That about sums up our August as the indexes dropped all month long – down 800 points on the Dow (5%) and 80 points on the S&P (5%) and etc., etc… As long-term investors, we know we're going to get a little wet when the market turns down – the trick is to stay in the boat and be ready to ride the next profitable wave.
As I reminded readers on Friday, I never thought the summer would be worth playing in the first place – calling for our Members to cash out and taking a nice summer vacation way back in May. Many people took my advice and we've had a pretty quiet summer in chat but now it's time to go back to work – hopefully at the bottom of a bigger sell-off than the 5% we've had so far. The short story of the Summer is that we fell 5% into the end of June, gained 5% in July and fell 5% in August so here we are, back where we ended May.
That then, had barely any net effect on our long-term positions and, short-term, we were 97 right, 20 wrong and 3 even on our July Trade Ideas (see July Trade Review Part One and Part Two) but we've had little luck with the trade ideas we put in the Short-Term Portfolio, which is currently down a virtual $25,942 but, of course, our Long-Term Portfolio gained back $150,000 over the same time period – so, as a pair, they're actually doing exactly what they are supposed to do (offset each other).
We don't track our virtual portfolio trades in these reviews – this is for all the trades we don't track – which is most of them, of course. Of coruse, this is an arbitrary point in time and some trades could have had better (or worse) exits in between – we're not doing this to keep score, just to get an idea of what worked and what didn't in the past month so, hopefully, we can make better decisions this month.
As I noted last month, these trades tend to do better BECAUSE we leave them alone, and let time do its work and that's also why we break the reviews into parts – to give the last trades a couple of weeks to mature. Obviously, once a trade makes 20% in such a short time-frame, it's a success and shame on any of us for not taking a profit! We left off the last review on Friday, July 26th, with the S&P at 1,682 so we'll pick back up on the next Monday:
According to the WSJ and Tompson/Reuters: Revenue at the companies that make up the Standard & Poor's 500-stock index—excluding banks, whose profits have soared—is expected to creep up by just 1.1% in the second quarter from a year earlier. Earnings, meanwhile, are expected to decline 0.6%. That would be the first profit decline for nonfinancial companies since last autumn and the first time in a year that earnings grew more slowly than revenue, a sign that margin widening is petering out.
- FCX at $28.50, now $30.22 – up 6%
- CROX at $13.80, now $13.46 – down 2.5%
- Opened Butterfly Trades on IBM and GS – Now tracked in the Butterfly Portfolio
- AAPL 2015 $350/450 bull call spread at $55.50, now $67.60 – up 22%
- 3 AAPL 2015 $350/450 bull call spread at $55.50 ($16,650), selling 2015 $375 puts for $31 ($6,200) for net $10,450, now $15,540 – up 49%
- AGNC 2015 $20 puts sold for $4.50, now $3.50 – up 22%
Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable
We are not worried about a correction – we NEED a healthy correction. Hopefully it won't be 20% but the expections reflected in equity prices simply aren't matching up with the reality of the economy, or the earnings we're seeing this quarter. You may have thought yesterday's action wasn't that bad but it may surprise you to know that 919 stocks advanced on the NYSE while 2,145 stocks declined. On the Nasdaq it was 789/1,705.
- SQQQ Sept $25/28 bull call spread at .55, now .50 – down 10%
- SPY Sept $162 puts for $1.40, now $2 – up 43%
GDP is up a whopping 1.7% but they've completely changed the way they calculate it so who the Hell knows what's real. Is this good news that's bad news? Finer minds than mine will have to calculate the "normalized" GDP without the very drastic changes the Government made on this report, which count the development of intellectual propery (books, movies, TV shows, this article) as R&D investment rather than expenses. A change this drastic is adding an estimated $400Bn (2.5%) to our GDP.
Pre-revision, the GDP was $15.984Tn, post revision we're at $16.535Tn so a nice $550Bn boost, primarily from the Entertainment industry (I read somewhere that Sienfeld alone added $70Bn to the GDP over the years under the new calculations!). Overheard just now at Chinese Finance Ministry: "You can't trust those American GDP numbers. They cook the books!"
Just ahead of the open, the markets are flat but TLT is way down to 106 as sentiment has shifted away from more easing on this "great" GDP report. The Dollar popped back over 82 and I'll be very surprised if we don't get a sell off and a sell-off today can turn those chart ugly very quickly.
