What Now Wednesday? Suddenly India and Pakistan are Shooting at Each Other!

Related imageIt's always something!

Early this morning, India and Pakistan shot down each other's planes and now what used to be the World's most likely place for nuclear war to break out is once again the World's most likely place for nuclear war to break out – which says a lot since Trump's finger is still on the button but he's been bumped to #2 by this new tussle.  

This is still backlash from the terror attack on India, which killed 40 people we didn't care about on Valentine's Day and India retaliated and bombed what they claim was a Militant Base inside of Pakistan.  We still sell arms to both countries, so this war is great for us!   Actually, Pakistan already pissed off Trump and the GOP by switching to China as their main weapon supplier (much cheaper).

The Futures are already recovering from a sharp drop this morning as Nuclear War is way down on this Planet's list of things to worry about what with the planet boiling us alive and all the insects dying.  If that doesn't bother us – what's a little background radiation going to do?  

What's really concerning is the S&P's repeated failure to hold 2,800, which still has us wondering if this whole rally is topping out 5% below the September highs (2,940) and, of course, the Russell is still unable to crack the 1,600 mark – which we said last week was a big problem.  In fact, I also said in last Wednesday's Morning Report:

We had an in-depth look at /RTY in yesterday's Live Member Chat Room where we concluded:

So, that being the case, we would expect the 5% Rule to be obeyed between 1,440 and 1,800 which is 360 points so 72-point bounce lines to 1,512 (weak), 1,584 (strong), 1,656, 1,728 (weak retrace – where we failed before) and 1,800.  So expect good resistance at 1,584 and no more than a strong retrace of that run from 1,440 (if we're bullish)  which is 144 so 29(ish) down to 1,555 (weak retrace) and 1,526 and we'll see how that goes.

In other words, our 5% Rule™ predicted a run to 1,584 and now


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Turn Down Tuesday – Trump Crimes and Fed Testimony Reverse the Rally

Image result for trump affairs cartoonCriminal conduct!

Trump's former lawyer, Michael Cohen will for the first time publicly accuse the President of criminal conduct while in office related to a hush-money payment to a porn star.  According to the Wall Street Journal: "The President’s ex-lawyer will tell House Committee he witnessed Trump’s ‘lies, racism and cheating,’ role in hush payments."  This is contrary to Trump and the GOPs position that his payments to the porn star he was cheating on his wife with were perfectly legal and just a normal part of any campaign process and, of course, he's already been given a pass by the Evangelicals who support Trump 100% in all of his exrtra-marital affairs.

Criminal charges are new and that opens up a whole new avenue of investigations for Trump – even if there isn't enough evidence to prove that he's a Russian Agent, placed in power through a coordinated effort that clearly came from Russia and Putin, with money that clearly came from Russia and Putin following through on an agenda that is clearly benefitting Russia and Putin BUT – we can't PROVE that he's purposely doing all this to pay back Putin or if it's just a cooincidence that his staff has already been found guilty of conspiring with Russia and none of that has anything to do with Trump himself.

Sure, that's the ticket, right?  Well, the market has been willing to move along, even as Russian State TV on Sunday listed potential US cities that they could strike first with their new Hyppersonic Missiles.  The report came days after Russian President Vladimir Putin warned the U.S. against deploying intermediate-range missiles in Europe.  You would think the President (any other President) would be outraged but there was not a single tweet as Trump was busy calling for "retaliation" against Saturday Night Live for making fun of him and touting his trade progress with China, which boosted the markets yesterday.

While I know most of you reading this think this is all some sort of Liberal attack against the President (and yes, I am a Liberal), I don't really see how that disqualifies me from being concerned when the Russian Propaganda Network has a whole…
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Monday Market Melt-Up – Trade Talk Progress Pushes Us Higher

"Substantial progress."

President Trump said Sunday he would delay an increase in tariffs on Chinese goods set to take effect at the end of this week, citing “substantial progress” on issues including intellectual property and technology transfer after a weekend of talks.  In a tweet, Mr. Trump wrote that should progress continue, the U.S. would plan a summit with President Xi Jinping of China to “conclude an agreement” that would settle a yearlong trade fight between the two nations.

