Will We Hold It Wednesday – NYSE 12,800 Edition

Coming back or just bouncing?  

12,800 is the Must Hold line on the NYSE, meaning it's very bearish to be below that on the broad index and we finished the day yesterday at 12,638 and, so far, this morning's bounce isn't going to fix things.  Back on May 26th, when the NYSE last tested 12,800, my notes from the Morning Report were:

It's still all about the NYSE and whether it's over or under that 12,800 line but I remember a time when the Dow and the NYSE would run completely neck and neck.  That has gone completely out the Window as the headline index has been jammed 17% higher since Donald Trump was put in power by the USSR so thank you Putin – I guess…

The NYSE is right where we expected the market to be given that tax cuts, repatriation of capital and buybacks that have boosted the indexes over the past year plus.  On the other hand, the Dow is silly and the Nasdaq is sillier and we're back to a 1998/1999 market, where Fundamentals don't matter (for now) and people are paying ridiculous forward multiples for stocks in the belief that this party is never going to stop and there's no piper to be paid.  Is this time different?  Don't bet on it!  

The broad-market index has been trading in the lower part of a very tight range since February and, of course, the Dow is red for the year so the bulls are, at the moment, left with the over-priced Nasdaq and the narrowly-focused Russell 2000 Indexes to hang their hats on and we're still expecting a 10% correction in the Nasdaq, from 7,200 to 6,500 – before the summer ends.  That's why we haven't been jumping in to buy things – we don't think these little "sales" are bargains at all.

As you can see, the Nasdaq is way up in its range, over our 7,200 mark but we're not putting on the 7,500 hats just yet as that requires Apple (AAPL)…
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Trade War Tuesday – Trump Fires off Another $200Bn in Tarrifs, China Fires Back

Image result for trump china trade warWheeeeeeee!!! 

Isn't this fun?  Diplomacy via twitter is a case of voters getting exactly what they deserve and we'll see how much the market suffers for it.  We gave you hedges yesterday that can turn $2,000 into $10,000 and it's the same hedge I gave you two weeks ago that could turn $500 into $10,000 so I don't feel at all bad when I say "I told you so" as I ranted on and on all month about how this was going to escalate and end badly

This, by the way, is not the end, this is just the beginning as Trump the First has asked for ANOTHER $200Bn worth of tariffs on Chinese goods in retaliation for the $34Bn worth of tariffs they put on our goods which was a retailiation against the $50Bn we put on their goods first.   

The new duties will go into effect "if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced," the president said in a statement provided by the White House late on Monday.  Meanwhile, Trump is fighing Congress tooth and nail to REMOVE sanctions against ZTE – because he was paid $500M to do that, so the real message to China is "PAY ME!"  This is why you don't negotiate with terrorists – it only makes them come back for more…

Beijing has already said they will retailiate, saying: "This practice of extreme pressure and blackmail deviates from the consensus reached by both parties on many occasions and is disappointing for the international community. The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends," the Commerce Ministry said.

Image result for putin laughing animated gifSeriously people, let's step back for a second to consider that CHINA has just accused the US of BLACKMAIL and of violating International Laws and undermining diplomacy – all in one paragraph!  President Trump is undoing 70 years of hard-faught diplomatic steps that have given us 70 years of relative peace and prosperity.  Who actually benefits from Trump single-handedly upending the World Order? 

The clock is now…
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Monday Market Meltdown – Merkel Mayhem Makes Markets Morose

Wheeeeeee!!!

It's about time our hedges made some money!  As you know, we've remained cautious, even while making money on the long side and, just this weekend, in our June Portfolio Review, I said to our Members:  "I'm still very risk-adverse in this market and yes, we could be making more if we were more aggressive but then again, we could blow it too – and that is what we're trying to avoid."  

We're very well-hedged so a dip like this is simply amusing and it's miles to go before we even get back to the strong bounce line at 2,728, which had been the top of our range since February.  Unless we fall back below that line on the S&P (/ES) this is just a minor pullback and we're still in bullish territory though failing at the 2,800 line (again), which is where we ran into trouble in March before pulling back 200 points (7%).  

7% is right about the pullback we are expecting but we expected it from 2,728 – this move back to 2,800 has been a bonus round so far.  Above the 2,800 line, we have to capitulate and get more bullish – no matter how much we don't trust the rally but that certainly isn't a problem we'll have to deal with today, as we're down around 2,764 so far in the Futures.

