What a wild month!
Things went so crazy at the end of September that it's already October 13th and I'm just getting to the September review. Our August Review (Part 2) was done on 9/22 but part one but Part 1 of August was completed on September 1st, when the market was at the low of this cycle. We called the August action almost perfectly and, out of 106 trade ideas for the month, 86 (81%) were winners – an incredible percentage I don't expect we repeated in crazy September.
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 – as it simply wouldn't be practical to track every trade idea (which are highlighted daily in our Member Chat Room) we have for you at PSW! 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.
We left off on Friday, August 23rd and we were still bearish. It's a good thing, too as it turns out we dropped like a rock the next week! My note in the Friday morning post oulined our attitude into the weekend as I said: "If the news-flow changes (and it hasn't as of our morning review), we'll be thrilled to get more bullish but, at the moment – I'm sorry to have to keep being negative." We were looking to complete our 5% Rule™ pullbacks before there was a turn and we'd already begun to do a little bottom-fishing – but let's not get ahead of ourselves!
The Dow couldn't even put a good day together on Friday and finished off it's third down week in a row failing to take back the 200 dma at 15,100 while the S&P tested theirs at 1,635 with AAPL and MSFT giving the S&P and Nasdaq most of their lift as well as TLSA, which flew up to the $160 level, putting the short-sellers into a bunker mentality.
Durable Goods this morning is likely to put the longs into a bunker as they should be trending much lower – based on the indications we've gotten from earnings reports this quarter. It's just part of some very negative news-flow I've been warning you about and our weekend reading did not do anything to make us more bullish, unfortunately.
- Russell (/TF) Futures short at 1,040, out at 1,020 – up $2,000 per contract
- TSLA Sept $165 calls at $9.50, finished at $18.39 – up 93%
- Oil (/CL) Futures short at $106 – out at $106.10 – down $100 per contract
Will Smith and his family were clearly shocked at the drop in the markets that morning as Miley Cyrus's MTV appearence distracted most people from the true porn of the GOP's public self-graification displays, but we noticed it in the morning post, saying:
Of course the real fear-mongering is coming from within as the GOP gears up for yet another debt-ceiling battle and, as much as they try to spin this market pullback as being about Syria (a country that is surrounded by our allies and bases), what's really spooking the markets is the very real fear of another massive collapse – like we had in August 2011, when the S&P fell almost 20% while the Republicans held the nation hostage.
It seems so obvious now but, at the time, people were saying I was being an alarmist and unfairly blaming the GOP for simply playing a little hard-ball with the debt cieling. Oh well, I can only tell you what's going to happen in the future – whether you choose to use the information or not is up to you! We knew it wasn't going to have an immediate impact, so I continued in the morning post:
Yesterday was a "watch and wait" day for us, as we weren't buying the low-volume rally (see yesterday's post) so we're also not going to get too excited about a low-volume sell-off, especially if the 5% lines hold up. Those levels are (5% from the recent non-spike highs: Dow 14,800 (should be on the button at the open), S&P 1,620, Nas 3,550 and Russell 1,010.
- Oil (/CL) Futures short at $108.50 – out at $108.60 – down $100 per contract
- Oil (/CL) Futures short at $109 – out at $109.10 – down $100 per contract
- Oil (/CL) Futures short at $110, out at $109 – up $1,000 per contract
- DIA Sept $150 calls at $1.05, closed at $4.30 – up 309%
- Dow Futures (/YM) long at 14,800, closed Sept at 15,450 - up $4,250 per contract
Syria/Jrom – Yes, very ridiculous. The guys on the news were talking about it with such conviction I had to recheck the map to see if I was crazy! Still, panic spikes are just an opportunity for us – if we keep level heads. Yes, we'll get burned for .10 at several lines on the way up but already oil just dropped .30 off $110 (and, had we been awake for $112 – we'd already have a $2,000 gain as it went straight down from there). It's like fishing – you're going to lose a few worms (.10 stop-outs) before you catch a big one…
$150?!? That's a lot of money for oil. That would put gasoline up around $5 per gallon so the easy trade here is to grab some /RB Futures contracts ($3.07) and, at $420 per penny, per contract, a single contract would pay us $81,060 if gasoline hits $5 – that's enough money to buy a Tesla, and then we never have to buy gas again!
