TGIF – Four Witches Test the Market Highs

It's quad witching day!

The quarterly expiration of options and Futures contracts can cause a great deal of market volatility and, when your indexes are pushing all-time highs – down is a lot easier than up so we're still shorting the Dow (/YM) Futures below the 26,800 line which was good for 200 points yesterday and gains of $1,000 per contract and our Nasdaq (/NQ) Futures short call at 7,800 from yesterday's PSW Morning Report (subscribe here if you want to stop missing these calls) is good for more than 50 points so far – also gaining $1,000 per contract.  What a great way to finish the week! 

Futures are a very valuabale tool to have in your trading belt but can be dangerous.  Usually we play options, like Wednesday morning's call to go long on Gasoline (and you don't even want to know how much the Futures have made if you didn't play it), which is now at $1.85 due to a massive refinery fire in Philadelphia, where we had the following trade idea:

Speaking of justifications, OPEC is acquiescing to Russia's demands to move their meeting to July 1-2 in Vienna and OPEC will do ANYTHING to get the Russians to join them in cutting production – just in time to screw American drivers over the July 4th Holiday.  If you believe in OPEC+, you can play the September Gasoline Futures (/RBU19) long off the $1.65 line ($1.62 has been the lows so I'd plan to DD there for a $1.635 avg and stop below $1.60) or you can play the Gasoling ETF (UGA) and I'd go with:

  • Sell 10 UGA July $28 puts for $1.40 ($1,400) 
  • Buy 20 UGA July $27 calls for $1.70 ($3,400)
  • Sell 20 UGA


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Thursday Thrust – Powell’s Comments are Spun to Blast Market Higher

“The case for somewhat more accommodative policy has strengthened.” 

That is the phrase investors are taking to the bank from Powell's press conference yesterday.  While the Fed Chairman didn't bow to Trump's pressure to deliver an immediate cut – he did leave the door open to interpretation that he was willing to cut rates the moment the economy begins to falter – giving investors a "Powell Put" to the market.

It wasn't the US markets that took Powell's statement as bullish but overnight the spin was in and now the Dow Futures are up 250 points as the spin doctors chimed in overnight to take any stray word Powell said and treat is like it was policy:   

“The market now knows the Fed is going to ease unless the data dramatically reverse,” said Steven Blitz, chief U.S. economist at TS Lombard.

For the Fed to not cut rates at its July meeting, “it would take all of the data coming in to be consistently strong,” together with an end to trade-related uncertainty, said Seth Carpenter, chief U.S. economist at UBS.

The central bank’s rate-setting committee on Wednesday dropped language from its policy statement describing its stance as “patient”—which implied rates were on hold. Instead, it said uncertainties about the economic outlook have increased, a phrase it has used during past periods of rate cuts.  “The committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” the statement said.

Of course that means that IF Trump makes a Trade Deal with China or tensions with Iran calm down or earnings or economic data improve – then the Fed will have no reason to cut so will good economic news be bad news for the markets going forward?  We'll have to see but, for now, the madness continues. 

 

 

 

IN  PROGRESS

 

 

Record High Wednesday – Will the Fed Pop Us or Drop Us?

We are so close – again.

Back on May 3rd, I explained how the market was confusing efficiency for a strong economy, noting that Corporations can make more money while the people starve.  At the time, I noted that materials sector performance looked too weak for a proper bull market and, for the quarter, we're still in very bad shape with Petrolum down 9%, Natural Gas down 19% and Copper down 7.5% – those are not signs of a strong recovery.

Speaking of Copper (/HGZ19), yesterdsay morning's long trade idea from our PSW Report (subscribe here if you don't want to miss our trade ideas) with contracts jumping from $2.64 to $2.70 for gains of $3,000 per contract before lunch!  Our options trade idea for Freeport-McMoRan (FCX) is slower-moving but that stock gained 1% yesterday and will really take off if there's progress with China.