While Trump’s tweets didn’t specify how long the extension of a trade truce would last or any date for a potential summit, we are halting the tariff increase on $200Bn worth of Chinese goods that were scheduled to go from 10% to 25% as of March 1st, so that's $30Bn already not being collected and I'm pleased with just that as my primary fear was that trump wouldn't be willing to give up the $360Bn budget offset those tariffs represented (but even his thick fans were starting to notice that they were the ones paying the tariffs, not the Chinese).  

The key concession Trump seems to have gained from China is a promise to buy $300-400Bn more goods per year from the US to "balance" the trade and mostly that will come in the form of farm and energy products (you didn't think the Chinese would actually want our manufactured goods, did you?) and that's already giving our Natural Gas (/NGV19) trade a nice bump (we talked about that in  last Wednesday's Morning Report) and, of you missed that one, try going long on July Coffee Futures (/KCN19), which are still down at $102.45 as that's been very depressed all winter.

Oil prices are off a cliff today as the Trump, feeling all-powerful this morning, decided it was time to declare "Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!".  Keep in mind that Trump had room for another 200 characters, so he didn't need to sound like a cave man but it's possible he's working on some new type of Haiku. 

Oil is actually 10% lower than it was last year but now it's lower than that, dropping 2.5% this morning back below $56 but we knew it was too high on Friday and I had made a call for
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Friday Flip Flop – Five Fed Speakers and Trade Progress Finish the Week Strong

Williams (twice!), Clarida, Harker and Bullard.

We knew on Tuesday that the Fed expected the market would need saving on Friday and despite the Dow being up 100 points pre-market this morning, at 25,926 we're still below Tuedsay's highs though well off yesterday's lows – which was 25,762.  On Wednesday we talked about the importance of the Russell 2000 and the 1,600 line and, at 1,581.50 – we're no closer today than we were on Tuesday, but off our lows at 1,570, which was a $700 per contract gain from our shorting line (you're welcome!).  

Fortunately, Kraft Foods (now KHC) was dropped from the Dow back in 2012 or we'd be red this morning anyway as that company is down 25% pre-market as the merged company (with Heinz) catches 5 downgrades this morning after their accounting methods are being questioned by the SEC (which is actually not a big deal) and the company is writing down $15Bn in "Goodwill", which is a big deal as it indicates they dramatically overstated the value of their balance sheet BUT – it's only 10% of their total assets so a 25% drop is still a bit of an over-reaction.

If you want to capitalize on this event, you can, of course, go long KHC (who also cut their dividend) or you can short Berkshire Hathaway (BRK-B), who are taking a $3Bn hit on their KHC holdings – the day before Buffett's annual letter to his shareholders comes out.  Berkshire is not a company you would usually short but they own a lot of the kind of companys that have "Goodwill" as a major asset and KHC's situation will calll all Goodwill Assets into question – all $3Tn of them that are declared in the S&P 500 – $80Bn of which is Berkshire! 

BRK-B was at $205 this morning but is already indicating a $5 drop but a $3Bn hit is 20% of their quarterly income and Buffett doesn't sugar-coat things so they could drop further and the March $195 puts are $2 and could be a fun play there.  As to KHC – We'll be taking a hit on the spread we have in our Long-Term Portfolio and I won't be quick to add, as…
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Faltering Thursday – Market Shrugs off “Framework” for China Trade Deal

Image result for us china trade dealUh-oh!

Early this morning the US and China announced they had made "significant progress" and have outlined "commitments in principle" with Negotiators are drawing up six memorandums of understanding on structural issues: forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.  The Chinese are even coming to Washington TODAY to continue their "fruitful" discussions of last week – actually attempting to hit the March 1st deadline for a deal.

You would think the Dow would be up at least 200 points on this news – but noooooooooooooo – it's down slightly and if a trade deal isn't going to be a good catalyst – then I am worried that we don't have a catalyst to take us any higher than we are now. 

