Monday Market Movement – Back to the Top

It's quiet time.

With a Fed Meeting a week from Wednesday, the Fed has entered a "quiet period" where there won't be any policy statements.  At the moment, based on last week's comments, odds are strongly favoring a 0.25% rate cut – even though the market is at record highs, unemployment is at record lows and inflation is at or over the Fed's 2% target so a rate cut, if we get one, will undercut faith in the Federal Reserve as being independent of the Government and will render them far less effective for years to come – but at least Trump will get his bonus rally.

As you can see from the S&P chart, as we expected, breaking out over the Strong Bounce line is taking us back towards the highs and last time we did this (June) on hopes of a China deal and a rate cut, we ran up another 2.5% over 2,950 to 3,020 so 3,100 would be the ideal goal of this run on the S&P (/ES) – at which point we'd probably start shorting again – deal or no deal with China.

Still, there's probably a month of this nonsense to deal with – 30 days in which the bulls will once again become insufferable with their ever-rising predictions for higher and higher market prices.  It's a very annoying time to be a Fundamentalist and, come to think of it – we don't enjoy the crashes either – maybe I should stop thinking and become a TA guy…

Not a very exciting week on the Economic Calendar and earnings are barely trickling in at this point but still a few big guns reporting – even at this leat stage:

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GameStop (GME) is very interesting as yes, they are going through a rough patch but not as rough as is not indicated by their $4.30 price as they made $7.5M last quarter and $4.30 is just $413M for the whole company so, even if they only made $30M for the year – that's still pretty reasonable but Q4 is their big one and they had an operating income of $196,300 from 11/2-2/2 which was wiped out
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Non-Farm Friday – Is America Working and Do the Markets Care?

We'll see how the trend is going today.

On the whole, job growth has been weaker than expected, especially since the US population grows by 2M people each year so we need 166,000 new jobs per month just to stay even.  That's just about been Trump's average since he was elected, a far cry from the 10.2M jobs (212,500 per month) Obama added in his second term.

In fact, we generally average 200,000 jobs per month under Democrats:  Clinton added 23.5M new jobs in two terms and even Carter added 10.3M jobs in a single term and Kennedy/Johnson put up 15.6M jobs in 8 years.  Even Ronald Reagan managed to add 15M jobs in his 8 years so Trump will be a real outlier if he continues at this anemic pace but, fortunately, he can always point to the Bushes, who added a total of 3.3M jobs in 12 combined years at the helm, leaving 32M new Americans with very little opportunity to work.  

It would seem amazing that Americans would want to return to those days yet they voted for a guy who espoused the same policies the Bushes used to run this country into the ground (S&L Crisis from Poppa, Great Recession from Junior) but that's where we are at the moment and now the question is whether we WANT a strong job number or not because a strong jobs number (over 200,000) could take the Fed off the table at the next meeting (18th) as this is the last major data-point before they make their decision.  

Total private industries employment.png

With China "fixed" and strong jobs and record-high market levels – what possible justification would the Fed have in two weeks to lower rates?  Inflation is clearly climbing and wages are rising – these are generally reasons the Fed would RAISE rates, not lower them so, if you are a big fan of FREE MONEY – you'd better hope this job report is another disaster – like last month was!  

8:30 Update:  Disaster it is!  Only 130,000 jobs were added in August and July, which was already a weak 148,000, has been revised down to 131,000 so, even with that – we're worse than last month!  Hourly earnings, on the
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Trade Talk Thursday – China Negotiations Back On!

Wheeeeeeeee – this is fun!

We're up another 1% this morning as Trade Talks between the US and China are now officially scheduled to resume – in "early October" and if that isn't worth another 300 Dow points – I just don't know what is?  According to the WSJ: 

Expectations for a breakthrough in trade talks are low, as tensions have risen between the two countries. Neither Beijing nor Washington specified a start date for the talks, which would be the 13th round in a series of on-and-off negotiations that began in January, after the U.S. initially agreed to hold off on further tariffs to try to reach a trade deal.

“The path to even a modest deal is strewn with many obstacles, as neither side is likely to pull back any of the existing trade sanctions without substantial concessions from the other side,” said Eswar Prasad, a China expert and economist at Cornell University.

Hell, that's got to be worth 1,000 points – doesn't it?  We're up 600 points on they Dow since Friday and up 1,200 points off our August 23rd low at 25,400.  Correct me if I'm wrong but isn't the trade war the ONLY reason the Fed was considering raising rates and isn't a good part of this last 1,200 point rally based on expectations the Fed will lower rates?  So are we now expecting the Fed to lower rates AND to get a China Trade Deal?  It's like Santa Clause AND the Tooth Fairy will come on our birthday!  I'm sure it has happened to some kid, somewhere – but it's got to be pretty rare – not the sort of thing you should bet your portfolio on…

Not only that, but didn't we have a rally in June when trade talks were scheduled for September?  That never happened and then we crashed from S&P (/ES) 3,020 back to 2,800 in August and then we began the "Fed will save us" narrative that took us back to 2,950 and now we're going
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Whipsaw Wednesday – Hong Kong Capitulates and Johnson has a Coup

Hong Kong shares jump, with property subgauge up most since 2015What a night it's been!

