Flip Flop Friday – Nasdaq Fails at 7,500 on Turkey, Russia Issues

Image result for putin poison cartoonEconomic War!  

That's what Russian Prime Minister, Dmitry Medvedev called US sanctions early this morning and he threatened "other means" of retaliation so Congresspeople better invite some Food Tasters to their barbeques this summer as this whole thing started over Russias use of nerve agents (allegedly) to murder former spys in the UK, which recently killed a bystander who thought a bottle of poison was perfume.   

These sanctions are not coming from the White House – Trump says Russia denies it and that's good enough for him.  The Senate and the House are not convinced though, and they have proposed sweeping sanctions against Russia on August 2nd, which are slated to go into effect on August 22nd and get much worse 90 days later if Rusia does not provide "reliable assurances"  it will no longer use chemical weapons, allow on-site inspections by the UN or other international observer groups, and respond to other U.S. demands.

The Ruble crashed yesterday and Medvedev said this morning that Moscow would consider it a "declaration of economic war" and would retaliate "economically, politically, or, if needed, by other means" if the United States imposes bans on Russian banks or their use of a particular currency.  While he did not go into detail, Medvedev's reference to "other means" appeared to have been aimed to raise the prospect that Russia could respond with military force or some other form of warfare, such as a cyberattack or even more nerve gas.

In other Cyrillic news, Turkey's Lira is also crashing as negotiations bread down over the jailing of an American Pastor, Craig Brunson, who has been held there for two years on terrorism charges for his involvement in an attempted coup in July of 2016.  Turkish officials have accused Mr. Brunson of aiding the group accused of orchestrating the coup and another Kurdish separatist movement, charges that the American pastor and U.S. officials have denied.  

Last week, the Trump administration accused Turkey’s justice and interior ministers of human rights abuses and imposed economic sanctions on both men. The crisis sent Turkey’s lira plunging to record lows. Publicly, Mr. Erdogan was defiant. Privately, his government was trying to secure a face-saving way to end the standoff.  On Monday, Turkey’s currency plunged…
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Thursday Thoughts – The Trade War We Choose to Ignore

Image result for tariffs chartAnother $16Bn in tariffs

Or, should I say, another $4Bn in taxes against the American Consumer placed by Trump causes another $4Bn of Import Duties to be place on US goods we are trying to sell to China.  That's the real impact of the announced "$16Bn in tariffs" that Trump gleefully announced on Tuesday, which was immediately followed by an exact retailiation by China yesterday.   

“This is very unreasonable,” China's Ministry of Commerce said, “In order to defend China’s rightful interests and the multilateral trade system, China has to retaliate as necessary.”

This brings our cross-tariffs with China up to $50Bn and we already know there were painful effects from the first $20Bn so this is 150% more pain for US companies and 150% more taxes on US Consumers but still a drop in the bucket compared to the $500Bn in taxes Trump has threatened to place on US Consumers who buy Chinese goods.  That's all a tariff is, it's a tax that punshes consumers for buying certain items from certain countries – the behavior they are trying to change is yours – not China's!  

Now, who do you think will be more successful in getting their people to change their habits?  If it were Japan, we would have already lost this trade war as they Japanese people tend to obey Government edicts but Chinese people are a bit more like Americans, making independent choices though, on the whole, they tend not to fight the Government unless it's important while Americans generally ignore the Government and do whatever they want.

Image result for china rare earth metals 2017We're not there yet but if the Chinese Government declares it "unpatriotic" to buy American goods – our exports to China can ground to a very quick halt.  China can also hit us where it hurts on Rare Earth Materials, which China makes 90% of for the Planet Earth, not because they are actually rare but because producing them causes levels of pollution that most countries find unacceptable.  

Now, you can say that Trump can lift restrictions on strip-mining and lift all enviromental protections "for the sake of
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Toppy Tuesday – Markets Continue to “Ignore and Soar”

Up and up we go.

The volume on the up moves is negligible but what does it matter if you can fool some of the people some of the time and all of the people all of the time?  Yesterday's volume was the lowest since the Friday after Thanksgiving though it was not a holiday yet we spiked up to make a new all-time high on the S&P at 2,855 and this morning, on even less volume, we're testing 2,860 where I'm putting my foot down and shorting /ES.

