TGIF – Stopping the Week before it Gets Worse

Wheeeee!  

Yesterday was fun, wasn't it?  The Dow dropped 400 intra-day points – a 1.25% pullback as interest rates once again ticked higher – FREAKING investors out completely.  Clearly the Fed is losing control of the narrative and that is really spooking investors and, with Fed rates currently set at 0.25%, there's a whole lot of spooking to come…

We're now negative for the week on the S&P 500 but of course we were going to be rejected at the 40% line (above 2,850) at least on our first attempt to cross over.  From 30 to 40% has been just under 300 points so a 60-point (20% of the run) weak rejection (back to 3,930) was the least we'd expect and 3,870 would be the stronger rejection and is also the rising 200-day moving average, so it has a good chance of holding the first time as well, which means we didn't feel compelled to do anything drastic as we're certainly well-hedged enough to deal with a 5% correction – back to 3,845 (the 35% line).

As you can see, overall we're back to where we were mid-February – so no progress in the past month yet, to hear the pundits on TV – you would think this rally is going strong, wouldn't you?  And, keep in mind this was the month we officially passed a $1.9 TRILLION spending bill.  I wonder what we'll do to support the market next month?  As I noted on Monday – we're likely into the post-Fed blues and soon we get our Q1 earnings reports and I don't think they are going to look like 6% GDP growth, will they? 

Of course hope will spring eternal for Q2 and our $1.9Tn spending spree as all those stimulus checks hit people's bank accounts but most of that money will go to paying off rents and credit card bills – not into shopping and services.  That makes the Retail ETF (XRT) a fun short at $90 as that's FRIGGIN' INSANE since 50 was normal pre-crisis so XRT is probably a little ahead of itself here:

Do you think Retail Sales and profits are up 100% from 2019?  Probably not.  I love betting that reality will re-assert itself…
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Faltering Thursday – Powell Didn’t Promise Enough?

Everyone deserves a Federal Reserve bailoutHow much is enough?

Yesterday, Fed Chairman Jerome Powell essentially said the Fed will continue their Free Money Policy until 2023, which seems like a long way away until you think about how far away Christmas of 2019 was, when we were with our families and friends and not at all worried about catching a virus and dying.   Does seem like a lifetime ago, doesn't it?  

Yet, only 12 hours after Powell's speech and press conference yesterday, the markets began to sell off as the Dollar begain to recover from it's post-Fed drop of 0.75%, which boosted the indexes 1% and made it LOOK like the Fed had caused yet another rally but it's all BS – just theater-staging by the Banksters, who need to convince the Retail Investors to come in and BUYBUYBUY the stocks they are unloading at ridiculous prices.

Remember, the Dollar does not have a medium-term effect on the market – it has a strong short-term effect, almost no medium-term effect but then a strong long-term effect again – it's wierd.  Anyway, of great concern is how easily the Nasdaq fell below the 13,000 line this morning. You would think there would be support but there was none.  10-year notes flew up to 1.737% as Powell gave us no confidence that the Fed was going to control inflation (more likely will cause it) and, as we pointed out in our Live Trading Webinar – they failed to adjust their inflation expectations which, as we predicted, caused investors to lose confidence in their ability to give us a "soft landing".  When the pilot clearly can't see the dangers in front of him – it's time to grab your parachute!  

 

IN PROGRESS

 

 

Weakening Wednesday – Markets Turn Down Ahead of the Fed

Wheeeee, isn't this fun? 

It sure is when you are prepared.  We added a bunch of hedges on Friday to our Short-Term Portfolio and the two short Russell Futures (/RTY) contracts we picked up in yesterday morning's PSW Report are already up $5,000 and that's plenty for us to make a non-greedy exit at the 2,300 line as that's bound to be a little bouncy in the very least.  Congratulations to all who played along at home!  

Remember, I can only tell you what is likely to happen and how to profit from it – the rest is up to you.

When you make $2,500 per contract you need to protect your gains.  As we neared 2,300 yesterday, it was a 50-point fall so the weak bounce would be 10 points higher (20% of the fall), according to our fabulous 5% Rule™ and a strong bounce would be 10 more points to 2,320 so that became our stop and we didn't spend more than 5 minutes above that line so the stops didn't trigger but now that we're hitting goal at 2,300 – there's no reason to be greedy and we look for a "fresh horse" to bet on – an index that hasn't fallen like the others – yet.

   

As you can see, the Dow has fallen less than the other indexes in this sequence so now we pick lines and, in this case we have, of course, 2,300 on /RTY, 13,000 is a great line on the Nasdaq (/NQ) and we'll use 3,940 on /ES and, if two out of 3 of those fail, we can short the Dow (/YM) as our lagging indicator and that would then be confirmed by our 3rd cross lower and then, if ANY of our indexes poke back over their lines – we get out quick as our premise is only IF all the indexes keep falling we take the fresh horse out for…
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33,000 Tuesday – Dow Reaches for the Stars

32,953.