The MSCI Hong Kong Index popped 5.4% – the biggest gain since a massive stimulus bill in October, 2011 led by Real Estate firms that almost hit the limit up 10% as the Government finally gave in to protesters and witdrew the extradition legislation that had started the protests over a month ago.  Hong Kong also declined to set up a comission to investigate the protesters – another point of contention

The index had fallen 8.6% in August as the protests raged and properties were down 20% as the real estate market ground to a halt and values began dropping.  It's not clear, however, that the protests will end as there are several more issues on the table but any sign of flexibility on the part of the Government is a huge step forward and, for now, the markets are thrilled.

Yesterday we also noted that, while Boris Johnson was talking on the floor of Parliament, one of his House Conservatives, Phillip Lee literally got up and walked across the aisle to join the opposition party, taking Johnson's one-vote lead with him. 

“I have reached the conclusion that it is not possible to serve my constituents’ and country’s best interests as a Conservative Member of Parliament,” Lee said in a statement.  “This Conservative government is aggressively pursuing a damaging Brexit in unprincipled ways. It is putting lives and livelihoods at risk unnecessarily and it is wantonly endangering the integrity of the United Kingdom.”

If only the Republicans in this country had the same level of integrity!  Lee's defection stops Johnson from forcing a "NO DEAL" Brexit next month and, of course, that's a massive relief to European markets.  Lee inspired 21 other Conservative politicians to defy the Prime Minister and vote to delay Brexit until 2020.  Johnson was, of course, outraged and called for a general election in an attempt to get the public to give him more Ministers but he's clearly lost control of his party
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Tuesday Already? Short Week Opens at 2,900 on the S&P 500

We're not off to a good start

Of course we knew last week's "rally" was nothing but BS window-dressing to end the month on a high note, though the indexes were still down overall, giving us a losing month that caused a lot of technical damage on the charts. 

The S&P was at 2,900 last September and we held on all the way until early October, and then we crashed into the end of the year, hitting 2,400 at Chrismas, down 17.25% and it took us all the way until April to get back to 2,900 – and here we still are! 

"Well we know where we're going

But we don't know where we've been

And we know what we're knowing

But we can't say what we've seen

And the future is certain


Give us time to work it out" – Talking Heads 

What is certain is that Trump did carry out his evil scheme to put more tariffs on Chinese products that US Consumers have to pay for and, as we feared (though was denied last week), China IMMEDIATELY retaliated by placing a levy on US crude imports, encouraging buyers to stop buying US OIl, which is exactly what Trump's donors didn't want though, of course, Putin wins again as Russia is China's largest supplier.  China also placed tariffs on additional US Goods and the Chinese Government has filed a complaint with the World Trade Organization, who are very likely to rule against Trump so our next crisis may be pulling out of the WTO.  

Hong Kong protests are getting worse, not better and we're now 60 days away from a "NO DEAL" Brexit that will throw the EU into chaos and UK Prime Minister, Boris Johnson has said he will call for new elections (they can do that) if Parliament tries to block
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Fabulous Friday – Finishing the Month with a Bang!

Image result for trump hamlet cartoonTo trade or not to trade?

Trump said yesterday that the US and China are scheduled to have a "conversation about trade" without giving any actual details after China said what the media are interpreting as signals they won't retaliate against the latest US increase but I interpreted as the usually vague niceties China tends to utter when they are about to crush you (see yesterday's report).  Trump is like a cartoon character – with his economy going off a cliff and an election looming but, standing at the edge of the cliff with China about to push him off he says – NOW I have them right where I want them!   

Sadly, this is not how it works in real life yet you can't tell that to investors who are being herded back into stocks by MSM pundits who are screaming BUYBUYBUY – as if this is the opportunity of a lifetime with stocks 2.5% below their all-time highs.  I for one am disappointed, traders are supposed to be smarter than the average American yet they fall for this BS?  Of course, the very, very low volumes on the S&P indicate not many people are really falling for it.  The pattern continues that we have low-volume rallies and high-volume sell-offs so there are actually more sellers than buyers – they are just reeling in the buyers like fish on a hook.

S&P ETF (SPY) volume:

Date Open High Low Close* Adj Close** Volume


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Thrilling Thursday – 5 Trade Ideas to Make $25,000 in 5 Months

Image result for trump china cartoonThere's a huge move up in the Futures this morning simply because China said they wished to resolve the trade dispute with a "calm" attitude.  I've never seen a market move up and down 1% on words before.

  • “We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with calm attitude,” Gao Feng, spokesman for China’s Ministry of Commerce, says Thursday, according to a CNBC translation of his Mandarin-language remarks.
  • Gao noted the Chinese and U.S. trade delegations have maintained “effective” communication.
  • But he did not confirm U.S. President Donald Trump’s claim on Monday that the Chinese team called the U.S. over the weekend with the desire of reaching a deal soon.