Well, it's a light foot, with tight stops over the line as none of our Futures shorts have been working for the past week but they are, primarilly, hedges against our long positions, so it's OK to take small, manageable losses on the way up – as they lock in our ill-gotten gains.  

The real question is, why is nobody trading?  I know I'm on vacation and a lot of our Members are on vacation but surely, we can't be the only ones trading the market, can we?  Well, considering this volume, maybe we are!  Also interesting yesterday was a strong uptick in VIX volume, as well as VIX options, where call volume outpaced puts by 6.5 to 1.

That's not the kind of action you expect in a "healthy" market but it's hard to argue with the headlines, which are relentlessly UP, pretty much since July 1st, when the S&P was testing the 2,700 line (6% ago).  According to our 5% rule, this is a 5% run with a 1% (20% of the run) overshoot and, while 2% (strong) overshoots can happen – they are pretty rare and need a catalyst and I don't see one likely to turn off the SellBots this morning so let the market open and then we can start shorting.










Monday Market Movement – August Vacations Kill the Volume

Image result for trump trade war tweets cartoonIt's vacation time! 

I'm on vacation and Europe is on vacation which leaves no one to trade the market, so don't expect much this week or next.  Even the President is on vacation but, sadly, not away from Twitter, where he's having a busy weekend claiming victory in the Trade Wars and attacking the media.  So far, the markets have been oblivious to the escalating Trade War, which is very, very dangerous and the reason we pressed our hedges at the last options rollover.

Another guy who can't stop tweeting is Elon Musk and, following the Presendential tradition of inappropriate tweeting, Musk sent out a parody video of Hitler shorting Tesla stock which is, frankly funny and, coincidentally, I once made a paradoy using the same video on the same subject when the company was much smaller ($150 and we were long) but, then again, I don't run a $60Bn company.  Actually, if you read my 2013 parody's text – it does lay out exactly what Musk had to accomplish to get to this stage of success.

Oddly enough, we're getting ready to short TSLA again as it re-tests its highs as it is overpriced.  Even if they are able to further ramp up production they are still bleeding cash and, as the Trade Wars escalate, TSLA could get caught in the crossfire but, over $360, it's priced well beyond perfection.

Apple (AAPL) is still a bargain at $1Tn ($208) and people are talking $250-300/share now which suits us fine as our pre-earnings play on AAPL for our Short-Term Portfolio was:

July 30th, 2018 at 12:15 pm | (Unlocked) | Permalink

AAPL/John – I don't think anything very exciting happened in Q2 and they've beat the last 4Qs by a bit and last Q2 they made $1.67, which was an 0.10 (6.4%) beat and this Q people are expecting $2.18 which is up 0.51 (30.5%), which would be huge but last July the stock was at $154 and now $189 so up $35 is only 22%

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Non-Farm Friday – Is America Working?


That's what it's all about today as we get the Non-Farm Payroll Report at 8:30 this morning.  Average Hourly Wages have been on a 2.7% growth path for the year and it would be surprising then, if we are below 0.2% or above 0.3%, which is the Fed's sweet spot.  The closer we are to 0.3%, the more likely the Fed is to hit the brakes before rising wages push inflation out of control (and eat into Corporate Profits – which we really can't have in this country!).  The Dollar has been flirting with the 95 line and more wages means more demand for Dollars to pay people with but the Dollar over 95 can put downward pressure on the indexes, as well as commodities.

The best short on a strong Dollar this morning would be oil (/CL) at $69, with tight stops above and we don't want to be greedy into the weekend but every 0.25 drop pays $250 so we can make some quick Egg McMuffin money on Dollar strenght.  If there are more than 250,000 jobs created (doubtful), that would be a plus for oil as more jobs, in theory, means more people driving and more factories using oil for whatever (trucks too) – so watch out for that.

On a stronger Dollar, Silver (/SI) makes a good short as it tests the $15.50 line.  We have been long on /SI but it popped nicely so now we take that profit off the table as we expect a pullback – even if it is on a run above the line (where we stop the shorts out over). 

These are simple, mechanical moves you can make on events where the Dollar is in play and no event is bigger than Non-Farm Payrolls – other than a Fed meeting and this week's was a big nothing – so we have to have a little fun before the week is out!