That's where the Dow closed last night after rallying from 32,500 at lunch.  Why?  We don't know – does it really matter anymore?  33,000 seems impressive but we were at 32,000 on Feb 25th (see "32,000 Thursday – Dow Touches Another Record") and, since then another 1,000 points is only a 2-day move in a month.  It came, however, in a spectacular fashion as we first fell to 30,500, THEN we climbed 2,500 points (almost) in the past two weeks.

 

 

IN PROGRESS

 

 

Monday Market Momentum – Up the Down Escalator

gif elevator sisyphus blake noel grawlixer •Still going up – kind of.

Sure we posted a record high on Friday, with the S&P closing at 3,943.34 but we hit 3,950.43 on Feb 16th (right after the holiday, when it was super-slow) but we were also hitting the 3,930s the week before and the week after so, unless we are going to sustain this level for a couple of weeks – this could be the double top to the rally we've been waiting for.  Biden is coming on TV at 1:45 to discuss all the exciting ways we can spend $1.9Tn but that gift has been given – "What have you done for us lately?" is the question the markets will ultimately be asking.

There's a Fed meeting this week and we're very unlikely to get "good" news out of that as the Fed is already doing all they can and more to keep the money flowing.  They've already said they'll do that essentially forever but yesterday I scraped my leg while bike riding and WHERE WAS MOM?  She said she'd "always" fix my boo-boos but she didn't – just another broken promise by the power-brokers!  

I don't love Mom any less for enjoying her retirement but how are we going to feel about Jerry Powell when he tells us to grow up and fix our own boo-boos?  Trump completely freaked out when Powell said he wasn't going to do more for the economy and that was what seemed a lifetime ago (remember when Donald Trump was our President – or was that just a bad dream?). 

Not even the most dedicated dead-heads will be chanting "Jerry" when Powell turns off the spigots but the real focus this week will be on the Fed's Economic Forecasts, which Bloomberg leading Economorons predict will show 5.8% GDP Growth this year.  That is possible as we DECREASED by 2.3% in 2020 so up 5.8% is net 3.5% growth since 2019 or, essentially, back to our normal(ish) around 2% annual growth – and it only cost us $9Tn (50% of our GDP) to do it!  

Unemployment is projected to persist around the 5% mark and inflation is projected to be contained unless, of course,…
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Forward-Looking Friday – Are We Hedged Enough?

$1,862,265!  

That's a gain of $95,674 since our February Review for our paired Long & Short-Term Portfolios.  Our LTP is predominantly bullish and the STP is where we keep our hedges – as they tend to need adjusting more often – as you are about to see.  Interestingly, despite the rally, the Short-Term Portfolio gained $40,000 – mostly due to our very well-timed short play on Tesla (TSLA), which we just cashed in last week.  One of the reasons we cashed it in is we now have $97,098 in cash to deploy so it's a great time to add to our hedges:

  • TZA – They reverse-split on us and this is our new position.  They should be $64 short calls (because they were $8s) but TZA only goes to $60.  It's a 3x ETF so if the Russell drops 20%, TZA should gain about 60% to $48 – so that's our actual target and, since $60 would be almost a 40% drop and we don't expect that, it means we can afford to sell more short calls if it comes up.  June $45s are $3 and that means we can double down on the $32 calls at $5.15 ($12,875) and sell 25 of the $45s for $3 ($7,500) and we have spent just net $5,375 to add $32,500 in additional protection.

  • TQQQ – Despite the dip, our Jan $100 put is showing a loss so far. Those are now $29.65 so the first thing we do is look to see if we can improve them and the Jan $120 puts are $43 and we won't pay $13 for $20 and the $110 puts are $36 so $6 for $10 is not much better.   We also won't pay $14.53 to buy back the short $70 puts, that are $20 out of the money so the best way to improve this position is to SELL 7 (1/3) of the April $80 puts for $5 to lower our basis by $3,500 and those can't go in the money unless our spread is $40,000 in the money and it's net $20,000 now – so hard to lose and we're BEING THE HOUSE! 

  • CMG – The


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13,000 Thursday – Nasdaq in Critical Territory

13,146.  

That's the 50-day moving average on the Nasdaq that we need to cross back over by tomorrow or it's likely the Nasdaq continues to correct back to the 200-day moving average at 11,721, which would be 10% down from where it is now.  Since we know the Nasdaq is ridiculously over-valued, the 10% down scenario is a lot more likely than the resume the rally scenario.

Sure we just got $1.9Tn to play with but we knew we were getting that since November, when the Nasdaq was at 11,000.  $1.9Tn is 10% of our GDP and 11,000 + 10% is 12,100, not 13,146, which is 10% too high.

Everything is Awesome again – just like it was in 2007 and do you know what else is just like 2007?  Refinancing!  That's right, American Homeowners cashed out $152.7Bn of home equity last year, up 42% from 2019 and the highest level of withdrawals since 2007, although 2005, 6 and 7 were actually $262Bn, $320Bn and $240Bn respectively – so we're not there yet.  Still, as we now know in retrospect – people using their home equity as a piggy bank does not tend to end well, does it?