So that's hitting the headlines but, as I'm sure you read in the People's Daily (Government Publication) this morning:

US risks losing big for fighting trade war with China

The trade war has already affected both sides. However, all you need to do is look at the videos of Chinese shoppers crowding the aisles of the Costco store in Shanghai to know that the United States has a lot to gain from greater cooperation with China and a lot to lose if it erects a wall between the world’s two largest economies.

China saying they firmly reject an escalation of the trade war ahead of Trump's plans to escalate the trade war…
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Window-Dressing Wednesday – Can the Indexes End August on a Positive Note?

We're down a lot for the month.

We're down a lot for the summer, in fact as the S&P 500 (/ES) was at 2,971 on July 1st, 2,980 on August 1st and on May 1st, we were at 2,952 and today at 2,860 so we could have, in fact, sold in May, gone away and had a great, long vacation – instead of feeling very much like we need one after treading water all summer.  

In our Mid-Year Portfolio Review our main Long-Term and Short-Term paired portfolios were at $2,093,568 (from a $500,000/$100,000 start in Jan, 2018) and our strategy was to stay neutral in what we thought would be a choppy market and now, two months later, the LTP/STP stand at $2,075,462 but we've moved $100,000 more towards cash in the LTP and $75,000 more to cash in the STP so we've lowered our exposure while also taking advantage of dips to roll our long positions as planned when I said in early July:

That's our very simple long-term investing strategy in a nutshell.  Stocks cycle up and down and we almost automatically take advantage of the dips buy buying bigger positions and because we usually sell calls to cover our positions, we tend to set realistic targets for our exits though that doesn't prevent us from setting up new positions using SOME of the cash we made on the first round.  The bottom line is we don't just let our risk expand – the system keeps the cash moving down to the bottom line…

So staying even(ish) and moving $175,000 (8.3%) back to CASH!!!, where it's safe, was a reasonable way to spend our summer but, on the whole, I would have been happier hiking in Norway or something else far away from all the nonsense going on in this country.  Then I could have come back to work on Tuesday (Monday's a holiday!) and said "Oh, is Trump still President?"   

We did a little bit better with our Options Opportunity Portfolio, which was featured over at Seeking Alpha and was initiated on Jan 2nd, 2018 with $100,000 and, as of June 17th, we had run it up to $276,735 and, though we were also cautious with the OOP over the summer, we didn't take as many…
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Turnaround Tuesday – Trade Talk Turns Positive

And up we go again!  

As you can see from our S&P (/ES) chart, we made a perfect weak bounce yesterday so today we see if we can get follow-through to the strong bounce line at 2,910 but keep in mind that it's easy to manipulate the indexes within their bounce lines – the hard part is breaking over them.  Also, the end of the month is coming so we have the usual window-dressing to prop up the markets along with the Government and Fed meddling – everyone wants the market to go higher – so why isn't it?

Clearly SOMEONE is selling and they seem to be selling hard as these low-volume rallies exhaust themselves and it doesn't have to be one person but someone or some group clearly is cashing out of the market and then the suckers come in and buy the dips until it's time for the sellers to dump their shares again.  Wash, rinse, repeat after that.  

Yesterday, at the G7 conference, Trump was a bit more flexible-sounding on the China Trade deal and China said they would love to negotiate a deal but this is what they all say all the time – and we're now into year 2 of these "negotiations".  The US and China both wanted peace in Vietnam and then Korea – remember how that worked out?  These are two stubborn super-powers and, after two years, China has no reason to give into Trump as it's 50/50 that he'll be gone in a year – why would they give him concessions?  No one in China is up for re-election next year.

 

IN PROGRESS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PhilStockWorld August Portfolio Review (Members Only)

Image result for one million dollars animated gif$2,075,462! 

That's down $209,538 since our July 28th review and back to where we were at the beginning of July so, as we expected, a bit of a wasted summer as we've had a hard time gaining advantage in the market chop.  The challenge has been protecting the positions we have while trying to position ourselves to take advantage of a China Trade Deal that never actually comes.  

As you know, I'm very skeptical of a deal getting done and I wanted to cash out as even $1.4M (233%) is a silly amount of money to gain in less than 2 years in our paired LTP/STP portfolios.  Our aim is to make 60-80% in two years and we usually cash in and reset our portfolios when they are up 100% so we're miles ahead of our normal pace, thanks to the huge rally and also to our timing which turned the STP, which usually treads water when the LTP does well, into a bigger winner than the LTP.  

Since we are "going for it" and not cashing out (and see last week's webinar where I made an impassioned case for cashing out), we made a lot of aggressive moves this month to take advantage of the recent sell-off and, though we did add another hedge, I think our risk to the downside is substantially higher now so I'm setting a stop at $1.2M in the LTP (now $1,283,604) as it would be idiotic to let these gains slip away – I'd much rather cash in the whole thing and start from scratch.  And yes, if we're cashing in the LTP, we'll cash out the rest as well.

CASH!!! is a valid position.   In fact, since early July, the US Dollar has gained 2.5% so, had we cashed out early in the summer, we'd be better off than we are now.  I know that, as traders, you feel like you're not doing your job if you are not trading but WAITING is part of trading – or at least it should be.  We wait, patiently, for better prices on stocks we love – there's always something going on sale.

As much as I love our LTP positions,…
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