Which Way Wednesday – Dow 20,000 or 18,500?

It's Fed day with the FOMC's rate decision at 2pm.

Yellen will give a press conference at 2:30 where she will answer endless questions about Donald Trump by saying variations of "I don't know" and "We'll wait and see."  It will not stop reporters from asking them though…  We predicted Dow 20,000 back on Thanksgiving Friday (11/25) and we're so close now it would be a real shame to fail before we take that line.  At the time, I said:

The Russell 2,000 is just under 1,350 and that's up 200 points since early November (not counting their spike down) and that is just shy of 15% so the Dow is MILES behind if the move in the Russell is real (we have bet it is not but those bets are killing us!).  The Nasdaq is up 4.3% and the S&P is up 5.5% and the NYSE, the broadest index, is up 4.8% so it's really the Russell that's a huge outlier – and that's why we're shorting it.

HOWEVER, we could be (and have been) very wrong about the Russell and, if so and it heads higher still, then it's the other indexes that should be catching up so we can hedge our hedges with long positions on the Dow, S&P and Nasdaq.  For example, the Dow ETF (DIA) is at $190 so a 5% move in the Dow would be $199.50 and we can make the following play to gain leverage:

  • Buy 30 DIA March $188 calls at $6.70 ($20,100)
  • Sell 30 DIA March $193 calls ar $3.75 ($11,250)
  • Sell 5 AAPL 2019 $97.50 puts for $10 ($5,000)

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