As you can see – there was a pop around midnight, when the announcement hit the wires but it has since faded out while the Russell made it right to our stopping line at 1,590 but failed there, so it's game on for the Russell Fututures (/RTX) shorts we discussed yesterday (we already had some small winners) – despite the "great" trade news.

We got a very doveish Fed Report yesterday and that didn't help much – especially considering the Dollar was down 1% – so the markets should have been much higher in yesterday's action.  These are all signs of rally exhaustion and we still have our hedges in place from last week and I would strongly suggest you take some time to make sure your own portfolio is well-protected.

 

IN PROGRESS 

 

Which Way Wednesday – Russell 1,600 Edition

Is this rally real?

As you can see from our Big Chart – we're just above the 200-day moving averages, which was our goal for this rally – on all but the Russell 2000, which is at 1,574 in the /RTY Futures and we need them to confirm by getting over the line at 1,587 but we'll want to see 1,600 before we feel comfortable and we are expecting the Russelll to lead us – up or down, for the rest of the week as more and more small caps report their earnings.

We had an in-depth look at /RTY in yesterday's Live Member Chat Room where we concluded:

So, that being the case, we would expect the 5% Rule to be obeyed between 1,440 and 1,800 which is 360 points so 72-point bounce lines to 1,512 (weak), 1,584 (strong), 1,656, 1,728 (weak retrace – where we failed before) and 1,800.  So expect good resistance at 1,584 and no more than a strong retrace of that run from 1,440 (if we're bullish)  which is 144 so 29(ish) down to 1,555 (weak retrace) and 1,526 and we'll see how that goes:

In other words, our 5% Rule™ predicted a run to 1,584 and now the 200 dma is 1,587 so we're pretty confident taking a short up here with very tight stops over the line that risk a loss of $5 per point, per contract so let's say we call 1,580 the shorting line and 1,590 the stop (though I would add another short at 1,586 to average 1,583) so the risk would be losing 8 points over 1,590 ($40 per contract) and our pullback goal is 1,555, which is 25 points (from our initial entry) for a $125 per contract gain and possibly 1,526, for a total of $270 per contract at that level.

The reward potential, in this case, outweigh the risk so we make the play.  Sometimes we are right  and sometimes we are wrong but, since we can make 3-6 times more when we're right than we lose when we are wrong – we don't have to
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Tuesday Already? Short Week but Plenty of Problems

We've got 99 problems and Trump is only 69 of them (nice!).

I hate to start a short week off this way but, "lest we forget" – here's SOME of the top issues (just the ones still making news this weekend):

That is just this morning's round-up and I'm not trying to bring you down but, as noted by Jeff Gundlach, when asked how he consistently has one of the top-performing funds in the World, "I look at the News Wires more than anyting else,…  I think what's important is to look at the news flow and watch for those times when the news doesn't change, but the interpretation does – or the news does change, and the interpretation doesn't.”


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TGIF – On Again, Off Again Trade Deal Weighs on the Market

There is no trade deal

That's why the Asian markets fell 1.5% this morning although, this morning, a lot of people are acting like we're making progress so the Futures are creeping up again – and that's fine with us as we'd LOVE to have an opportunity to short them for the 3rd day in a row.  We made $600 per contract from Wednesday Morning's Trade Idea and $1,200 per contract on Thursday Morning's Trade Idea (it only costs $3/day for you to get these ideas) and this morning we're HOPING to re-test 25,600 on the Dow (/YM) Futures but I think we're more likely to fail or, at best, drift into the holiday weekend.

If you cut through all the "he said, Xi said" noise of the trade rumors, the FACT of the matter is Lighthizer and Mnuchin just spent a week in China and accomplished nothing and now they are talking about extenting the March 1st deadline by at least 60 days, which is a major embarrasment for Trump, who set the arbitrary deadline and forced the problem in the first place.  We haven't even BEGUN to have trade talks with Europe or Japan and Trump has threatened more tariffs on each of them – even though we're not even sending a negotiating team.

