Tariffic Tuesday – Market Shakes off Trade Wars as Kim Disarms

Trump wins!

North Korea said they are willing to hold talks with the US about giving up nuclear weapons and "normalizing" relations with Washington (whatever normal is these days).  The two Koreas also agreed to hold a summit meeting between Mr. Kim and President Moon Jae-in of South Korea on the countries’ border in late April, Mr. Moon’s office said in a statement.  

“The North Korean side clearly stated its willingness to denuclearize,” the statement said. “It made it clear that it would have no reason to keep nuclear weapons if the military threat to the North was eliminated and its security guaranteed.”

“The North expressed its willingness to hold a heartfelt dialogue with the United States on the issues of denuclearization and normalizing relations with the United States,” the statement said. “It made it clear that while dialogue is continuing, it will not attempt any strategic provocations, such as nuclear and ballistic missile tests.”

Between that news and the growing consensus that Trump's tariffs won't really affect much of the Global Trade (the EU retailiated with just $3.5Bn in sanctions against US goods) the markets are sharply higher yet again and, once again we'll check in on the S&P's bounce lines to answer the eternal question: "Are we there yet?"  Here's the line we were looking for a month ago:

And here's where we are today:

I would be more excited but last Monday we had a fake 80-point gain on low volume and yesterday we had an 80-point move on low volume – so it remains to be seen if it actually holds up for more than a day.  Also, last Monday was far more impressive than where we are now and we fell 140 (5%) points by Thursday – so let's not get carried away by getting halfway back to where we were, OK?  

There's not too much market-moving news, we had Powell's testimony last week and then the Tariff thing and now we have possible peaceful moves in North Korea but were we really…
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Just Another Maniac Monday – Trump for Life!

XiPresident Trump for life!  

That's the word this weekend as Trump said to a group of Republican supporters regarding China's President Xi abolishing term limits:

"He's now president for life.  President for life (boos).  No, he's great.  And look, he was able to do that. I think it's great. Maybe we'll have to give that a shot some day.

Well there's nothing more exciting to stock markets than Fascist Dictators on the march, just ask 1929!  More dictators means more guns and more bombs and, in fact, China raised their military budget by 8% for next year to 1 Trillion Yuan and that is now being circulated by the Conservative Media to demonstrate why we need to raise our $1Tn Military Budget and it works because they can count on the fact that their viewers are too stupid to remember that we started this by raising our own Military Budget by 8% and, of course, they know their audience hasn't got a clue that there are 6.34 Yuan to a Dollar so 1Tn Yuan is actually only $157Bn which means China's TOTAL military budget is less than Trump has raised ours in the past two years! 

Russia's military budget is $70Bn, in case you are wondering about that "threat" and notice how Putin demonstrate his new missile just in time for Trump to press to raise our Military Budget this year by the entirety of Russia's Military Budget – what a lucky coincidence for Trump's agenda!  And having an "enemy" like Trump to point to solidifies Putin's position as the unquestionalbe leader of Russia – doing anything he wants "for the sake of security" – much like the Government in Orwell's 1984 or the current Trump Administration.  

Related imageAngela Merkel is not a dictator but she just spent the last 6 months since the election forging an alliance that lets her extend here 12-year reign for another term at the head of Germany and de-facto head of Europe.  Putin has been in office 5 years longer than her and Xi came to power in 2012 – so he has a long way to go if he wants to match his other Democratically elected peers as the
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Friday Freak-Out: 1, 2, 3, 4, Trump Declares a Trade War!


This market is non-stop fun, isn't it?  It sure is for our Short-Term Portfolio, the same one we discussed adding more shorts to yesterday morning because the market was once again in a downward spiral gained a lovely $13,873 for the day and is now up $37,270.50 (37.2%) for the year.  Unfortunately, our bullish, Long-Term Portfolio Positions fell back to $515,411, up just $15,411 for the year (3.1%) but that's the whole point of our paired portfolio strategy – we use the STP to hedge the LTP and lock in profits on the way up.  

Even better, when there is a sharp sell-off, we still have tons of cash and we're already well-hedged so we're ready to go shopping.  In fact, the reason the LTP took a 7% hit on this sell-off is because we added a lot of bullish positions last time the maket fell (only 30 days ago), so we're actually less hedged than we were last time, when we had fewer longs and just as many hedges (in anticipation of buying on the dip).

