by phil - May 24th, 2016 8:31 am
Go on, take the week off.
Really, these markets are just stupid – there's no point trading them. The volume on the S&P ETF (SPY) yesterday was 58M, one of the lowest levels of the year – including half days! We opened at $205.51 and closed at $205.21 with a high of $205.84 and a low of $204.99 so a narrow range of 9 S&P points during the day and then, at 3am, we magically race back up 12 points – on no volume at all.
It's a manipulated joke of a market and, while we enjoy playing the game, I hear from far too many people who take this nonsense seriously and are worried about what to do in the face of all this uncertainty. The only trade we added in our Live Member Chat Room yesterday was a neutral butterfly spread on TGT, using our BE THE HOUSE stratgegy of selling premium over time against a long-term position. That's how you make money in this market – take it from the people who think they know which way it will go!
We're hoping for a nice rally so we can add back Nasdaq Ultra-Short (SQQQ) positions, now that Apple (AAPL) has bounced a bit. Of course you are sick of me saying "I told you so" but I did tell you so, right in our Friday the 13th post, where I said:
Also, if you'd like a quick stock play – we picked up Apple (AAPL) at $90 yesterday and we leveraged it with the May (expire next Friday) $87.50 calls at $3.15, which closed yesterday at $3.25, which is net $90.75 and we think AAPL can at least bounce $1 or two and that should take those calls to $4, which is a very nice, quick gain into the weekend.
With AAPL closing at $95.22 on Friday, those calls expired at $7.72 for a very nice $447 (137%) per contract win in 7 days. That's the kind of trade idea you get just for having a PSW Report Membership ($99) as it was right in my morning post. Of course, if you subscribed to our higher-level Memberships, you would…
by ilene - May 23rd, 2016 11:14 pm
Courtesy of Wade of Investing Caffeine
Federal Reserve monetary policy once again came to the forefront as the Fed released its April minutes this week. After living through years of a ZIRP (Zero Interest Rate Policy) coupled with QE (Quantitative Easing), many market participants and commentators are begging for a swifter move back to “normalization” (a Federal Funds Rate target set closer to historical averages). The economic wounds from the financial crisis may be healing, as seen in the improving employment data, but rather than ripping off the interest rate Band-Aid quickly and putting the pain behind investors, the dovish Fed Chair Janet Yellen has been signaling for months the Fed will increase rates at a “gradual” pace.
Despite the more hawkish tone regarding the possibility of an additional rate hike in June, Fed interest rate futures are currently still only factoring in about a 26% probability of a rate increase in June. As I have been saying for years (see “Fed Fatigue”), there has, and will likely continue to be, an overly, hyper-sensitive focus on monetary policy and language disseminated by members of the Feral Reserve Open Market Committee.
For example, in 1994, despite the Fed increasing target rates by +2.5% in a single year (from 3.0% to 5.5%), stock prices finished roughly flat for the year, and the market resumed its decade-long bull market run the subsequent year. Today, the higher bound of Fed Funds sits at a mere 0.5%, and the Fed has announced only one target increase this cycle (equaling a fraction of the ’94 pace). Even if investors are panicking over another potential quarter point in June or July, can you say, “overkill?”
While the Fed is approaching the lower-end of the range for its employment mandate (unemployment currently sitting at 5%), despite the recent bounce in oil prices, core inflation remains in check (see Calafia Pundit chart below). This long-term benign pricing trend gives the Fed a longer leash as it relates to the pace of future rate hikes.
Source: Calafia Beach Pundit
by phil - May 23rd, 2016 8:03 am
F is for Failure.
It's also for Finance Ministers and F is also the grade they got at this weekend's G7 meeting after failing to accomplish anything to calm the markets. As you can see from the Nikkei chart, Japan's markets opened down a quick 2% before recovering half as it gyrated wildly into the close after testing 16,666, which is how the Banksters signal their minions that the fix is in and they have control.
For those of us not looking for Satanic messages from the trading floor, 16,500 is a strong (40% of the run) retrace from the bottom we called at 15,900 back on May 4th (good for a $5,000 per contract gain) to the top we called at 16,900 on May 11th (good for a $2,000 per contract gain) so you're welcome for those! Remember – I can only tell you what the markets are going to do and how to make money trading them – the rest is up to you…
16,700 is the 20% (weak) retrace and, per our 5% Rule™, so upside resistance there is a bad sign and, if we bounce between there and 16,500, we're likely consolidating for a move down, which is likely if Japan fails to get permission to further devalue the Yen by the end of the G7 Bosses Meeting on Friday. So we can look forward to another week of rumors and innuendo but the fun won't end there as OPEC then has their meeting on June 2nd. Have I mentioned how much I like CASH!!! lately?
The lack of consensus over which policy levers to pull comes as Japanese Prime Minister Shinzo Abe prepares his heavily indebted nation for what may be another dose of spending to help the struggling economy. Ideally, he’d like the blessing of his G7 peers before doing so, but expectations are low that national leaders can go one step further on any economic accord when they meet in Japan later this week.