If you feel under-hedged, you can use a play similar to the DXD play we gave you in our 6/7 Morning Report, when I said:

That's how hedges are supposed to work – they are insurance policies and keeping our portfolios well-hedged is the only way we can sensibly keep long positions after they've already gained 20% for the year.  

Maybe this is a full-blown 1998/1999 rally but we've got PLENTY of longs so all we're worried about now is whether or not we


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Philstockworld June Portfolio Review (Members Only)

Image result for one million dollars animated gif$817,961!  

Now we're up $217,961 (36%) in our paired Long-Term and Short-Term Portfolios and that's up $44,185 from our last review, when I said I'd rather cash out than continue to risk our, at the time, 28.9% gains.  Since we didn't cash out, we pressed our hedges AND since the market kept going up, we added more longs and, so far – it's all working out.  As I said last month, as long as the indexes are holding their 50-day moving averages, we're not in immediate danger and this market seems to shake off everything that's thrown at it – so far.

On the whole, we haven't made too many adjustments to any of our portfolios this month as they are on a very good track and fairly well-balanced.  Do keep in mind that we are failing (so far) at the lower high of 2,800 on the S&P (/ES), but once we're over that line – we have to seriously consider a whole new leg of the rally may be forming.

We still have $369,258 in cash and about $1M in margin remainin in our Long-Term Portfolio, so we're very flexible and that portfolio is our MOST invested.  I'm still very risk-adverse in this market and yes, we could be making more if we were more aggressive but then again, we could blow it too – and that is what we're trying to avoid.  

Long-Term Portfolio Review (LTP) Part 1:  $643,761 is up an embarrassing $45,252 (9%) since our 5/17 review where I said I'd rather cash out ahead of the summer and come back in the fall.  Luckily, you guys didn't let me take a nice vacation and we still have all these positions, which we hedged more heavily in the STP (see earlier review).  Overall, we're up 28.8% for the year but that's 2% lower than yesterday – so it's a very volatile number and shouldn't be taken too seriously.  

Since we decided to stay in and since we had a lot of hedges, we picked up a bunch of new trades in the past month (always try to balance longs and shorts while selling premium). …
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TGIF – Dollar Blasts Higher on Easy ECB and Renewed Trade War Fears

1.5%!  

That's a MASSIVE one-day move for the Dollar and it's putting pressure on the indexes and commodities but it's also a Quad Witching Expiration Day, when options and Futures roll over for the quarter, so we're not anxious to bet the indexes but I did put out a Morning Alert to our Members saying:

  • I'm liking Gasoline (/RBU8) long at $2.07 into the weekend with tight stops below.  I would think we can get at least a penny out of this one ($420/contract).
  • Coffee (/KCU8) holding up well against strong Dollar but often down into Monday.  Still, I'll take 2 and happy to DD now if they go lower.
  • Gold (/YG) still very laggy to /SI and I still like it long down here ($1,303) and it's a $300 loss at $1,300 but that's the stop if you want to play.  If /SI breaks over $17.30, we're golden!

As you know, we had a very successful Nasdaq short, making over $4,000 off Wednesday's Live Trading Webinar trade and yesterday we also cashed in Wednesday's Gasoline (/RB) short for another $4,000 gain so that's over $8,000 gained in two days from Wednesday's Live Trading Webinar (replay here).  We do these things every week folks for our PSW Members as well as the subscribers to the Options Opportunity Portfolio over at Seeking Alpha.  

Keep in mind that we only trade the Futures while we wait for our much more conservative spreads and hedges to pay off.  If we do those right, it's like watching paint dry waiting to get paid but the returns can be very, very exciting. 

For instance, our bullish play on the Carlyle Group in the Options Opportunity Portfolio expires today and it's in the money so we'll collect the full $2,500 for our 10 June $20/22.50 bull call spread we added on Feb 6th for net $1,450 – so that's up a nice 72% in
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Thursday Thoughts – ECB Ends QE, Fed Tightens – Now What?

It doesn't seem to matter.

Sure we had a small sell-off yesterday after the Fed (and we made over $4,000 just on our Nasdaq (/NQ) shorts during our Live Trading Webinar!), as we expected but this morning the markets are back to their usual pre-market pumping with /NQ right back to 7,250, which is right where we began shorting the Nasdaq in yesterday morning's Report.

