20% of their profits in 2019 and Mercedes and Volkswagon are projecting 10% losses but moving more plants to the US would not make it better as they would be spittlng certain production lines for no logical reason – making production less…
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TGIF – Markets Close Q2 In the Red for the Year

What a rally, right?

It's funny how excited people can get over nothing and, if you listen to CNBC or the rest of the Financial Media, you would think this market is completely unstoppable because we bounced off 24,000 on the Dow yesterday but that's only because they assume you are an uncritical viewer with no memory and no ability to step back and look at the big picutre which, as you can see from this Dow chart – does not actually look all that thrilling – even with this morning's 0.5% pop in the Futures.

The Dow opened 2018 at 25,250 so we're about 1,000 points lower (4%) at the moment and the S&P is basically flat at our 2,728 line and the Nasdaq is higher at 7,100 from 6,700 so call it 6.5% and the Russell is up 100 at 1,650 (also 6.5%) and the NYSE (the broadest index) started the year at 12,900 and sits at 12,500 so down 400 is -3% for the year.

So it's a mixed bag and not too exciting and, of course, this is the last day of Q2 with a very low-volume holiday week approaching which means a lot of the action we're seeing now is window-dressing and not at all to be taken seriously.  Also, notice that, this morning, 

 

IN PROGRESS

 

 

 

 

 

Thursday Thoughts – Wild Market Gyrations Continue

Wheeee!  That was exciting!  

Fortunately, we were expecting the bounces yesterday morning and, even more fortunately, we expected them just to be bounces and my opening call in our Live Member Chat Room was 

Looks like a bit of a bounce this morning and we'll see how far but the Dow is the laggard to the upside and, if we get over 24,350, you can play /YM bullish with tight stops as long as the VIX keeps going down (now 1,580) and the Dollar stays under 95 (now 94.75).

The Dow flew higher but we were already taking it off the table at 10:16 with a non-greedy exit:

Don't be greedy on /YM longs, of course, 150 points is a quick $750 per contract and you can get back in over 24,500 with tight stops below that line if you are worried about missing out.

Forutnately, we had laid out the likely bounce lines in Tuesday Morning's Report so our Members were prepared for AND NOT FOOLED BY the morning "rally".  My comment on Tuesday was:  

Notice how technically neat the S&P is behaving, bouncing right off the 50-day moving average at 2,716 and that's exactly down 2.5% from the high at 2,785 so we're right on the money with our 5% Rule™ and that means we'll watch for 14-point bounces to 2,730 (weak) and 2,744 (strong) though anything over our 2,728 line is a pretty bullish recovery for the moment.

Other bounce lines will be:

  • Dow 25,400 to 24,200 is 1,200 points (4.7%) and we'll call the bounces 250 points to 24,450 (weak) and 24,700 (strong)
  • Nasdaq 7,350 to 7,000 is 4.7% but really 350 was a 5% overshoot of 7,000 (and we're on the way to 6,500) but the Nas will bounce 75


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Will We Hold It Wednesday – 24,000, 2,700, 7,000 and 1,650 Edition

Lines in the sand.

The above levels for the Dow 30, S&P 500, Nasdaq 100 and Russell 2,000 are lines in the sand that the bulls dare not cross or we will, like China already has, enter bearish correction territory.  As I have been saying all month, we're expecting at least a 10% correction from the top and that's 22,850, 2,550, 6,500 and 1,600 – so we still have about another 5% to fall before we get interested in bottom-fishing.  

We did pick up a couple of longs yesterday, in our Live Member Chat Room as we caught CitiGroup (C) down at $65 and Royal Caribbean (RCL) at $105 – so we sent out a Top Trade Alert with bullish plays on both of them.   We have to be careful with banks as European and Asian Banks are off a cliff and the fact that it's being ignored in the US reminds me very much of 2007 – when we acted as if nothing that happened in Europe or Asia would affect us.  Here's a list of 16 of the 39 Global Sifis (Systemically important Global Banks) that are already down 20%:

Deutsche Bank, Nordea, ICBC, UniCredit, Crédit Agricole, ING, Santander, Société Générale, BNP Paribas, UBS, Agricultural Bank of China, AXA, Mitsubishi UFJ Financial Group, Bank of China, Credit Suisse and Prudential Financial.

According to the Financial Times, the synchronised dips were a sign of global financial stress.  Ian Harnett, the managing director of global strategy at Absolute Strategy Research in London, used the data this week to send out his first “Black Swan” alert since 2009.  The alert he put out on Monday was his first since a warning on inflationary risks in June 2009, as oil prices climbed higher. Mr Harnett drew parallels to another bearish note he wrote in March 2007, when European banks began to sink while non-banks marched higher.

We'll keep an eye on that into the holiday weekend but, on the bright side, Trump has already folded on his tough talk on China and is now falling back on our existing restrictions placed by Congress' Committee on Foreign Investment in the United States, or Cfius, which reviews investments for security threats.  “We have the great scientists, we have the great brains,”
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Tarrific Tuesday – Trump Tweets Tariff Talk (again)

First of all – you're welcome!  

