Retaliation Wednesday – The Empire Strikes Back!

Image result for us china tariffsTariffs! 

China hit back last night with $50Bn in tariffs against US exports like cars, chemicals and soy beans along with 106 categories of American goods that are exported into China and, more specifically, goods that are exported from Republican-dominated states, where lawmakers might be expected to have some influence with President Trump, presumably to get him to back down from the latest trade demands.

"China has never succumed to external pressure – external pressure will only make the Chinese people more focused on economic development.  China's attitude is clear, we don't want a trade war because a trade war would hurt the interests of both countries.  As the Chinese saying goes, it is only polite to reciprocate." – Trade Minister Zhu.  

Image result for us china tariffsOnly polite to reciprocate” is unusually dark and direct. Unlike the U.S. president, who salts his speech with off-the-cuff remarks about foreign policy, Chinese officials don’t usually digress with clever comments.  Trump has undone years of hard-fought civility in discourse that was meant to avoid exactly the kind of economic catastrophe he is now causing.

Wei Jianguo, a former vice minister of commerce, said the key to understanding China’s response is “same proportion, same scale and same intensity.  That means we will retaliate with the same strength,” he said. “Whatever the total value of trade the United States targets, we will target the same amount. If it’s in the form of tariffs, we will do the same.”

The escalated Chinese response is exactly what we predicted for our Members.  In fact, last Tuesday (3/27), right in our Morning Report, I said:

The markets are back up to our weak bounce lines(see yesterday's reportthough I think we'll be using them as shorting lines this morning as the Dollar is recovering quickly, up 0.6% and that's bound to put a bit of pressure on the markets as they finally hit some resistance.  Dow (/YM) 24,350 is my favorite short at the moment, with tight stops


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Technical Tuesday – Testing the 200 DMA’s

chartWheee – what fun! 

Up 500, down 500 – what volatility?  Yesterday the Volatility Index (VIX) did hit 25 and that's great for us as we get good money for the options we like to sell.  We're generally just amused when the market collapses as we have great hedges, like the one we posted in Thursday morning's PSW Report:

As an additional hedge, at the moment, I like for the STP:

  • Sell 4 WHR 2020 $125 puts for $12.50 ($5,000)
  • Buy 50 SQQQ May $16 calls for $3.90 ($19,500) 
  • Sell 50 SQQQ May $20 calls for $2.20 ($11,000) 

That's net $3,500 on the $20,000 spread that's almost all in the money to start and the only way to lose is if the Nas goes up quite a bit from here which, with all these headwinds, doesn't seem too likely.

The WHR short puts are still $12.50 but the $1.70 spread hit $3 for a gain of $1.30 x 5,000 units for $6,500 (185%) gained in 2 trading days – you're welcome!  Remember, I can only tell you what is likely to happen and how to make money trading it – the rest is up to you.

In our Live Member Chat Room we already cashed in the long calls ($4.50) and left the short calls which are covered by another hedge we already had.  That pulled $22,500 off the table – more than the maximum we expected to make on the trade but now we have to deal with the short calls so we're hoping for a bounce in the Nasdaq as we test the 200-day moving averages.  

 

IN PROGRESS

 

 

 

 

 

Monday Market Mayhem – China Fires Back in Trade Wars, Trump Tells Dreamers to Stop Dreaming

Well, we survived the Space Debris at least.

Unfortunatley for 800,000 children who live in America, they are not surviving President Trump, who is calling for "Caravans" to come and take them away, without the due process or constitutional rights afforded to the other children in their classrooms.  John Oliver handled the sickness of this mess very well over the weekend so you'll either care about this or you won't but, even if you do - what can you do to stop this man?  

 

IN PROGRESS

 

 

 

 

 

 

 

 

 

Thursday Thud – First Quarter Ends With Dow Down 1,000 Points

Down 1,000 points isn't so bad.  