Despite rising wages, Consumer Credit has been rising at an alarming rate and that's something we'll pay attention to in next week's report as, last month, Consumer Credit jumped $24.5Bn, which is a pace to put Americans $300Bn more in debt for the year, a…
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Trade War Thursday – Trump Taxes $200Bn In Chinese Goods 25% – Americans Pay Him $50Bn

Image result for trump tariff cost consumersMore tariffs?

The Trump administration said that it is considering increasing the proposed tariff on $200 billion in Chinese imports to 25% from 10% – indicating there is now no possibility that there won't be tariffs at all. President Trump has asked U.S. Trade Representative Robert Lighthizer to hike the duties, which could be implemented as early as next month and are implimented as a TAX paid by the US Consumers of Chinese goods – it doesn't cost China a think yet the MSM has allowed the word tariff to go unexplained while it's the American people who pay the price and the Top 1% who reap the benefits as those tariff taxes go to pay for more tax cuts for Trump's Billionaire Buddies.

Not only are tariffs an unfair and possibly illegal tax on the American people but they also increase the costs of goods and services by removing competition from the local market.  Not only is Trump placing a $50Bn stealth tax on American Consumers and causing runaway inflation by making things more expensive but China will retailiate with their own $50Bn tax on American goods and who does $50Bn matter more to – US or Chinese Consumers?  So Chinese consumers will stop buying American goods altogether while US consumers will simply pay $50Bn more and keep buying the same stuff.  China said this morning:

“China has made full preparation for the U.S. threats to escalate the trade war, and will have to retaliate to defend national pride and the people’s interests.” 

The reason most Americans don't realize that tariffs are actually just a tax they are forced to pay or that they are one of the worst economic ideas in history is that we haven't had a tariff war since 1930 – when one started the Great Depression.  After that, people who actually went to Business School had no doubts at all that tariffs were a TERRIBLE idea – and they have been used sparingly ever since.  Until now.

Image result for trump tariff cost consumers

You would think an 80% drop in the…
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Which Way Wednesday – Strong Bounces, Weak Follow-Throughs

Image result for monopoly cardAnother great day in the markets!  

In yesterday morning's PSW Report (just $3 a day and look at all our great days!) I said:

Today is the last day of the month so we're looking for bounces off of all those bottoms and you can play for the bounces (with very tight stops below), which are 20% of the drop as a weak bounce and 40% of the drop as a strong bounce where failing the weak bounce is bearish and the strong bounce has to be taken back in less than 48 hours, or that's bearish too.  

That means, for example, the 250-point drop on the Dow (/YM) should get a 50-point bounce, back to 25,350 just to be considered a weak recovery and 25,400 is the strong bounce line.  Anything less than a weak bounce today is a strong indication that we're not done selling off – especially on a window-dressing day like today.  On the volatile Russell (/RTY), we fell 45 points so we'll round up to look for 10-point bounces to 1,665 (weak) and 1,675 (strong) but we need a stronger Dollar for the Russell to get it in gear.

At the time, the chart on the Russell looked like this.  I know it's confusing because we only TELL you what is going to happen and how to make money on it but, when you look back at the trade ideas, you can't believe we didn't have today's chart yesterday, since the market does EXACTLY what we tell you it's going to do.  Pretty cool, right?

Likewise the Dow spiked up to 25,475 (up $875 per contract) but then failed it's strong bounce line at 25,400 and finished the day right between our predicted weak and strong bounce lines at 25,374.  Remember, we are not using TA – we are Fundamental investors who think TA is complete nonsense – this is just math.  It just so happens that our math (the faboulous 5% Rule™) tends to perfectly align…
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Troubling Tuesday – Will Apple (AAPL) Earnings Be Enough to Save the Nasdaq?


That's a nice win on yesterday's Oil (/CL) Futures shorts this morning (so far, we're expecting $69.50 or lower) but it's NOTHING compared to the gains from Friday, where I said to our Members in our Live Chat Room (as well as our Morning Report, which you can subscribe to for less than $3/day):

Things seem to be holding up so far.  /YM back to 25,550 and also /RTY 1,700 along with 2,845 on /ES and 7,440 on /NQ so shorting the laggard but favoring the /YMshort still.  

/RB testing $2.17 makes a nice short into the weekend but might push higher first. 

/KC back to $109.50 so I like that long and that's $121.20 on /KCN9

/SI below $15.40 so long there if it goes back over (only) with very tight stops below.

