Tumblin’ Tuesday – Italy’s Looming Default Spooks the Markets

Wheeeeee!

We knew the markets were going down – we just weren't sure which of the many, MANY possible reasons would rise up and finally cause people to re-price risk.  Today it's Italy, which essentially has been unable to form a Government for the past 3 months as President Mattarella has refused to work woth a Euro-skeptic Finance Minister put forth by newly-elected Populist party leaders Salvini and Di Maio.  

At issue is Italy's potential to default on $250Bn worth of bonds and a possible exit from the Euro-Zone, following the UK's Brexit lead and possibly unraveling the whole Union at this point.  If this is a surprise to you – then you don't read our PSW Reports every day as my first bullet-point on July 6th of 2016 was "Italy is spinning out of control and taking the EU down with it." – so we saw this coming from a couple of miles away – aside from our many recent posts on the topic

Image result for defusing nuclear bomb animated gifAt this point, it's very possible that the 5-Star Coalition that controls the biggest voting block in Government will seek to impeach Mattarella and, if that happens, we go from unstable right to the point where the hero is usually sweating over the nuclear bomb with a pair of pliers debating which wire to cut.  

Italy really isn't the important thing, anything could have sent investors flying out of equities and back into bonds (up 1% this morning) and CASH!!! rather than paying 100x earnings for the next "hot" stock.  The market is overpriced and it needs to cool off – any catalyst is a good excuse to do so.  

 On Thursday we called for a short of the Nasdaq (/NQ) Futures at 6,950 and we hit 6,900 this morning for a gain of $1,000 per contract and the S&P (/ES) Futures at 2,728 blew through our 2,712 target to test the 2,700 line for a $1,400 per contract gain so "wheeeeeee!" indeed and a great way to start our week.  Also, Wednesday's webinar play to short oil using the SCO June $14/17 bull call spread at $1.45 is on track for the full $3 as…
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TGIF – A Nothing Week in the Markets Dribbles to a Close

What a waste!

It's a low-volume pre-holiday week but it looks like we could have taken the whole thing off as we're drifting back to 2,712 on the S&P, which is right where we closed last Friday and not too far off the Friday before that either.  

IN PROGRESS  

 

 

 

 

Thursday Market Fakery – Pump it Up!

"Down in the pleasure centre,
hell bent or heaven sent,
listen to the propaganda,
listen to the latest slander.

Pump it up until you can feel it.
Pump it up when you don't really need it." – Elvis

S&P 2,728 again – they can't keep us over it but they won't let us go under it either. 

Today marks two weeks at the strong bounce line and an optimist would say we're consolidating for a move up but a pragmatist would say this is all being done on low-volume BS pump jobs that are faking market highs by holding up the headline stocks while the broad market sells off – leaving the retail suckers holding the bag when the bottom ultimately falls out.  

Notice how, nearly every day, we hit a high early in the day and then sell off?  That's how you catch big game fish, you give them a little line and then you reel them in and then give them a little line and reel them in again – over and over until they are exhaused and you can haul them onto the boat and gut them and have them for dinner.  That's what's happening to Retail Investors at the moment and the Top 1% are baiting the hooks.  

Yesterday the market blasted higher on the release of the Fed Minutes, which didn't really say much other than the addition of the word "symmetric" but it was used in regards to INFLATION, not rates.  Here's the context of the statement that got the market "so excited" yesterday afternoon:

"Participants generally expected that further gradual increases in the target range for the federal funds rate would be consistent with solid expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Participants generally viewed the risks to the economic outlook to be roughly balanced."

Now, keep in mind this a 5-minute chart so it took less than 5 minutes of reading the minutes for traders (bots) to decide that the minutes were doveish and blast…
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Weakening Wednesday – We Are Loving Our CASH!!!

Don't say I didn't tell you so…

If you don't cash out when the markets are making silly highs then you end up having to scramble like an idiot to cash out when everyone is panicking and you get MUCH WORSE PRICES for your stocks and options.  The same thing goes with hedging – as it's MUCH CHEAPER to hedge when the market is going up and no one thinks it's going to fall.  You have to have a bit of contrarian in you if you want to learn to be a good investor, following the herd all the time just makes you one of the sheeple.  