Well, it's bad if we consider that we were up 2,000 in January (26,600) so down 3,000 since then is 11.3% but let's say we claw back to 24,000 this morning – that would be down almost exactly 10% and you don't want the -10% line to act as resistance on the way back up – that gets very ugly, technically.  

Of course, nothing it technically uglier than failing the 200-day moving average and, so far, we have narrowly avoided that by bouncing off 23,500 but, if we call that a 2,000-point drop from the 50 dma, which was 25,500 when we were up there (since dragged lower), then we expect to see 400-point bounces to 23,900 (weak) and 24,300 (strong) – and we're a long, long way from 24,300 so it's a weak finish to Q1, at best. 

Today is the last day of the quarter because tomorrow is a holiday and Monday is spring break (I'll be in Florida) so the volume is very low and nothing the markets do today or even next week are going to matter much.  If we can't claw back over 24,300 by the end of next week – it's not going to happen.

Next week is still sleepy for earnings as well and April 13th is the official kick-off for earnings season, with CitiGroup (C), First Horizon (FHN), First Republic (FRC), JP Morgan (JPM), PNC (PNC) and Wells Fargo (boo!) all reporting that Friday the 13th morning – good luck to all of us!  We did very well shorting XLF into January earnings but, like the market, we're down 10% from there so it's a bit tricker to call now – I think we'll just wait and see if that $27 line holds but, if not, another 10% down should do the trick.

So, to decide whether or not we should be bullish, we look at our big banks and decide whether or not they are likely to rise or fall on earnings and that then will give us our premise for what is likely to happen as earnings season kicks off.  We will call that The Big Bank Theory! 

  • It's early in our data-gathering


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What Next Wednesday – Markets Go Crazy to End the Quarter

Wheeeeeee, this is fun!  

Aside from our $2,750 winner on the Dow (/YM) Futures shorts from yesterday morning's Report, we also had a $7,000 per contract gain on the Nasdaq, which fell an amazing 350 points, from 6,850 to 6,500, paying $20 per point, per contract for our Members.  

Playing the Futures is not hard, you can join us today at 1pm (EST) for our weekly Live Trading Webinar and we'll be happy to show you how it's done.  It's really no different than any long or short position other than it's highly leveraged and it's playable almost 24 hours a day – so we can react to news any time it hits the wires. 

These were not particularly difficult calls to make (or to follow) as Monday Morning, in our Pre-Market Report, we predicted the market would bounce to the following lines:

  • Dow 24,350 (weak) and 24,550 (strong)
  • S&P 2,666 (weak and satanic) and 2,688 (strong) 
  • Nasdaq 6,850 (weak) and 6,950 (strong) 
  • Russell 1,565 (weak) and 1,580 (strong)

And then, on Tuesday morning, I said:

The markets are back up to our weak bounce lines(see yesterday's reportthough I think we'll be using them as shorting lines this morning as the Dollar is recovering quickly, up 0.6% and that's bound to put a bit of pressure on the markets as they finally hit some resistance.  Dow (/YM) 24,350 is my favorite short at the moment, with tight stops over the line and 6,850 on the Nasdaq (/NQ)


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Terrific Tuesday – Everything is Awesome, Again

Everything is Awesome!  

The markets are back up to our weak bounce lines (see yesterday's report) though I think we'll be using them as shorting lines this morning as the Dollar is recovering quickly, up 0.6% and that's bound to put a bit of pressure on the markets as they finally hit some resistance.  Dow (/YM) 24,350 is my favorite short at the moment, with tight stops over the line and 6,850 on the Nasdaq (/NQ) will make a fun shorting line as well.    

Why short?  Well, nothing at all has changed other than it's POSSIBLE that China and the US will have a trade agreement instead of a trade war but, other than that – all the other stuff that caused the market to fall off it's highs all month haven't gone away – Thursday's trade talk just made them worse and now they are not worse – they are the same – not better either.  

The President is still being indicted, the Government is still in turmoil, Russian "diplomats" were just expelled from pretty much every NATO country (even ours, surprisingly) so we may have just started the next cold war only this one is being fought with a guy who already has your browser history and all of your passwords.  