Our trade idea in yesterday morning's PSW Report was:

"We'll probably test good old 2,728 on the S&P (/ES) and here's a chance to prove a bullish consolidation if it holds.  The Nasdaq (/NQ) is down to 7,159 and still almost 10% above our 6,500 target but the Dow (/YM) is falling fast at 24,400 – just another 1,000 points to hit a proper retrace there and, of course, the Russell (/TF) thinks Trade Wars don't matter but, if the VIX is over 15 – I'd short the crap out of /TF – now 1,683 with tight stops over 1,700.  "

Aside from gaining $1,400 for each short contract on the Russell Futures, our Nasdaq shorts from last week's Live Trading Webinar at 7,350 made $3,000 per contract at the 7,000 line and now we're watching to see what kind of bounces we get but, just this morning, the S&P failed EXACTLY at our predicted and long-standing 2,728 line, which is where we consider the proper TOP of the S&P's range for the summer:

Notice how technically neat the S&P is behaving, bouncing right off the 50-day moving average at 2,716 and that's exactly down 2.5% from the high at 2,785 so we're right on the money with our 5% Rule™ and that means we'll watch for 14-point bounces to 2,730 (weak) and 2,744 (strong) though anything over our 2,728 line is a pretty bullish recovery for the moment.

 

IN PROGRESS

 

 

 

 

 

 

 

 

 

Monday Market Madness – Trade Wars Escalate

Now what has President Trump done?

You know, you shouldn't have to wake up in the morning and have that be your number one concern.   The President of the United State of America is, traditionally, a stabilizing force in the World, not an agent of chaos!  While, Republican voters seem to be loving the chaos so far (90% of them approve of the President) – how many times can he roll the dice before he craps out and pisses off the whole table?

Aside from escalating the Trade War this weekend by barring Chinese investments in US tech firms (sending the markets tumbiling again), Trump has decided to suspend Due Process, which is in both the 4th and 15th Amendments to the Constitution because that's how important people used to think it is!  Now, ordinarilly we'd say "Well the President can't just suspend due process, this isn't a dictatorship, we have a system of checks and balances to reign in a President from having absolute power.  Even if he could get a Republican Congress to go along with something so outrageous, we have a Supreme Court full of lifetime apointees who will prevent him from violating the Constitution."

Did you manage to make it through that without laughing?  Well, that's the situation we have now, unchecked power in the hands of Donald Trump and today he's using it to suspend due process.  Of course, it's only being used against immigrants at the moment but that's kind of the point of that famous poem by Pastor Niemoller about the Holocost:

"

First they came for the Socialists, and I did not speak out—

Because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out— 

Because I was not a Trade Unionist.

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TGIF – Dow’s Down Week Comes to a Close

8 days a week

Well, 8 days in a row that the Dow has been down after topping out at 25,400 back on June 11th and having tested 24,400 for an even 1,000-point drop yesterday afternoon.  That's right about a 4% correction on the nose and the 5% line is 24,130 so, if we assume that is the full pullback (not yet completed), then the fall is 1,270 points and we'll call that 1,250 and look for 250-point bounces so a weak bounce would be 24,380, which is the 4% line again and the strong bounce, to the 3% line, would be 24,630 so that's the line we need to see the Dow take and hold today in order to be impressed.  In fact, 24,658 is the 50-day moving average on the Dow – so let's make sure we get those extra 28 points too! 

 The Dow is down 1% for the year so up 1% (250 points to 24,750) is also very important to make.  Meanwhile, as you can see from the chart above, the Nasdaq is still up 12% for the year – though we made a lovely $5,535 on Wednesday's short position (see yesterday's Morning Report) and we HOPE it bounces back towards our shorting line at 7,300 so we can do it again.  

As I said to our Members in our Live Chat Room yesterday morning:

I'm still on the 6,500 bandwagon but I don't know when so better to make $1,000 80 times than spend 3 months waiting for a big drop! 

Well, now we can cross 5 of those 80 times off the list!  Overall, it's just been a small correction but it's more the failure at the top that we're watching, and we'll see if we can retest that next week.  As I noted earlier in the week – nothing really matters unless the NYSE can retake 12,800 and I doubt we'll even get to test that today so it's a "watch and wait" day into the weekend.

The big news today is, of…
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Thrilling Thursday – Asia Takes Trade War Seriously, Americans Oblivious

Image result for quiet placeAs long as you are quiet, the monsters can't get you.

While it's a fun plot for a movie, it dosn't play out very well as a trading premise and just because we choose to ignore problems, doesn't mean they will go away – or leave us alone.  The market was heading back up into the close and again in the Futures but then those dummies at Dailmer had to make a sound (a profit warning due to tariffs) that sent all the EU auto-makers lower

This isn't about Trump's tariffs, this is about the Chinese tariffs that are a retaliation to Trump's tariffs to which he has threatened to retaliate with more tariffs which will, of course, cause China to retaliate with even more tariffs and so on and so on – we're only in the first inning of this game!  Both Dailmer and BMW are down over 5% for the week now after dropping 4% this morning in EU trading and EU markets are down about 1% but the US Futures are flat because we still think we can sneak past all the monsters without getting hurt.

Yesterday, in our Live Trading Webinar, we discussed some of the many reasons we were not going to chase the indexes higher and, in fact, we took a short on the Nasdaq as it tested 7,330 and caught a nice dip back to 7,300 for a $600 per contract gain and this morning we'll look for a chance to short it again as it's up for no reason.

We're still not a believer in the "rally" until we see the NYSE get back over that 12,800 line and we're about 1% away from it now and it's very, very doubtful that we'll get there today, no matter how quiet the US investors are.  

 

In fact, on the NYSE, we are wathing for a failure at 12,600 (the 200-dma), which would signal the very strong possibility of a leg down for the indexes.  We still have our long hedge on the Nasdaq and our 10 QQQ 2020 $220 calls from our June 12th Morning Report at $2,000 are already $2,550 for a 27.5% gain even though QQQ is only at $177.25, up $2.25 or 1.3% so we…
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