Meanwhile, the indexes blasted higher as Trump tweeted out that he will be meeting with China's Xi at the G20 this weekend and, although that's kind of the point of the G20 – people are very excited about it.  Also, as noted in yesterday's Morning Report, Draghi fever spread across the markets and anticipation couldn't be higher that our Fed will also signal that it's ready to cut rates, buy bonds, buy assets – whatever it takes to keep the rally going becuase what on this Earth is more important than making rich people richer?  

Nonetheless, we are urging caution into the Fed Report and yesterday, in our Live Member Chat Room, we discussed a good 3-month hedge to take us, not just through today but through the summer:

Hedge/QC – Two factors in selecting a hedge is which index is ahead of the others (that's what the Big Chart is for) and which index is most likely to fail.  From the Big Chart, the Dow is now back to the May high S&P close and Nas lagging a bit and RUT lagging a lot so Dow or S&P and BA may come down more and drag the Dow and others if the trade talks blow up so


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Terrific Tuesday – Draghi Fever Hits the Markets, Blasting Higher

More free money! 

This is why Goldman Sachs put Mario Draghi in charge of the European Central Bank (ECB) – exactly for a moment like this when they need to boost the US markets and this statement couldn't have been timed better – just ahead of the start of the Federal Reserve's 2-day meeting that will lead to a policy announcement tomorrow at 2pm.  Draghi said the ECB is "ready to launch another round of stimulus" as inflation remains below targets.  

That target is, of course, 2% and if we were over 2%, they would be raising rates to fight it so the entire process is ridiculous but the most ridiculous thing is basing your entire monetary policy on a singly, unreliable data-point.  Of course, the inflation target is just an excuse because, over or under, we've seen Central Banksters call it "transitory" – meaning they will totally ingnore it when it suits them.  In this case – the Masters want to see all-time highs in the markets – so low inflation is our #1 excuse to jack up the markets.  

Low rates aren't free – taxpayers subsidize the wealthy by artificially reducting rates through Government Debt (where the wealthy lend the Government money to subsidize their rate cuts) and we are being forced to do this (year 10) in order to force the prices that we pay to go unnaturally higher (in order to increase Corporate Profits so the wealthy can have more money).  Are you beginning to see a pattern here?  It didn't take long for the Oligarch-In-Chief to weigh in on the subject:


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Monetary Monday – Market on Pause Ahead of the Fed

Image result for fed funds rate chartWe're wating on the Fed.

We have "the greatest stock market in history" and "the greatest economy in history" with "record employment" but, if the Federal Reserve doesn't lower rates below the current 2.5% they have set – it will be "a disaster".  Clearly, to any rational person, something must wrong with those statements existing at the same time but they all come from our President's lips and far be it for me to call Donald Trump a liar – so I guess we just have to accept that it's all true.  

30-Year Fixed Mortgages are still 3.5-4.0% yet Home Sales are still trending lower and that's impacting a lot of high-paying construction jobs which, in turn, impacts the materials industry and even banking, as less people look for loans to buy homes and then the Durable Goods crowd can't sell washing machines, refrigerators, couches and TVs and there's less hardware and paint sales, etc., etc. 

Image result for new home sales 2019Housing, as always, is a major driver of the economy and it's kind of hard to ignore it when it begins to falter – but that's exactly what the market is doing at the moment.  This is where the panic is coming from as even a 1% rise in rates last year has caused a 10% decline in housing activity and we NEVER came close to getting back to our pre-2008 levels in the first place.  

What Trump doesn't understand is that, for the average American, low rates aren't enough to get them to invest in real estate.  You can't "take advantage" of low rates on homes you can't afford and very few Americans have $50,000 to plunk down on a $250,000 home – not that there are many $250,000 homes left anymore anyway.  Not only that but Property Taxes have risen out of control and Trump has limited their deductability – making the rises much harsher and not many people in the bottom 90% have tax lawyers to get them out of paying their share.  

 

IN PROGRESS

 

 

Faltering Friday – Triple Trouble at 2,900 on the S&P 500

"Falling, yes I am falling

And she keeps calling


Me back again"McCartney

Here we go again.  