Image result for khrushchev shoe animated gif

Of course Khrushchev was very much cut from the same cloth as our President, as noted by this summary of the "shoe-banging incident" at the UN:

On 12 October, head of the Filipino delegation Lorenzo Sumulong referred to "the peoples of Eastern Europe and elsewhere which have been deprived of the free exercise of their civil and political rights and which have been swallowed up, so to speak, by the Soviet Union".[12] Upon hearing this, Khrushchev quickly came to the rostrum, being recognized on a Point of Order. There he demonstratively, in a theatrical manner, brushed Sumulong aside, with an upward motion of his right arm—without physically touching him—and began a lengthy


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Miraculous Monday – Trade War Ends A Day After It Starts

Image result for trump trade war china cartoonIt''s a miracle!

Or so they will have you believe.  Just one market day after Trump declares a Trade War on China, team Trump is claiming victory in that Trade War with Treasury Secretary Steve Mnuchin saying that "the U.S. can reach an agreement with China that will avert the need for President Donald Trump to impose tariffs on at least $50 billion of goods from the country."  “We’re having very productive conversations with them,” Mnuchin said on “Fox News Sunday,” when discussing talks with China. “I’m cautiously hopeful we reach an agreement.”

An optimist would say Trump's threats worked and China backed down but a realist might say China's threat to retaliate worked and Trump backed down because the net effect here is there will be no sanctions placed against China and Wilbur Ross is already running around claiming it will be a victory if China promises to buy some LNG (liquefied natural gas) from the US to help balance the trade deficit.  

China, of course, doesn't care who they buy LNG from and, like oil, it's fungible – so it doesn't matter who we sell it to, there's a GLOBAL supply and demand picture that sets prices so if we sell more to China, we will sell less to someone else and not one job will be gained and not one net import/export Dollar will have shifted other than on the balance sheet with China.  

Speaking of oil, that's been holding up over $70 on Brent (/BZ) and $65.85 at the moment on WTIC (/CL) with Gasoline at $2.0325 heading into Easter Weekend.  It's going to be a nice short next week but this week there will still be a huge effort to keep the prices high into the holiday and the Saudis are pitching in by talking about extending their production cuts at the June OPEC meeting.  

Image result for saudi prince confiscatedWe'll see what sticks into the weekend but patience is the key on that trade as the Saudis are pulling out all the stops to keep the price of oil high as they continue to
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TGIF – Indexes Turn Red for 2018, Japan in Turmoil

chartDown 6.9% for the month!

That's the damage on the Nikkei after yesterday's 4.5% dip, putting Japan's market down 10% for the year (so far).  China's Shanghai dropped 3.4% in response to Trump's Tariffs but, so far, China has not responded in kind so, as we expected, the indexes are finding a bit of support at S&P 2,640, which is exactly what we prediced they would do on Wednesday morning.

Remember:  I can only tell you what is likely to happen and how to make money trading it – that is the extent of my powers.  The rest is up to you!

In the case of our S&P call from Wednesday morning's report, the 80-point drop from 2,720 to 2,640 was good for gains of $4,000 per contract (you're welcome!) and now we'll see what kind of bounce we get on the way to a full correction at 2,400, which will be good for another $12,000 per contract if all goes well (or badly, I suppose).  

As 2,640 is the 20% line on our Big Chart (a level we drew more than a year ago) and as the fall from the 25% line at 2,750 was 110 points – we'll be looking for 22-point bounces to 2,666 (weak and satanic) and 2,688 (strong) and, if the weak bounce fails to hold today – look out below on Monday!  the next proper support for the S&P Futures (/ES) will be the 15% line at 2,530 and the next stop below that is our 2,400 goal (2,420 to be exact).  THEN we get excited to buy things – despite the Trade Wars.