Along with riding the Nasdaq to 7,210 for an $800 per contract gain, the S&P (/ES) Futures fell from our 2,790 shorting line back to 2,775 and that was good for $750 per contract gains while the Russell (/TF) fell from 1,685 back to 1,677 and that was good for gains of $400 per contract so, all in all – it was a fun day trading the futures and contratulations to all our Webinar participants.  

We can't short this morning, even tough we're back to the same(ish) levels as we don't have that downside catalyst from the Fed though I am very surprised the market is just shaking off the FACT of a rising rate environment. What will it take to get this market to correct?  Robert Mueller filed a request yesterday for 150 subpeonas – I know we're supposed to pretend politics have nothing to do with investing but don't you think that might be a little disruptive?

If indicting half the Government doesn't bother you, how about China missing the mark on both Industrial Output and Retail Sales?  Fixed Asset Investment Growth was also lite at 6.1% vs 7% expected.  Chinese Auto Sales posted the first negative change since March of 2015 and their market corrected 20% into 2016 after that.  Maybe this time is different – I sure hope it isn't the same.

The Hang Seng was down 1% this morning, as was the Nikkei but our markets don't seem to care – that's stuff that's happening in other countries we either hate or won't let into our country, so who cares?  LMC Automotive forecasts that, in addition to falling demand for cars in China, Japan and Europe, Trump's tariffs are also likely to knock out 10% of
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Wednesday Fed Watch – Do Interest Rates Matter?

Image result for fed rate hikes 2018It's Fed day! 

The Federal Reserve is expect to raise rates by 0.25% this afternoon but what matters more is what Chairman Powell has to say at 2:30.  In the last statement, the Fed eliminated a line from the March statement that said “the committee is monitoring inflation developments closely.”  That seems to indicate they feel inflation is now at their 2% goal and clearly unemployment is below their goal so now the Fed must move to head off inflation pressure before it begins.

In fact, this morning's Producer Price Index is up 0.5%, miles above the 0.2% expected by leading economorons, who obviously do not shop where we shop or eat where we eat.  This should bring the markets down from their perch and we can short the S&P (/ES) below the 2,790 line (with tight stops above) and, of course, the Nasdaq (/NQ) at 7,250 and the Russell (/TF) at 1,685 – all Sept contracts now (thanks Jeff!).  Yes, we keep trying to short and it keeps failing but – ONE DAY!  

There are already many signs of wage inflation.  The recent Beige Book indicated all regions were having a lot of hiring pressures and once employers have to start competing for employees by raising wages and benefits – that's a genie that's very hard to put back in the bottle.  Wage inflation is bad for Corporate Profits and wages are about 30% of a Corporation's Operating Costs so a 10% increase in wages knocks 3% off earnings unless they raise prices – which adds to inflation and makes more workers demand higher wages….

Image result for wages profitsI remember working in the late 70s and early 80s when it was downright insulting if you didn't get a 5% annual raise just for doing your job 10% was fairly normal for doing a good job and when you took a job that started at $25,000, you fully expected to be making $50,000 in less than 5 years.  That seems like a fantasy these days as it's been decades since the workers have been given a fair share of the profits.  


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Terrific Tuesday – Trump and Kim Make a Deal

Related imageThis is good news. 

We actaully have a deal with North Korea to bring some stability to the region.  The document signed by Trump and Kim early this morning contained four key points:

  • Establishing new US-DPRK relations
  • Building a lasting and stable peace regime on the Korean Peninsula
  • Reaffirming commitments to work toward complete denuclearization
  • Recovering POW/MIA remains.  

It's a long way between this agreement and actually making the lasting peace but this is a great start though it's nothing for the markets to get excited about as I had mentioned last Wednesday that North Korea's entire economy is just $17.4Bn, which is less than Jeff Bezos gained in wealth last month.  Jeff Bezos has rockets and top-notch scientists and doesn't like Donald Trump – make peace with him and THEN I'll be impressed…

Image result for harley quinn crazyMeanwhile, the Amazon (AMZN) and Apple (AAPL) driven Nasdaq is up 30 points (0.42%) since last Wedneday and we're back at our shorting line at 7,200 on the /NQ Futures but tight stops above because there's no end to the crazy in this market.  Things seem to be on hold at the moment, ahead of tomorrow's Fed Meeting but I'm not sure what more good news is going to propel the market even higher.  

