Fabulous Friday – Markets at (yawn) All-Time Highs

Another day, another high.

We may be too bearish into the weekend now so we'll have to play an upside hedge (in addition to RSX, which has also popped since our pick) and we'll look for something during today's Live Member Chat Room.  Today's run-up may be nothing but we're breaking over technical levels that certainly LOOK bullish enough – especially on the Russell, where we've been shorting

This morning's rally is based on Chinese Import Data, which is up 19% from last year, which sounds very impressive until you realize that the Dollar was 10% higher vs the Renimbi last year, so half of that growth is currency-related – assuming the data is accurate in the first place – which is always a question with Chinese data.

Also, think of how many parts had to be imported to be turned into new IPhones last quarter – that too bumps up the import numbers.  It's not the Chinese consumers that are buying more stuff, it's the Apple assemblers.  China is also building things with Iron Ore Imports up 10.5% (more in-line with the actual growth) and Iron Ore prices have jumped up 10.5% (what inflation) in September alone, which is good for BHP Billiton (BPH), Rio Tinto (RIO)  and Vale SA (VALE) and VALE makes a nice, bullish trade as it's still under $10/share with almost $1/share in earnings for a p/e of about 10.  As a bullish economic trade we can:

  • Sell 10 VALE 2019 $10 puts for $1.80 ($1,800) 
  • Buy 15 VALE 2019 $7 calls for $3.20 ($4,800) 
  • Sell 15 VALE 2019 $12 calls for 0.85 ($1,275)

That's net $1,725 on the $7,500 spread so the upside potential is $5,775 (334%) if VALE is up 20% by Jan, 2019.  The downside risk is owning 1,000 shares of VALE at $10 plus the potential loss of $1,725 so net $11.75 makes this an aggressive play but anything over $10 means we do not get assigned the short puts and we're already $4,500 in the money to start the trade – that's fun!  

It's a sideways play on China and we may have to consider China's ETF (FXI) for one of our longs though China Mobile (CHL) is…
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