Hedges are insurance and YOU WILL LOSE MONEY when the market goes up – it's like life insurance – you don't WANT to die but, if you do, at least you get paid.  We don't WANT our hedges to pay off but, when they do, they save our portfolios – which is the whole point.  Yesterday we showed you one of the primary hedges in our STP, which was the following bullish spread on the Ultra-Short Nasdaq ETF (SQQQ):

We're still waiting to sell the Sept $3 calls for $3 or better (maybe this morning) but already we had a nice move yesterday, with the net $18,800 trade (as of yesterday, we paid $21,000) has popped to net $23,100 so the spread we showed you yesterday morning and told you was our primary hedge jumped $4,300 (23%) as the Nasdaq dropped 1.6% – THAT is how you use leverage effectively! 

Keep in mind this spead pays $100,000 if SQQQ is over $30 when the calls expire and we paid $21,000 for that protection against our $500,000 long portfolio so we can afford to take a…
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Failing Thursday – Hedging for the Next 10% Correction


This is getting to be fun, right?  It certainly is for our Members as we shorted the Nasdaq at 7,000 on Tuesday morning and, for those who missed that, we laid out a strategy for shorting the Dow in yesterday's Morning Report at 25,500, which paid $2,500 per contract and the S&P at 2,750, which also paid $2,500 per contract so – you're welcome!  Now we'll see if the rest of our prophesy plays out:

"…if the S&P can't hold that 2,750 line – next stop is 2,735 and below that is DOOM!!!"

DOOM!!! in this case is the 200-day moving average, all the way down at 2,557 but there should be interim support at 2,640, which is the 20% line on the Big Chart so we'll take short profits there and look for a bounce.  We're certainly not going to be bullish again until those 50-day moving averages are retaken (see yesterday's notes) and keep that in mind for next time when we urge caution.  

As we expected, our Short-Term Portfolio, which was $116,777.50 yesterday morning, jumped to $123,397.50 for a gain of $6,620 as our DIA June $255 puts moved back into the money and SQQQ climbed back over $15 but those trades "only" provide $100,000 and $40,000 worth of protection, respecitively, so it's time to consider the next layer of hedges – just in case this drop doesn't stop at the previous lows.

One thing we can do with DIA that doesn't cost much is to add a more speculative spread.  Our June $255 puts were at the money when we bought them and we sold 1/2 as many June $230 puts, capping our gains a bit but what if we added the Sept $240 ($8.50)/225 ($5.50) bear put spread for $3.  20 more of those is just $6,000 and gives us $60,000 worth of proetcion if the Dow drops 20% and, more importantly, it let's us take a profit on the $255 puts off the table (when we decide to) and then becomes a cover for the short June $230 puts in case we're wrong and the Dow continues lower.  

That's how we layer our hedges.  We…
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Which Way Wednesday – Testing the 50 DMAs from Above

Wheeee, that was fun!  

Huge fun, of course, for anyone who took our advice and shorted the Nasdaq Futures (/NQ) at 7,000 yesterday morning.  Those Nasdaq Futures pay $20 per point and the Nasdaq plunged 100 points to 6,900 for a $2,000 per contract gain on the day – you're welcome!  That was the same call I made the morning before at the Trader's Expo Live Trading Challenge – it just took longer than I thought for us to cash in!  

We also cashed in our 0.95 GE March $13.50 calls for $1.60 for a 0.65 (68%) gain on 100 contracts (up $6,500) – also from the Trading Challenge.  Gasoline (/RB) fell to $1.975 for gains of $500 per contract – also from the Trading Challenge and the the Dow dropped 200 points from our Trading Challenge entry (25,650) for gains of $1,000 per contract but, sadly, the challenge ended at 10:30 yesterday – so I still lost.  I'm just not a day-trader but the Fundamental picks tend to work out – eventually.  

Best of all, our Long-Term Portfolio finished the day at $551,871 (up 10.4%) which is up $1,008 (0.2%) on a bad day – so we know we're doing something right there while our Short-Term Portfolio, which hedges the LTP, did it's job and gained $6,600 (6.6%) on the market drop so, as we intended, we're very well-hedged for the coming market chop into the month's end.  It is ALL about balance in an uncertain market!  

What we're looking for, at the moment, is whether or not the indexes can hold their 50-day moving averages from above. 