The wolves who read yesterday's PSW Morning Report not only picked up the $2,000 per contract-winning Nasdaq (/NQ) short but also $500 per contract gains on the Oil (/CL) and $500 per contract on the S&P (/ES) (and, if you'd like to get these trade ideas pre-market, you can SUBSCRIBE HERE) based on these very simple instructions:

Since the Dollar has been holding things up, today is a good day to short Oil Futures (/CL) at $72.50 for a quick dip but get out before the API report this evening.  We're just looking for a quick win with VERY TIGHT STOPS above the $72.50 line.  The whole key to trading the Futures is having a good backstop so you can limit your losses.  6,950 on the Nasdaq (/NQ) is also a good line and 2,740 on the S&P (/ES) makes a good stop line with shorting below as we're at 2,738 this morning and it's my contention that 20 points of that is due to the Dollar so we'll look for at least a 10-point drop, to test the strong bounce line at 2,728 again – and that's up $500 per contract against the $100 risk at this level.

This morning, we're way down at 2,708 and that's a 30-point drop on the S&P at $50 per point, per contract so $1,500 gains if you stuck with that hedge overnight.  In addition to those pre-market plays, we also picked up shorts on the Russell (/TF) and we double-dipped on Oil (/CL) later in the session.  All in all, it was a…
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Technical Tuesday – Dollar Down, Markets Up – Duh!

So what?

The Dollar plunged from 93.95 to 93.25, which is 7.5% and the S&P 500 went up from 2,713 to 2,733, which is 7.5% – that is not a rally, that is the repricing of mechandise against a falling currency!  If you don't keep an eye on the Dollar, you are missing half the story on any market and also missing valuable trading signals that can make you lots of money!

In last Thursday's Report, we noted that the 5% Line™ on the Dollar was at 93.45 and you can see that line acting like a magnet, pulling the index back down for consolidation before going any higher.  While day to day news may pop the Dollar up or down, over the longer-term, it pretty reliably reacts to longer-term macros as the Dollar is the blood that flows through the global economy – it generally stays in a temperate and reliable band as the Global Economy breathes in and out over time.

Meanwhile, WTF is with Donald Trump?  Oh wait, I guess I should specify – WTF is with Donald Trump and this completely crap deal he made with China?  The trade deal he's walking away with is SO TERRIBLE for the US that even the Wall Street Journal has titled their front-page article:  "Beijing Outplays the U.S. in Trade War".  That's right, we got played as China gets everything they wanted in exchange for….  wait for it…  Cutting Import Tariffs on Cars from 25% to 15%.  Ta f'ing da!  

Aside from the fact that this "negotiating point" is one President Xi already said he was cutting way back in April, when it was noted in the WSJ: "Even so, people in the industry said the reshaping of China’s auto industry wouldn’t necessarily hand an advantage to entrenched foreign players that have come to rely on their Chinese partners, many of which are influential state-owned enterprises. Although overseas car companies entered the joint ventures reluctantly, some say they have come to accept them as a fact of life in a country where foreign businesses can struggle without local allies." 

In other words, after a month of tense negotiations by our Business Genius President, we got ZERO
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Just Another Manic Monday – S&P 2,728 – Again…

Wow, what a "rally".  

Half of Europe is closed and the Dow Futures (/YM) are up 225 points – back to 25,000 (again) and the S&P (/ES) are right back at good old 2,728 (our 20% line) with 6,925 on the Nasdaq (/NQ), again and 1,632.50 on the Russell (/TF) – so same old, same old and happy Monday.  The reason we're up is because China's $500M bribe for President Trump did the trick and suddenly we're rolling over on trade.  I'm glad – trade wars are terrible for the economy and we should give Trump credit if the whole thing was just a ruse to line his own pockets and not just the mindless pursuit of an iditotic policy that was doomed to fail…

Speaking of idiotic policies – we have the FOMC Minutes this Wednesday and 10 Fed Speakers into the 3-day Holiday Weekend (US markets closed next Monday).  I used to run down who was a hawk and who was a dove but they all sound like doves since Powell took over and we'll see if the minutes to the last meeting indicate the Fed is still on track to raise rates 3 times with only 5 meetings left this year. 