So, for anyone who believes the idiocy being spun by Societe Generale or their other Bankster buddies as they bang the fear drum, accompanied by their MSM puppets – just buy a single, long gasoline Futures contract and you'll find yourself rooting for death and destruction in the middle east.
As you can see from the chart of oil Futures above – there's still plenty of money to be made on the short side as we only play the crosses BELOW the .50 lines and, even though oil went over $110 and fooled us once for a quick stop – it went all the way up to $112 without a retrace, then fell all the way to $111 for a $1,000 per contract gain and then fell through $111 to $110 for another $1,000 gain and then through $110 to $109.50, for another $500 gain.
- (worth noting that Gasoline Futures are now $2.66 ($17,220 per contract) – but we didn't officially short those!)
- Oil (/CL) Futures short at $110.50, now $101.75 – up $8,750 per contract
- Gasoline (/RB) Futures long at $3.07 (as a hedge to long-term oil short), out at $3.09 - up $840 per contract
- Oil (/CLX3, /LOX3) Futures Nov $110/105 bear put spread at $2.20 (x 1,000), now $4.80 – up $2,600 per contract (should be off the table)
- UGA 5 Oct $66/70 bull call spread at .50 (as a hedge to the Nov oil short), now .10 – down $200 per contract (also off the table with oil)
- TSLA long at $170, out at $195 – up 9%
- TSLA Oct $185 calls at $10, out at $14 – up 40%
That post is a great one to review if you want to get an idea of all of our oil trading logic in a nutshell. As we often do, we wait and wait and wait for silly spike in the market that isn't justified with the underlying fundamentals and then we place heavy bets BUT we also use hedges – just in case we are wrong. I put those trade ideas right in the morning post, along with this prescient note on Gasoline:
UGA is the ETF for gasoline and, as you can see, it looks stretched but you can also say it's poised for a breakout to new highs. That's all well and good from a TA perspective but ask yourself if you and your neighbors and your co-workers are ready to pay $4 a gallon or more for gasoline for any extended period of time? If not – then it's not sustainable – that's Econ 101.
Don't be so scared to apply Economic Fundamentals to investing. You'll find they are not really as incompatible as Cramer and Company would have you believe!
Aug 29: GDPhursday – Is Good News Bad News?
Corporate Profits were up $78.3Bn in Q2 (first estimate today) and, of course, taxes on those profits only went up $10.5Bn (13.4%) – not shocking as that's pretty much exactly the percentage of taxes that Corporate Citizens actually pay. Dividends (also taxed at 15% for the top 1%) went UP a whopping $273.8Bn and "Undistributed Profits" still managed to rise $205.9Bn.
$78.3Bn is enough money to hire 6,264,000 $50,000 per year workers! Unfortunately, 331,000 people LOST their jobs last week and Continuing Claims rose by 9,500 to 2.99M mid-term unemployed (the longer-term unemployed are dropped from the count!). We will NOT have an economic recovery if it's based on sucking all the wealth and income away from the bottom 80% – as we discussed in our Member Chat this morning – that's what did in the Roman Empire.
- Dow (/YM) Futures short at 14,850, out at 14,800 – up $250 per contract.
- Oil (/CL) Futures short at $110 per contract, out at $108.50 – up $1,500 per contract
- Dow (/YM) Futures short at 14,850, out at 14,750 – up $500 per contract
- CMG Sept $380 puts at $1.50, out at $1 – down 33%
- SCTY Oct $40 calls at .75 (hedging TSLA shorts), now $7 – up 833%
- NFLX Oct $300 calls short at $12.50, now $8.50 – up 32%
- NFLX Oct $290/280 bear put spread at $5.50 – out at $6.50 – up 18%
- DDM Sept $90/94 bull call spread at $2.40, expired at $4 – up 66%
- GMCR Jan $90 calls short at $11, now $2.30 – up 79%
- Oil (/CL) Futures short at $108.75, out at $107 - up $1,750 per contract
- Gasoline (/RB) Futures long at $2.95, out at $2.94 – down $420 per contract
There's still hope that this is all just a bullish consolidation – we'll look for bullish signs over the weekend.
Keep in mind – I can only tell you what's going to happen and suggest a few trade ideas - that's the limit of my powers...