Until then, we have plenty of longs and plenty of hedges so we just sit back and watch and wait.  The US and European markets are closed next Friday (my Birthday, actually Thurs but it's celbrated on Friday this year) and Easter is Sunday and that Monday will be slow and that whole week will be slow, as will the weak before (next week) so not the best time to determine what levels are holding up but a great time to take a break!


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Trade War Thursday – Trump Takes on China

Image result for trump trade war china cartoonWhat an exciting day.  

Trump will be rolling out his economic sanctions against China because what we really need now is more instability in the Global Economy.  Earlier this morning, the PBOC raised their rates in-line with the Fed so we can probably expect trade retaliation in-line with Trump against US manufacturers.  It's certainly going to be interesting, whatever the case.  

While it's very exciting to have International Diplomacy carried out via unilateral decisions announced on Twitter – it does undo DECADES of careful negotiations carried out via shuttle diplomacy by dozens of our Nation's most experienced representatives.  Sadly, once you break Humpty Dumpty, it's very hard to put him back together again but the century is still young – I'm sure we'll be able to fix it later…

Meanwhile, as we expected, the market was not too thrilled about the Fed hiking rates and we made some big money in yesterday's Live Trading Webinar (replay available here) playing them bearish into the meeting and even our Oil (/CL) and Gasoline (RB) shorts turned around this morning for $300 per contract gains as gasoline came back below $2 and oil fell back below $65 (both are our stop lines now and both good for new shorts with tight stops above those lines).

As I said in yesterday morning's Report, 2,640 is our immediate downside target on the S&P (/ES), on the way back to 2,400, which would be $15,000 per contract gains on shorts below the 2,700 line.  We checked our portfolio hedges in yesterday's Webinar and we're generally content with our positions and looking forward to a nce correction – so bring on the Trade War!

FaceBook's (FB) Mark Zuckerberg attempted to put the brakes on their crisis with a timeline that spun the narrative but people aren't having it and Facebook is down again this morning, back at $167 but it will be interesting to see how hard Congress comes down on them as the very data they are accused of mishandling was used by GOP operatives to swing the elections for several high-ranking members of Congress – not to mention the President himself!
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Federally Funded Wednesday – S&P About to Retest 2,640 as Fed Withdraws Stimulus

Yawn, are we there yet?

This is the same chart we were using since the beginning of February and, in March, the markets have been full of sound and fury which has signified nothing as all that bluster has us right back where we started, with the S&P 500 finishing yesterday's session at 2,716 – exactly 3 points higher than we were 30 days ago.  

When we did finally break out over the Strong Bounce Line at 2,728, the S&P flew all the way up to 2,800 (3/12 and 3/13) when I said we were going to short the S&P (/ES Futures) back to 2,400 and we hit 2,700 (up $5,000 per contract) on Monday and 2,720 is a weak bounce from that.  My comment on the overall market was:

"I said we plan on deploying more cash when the S&P drops to 2,400, which is 15% down from the current 2,800 but that includes people paying $1,600 for a share of Amazon (AMZN) that generated $4.56 in profit last year for a return of 0.285% – Japanese bond investors laugh at Amazon shareholders!  Come on folks, this is ridiculous – markets can't sustain these kinds of gains."  

Now you know what I meant by that comment – markets can't go up just because – there needs to be real money flowing in and a real economy to sustain it – we have neither of those things.  Yes, the economy is growing, but not fast enough to justify those kinds of market moves and that's why we have our 5% Lines™, especially our Must Hold Levels™ – to remind us where the REAL value is in the markets and that keeps us from losing our heads and chasing ridiculous valuations.  

It also tells us when things are too cheap and, just like there was a mania to buy stocks at sky-high valuations, there's a mania to sell perfectly good stocks like GE (GE), L Brands (LB) or Chipotle (CMG) at fire-sale prices – surprisingly in the midst of the same rally (see our March 12th Top Trade Review for those trade ideas). 

Even now, Amazon (AMZN) added back $41.50 (2.7%) yesterday as it retests $1,600,…
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