As earnings season begins to wind down, we're seeing analysts projecting that the 20% pop in earnings caused by the Trump Tax Cuts for Corporations will somehow happen again next year (it is certainly possible that, if the GOP keeps the House and Senate, they may pass another round of cuts for the Top 1% – crazy as that may seem).  Edward Yardeni of Yardeni research asks "What are Stock Industry Analysts Smoking" and his own 2019 estimates are $166/S&P share, about 5% below consensus.

Of course, all this is assuming nothing goes wrong and the President won't be impeached and we amicably resolve all our differences on Trade with China, Japan, Europe, Mexico and Canada and we peacefully disarm Iran and North Korea and prove Global Warming isn't a problem so Hawaii won't melt and neither will the ice caps and glaciers and Russia won't meddle in the November election (because we haven't done anying about their meddling in the last election, have we?), etc….

So, if none of those things go wrong – what is there to worry about?  

 

IN PROGRESS

 

 

 

Philstockworld May Portfolio Review (Members Only)

Image result for one million dollars animated gif$773,776! 

That's up $173,776 (28.9%) in our paired Long-Term and Short-Term Portfolios.  30% is a healthy goal for an entire year (and Berkshire Hathaway averages 16.3% per year) so I really, Really, REALLY would love to cash out at this point and take the summer off.  As I have said for the past two weeks, if it wasn't my job to teach people how to trade – including running portfolios during downturns – I would absolutely be cashing out and, to that point, both of my kids' college accounts are in CASH!!! and our Hedge Fund is 90% CASH!!! at the moment so, yes, that is what I would do with my own accounts!  

As long as the indexes are holding above their 50-day moving averages, we're not in immediate danger so, with what we're playing, I'm not going to hedge too heavily either – unless we get signs of a deeper breakdown.  This market seems to bounce back from everything but so did the market in 2007 – until it finally didn't.  It sure would have been nice to be sitting on the sidelines with 128.9% of your money back then, right!

As it stands, our Long-Term Portfolio has 62% of it's cash on the sideline while the STP has 90% on the sideline so we've got plenty to deploy in a downturn.  We just finished our reviews and, in the LTP, there was only one adjustment to make so we like all of our positions and are happy to add more to them if they get cheaper and there were no adjustments to make to the STP, so we're happy with our hedges as well…

Also, these are new portfolios, started Jan 2nd this year as we decided to cash in after our November Portfolio Review last year but we did follow through with my plan, which is why we're doing so well after just 4.5 months of trading in the new portfolios:

Really, I am sorry I've been so cautious but I could not, in good conscience, risk those spectacular gains into Q3 earnings and the Holidays.  We have a lot of open positions and they'd be difficult


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TGIF – A Weak Week in the Markets Drifts to a Close

Same old, same old…

We're at the same levels we were at on Tuesday (a bit weaker), when we extensively went over the technicals, so we're not going to do that again.  As you can see on the S&P chart, our short at 2,728 on the S&P Futures (/ES) is still holding up and we see no reason to change it today or over the weekend.  Similarly, our big shorting hedge on the Nasdaq (/NQ) is still up $2,000 per contract (from 7,000) at 6,900 and our predicted bottom is a $10,000 per contract gain at 6,500 if "sell in May" becomes a thing around the holiday weekend.

We primarily use the Futures for hedges as we are generally bullish in our 5 Member Portfolios and that means we like to have a little extra protection – especially when the broad market is shut down and we can't make any adjustments.  We're very happy with the portfolio performance so far this year and, in fact, we're too happy so, as we've been discussing in our recent Morning Reports as well as our weekly Live Trading Webinars, I think it would be far wiser to go to CASH!!! into the summer and we'll see if July earnings make us want to buy again.