"Globally coordinated stimulus and cooperative exchange-rate management look a distant prospect amid deep G-7 divisions," said Frederic Neumann, co-head of Asian economic research at HSBC
by ilene - May 21st, 2016 3:00 pm
The Forgotten Depression tells of the slump of 1920-21: high unemployment, collapse in commodity prices, upsurge in bankruptcies and sharp break in stock prices. However, unlike the Great Depression, the 1920 affair was over in 18 months. What explains its brevity? James Grant, publisher of the prestigious Grant's Interest Rate Observer, tells the story of America's last governmentally-untreated depression; relatively brief and self-correcting which gave way to the Roaring Twenties…
As ValueWalk.com's Jacob Wolinksy explains, in 1920–21, Woodrow Wilson and Warren G. Harding met a deep economic slump by seeming to ignore it, implementing policies that most twenty-first century economists would call backward. Confronted with plunging prices, wages, and employment, the government balanced the budget and, through the Federal Reserve, raised interest rates. No “stimulus” was administered, and a powerful, job-filled recovery was under way by late in 1921.
In 1929, the economy once again slumped—and kept right on slumping as the Hoover administration adopted the very policies that Wilson and Harding had declined to put in place. Grant argues that well-intended federal intervention, notably the White House-led campaign to prop up industrial wages, helped to turn a bad recession into America’s worst depression. He offers the experience of the earlier depression for lessons for today and the future. This is a powerful response to the prevailing notion of how to fight recession. The enterprise system is more resilient than even its friends give it credit for being, Grant demonstrates.
As Grant so perfectly summarized previously, while we seem incapable of learning from what has worked in the past, future citizens will reflect on this so-called PhD standard (that runs the world), thus…
"My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates.
We put the cart of asset prices before the horse of enterprise.
We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.
We actually worked to foster inflation, which we called 'price stability' (this was on the eve of the hyperinflation of 2017).
We seem to have miscalculated."
by ilene - May 20th, 2016 10:00 pm
BEIJING – Predicting ideal conditions for the rare sight, Chinese astronomers announced to Beijing residents Monday that the sky would be visible for a brief two-minute window tomorrow morning.
According to a statement from the China National Space Administration read in part, advising interested citizens to plan on waking early and to consider using a small telescope for better views of the sky.
“From approximately 6:14 a.m. to 6:16 a.m., a small section of the Earth’s atmosphere should be perceptible to the naked eye when looking towards the southwest in Beijing.”
“For anyone who hasn’t seen it before or isn’t sure what to look for, the sky will appear as a small, bluish area that should stand out clearly from its surroundings. We’ll also be streaming the phenomenon live on the official CNSA website for residents with obstructed views in their neighborhood.”
The agency added that anyone who missed out on witnessing the occurrence tomorrow would have to wait a while, as the sky was not expected to be visible again until late 2024.
While tongue in cheek – perhaps – not everyone is laughing and some are even attempting to combat the pollution. So here, as we noted previously, courtesy of VJ, are the 13 most head-scratching proposals intended to do just that: fix China's smog. Good luck.
#13. Sky Watering Skyscrapers
Technically, it is called precipitation scavenging. In actuality all this means is turning skyscrapers into giant sprinklers in an effort to wash the skies of pollution. “If you can offer a half-hour watering your garden, then you can offer a half-hour watering your ambient atmosphere to keep air clean . . . ,” rings the sales pitch of this rather lo-fi geoengineering strategy.
Basically, precipitation scavenging works on the premise that rain clears smog, so artificial rain should do the same. To create “rain,” giant sprinklers will be attached to the roofs of tall buildings in China’s most polluted cities. During times when the air pollution rises due to a lack of rain the sprinklers will turn on, pulling…
by phil - May 20th, 2016 8:14 am
That's what we need on the S&P today to reverse what is turning into a very ugly downtrend on the weekly chart. We've been discussing that line since February as the danger zone and, if you read us at all, you KNOW we short the S&P every time it gets to 2,100 and the last visit was mid-April, when I warned it wouldn't last in "Toppy Tuesday – What More Can They Do?" At the time, the market had spiked up on enthusiasm over the "emergency meeting" between the White House and the Fed – nothing came of it and the markets promptly began to fall for the next 4 weeks.
In that article, I noted that we expected weak earnings, especially in the Financial Sector and, more importantly and more relevant to today's discussion, I warned that the real crisis was China's growing debt load, saying:
As money is sucked out of the pockets of the many and placed in the bank accounts of the few, China's economy (like ours) has stagnated as consumers can't afford to buy the goods they are producing at work and, as of last year, Chinese firms had only just enough operating profit to cover the interest expenses on their debt 2 times, down from 6 times in 2010. That means a rise in rates OR a decline in profits can quickly lead to a huge economic crisis with massive defaults.
As credit stresses mount, China is drafting rules to make it easier for lenders to convert bank loans into equity stakes of debtor companies. China may also approve, as soon as this month, a plan allowing banks to convert as much as 1Tn Yuan ($150Bn) of soured debt into equity – a very bad idea.
Last May (in case you forgot) is when China began going off the rails – triggered by a wave of defaults that I was warning you about all spring. The problem was, I was too early with my warnings and a lot of people got complacent by May so this year I've waited before bringing it up again but the cycle will begin again soon and we need to keep our ears open for reports of Chinese loan defaults. Our own market followed China down with a