The Dow and the S&P were higher in January but the Russell is also making new highs at 1,680 and 1,700 would be up 10% since May 1st (1,550) and again – that's crazy!  What did the markets do in the past 30 days to gain 10% in value?  10% a month is a 120% a year pace and we'll all soon be Billionaires at that rate of return so you can bet it's going to continue – but it's very unlikely to…

Image result for 1999 market bubble chartOf course the market did gain about 140% between April of 1999 and March of 2000 so it's not like it can't possibly happen.  Then it lost 80% over the next 8 months but let's not dwell on the negatives, right?  Like now,
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Monday Market Mayhem – Now it’s the G6

Image result for trump g7 high chairThank goodness!

I thought I was losing my mind as the Futures were up this morning after Trump blew up the G7 meeting and refusted, for the first time ever, to join the rest of the Free World Leaders in signing the joint communique.  How can the markets be bullish when we are walking back the steps the nations agreed were necessary after WWII to prevent WWIII?  Trump can double down tomorrow if he also blows the negotiations with Kim Jung Un and ticks the Doomsday Clock up to 11:59:30.

German Chancellor Angela Merkel said Sunday that President Trump's refusal to endorse a communique from the Group of Seven (G7) leaders was "sobering and a bit depressing."  In the same interview, Merkel said the European Union was preparing to implement counter-measures against U.S. tariffs on imported steel and aluminum.  If they retaliate, they're making a mistake," Trump declared before departing the annual Group of Seven summit, which includes Britain, Italy, France, Germany and Japan. 

Speaking of Doomsday, the Fed is almost certain to raise rates 0.25% on Wednesday and that should kick the 10-year rates permanently over 3% for the duration.  So far, the markets have shrugged off every possible sign of rising rates, rising wages and rising inflation as stock prices have inflated to record levels but, for those of us who believe in Physics, Match, Economics…. Reality – a day of reckoning is coming – we just don't know when.

Crypto currencies are also having a doomsday as BitCoin falls below $7,000 as a South Korean Coin Excahange was hacked over the weekend.  See, this is why we have BANKS and Government-backed currencies – there's a massive system in place that insures against loss and theft of your US Dollars.  We put that in place after years of the exact kind of random losses, robberies and devaluations associated with old monetary systems.  Crypto currencies are sure making things great again – for bank robbers! 

And sure, eventually consumers will wise up and learn to "bank" their crypto-coins in more reputable exchanges with better securtiy and crypto may even develop it's own FDIC to insure deposits but all that stuff is hard…
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G7 Thursday – Trump Talks Trade with World Leaders

Image result for trump g7 cartoonThe G7 starts today.

The market indexes are at record highs as Americans have total confidence in our President's ability to win the trade war as he sits down for a 3-day meeting with other World Leaders.  Trump has signaled his intention to continue pursuing an aggressive trade agenda even if it comes at the expense of America’s standing in the world.  The “World trade system is a mess,” Mr. Trump’s top economic adviser, Lawrence Kudlow, told reporters on Wednesday. “Trump is trying to fix this broken system.”

Of course, the "broken system" is the sole opinion of Team Trump while the rest of the World thinks it's America that is "broken" and that difference of opinion could turn very ugly if our leaders can't come to some agreements over the weekend. 

Tariffs imposed last week by President Trump on the EU and Canada have increased significantly tensions before the meeting,” a senior EU official said, adding that a breakthrough to ease trade tensions was unlikely. “We have extremely low expectations.”

Image result for trump trade cartoonThe consequences of the U.S. driving away allies, even if it wins short-term trade concessions, could do lasting damage to the strength of America’s coalition (see "4 charts showing why putting tariffs on your friends is a bad idea"). “If the U.S. loses their support, then it’s a different ball game at the global leadership level,” said Fred Bergsten, the founding director of the Peterson Institute for International Economics.  At last week's meeting of Global Finance Ministers, all 6 other G7 Nations put out a joint statement rebuking Trump's tariffs on steel and aluminum.  

US companies are also almost unanimously opposed to the tariffs but, so far, Trump has turned a deaf ear to all of them.  The markets have also turned a deaf ear to the Trade Wars – as well as every other thing that's going on in the World.  Bad news is good news, no news is good news and good news is good news as the Dow, the Russell and the Nasdaq are each up about 10% in Q2 while the S&P has moved a more modest 178 points up from 2,600, so that's
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