We're not officially doing that because PSW is a teaching site so we teach people how to manage portfolios in good markets and bad but CASH!!! is a very valid strategy and allows you to take a nice vacation and have a life – those are good things!  Personally, our Hedge Fund is over 90% in cash and my kids' college accounts are 100% in cash into the summer – but you can play the market any way you want!  

One portfolio that we make available to the general public is our Money Talk Portfolio, where every trade idea is announced live on the show and we make no adjustments other than on those appearances.  I haven't been on since Feb 1st but, even so, the trade ideas in this ultra low-touch portfolio are already up 73.4% since September – not bad for 8 months and only a few adjustments.  

 

Being well-balanced is the key…
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Thursday Thrust – Russell Small Cap Index Rockets Away from Reality

WTF?

The Russell 2,000 Index is often disconnected from the other indexes but lately it's become disconnected from the economic data, which has turned substantially lower in Q2 while the index has rocketed from 1,500 on April 1st to 1,620 yesterday – not quite 10% in not quite 2 months.

As you can see from Zero Hedge's chart, this is the widest disconnect between the Russell and the Economic Surprise Index (data better or worse than expected) since last October, when the Russell topped out at 1,520 and then corrected 50 points to 1,470 but it only stopped when the Data turned more positive.  What's propelling the Russell to unreality this week is the suddenly strong Dollar, which is great for small cap companies who do the vast majority of their business locally, in US Dollars.  

But the Dollar can't keep up this pace and, in fact, just yesterday, the Hong Kong Monetary Authority stepped in to put a floor on their currency's slide and we can expect the PBOC and other Central Banks to follow as the Dollar hits the 5% Rule™ at  93.45.

Given the 4.45 run from 89, we can expect a weak retrace of 20% of that run (0.89) so call it 0.9 and that takes us back to 92.55 and a stronger retrace would be 91.65 – so that's what we'll look for to see if the Central Bank Interventions are enough to stop people from running to the relative safety of the Dollar while the World is in turmoil (see yesteday's Morning Report).  

 

IN PROGRESS

 

 

 

 

 

 

 

 

 

 

Weakening Wednesday – Global Markets Retreat as Tensions Ratchet Higher

I told you I like CASH!!!

In fact, I told you on Friday morning in our Report titled:  "TGIF – Silly, Low-Volume, Pumped-Up Week Finally Ends", saying:

"Volume has been anemic this week too with, 55M SPY shares trading on Monday, 67M shares on Tuesday, 59M shares on Weds and 68M shares yesterday vs an average volume of 101M shares so about 35% below "normal" volume, which is already close to half of last year's volume.  Why is volume drying up like this?  Because stocks are more expensive so the same money buys less and less stock and, because the economy isn't really growing – there is no more money to pay for the stocks – just a lot of idiots SPECULATING that there will be money to pay these ridiculous prices one day, so it's not important to actually earn any money because the greater fool theory will fix everything. 

"The greatest fools, of course, are the last people to buy at the top – we call them bag-holders and I have been saying all week that this test of our Strong Bounce Lines is a good time to dump your stocks on the bagholders that are coming in and get back to CASH!!!.  Again, I can only tell you what is likely to happen and how to make money trading it – the rest is up to you!"  

So far this week, the markets are down and the Dollar is up 1.5% and still cimbing this morning at 93.50, that's putting pressure on the indexes and commodities which makes people panic out of those and they then demand more CASH!!!, which drives up the price of Dollars (as they get scarce) and the cycle continues.  People are also trying to trade in their dying TBills for cash – so even more demand for cash.  Thank goodness housing is still dead or the Dollar would be back over 100!  

Image result for cash animated gifWe're thrilled to have a nice little pullback and we even bought a couple of stocks yesterday but, on the whole, we're even more thrilled to be mainly in CASH!!! during this period of market uncertainty.  You
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