- AAPL Aug $450 calls sold short for $9.20, expired worthless – up 100%
- EXC 2015 $28 puts sold for $2.50, still $2.50 – even
“When you’re one step ahead of the crowd you’re a genius. When you’re two steps ahead, you’re a crackpot.” —Rabbi Shlomo Riskin
I used both of the above quotes that day in Member Chat as we rode out what I was pretty sure was a "blow-off top" that was straining our short positions – a run which continued into the morning of August 1st, which did, in fact, turn out to be the high point of the month. We attacked the Futures right at the open in a 6:48 Alert and Tweet for our Members:
- Oil Futures (/CL) short at $107, hit goal at $102.50 – up $4,500 per contract
- S&P Futures (/ES) short at 1,696, now 1,632 – up $3,200 per contract
- Russell Futures (/TF) short at 1,050, now 1,010 – up $4,000 per contract
Clack, clack, clack, like a roller coaster heading up the tracks, the market ticks higher every morning in the futures and, most of the time lately, we then sell off once the real session opens up. As you can see from Dave Fry's chart, we had a wild session yesterday with a huge open, a big dip, a sharp recovery and a bigger dip – wheeeeee!!!!
- MA Aug $645/655 bear calls spread for $4.70 credit, expired worthless – up 100%
- DBA 2015 $24/29 bull call spread at $1.55, selling $26 puts for $2.55 for $1 credit, now .20 credit – up 80%
Where's my party hat? Where's everybody's party hat? Why are we not throwing a parade for Barack Obama, who came into office on January 20th, 2009, with the S&P 500 at 831 but, to be fair, it was in free fall and it wasn't his fault it hit 666 on March 9th. Since then, the market has climbed back 1,040 point as of yesterday's close – a gain of 156% off the lows, making Barack Hussain Obama (as Forbes already crowned him in March) America's Greatest Economic President.
I know, if I were the President, I'd be having a Press Conference about the stock market. Unless, of course, I was worried it was actually on the verge of collapse and I didn't want to make a big deal about a bubble top that was forming under my watch. Just something to think about with the deafening silence regarding the stock market – especially after Bush, who took credit for every upward flutter in the S&P and, in fact, used to say it was the number one indicator that proved what a great job he was doing.
Usually we don't play silver, because it's so violent, but that was an easy one to call. Sadly, we used LOGIC to make that call and it worked – and that makes it harder for us to throw logic out the window and run with the bulls if the market doesn't react to this data properly and keeps plowing higher. Maybe, just maybe, the market will have an attack of sanity today and head lower – sparing us the angst over the weekend. Either way, I recommend a lot of drinking ahead of next week!
- Silver (/SI) Futures long at $19.25, now $23.45 – up $21,000 per contract
- Nikkei (/NKD) Futures short at 14,500, now 13,350 – up $5,750 per contract
- TM Sept $125 puts at $1.60, now $5.55 – up 246%
- Natural Gas Futures (/NG) long at $3.25, now $3.68 – up $4,300 per contract
- Gasoline Futures (/RB) long at $2.98, out at $3 target – up $840 per contract
We did NOT get more stimulus from the Central Banksters last week and things are heating up in Europe with Merkel heading into an election in Germany and Italy's Government on the verge of colllapse. Of course, no one in America cares what's happening in Europe or, as Scottmi pointed out this weekend, no one in America is allowed to care what happens in Europe because our MSM simply refuses to discuss it, as evidenced by this view of 4 of this week's Time Magazine Covers from various parts of the World
- TSLA 2015 $130/160 bull call spread at $11, now $14.50 – up 32%
Yesterday's volume was so meaningless that Dave Fry didn't even bother charting most of it. One meaningful chart we did find, and discussed in our early morning Member Chat was BAC's net of Institutional and Private Client Equity Purchases, which are flashing a signal last seen in late 2011, when the market had a 10% correction – after having a 20% correction earlier in the summer:
As I wrote on Friday – "Fools Rush in Where Fundamentals Fear to Tread" and this chart is an illustration of the Greater Fool Theory in action as professional traders dump their too-hot potatoes on the Retail Sheeple that are now being herded into the top of the market by the Corporate Media.
- Oil Futures (/CL) short at $107, out at $105.50 - up $1,500 per contract
- GMCR Oct $80/87.50 bull call spread at $2.65, selling Aug $77.50 caslls for $5.60 (expired worthless) for net $2.95 credit, now $4.20 – up 242%
- Nikkei (/NKD) Futures short at 14,250, out at 14,200 – up $250 per contract
- TSLA Jan $135/170 bull call spread at $10.50, selling Aug $140 calls for $11.80 (expired at $2) for net $1.30 credit, now $17 – up 2,379%
- Nikkei (/NKD) Futures long at 14,250, out at 14,240 – down $100 per contract
That's right, brand new BOE Governor and GS sock puppet, Mark Carney, has said that inflation running 50% over their 2% mandate won't stop the BOE from continuing to pump money into the market – until the unemployment rate is below 6.5% – and not even then right away.