It's always something that stops us from making new highs as we hover around our 10% line which is the TOP of our expected range into the end of the year.  What we actually expect to happen is we settle back down around 2,700 on the S&P (/ES) but the market doesn't seem to want to correct properly so we keep getting these low-volume rallies that keep us near the top.  

That's fine with us as our Long-Term Portfolio has held up nicely so far while our Short-Term Portfolio, where we have our hedges, made some nice gains on the last dip and we were wise enough to lock them in near the bottom.  We just did an STP Review where we cashed in our Russell Ultra-Short (TZA) hedges and I think, into the weekend, we should add back a new hedge to replace them.  I don't know if rising tensions with Iran and China (who just pledged to stand behind Iran) will bring us back to our DOOM!!! line at 2,800 on the S&P but we can look at hedges similar to the ones we used on May 30th to catch the last dip:

  • Sell 10 Macy's (M) 2021 $20 puts for $3.75 ($3,750) 
  • Buy 40 SDS July $31 calls for $1.50 ($6,000) 
  • Sell 40 SDS July $34 calls for 0.55 ($2,200)

The net cash outlay on the spread is just $50 and it pays $12,000 if the S&P Ultra-Short (SDS) climbs back to $34 and, of course, stays there into July 19th expirations.  SDS is a 2x ETF and currently $31.85 so we need a $2.15 move which is 6.7% so about a 3.5% drop in the S&P should do it – to just under 2,800.  

There's also the long-term obligation to buy 1,000 shares of Macy's (M) for $20 ($20,000) so make sure you REALLY want to own them and, if not, we had a few…
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$2,000 Thursday – Our Webinar Trade on Oil Pays off Big Already!

We didn't start the fire

It was always burning

Since the world's been turning

We didn't start the fire

No we didn't light it

But we tried to fight it – Billy Joel

No, we didn't start the fire…

However, we did go long on oil in yesterday's Live Trading Webinar as it tested the $51 line and now Iran has apparently attacket two tankers in the Strait of Hormuz with torpedoes, critically damaging one of them and US ships are heading in to assist and Oil (/CL) is already at $53 (up $2,000 per contract) and Gasoline (/RB) has blasted from our long position at $1.68 to $1.725 and that's up $1,890 per contract but both could squeeze higher as the shorts wake up to a nightmare scenario.  

This is a tragedy, we may end up in war and it's certainly not the way we wanted to be right (fortunately no one was hurt) - we simply bet that Oil and Gasoline had gotten way too low based on Fundamentals and the fact that they exploded higher on an incident simply proves our point.  We will keep $400, trailing stops (10% of the profit) at this point as we may end up with another $2,000 gain from here – hard to say how high the squeeze will take us at the moment.  

Another odd reaction is the stock of Frontline (FRO), whose tanker was hit.  Rather than going lower, FRO is up 8% this morning as it's an old tanker and they'll be happy to get the insurance and it's one of 61 tankers they own and, with oil higher, they'll be making more money – especially if trips get longer as tankers try to avoid Iranian waters.

In other commodity news, Soybeans have really taken off, and the September contracts (/ZSU19) which we had featured over at Seeking
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What Now Wednesday? Trump Talks Tough on Trade – Tanks Markets

Oops I Did It Again Snl GIF by Saturday Night LiveOops, he did it again

For some reason, last night, Trump decided to place more tariffs on China – again – and said he was "personally holding up a trade deal with China and that he won’t complete the agreement unless Beijing returns to terms negotiated earlier in the year."

“It’s me right now that’s holding up the deal,” Trump said at the White House before he left on a trip to Iowa. “And we’re going to either do a great deal with China or we’re not going to do a deal at all.”

I keep saying that Trump doesn't actually want a trade deal and simply wants an excuse to tax the American People (who pay for the tariffs – not China) to offset the taxes he and his rich friends are no longer paying as well as to give him Billions of Dollars to hand out to voters in the form of "tariff relief" – which is simply a way to alleviate the damage HE is causing.

Related imageTrump has already threatened to raise tariffs on China if President Xi doesn't meet with him at the G20 at the end of the month and even Trump's most loyal supporters must understand that this is not the way World leaders usually schedule appointments but the good news is Xi will be at the G20 and Trump will be at the G20, so Trump will be able to claim he "met" with Xi – regardless of what actually happens – an easy win for Trump to claim.