The Dow fell back to 25,300 for a gain of $1,250 per contract, the Russell (/RTY) fell to 1,655 for a gain of $2,250 per contract, the S&P (/ES) fell to 2,800 for a gain of $900 per contract, the Nasdaq (/NQ) fell to 7,200, for a gain of $4,800 per contract, Gasoline (/RB) fell to $2.11 for a gain of $2,520 per contract, Coffee (/KC) rose to $112.50 for a gain of $1,125 per contract and Silver (/SI) flew up to $15.55 for a gain of $7,500 per contract.  

That day's report was certainly worth $3, wasn't it?  Of course, those trades are usually exclusive…
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Meaningless Monday to Kick Off a Wild Week in the Markets

It's a big week for the Central Banksters.  

The Bank of Japan kicks off the week with a 2-day meeting in which it is expected they will reduce their spending on ETFs that have been propping up the Nikkei for the past decade.  The BOJ has been criticized for favoring large-caps and, with the index at 22,580, the Central Bank has decided to give some love to the broader Topix Index to the tune of 6,000,000,000,000 Yen per year (only $54Bn in real money) but their previous monetary madness has made the BOJ the owner of 75% of the ENTIRE Japanese ETF market (about 4% of the entire market, 10% of the 225 Nikkei large caps). 

Image result for bank of japan owns stocks

In theory, the BOJ has made a lot of money buying Japanese stocks but, in practice – good luck selling them when they have been the primary buyer for the past 5 years.  Our own Federal Reserve doesn't dabble directly in stocks – they just print money and hand it out to Banksters, who then buy up stocks or, even better, lend Trillions of Dollars to Companies that buy up their own stocks.  In Q1 alone this year, S&P 500 companies bought back $190Bn of their own stock in a year that's on track for over $1Tn in buybacks – most of it on borrowed money.

Image result for fed treasury holdingOur Federal Reserve prefers to buy US Treasury notes, about $2.4Tn of those.  Isn't it great how easily we can throw TRILLION around?  As if it's not a big deal….

To put this into context, the Dow has a MONTHLY money flow that is up or down $10Bn for 30 large caps so imagine the effect of $100Bn worth of inflows through buybacks every single month!  The BOJ in Japan, the PBOC in China, the ECB in Europe and US Corporations using easy money from our own Federal Reserve represent ALL of the net buying of the Global stock markets.   What will happen when and if they ever do decide to withdraw their stimulus.

Of course, that doesn't mean we should be bearish.  Consider that Las Vegas is a city in the…
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GDP Friday – “Some Say 5.3%, Some Say 3.7%, If it has a 4 in Front of it, We’re Happy”

Image result for trump gdpThat's right, the President is at it again.

Less than a month after bragging about the jobs numbers before they were released, President Trump told a rally yesterday:  "Somebody actually predicted today, 5.3.   I don't think that's going to happen — 5.3. If it has a 4 in front of it, we're happy. If it has like a 3 but it's a 3.8, 3.9, 3.7, we're OK."  So of course the market rallied yesterday as earnings have been decent and we must be having spectacular growth if the President says so.  After all, when has Donald Trump ever lied to us?

We get the official GDP Report at 8:30 but, as you can see from the St Louis Fed's chart above, Real GDP, which takes into account that the Dollar is still down 7% from when Trump took office, has been a disaster under Trump with just 2.5% average growth and, as you can see, we've had 6 quarters of growth over 3.75%, 3 of which were over 4.5% since the Recession and none of those were under Trump (I won't say who it was because the President will say it's FAKE NEWS).  

The Atlanta Fed is sticking to their 4.5% forecast (see Wednesday's notes) and we might hit it with the inventory growth but piling up inventory at the docks because of a sudden tariff tiff is not a true positive on the GDP – the assumption is those goods will ultimately be sold but maybe not as Trump is already bailing out the Farmers who can't sell $12Bn worth of crops.

Yesterday's Durable Goods Report was a big miss, increasing just 1% vs 3.2% expected and, excluding Transportation (Boeing is a huge variable), it was only up 0.4%.  May was -0.3% and April was -1% and that's the quarter so the economic strength, assuming we are getting it, is not coming from things that will last and it's not coming from housing and it's not coming from commercial development – it will be interesting to see where the GDP number does come from.

Meanwhile, I already put out a note to our Members to short the Index Futures as we expected some earnings
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