Faltering Thursday – S&P 500 Fails to Clear Lowered Earnings Expectations

Low expectations.  

It's what we have for both the President and the Stock Market so anything they do that isn't a complete screw-up gets celebrated but that's no way to run an country – or an economy.  Powell spoke yesterday but provided no catalyst, choosing to speak about the LIMITS of Fed policy in boosting growth – a speech aimed squarely at the President in which the Fed Chair also stressed the importance of a fully independent Federal Reserve.

 

IN PROGRESS

 

 

Will We Hold It Wednesday – Russell 1,525 Edition

Woah-oh, we're halfway there….

The Russelll 2000 Index is halfway back to 1,750 after falling from there to 1,300 (25.7%) since the August highs.  Yesterday I expressed my misgivings about the recent low-volume rally and it's easy enough to manipulate the Dow, with just 30 stocks, the Nasdaq, with just 100 stocks and even the S&P 500 has half it's market cap in the top 30 stocks so it only takes a bit of firepower aimed at the leaders to prop up the markets so unscrupulous people can pretend things are better than they are

Not so much the Russell, with it's 2,000 small-cap stocks, which are more evenly distributed throughout the index or even the NYSE, with it's 2,800 companies that trade 1.8Bn times a day – those are VERY EXPENSIVE to manipulate but, the good news is that they generally follow the other 3 so manipulating the Big 3 usually leads to the NYSE and Russell following suit.  

Still, when we get to major inflection points, it's often the NYSE or the Russell that warn us that things may not be quite as they seem.  The NYSE topped out at 13,600 last January but then plunged 10% in two days and never regained its highs in the Summer, which is one of the things that kept us cautious while the rest of the indexes were making records.  In December, the low for the NYSE was 10,723 but we'll call the support line 11,000 and that's a 2,600-point fall (19%) and now we're back to test the 50 dma at 12,500 after a 13.5% rally, 2/3 of the way back to the top.

 

IN PROGRESS

 

 

SOTU Tuesday – Trumped-Up Rally Continues

Everything is Awesome!

Well, that's what they want us to believe this evening as Trump gives his State of the Union message.  One year ago, Trump taled about the $8Tn the stock market gained during his first year in office and the S&P had run all the way up to 2,872 into his Jan 30th speech but then we collapsed back to 2,532 just a week later (2/9) and it took us until September to get back to where the BS pre-SOTU rally had taken us.  

Now we're at 2,724 so the market is down a couple of Trillion Dollars but has also ralled back 16% off the 2,346 low just 6 weeks ago in December and thank Trump it did or he'd have to be explaing how the State of the Stock Market was WORSE than when he took office.  But thanks to the Fed reversing course and the Administration telling us how AWESOME their trade talks with China are going and thanks to the economic data the Administration has released showing the Government Shutdown was GOOD for the economy – EVERYTHING IS AWSOME!

Of course, having actually seen the Lego Movie, I know that things were not, in fact Awesome but a brain-washed society that had fallen under an oppressive regime run by a TV-obsessed, orange-haired psychopath (relax, it was 2014 – no one was picking on Trump – it's just a very strange coincidence) and had to be saved by a girl who looked a lot like Alexandria Ocasio-Cortez who did all the work while some nobody got all the credit.  Again, coincidences…

Image result for hedgingStill, I would not go into today's end without hedges – just in case we have a repeat of last year and the great efforts to prop up the market end as soon as the President is done telling you how great things are.  Trump also bitched about Government Regulations and said it was ridiculous that we were once able to build the Empire State Building in one year and now it takes 10 years to get a road built but 5 people died
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Monday Market Movement – Dow 25,000, S&P 2,700, Nasdaq 7,000 and Russell 1,500 Must Hold!

Well, we've made a bit of progress.

Unfortunately, it was almost entirely due to Wednesday's Fed Meeting and Powell's doveish statements after but what worried me that night (as I said on TV) and what worries me still – is what is the Fed so afraid of that they feel they have to prop up the markets at levels that are 300% HIGHER than when they began to intervene back in 1999?

Intervention is expensive and intervention is destabilizing and usually used as a last resort and it's not just the 666 lows on the S&P that we're miles above but the pre-crash highs of not even 1,600 that we're beating by 1,100 – that's 68.75% higher than we were than the levels the Fed was supposed to be getting us back to and NOW they think falling back to not quite 100% higher is some kind of crisis?  

S&P 500 MAs

What I worry about is that the Emperor has no clothes and thank goodness I'm not taking about The Donald but the markets in General, which have been pumped up on artificially low rates, monetary stimulus, lower taxes, repatriation of overseas funds (also at low tax rates) and, of course, Corporate Buybacks.  None of those things are supposed to be permanent and, USUALLY, a government will do one thing or the other – not all of the above!  