This is very much in-line with my premise, which we discussed last week – that Trump DOESN'T want a trade deal – he just wants the tariff money and as long as his base remains too dumb to understand that THEY are the ones paying these tariffs – not China, not Mexico, not Europe or Japan – then Trump can use the tariffs to help "balance" his budget.  I put "balance" in quotes because, when you are running a $1.2Tn annual deficit (yes, it's up 20% since last time I looked) – giving up a projected $200Bn in tariffs would raise your deficit another 20% and you would, officially, be the WORST PRESIDENT EVER!

As noted by Bloomberg: "Trump appears to have over-estimated his own power in these talks. There is a reason the original package of U.S. demands to China was dubbed the “surrender-or-die” list by experts. Trump’s trade hawks believe nothing short of a Chinese
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$600 Thursday – Our Dow Futures Shorts Pay Off Perfectly

That was easy!  

In yesterday morning's PSW Report I said:

25,600 would be a great place to short the Dow Futures (/YM) if it fails, with tight stops above but ONLY ENTER AS IT CROSSES BELOW!  At $5 per point, per contract, if you give it 20 points to the stop (25,620, you risk $100 but the Dow is up 600 points off Monday's lows and up 3,600 points since Christmas so it's very likely we get a 20% retrace of 600 in the short run and that's 120 points for $600 per contract reward and, if we get lucky, we retrace the larger rally by 720 points for a $3,600 gain – so I think it's worth a toss – especially in light of these frightening charts

Well, that's exactly what happened first thing in the morning for a nice, quick gain and we're right back there this morning for another chance to go short – but keep those stops in place!  If they are going to keep giving us the set-up, we're not too proud to keep making money off it, right?  Remember:  I can only tell you what's likely to happen and how to profit from it – the rest is up to you!

If you would like to subscribe to the PSW Report so you can have money-making ideas like this delivered to you every day, before the market opens – just CLICK HERE.

Yesterday we placed tight stops at the 25,480 line but today is the 2nd attempt at a fail and we think the indexes will succeed… at failing…  There's no way Retail Sales held up during a month-long Government Shutdown and we get that report this morning while leading Economorons haven't changed their estimates since the last time we got a report – way back in November (delayed due to the Government Shutdown).  

8:30 Update:  Oops, DISASTER!  Retail Sales are down 1.2% for the month and, if it wasn't for a nice gain in Auto Sales, it would have been DOOM.  Check out that trend – not pretty…   Not only
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Will We Hold It Wednesday – 200 DMA Edition

Which way?  Who knows?

It's all up to Trump, who may tweet anything at any time about China, the Shutdown, OPEC, Comey…  There's no way to tell what the President will do because what he does seems totally random and 80% of what he says is a lie and the other 20% are pronouns – so you can't go by what he says or what he does and you can only react to what he tweets – that's crazy!  

The markets rocketed higher yesteday as we finally broke through our 200-day moving averages, which are currently Dow 25,015 (now 25,502), S&P 2,743 (now 2,752), Nasdaq 100 7,047 (now 7,050), NYSE 12,500 (now 12,500) and Russell 1,587 (now 1,543) so we need confirmation from the Nasdaq and the NYSE today and, of course, the Russell has some work to do to catch up.

Yesterday we had Congress telling us they had a funding deal and Trump saying he might approve it – even though it only gives him enough money to build a picket fence – as long as he paints it himself.  We also had all the people on the US side saying China Trade Talks were going great but then Trump said he's not planning on meeting with Xi in March – so how great can it really be if the March deadline is on the 10th?  Trump also said he might extend the deadline – again, who knows?  

Today we have 3 Fed speakers:  Bostic, Mester and Harker speaking at 7:15 (Europe), 8:50 and noon respectively and they are all going to echo Powell's comments on how the economy is great but nowhere near great enough to raise rates or they may crash the markets another 20% because, you know, great markets are fragile – like great egg shells…

25,600 would be a great place to short the Dow Futures (/YM) if it fails, with tight stops above but ONLY ENTER AS IT CROSSES BELOW!  At $5 per point, per contract, if you give it 20 points to the stop (25,620, you risk $100 but the Dow is up 600 points off Monday's lows and up 3,600 points since Christmas so it's very likely we get a 20% retrace of 500 in the short run and that's 120 points for $600 per contract reward and, if
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