Meanwhile, Xi allowing Trump to be an ass and make ridiculous demands and accusations is hurting him at home and emboldening opponents, many of which would take a much harsher stance on the US than Xi, as well as protesters like in Hong Kong, where over 1M people (15% of the entire population) hit the streets.  This morning the protesters managed to delay the voting on the extradition bill, which would allow Hong Kong residents to be transported to mainland China for trials, which is like Trump passing a bill that forces you to appear before his court in Washington if he doesn't like something you
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Terrific Tuesday – Up and Up We Go

Day 6 of the rally.

I'm not upset because I wanted to crash, I'm upset because we didn't get a proper correction and now, this low-volume move back up doesn't give me enough confidence to enjoy the rally or assume we'll get to higher highs than the ones that have been rejected before.  

How many times can we rally because we made progress on fixing things that weren't broken in the first place?  What's next: 

  1. Mars is invading
  2. Trump is talking to Mars
  3. Mars is not invading – market soars to new highs

Have we really gotten this stupid?  What happened to trading on earnings and performance?  I'm a Fundamental Investor so of course I don't like it when the Fundamentals are ignored – it's very annoying.  It doesn't stop us from making money, however as yesterday, right in the PSW Morning Report, I said:  "The Russell (/RTY) is lagging in the recovery and can be played long over the 1,520 line but with tight stops below because NOTHING actually happened since the Russell was at 1,620."  As you can see, we got a lovely pop off that line at the open:

Oh yes, I should clarify, that was early in the Morning Report (it's sent out to our Members while in progress) but, at the end of the morning report, I said:

We're well over all our bounce lines now so we can't make any bearish bets but what the Nasdaq 100 (/NQ) for a possible rejection at 7,500 and, of course, 2,900 on the S&P (/ES) and 26,200 on the Dow (/YM) also seems to get rejected a lot but we should still squeeze out a quick 15 points on the Russell (/RTY) at 1,535 before that happens and +$750 per contract is a great way to start the week off.

So 1,535 was our target and it was a pretty good one – as you can see from the chart.  At 12:24, in our Live Member Chat Room, we flipped bearish and played the Nasdaq Futures to go lower:

With the


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Made Up Monday – Trump’s Fake Mexican Melt-Down Ends

All is well, again.

How many times are we going to fall for this BS?  Turns out Trump had already gotten concessions out of Mexico months ago and his "demands" for border security has already been agreed to so there were never going to be any tariffs on Mexico – it was just Trump stomping his feet and beating his chest in order to look like he actually accopmplished something – as well as to distract us from all the crimes he's about to be indicted for.

The Futures are up another 100+ points this morning and we're just 500 points away from a full recover – back to our record highs after a 1,000-point drop in May – and it's only June 10th.

The Russell (/RTY) is lagging in the recovery and can be played long over the 1,520 line but with tight stops below because NOTHING actually happened since the Russell was at 1,620 ($5,000 per contract higher than 1,520) – except the fact that the President has once again shows how completely unstable he is and THAT remains a bit of a concern to me – and it should to anyone who has money at risk in the markets.

We completely ignored last week's TERRIBLE Non-Farm Payroll Report and the downward adjustments to the last two reports and the ecitement over possible Fed Rate Cuts was over statements the Fed made that assumed we were placing tariffs against Mexico that would crash the economy – that's now off the table because the Fed, like us, made the mistake of believing something Trump said he would do (10,796 lies in 869 days so far).

Factory Output drops most since 2002 as boost from Brexit stockpiling evaporatesUK Manufacturing Output fell 3.9% in April and that is a REAL thing that actually happened.  GDP fell 0.4% in April and puts the entire quarter on track for a 0.3% recessionary drop – adjusted from +0.5% expected just two months ago.  These numbers may be skewed by the original Brexit deadline of March 29th, which may have pushed a lot of production and orders into Q1 – ahead of that deadline. 

Unfortuantaly, we won't know the truth until…
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