It costs real money to do these stiulus packages and it's money we're borrowing from the Future in order to what? in the present?  Again, where's the beef in this economy that it can't stand even a little bit of price correction?  Consumer Confidence has rarely been higher though it's significantly off the December highs – before the Government shutdown.

It's not the present situation that's going down – if you ask people how they are doing, economically, they will generally tell you they are feeling good because 96% of the people are employed and we're all fairly surprised to be alive in year two of the Trump Presidency.  However, if you has people about their forward economic expectaitons – they are plunging, down below 100 from a high of…
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Non-Farm Friday – Is America Working? The Liar-In-Chief Says Yes!

Image result for trump china tariffsAmerica is barely working. 

Our Government is barely functioning and the President spent yesterday afternoon lying to the "failing" NYTimes – in an interview with a paper that employs fact-checkers.  Trump talked about repealing Obamacare, Building a Wall to stop the flow of drugs, funding the military, appointing Secretaries, China's Trade Deficit and his poll numbers and NOT ONE thing the President said was actually true – NOT ONE THING!!!  Not only that but the Trump Administration has backed themselves into a corner with China and, with one month to go – Trump will have to accept an even weaker deal than new Nafta simply in order to avoid looking like he was completely defeated in "The Art of the Deal."  

As noted by the "failing" NY Times, Trump's whole take on the Trade War is complete and utter BS as the tarriffs he is "imposing on China" are nothing more than a tax on the American people and, if Trump expands the tarrifs, as he is threatening to do – it will be nothing more than a $125Bn tax increase on US Consumers in order to pay for the Billionaire Tax Breaks he has given out to his friends and family.  One has to wonder wheter Trump WANTS a deal with China – I think he wants the tax money more:

WHAT TRUMP SAID

“We have 25 percent now on $50 billion. And by the way, Peter, that’s a lot of money


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Thrilling Thursday – Dow 25,000, Russell 1,500 – What Could Go Wrong?

Wheee, what a ride!  

We came all the way back to Dow 25,000 yesterday as Apple and Boeing (BA) accounted for 2/3 of the gains on the day, both with strong earnings reports that beat expectations.  Both are also major S&P components and Apple (AAPL) is over 15% of the Nasdaq's weighting as well so all the indexes flew higher but we shorted the Dow (/YM) Futures at the 25,000 line, expecting at least some pullback off the run from 24,300 on Monday.

25,000 is up 2.88% from 24,300 and the 2.5% line is 24,907.50 though really the main support line for the Dow is 24,000 (8,000, 16,000, 24,000…) so it's more like a 1,000-point rally since mid-Jan and that means we can expect to see a 200-point pullback (weak) to 23,800 and, at $5 per point per contract – that's a $1,000 per contract upside potential vs losing maybe $50 if /YM pops over 25,010 and stops you out so I certainly like the risk/reward on the play – which is how we like to play the Futures.  

We are, of course, very pleased with AAPL, which I STRONGLY recommended buying back on Dec 20th in "Market Panic Gives Us An Opportunity To Load Up On Apple (AAPL)" – nothing ambiguous about that one!  My trade idea at the time was:

While other retailers are struggling, Apple has been setting new records year after year for retail sales with the average Apple Store generating $5,546 per square foot in revenues. Tiffany is #2 at $2,951 and they sell diamonds! Unlike diamonds, no one has been successful so far in making artificial iPhones that pass for the real thing so it's amazing to me that AAPL's stock is back at $160, $70 (30%) off it's peak.

We are long APPL in our portfolios and we just made an even more bullish call to buy back all our short calls and wait for the bounce. However, as a new play on AAPL, I like the following and we're going


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The PhilStockWorld.com Money Talk Portfolio Review – Jan 30, 2019

I'll be on BNN's Money Talk tonight at 7pm

For the past year, we've been keeping a Money Talk Portfolio, which we only adjust live on their show, once per quarter so we have to keep it well-balanced and self-hedging.  We rode out the recent downturn with style as our last review, on Oct 24th (the last time I was on the show) we were at $95,645, up $45,645 (91.3%) from our $50,000 start and we projected that our remaining positions would gain $70,015 by Jan, 2021 (the time-frame for our spreads). 

Not content with that, we added two new trades (MU and MJ) and one hedge (TZA and CAT), adding another $50,000 of upside potential over the same time-frame.  So, with $120,000 of upside potential over the next 24 months, we expect to make about $5,000 per month but the market took a nasty downturn and we're only just recovering so I'm sorry to report that we're only up to $105,845, which is up $55,845 (111.7%) and "only" up $10,200 (20.4%) in the past 3 months.  

We were unable to make adjustments during the downturn, which we did call very well in our Live Member Portfolios (see our Jan 21st Portfolio Review), so the performance is not quite as good as our Live Trading Portfolios but it's the perfect portfolio for less active traders, who just like to check on their progress every few months.  