Testifying Tuesday – Powell’s First Speech to Congress Looms Large

Powell speaks! 

We have a new Fed Chairman and clearly the bets are he'll be the same as the old boss as the markets have now recovered to within 3% of their all-time highs ahead of his 10 am address to Congress, led by Global Tech stocks Facebook (FB), Alibaba (BABA), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOGL) as well as Bidu (BIDU), Nvidia (NVDA), Tesla (TSLA) and Twitter (TWTR).  

Those stocks are up just under 20% for the year, more than recovering from the 10% dip we had earlier in the month – up almost 15% since Feb 7th though, once again, I feel like we're simply back to being overbought and haven't learned any lessons.  We'll have to see though, clearly we broke over our bullish technical "strong bounce" lines and now we'll see if the indexes can complete the round-trip back to their highs or if Powell sends us scurrying back below where we started the day yesterday.

"I would think there's no upside for [Powell] making a splash because he's dealing with a committee that's in flux, just coming together," said Robert Tipp, chief investment strategist at PGIM Fixed Income. "The market tends to do a good job of panicking and defining the range you're likely to be in … Once the taper tantrum got going, 3 percent was the watermark."  That seems to sum up the general sentiment, which is assuming a very gradual return to normal interest rates.  

What we're expecting to hear from Powell is whether the Fed is more worried about overshooting (too loose) or undershooting (too tight) their 2% inflation target (just right) and the nuance will be whether Powell indicates concern about the recent bump in inflation – especially ahead of Thursday's PCE numbers, which are expected to come in hot, around 0.4%, which would pop the Fed's chart from 113.9 to 114.3 and that would be up 2.1% for the year – magic time! 

Since the PCE was at 105.4 in Jan 2013 and took 4 years to get to 112.2 (6.8), the prior pace of PCE inflation has been 1.7% so jumping to 2.1% is already a 23% increase in rate and jumping 0.4% in a month, as expected, is pointing…
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Monday Money Show Special – Live Trading Challenge

Image result for live trader challengeI'm participating in the Live Trading Challenge this morning.

After giving a 4-hour seminar yesterday morning, today I'm going head to head with other speakers to see who can make the most money in one hour of trading.  If you lose $10,000 you're out but, other than that, there aren't too many rules. I know I can lose $10,000 (that's easy!), it's the random hour thing that bothers me.  

As you know, though we do like to have fun playing the Futures, I'm a long-term Fundamental Investor at heart and the most important thing I teach people about day-trading, especially the Futures – is knowing when not to play.  We like to see a good set-up and have news AND strong resistance lines to back up our play and, when we have them, I call them out – but certainly not on demand on 10:30 on a Monday morning – so we'll see how it goes.  

As I will be the sole Fundamentalist, I'm intending to grab stocks that are likely to move in the morning so, looking at the morning's news, we have:

Image result for Fed speakOverriding all that is the Fed's Bullard speaking at 8:30 and he has been reliably doveish recently, boosting the markets but the Futures are already up 166 points on the Dow 25,500 with the S&P (/ES) testing 2,760 and Russell (/TF) is back at our shorting line at 1,555 so I'll be a lot happier shorting than going long – but who knows where we'll be at 9:30 (3 hours from now)?

On the earnings, none of those companies really interest me but we'll still see if there's some kind of overreaction we can play against.   I heard a good…
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Friday Market Flip-Flop – Wake Up and Smell the Coffee Futures!

What a fun market this is!

After being totally bored making money on bullish bets in 2017, 2018 has been a non-stop thrill-ride with money to be made in both directions.  Yesterday, we got yet another chance to short the Russell (/TF) at our 1,550 line and we got another 20-point drop to 1,530, which was good for gains of $1,000 per contract and our call to go long on Coffee (/KCH8) at $119 from yesterday's Morning Report is already percolating at $120.50 and that's good for gains of $562.50 per contract already and gold (/YG, also from yesterday's Report) has jumped from $1,327.50 to $1,330.50 but that's only good for gains of $96.60 per contract, as it's a cheap contract.  

These are just the quick trade ideas we give away for free folks!  If you want more trade ideas, I'll be on Benzinga TV's Pre-Market Prep Show at 8:35 this morning – Tune in here.

Meanwhile, we're not at all fooled by the pre-market bounce in the indexes as we're still not clearing those strong bounce lines and it's the same lines we've been using since the crash, which I last updated in Wednesday's Report:

Since then, have we made any improvements?