We're still on a stimulus high, of course and the Dow is at an all-time high at 32,300 but it's more like 32,400 in the Futures along with S&P 3,925 and Russell 2,305 and we'll be betting against them into the weekend so don't miss tomorrow's Short-Term Portfolio Review.  Considering the all-time highs, the STP is holdiing up remarkably well (see yesterday's Live Trading Webinar for my notes) but that's because our key shorts were TSLA and QQQ, which worked out very well for us and we even cashed out our Tesla shorts this week – another reason we need to adjust the STP.  

 

IN PROGRESS

 

 

Which Way Wednesday – Bond Worries Continue as US Borrows $2.8Tn in 2021

Federal Debt: Total Public Debt (GFDEBTN) | FRED | St. Louis FedIs there such a thing as too much?  

Our Government, so far, is looking to sell $2.8Tn worth of Treasury debt to unsuspecting victims in 2021 and that's up 64% from $1.7Tn in last year's record-breaker, which was almost double 2019s record $990Bn of debt issuance.  America – F*ck Yeah!  Too much is America's brand, so why should borrowing $2.8Tn bother us?  Well, math – for one thing.  $2.8Tn is bigger than the GDP of India or the United Kingdom, who are tied for 5th in the World at $2.6Tn.  Germany is $3.7Tn, Japan is $4.9Tn, China $14.8Tn and we are sitting at $20Tn and running a 15% annual debt.

So the World is sitting down for their Easter Dinner and America says to it's family – I know I make more money than you guys but this year I need another 15% to cover my expenses – so I'm passing the hat.  China has been bailing us out for years and they are busy hacking the WiFi, so we can't count on them.  Japan is already 250% of their GDP in debt and also borrowing about 20% a year – so they are not going to be much help.  Germany and the UK clearly have problems of their own in 2021 – especially Germany as mommy said she's leaving and the new mommy might be a fascist.

That leaves the UK, who is our ex.  We used to be part of them but we rebelled and slaughtered them and took all their land but they got over it and used to be proud of us but we incinerated that goodwill over the past 4 years and, even if we hadn't – can they really afford to lend us 107% of their own GDP?  That leave Uncle Fed, Jerome Powell and he's been a real darling these past few years and is still planning to lend us $960Bn in 2021 – but that's down from $2Tn he lent us last year so we still need $1.9Tn more from someone….

Supply may not be the primary factor driving yields higher. But it has been an accelerant, weighing on the market precisely because …
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$2,000,000,000,000 Tuesday – Now What?

Free Money Friday – Biden Pledges Another $1.9Tn for the Bonfire - Phil  Davis

"Out of college, money spent

See no future, pay no rent

All the money's gone, nowhere to go" – Beatles 

Well, we got our $1.9Tn – that should hold us over for a month or two, but then what?  

Hopefully most of us will have been vaccinated by the end of May and, according to the new CDC guidelines – it's party time!  The new CDC guidance says fully vaccinated people ( those who are two weeks past their second dose of the Moderna and Pfizer Covid-19 vaccines or two weeks past a single dose of the Johnson & Johnson vaccine) can:

  • Visit other vaccinated people indoors without masks or physical distancing
  • Visit indoors with unvaccinated people from a single household without masks or physical distancing, if the unvaccinated people are at low risk for severe disease.
  • Skip quarantine and testing if exposed to someone who has Covid-19 but are asymptomatic, but should monitor for symptoms for 14 days
  • Wear a mask and keep good physical distance around the unvaccinated who are at increased risk for


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Micro SOFT Security Monday – Chinese Hack Wrecks Tech

China Broadens Cyber Options - Asian Military ReviewWe're under attack.

At this very moment, a Chinese Government-backed hacking group has used Microsoft's EMail software to infect 60,000 Corporate Clients.  Yes, it sounds like the plot of a movie and that we should be sending a tape to Tom Cruise or something but this is really happening – NOW.    The European Banking Authority became one of the latest victims as it said Sunday that access to personal data through emails held on the Microsoft server may have been compromised. Others identified so far include banks and electricity providers,   

The rapidly escalating attack came months after the SolarWinds Corp. breaches by suspected Russian cyberattackers, and drew the concern of U.S. national security officials in part because the latest hackers were able to hit so many victims so quickly. Researchers say in the final phases of the attack, the perpetrators appeared to have automated the process, scooping up tens of thousands of new victims around the world in a matter of days.  The Chinese hacking group, which Microsoft calls Hafnium, appears to have been breaking into private and government computer networks through the company’s popular Exchange email software for a number of months,

The attacks were so successful — and so rapid — that the hackers appear to have found a way to automate the process. “If you are running an Exchange server, you most likely are a victim.

In other news this morning:


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