After doing as much damage as possible to the Canadian Economy as their Central Bankster, Goldman Sachs dispatched Mark Carney to the UK this year to run the UK Bank where he, along with Mario Draghi and other key GS alumni placed in EU Banks are setting the policy of promising to keep giving Big Business near-zero percent loans - UNLESS THEY START HIRING PEOPLE.
- Dow Futures (/YM) short at 15,400, now 14,900 - up $2,500 per contract
- Russell Futures (/TF) short at 1,050, now 1,024 - up $2,600 per contract
- Oil Futures (/CL) short at $105, out at $102.50 target - up $2,500 per contract
- ABX at $15.50, now $19.15 - up 23.5%
- ABX 2015 $15 puts sold for $3, now $2.15 - up 28%
Although there’s very little positive in economic fundamentals at home and abroad, Sandra Pianalto said in a speech Wednesday: “In light of this progress, and if the labor market remains on the stronger path that it has followed since last fall, then I would be prepared to scale back the monthly pace of asset purchases.” Part-time jobs aren’t the stuff of real employment growth. You can change all the data you want by manipulating collection methodologies for GDP, inflation and now jobs, but in the end conditions are what they are in reality.
- Gasoline Futures (/RB) long at $2.85, out at $2.92 – up $2,940 per contract
- Oil Futures (/RB) long at $103.50. out at $106 – up $2,500 per contract
- TSLA 2015 $115 puts sold short for $23, now $21.60 – up 6%
- TSLA weekly $142 puts for $1, expired worthles – down 100%
- TSLA Sept $165 calls at $9.50, now $11.50 – up 21%
We've seen this movie before – that top channel on the Russell has been upbreakable AND very profitable as we pick our Futures shorts off that 1,050 line. Russell Futures (/TF)are very highly leveraged and pay $100 per point, per contract so – when we find a nice support/resistance line to play off – we milk it for all it's worth!
Oil (/CL) is also a party at $10 per PENNY, per contract and we played that short at $105 off of Wednesday's inventories and caught that ride all the way down to $102.50 yesterday and this morning it bounced back to $104.50 – because the NYMEX pump crew must LOVE giving us money every day!
- Short Russell Futures (/TF) at 1,050, now 1,022 – up $2,800 per contract
- Long December 2014 Oil Futures (/CLZ3) at $91.70 (as a hedge to our short plays), now $94.44 – up $2,740 per contract
- Short USO at $37, now $38.48 – down 4%
- Long SCO at $31, now $27.83 – down 10%
- Oil Futures Short (/CL) day trade at $104.50, $105 and $106, ended up $105.40 for negligible net gains
- PCLN weekly $1,010/$1,000 bear put spread at $6.50, expired at $10 – up 54%
- S&P Futures short (/ES) at 1,695, out at 1,685 – up $250 per contract
- Nasdaq Futures short (/NQ) at 3,135, out at 3,1120 – up $300 per contract
- Short USO 2015 $33 puts at $2.25 (hedge to short positions), now $2.10 – up 7%
- Dow Futures long (/YM) at 15,350, out at 15,425 – up $375 per contract
- VIX Sept $14 calls at $1.70, now $3.70 – up 117%
- Russell long Futures (/TF) at 1,050 – now 1,022 – up $2,800 per contract
- TSLA 2015 $140/200 bull call spread at $19.50, shorting 2x Jan $165s at $19.70 for net $19.90 credit, now $33.40 credit – down 67%
- TSLA 2015 $80 put at $10.50, now $9.50 – down 9.5%
What a busy day to finish Part 1 of this post on! We had a lot of Futures trade ideas because the market was volatile but predictable and we like the Futures trades because they have very low friction (trading cost per contract) and not much of a spread so we can to a lot of hit and run trading. This is why we always spend a little time at our seminars teaching our Members how to trade the Futures – it's an incredibly useful tool to have at your disposal, and one that is not that difficult to master.
In the first 10 trading days of our August period, we already had 50 trade ideas and a whopping 42 of them (84%) were successful, so not a bad start to the month! Now, if only we can get our virtual portfolio choices to behave as well as the trades we don't include… Of course, part of that is because we use our Short-Term Portfolio to balance out our long-term choices (like most of these 50) so, if our long-term ideas are doing well – our short-term ideas are not likely to be working.
In the end, it's all about balance, something we strive to achieve at all times.