No, apparently not, so don't lose perspective and, most importantly, don't get excited when the market, like a ball, bounces less than half of what it fell – especially when it's two weeks later and you're still not moving higher.  It's more likely, at this point, that we're consolidating for a move down than a move up but +180 on the Dow at the open is the pre-market push that reels the Retail Suckers in while the Institutional Investors dump their holdings into the weekend.  

Last time I was on Benzinga, we talked about GreenCoin, which was 0.001 at the time and I don't know if it's just because I'm scheduled to be on again today but GreenCoin has shot up to 0.004, which is up 300% in a month so you're welcome for that one!  

Keep in mind all cryptocurrencies are silly so, if you have more than a double and don't take half off the table (leaving you with half for free) – you are simply being a fool, who is likely to soon be parted with his money.  









Thursday Thrills as the Markets Try to Hold Our Bounce Lines

Wheeee, this is fun!  

We had a lot of fun in our Live Trading Webinar yesterday as we shorted the Russell (/TF) Futures at 1,550 after the release of the Fed Minutes led to an inexplicable rally and the Russell fell all the way back to 1,520 at the close for gains of $1,500 per contract in less than two hours – you're welcome!  

What we saw in the minutes was a Fed that is firmly on pace to raise rates 3-4 times in 2018 and, as I predicted in the Morning Report, these was nothing to get excited about and the silly morning rally completely unwound over the course of an hour's trading.  The S&P (/ES) Futures went over our 2,728 "strong bounce" line and topped out at 2,747 on a spike after the Minutes were rolled out (2pm) but then quickly fell back all the way to 2,701, good for gains of $1,350 per contract below our line and, after hours, it drifted even lower, all the way to 2,685 for another $1,300 per contract gain!  

This morning, in an effort to spin the reaction to the Minutes (as we predicted they would on Tuesday), the Fed's Bullard attempted to soften the blow, saying:

The neutral rate is "still pretty low" and the Fed shouldn't hike interest rates based on the conception from the last two decades of the twentieth century, Bullard added. It is "not the world we're living in today," he stated. In the policymaker's words, the Phillips curve effects are so weak that unemployment at 4%, compared to the natural sustainable rate of 5%, adds only seven basis points to inflation. "A lot" would need to happen for four quarter-point hikes in the benchmark rate this year instead of three, he concluded.

The key here is 3.  There WILL be three (3) rate hikes in 2018 – AT LEAST – and that's 1.5 more rate hikes than were anticipated when the market decided to get silly in November.  Yes there are tax cuts, but do tax cuts trump rate hikes?  The Fed MUST hike rates, they can't
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Which Way Wednesday – Fed Minutes Edition

So far, so predictable.

And that's the way we like our markets, right?  It was two weeks ago (2/6) that we prediced the market would bounce back from 2,550 to at least 2,650 (strong bounce) for the week and then, on 2/9, we broadened our lines and came up with the following predicted range for the S&P (/ES) Futures using our fabulous 5% Rule™:

Here's how those lines are holding up two weeks later:

We're testing the top of the bounce range but remember that range tops out still only 40% back to the 30% line, which doesn't even register on the chart anymore as the trading range has narrowed – as we predicted – at the lower levels.  As I said in yesterday's Morning Report, evidence suggests that 20% line may be the top of the range for rest of the year, not the bottom or even the middle and we will need to look down to the 10% line, at 2,420, for proper support after the next correction.  Hopefully, we'll consolidate around there for a proper move up later in the year (assuming things hold up in the economy).

This isn't about TA (I HATE TA), the 5% Rule is just a mathemetical representation of the Fundamental Value of the S&P 500 and we simply use the chart to illustrate it.  Stocks can go a very long time 10% overvalued and even grow into that valuation without a correction but 20% over-valued is strething it and, as we're seeing this earnings season, we set the high-flyers up for big punishments when they miss.  Here's the Big Picture on our other indexes from our Big Chart:

Those 50 and 200 dmas are the only TA I do pay attention to because those represent the average that a large sampling of investors have been willing to pay for a stock (or index) and, as you can see, we're still miles over the 200-day moving averages for our indexes so, the question is, what changed in the last 50 days to justify a 10% bump in the indexes?  I guess you can kind of say the taxes but,
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