 

IN PROGRESS

 

 

Testy Tuesday – Finding Support at the 50 DMA’s

Well, we're holding up so far…

As I said last week, nothing really matters as long as we hold the 50-day moving averages and that's not really that hard to do as they are still in decline – so the targets are lower every day.  As of this morning our 50 dmas are:

  • Dow 24,199, now 24,528, 200 dma – 24,977
  • S&P 2,612, now 2,644, 200 dma – 2,741
  • Nasdaq (100) 6,597, now 6,712, 200 dma – 7,034
  • NYSE 11,864, now 12,100, 200 dma – 12,315
  • Russell 1,438. now 1,475, 200 dma – 1,590

So we're right in the middle and all these up and down gyrations are just consolidation as we prepare to break out but will we break out to the upside or the downside?  That is the question that can be worth Millions in your portfolio!  

Unlike the moving averages, which move, our 5% Rule™ remains the same – only changing in the short-run when long-term supports are found but never changing in the long run – unless we do a full re-valuation of an indexes base-case (the Must Hold levels). 

We were going to bump up our Must Hold lines by 10% due to the tax changes late last year but the NYSE and Russell never confirmed the move higher and then the crash came but now, if we do hold those 10% lines, we will be bumping the Big 3 up, who benefit the most from the lower tax rates and the weaker Dollar that comes with them (we don't pay our bills, we're a dead-beat currency).  Current levels are:

  • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 
  • S&P 2,950 to 


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Monday Market Movement – Reviewing Last Year’s Top Trades

Not much happend over the weekend

That being the case, I'm going to take the time to catch up on our Top Trade Reviews, as we haven't done one since Sept 13th, which closed out 2017's trade ideas at 54 winners and 9 losers for an overall 85.7% winning percentage for the year.  This is why Top Trades is such a successful part of our subscriber base while, in fact, Top Trades only represent a small fraction of the trade ideas we discuss in our Live Member Chat Room – which you can SIGN UP FOR HERE (subtle marketing ploy).  

Of course, one of the reasons we like to do reviews is to look at the losers, as they are often the ones that offer great new entries with a chance to turn around.  As Fundamental Investors, we are more likely to be wrong about our timing than wrong about a position in general so a stock that goes the wrong way after our pick can be a great opportunity to jump in for a better price. 

Top Trade Alerts are sent out from our Live Member Chat room and are usually the trade of the week that I think has the highest likelihood of being successful.  We are developing a platform called "Trade Exchange" that will roll out this year to make our text alerts actionable so the pressure will really be on to perform in this segment.

Our first Top Trade Idea of 2018 came right on Tuesday, Jan 2nd with Chipotle (CMG), which had been crushed on another food poisoning scare but we thought the damage was overdone but, as noted, I didn't expect the kind of rebound we had – we played it conservatively, though we did play it more aggressively later in the year.

MG/Streth – It's tricky as sales are up 10% from 2016 but profits ($187M) not even half of what they were in 2015 ($475M) and they are getting, at $292, $8.2Bn for the company so at POTENTIAL profit, it's a very reasonable 17 p/e but, at actual profit, it's a ridiculous 44 that you could never justify for a full-grown chain.  How long will


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Federally Funded Friday – China Talks and Fed Spending get us Back Over our Lines

You HAVE to be bullish.

If there's anything the last 8 years of stimulus have taught us it's that you HAVE to be bullish.  We have tried one short list since 2008 and we quickly gave it up as we could not catch a break and it's been very rare in the past 10 years that we've found anything we were comfortable shorting (Oil, Netflix, Tesla) for more than a brief period of time and you can see from the action this morning why that's still the case.  Yesterday, Commerce Secretary Wilbur Ross had his "Let them eat cake" moment but he was quickly bailed out with more talk of progress with China Trade Talks as well as the Fed jumping in to now say they won't be selling so many bonds after all.

While the Fed was spending Billions making sure that wealthy people's portfolios didn't suffer during the Government shutdown, Trump vowed to keep the shutdown going as long as it takes to get his wall while insisting the 800,000 Federal Workers who aren't getting paid for a second week were behind him:  “I love them,” Trump said to reporters on Thursday, “Many of those people that are not getting paid are totally in favor of what we’re doing because they know the future of this country is dependent on having a strong border.”  

Ross, on the other hand, who walks around Washington in $600 slippers (with a custom Commerce Department logo, no less!) and is often found in the most expensive restaurants in town, went on CNBC in a $5,000 suit yesterday to complain about Speaker Nancy Pelosi volunteering in a Food Bank, helping the furloughed workers when, instead, she should be capitulating to Trump and giving him his wall:

“I don’t really quite understand why” the food bank visits were happening, Mr. Ross, 81, said on CNBC. Some banks were offering interest-free loans, he said, and because the workers would eventually get their back pay, “there’s no real reason why they shouldn’t be able to get a loan against it.”

Asked by reporters to respond to Mr. Ross’s comments, Mr. Trump said that he had not heard…
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