That's especially true with the Oil Futures lately where, only yesterday, I sent out an alert to our Members and even Tweeted and even reiterated in the morning post that we were shorting Oil Futures (/CL) at $110 and the Dow Futures (/YM) at 14,850. We caught a 100-point drop on the Dow that was good for $500 ($5 per point) per contract but oil was the biggie, paying $10 per penny, per contract for a nice $3,000 per contract gain as it fell to $107 (2 legs).
We're done with the Futures due to the end of month, holiday weekend nonsense but we've still got our USO puts (Oct $39s, now $1.68) in anticipation of a bigger drop as all this nonsense about Syria washes out.
- Gasoline (/RB) Futures long at $2.895, out at $2.90 - up $210 per contract
- SPLK Feb $55/60 bull call spread at $2.20, selling $42.50 puts for $1.40 for net .80, now net $1.70 - up 112%
Well, you can really see why we don't track every trade idea – there's a hell of a lot of them! I know it seems very random, when we have a lot and a little but we simply wait until we are fairly sure about a trade – we don't try to force them. That's the key to our success. Also, when the bulk of our picks do well, our Short-Term Porfolio does poorly because we are using short-term bets to OFFSET the possibility that the 100 other trades we pick that month may have been wrong and, if so, it would generate some cash to help fix our longer-term ideas.
We have had 3 straight months of excellent picks so, of course, our Short-Term Porfolio is currently sucking (down $31,000)! Of course, if you follow our Rules on Smart Portfolio Management (Parts (1), (2) and (3)), then the STP is only a small portion of the overall portfolio. A lot of people forget that and focuse way too much on short-term trading, which is why our new STP trades are leaning towards lower risk ideas – simply because people don't utilize it properly.
We're in wait and see mode as we're having our requisite weak bounce today (1% of the 5% drop) with the Dow, for example, falling 800 points from 15,600 to 14,800 so 160-points is the weak bounce to 14,960 on the Dow so that's our goal for the day if we're to be at all impressed.
Oil is barely holding $107 this morning and makes a nice short under that line (/CL) but very tight stops over and not a good day to play it as we have a squeezed week and, as StJ notes, still a holiday week and Rosh Hashanah (Jewish New Year) Wednesday night is a big one. Silver (/SI) hit $24.50 and that's a bit much at this point but I wouldn't short it. Gold is back over $1,400 but I see no compelling reason to play it either way with the Dollar drifting at 82.36.
- MSFT 2015 $30 puts sold for $3.50, now $2.40 – up 31%
- Oil (/CL) Futures short at $108.50, out at $107.50 – up $1,000 per contract
While others were panicking out of position on June 26th, I wrote "Wall of Worry Wednesday – Time to Climb Again?" and we took up the conrary position – especially on gold, which had fallen to $1,222.90 at the time and we decided we were ready to catch that falling knife. We were off the low by $50 but we've already exceeded our recovery goal of $1,350 and, of course, all of our miner plays are golden!
We're finished with Silver for now ($24.50) and that means we're also done with AGQ, which was $15.55 back on June 26th and now $25.50 for a very nice 64% gain in 3 months - who says I don't make straight stock picks?
Of course, the option trade idea was a bit more profitable as we went with shorting the 2015 $10 puts for $2 (now $1) top pay for the Jan $19 calls at $1.70 for a net .30 cash credit. The Jan $19 calls are now $7.70 and that puts the trade up an even $8 total of 2,667% on cash in 90 days. As I had noted in our August Trade Review – I rarely play silver, as it's so volatile – but that's no reason to not play it when it makes a clear bottom or top.
- SQQQ $23/24 bull call spread at .40, expired worthless – down 100%
- TZA Oct $23/26 bull call spread at $1, now .25 – down 75%
- AAPL 2015 $400 puts, sold short at $32.40, now $29 – up 10% (pair trade with above hedges)
- Oil (/CL) Futures short at $108, out at $107 – up $1,000 per contract
- Oil (/CLZ5) Futures long at $87.22 (Dec 2015 as an upside hedge to long-term oil shorts), now $87.70 – up $480 per contract
- Oil (/CLV3) Futures short at $107 (Oct contracts pair trade), expired at $104 – up $3,000 per contract
How to play oil long-term and hedged (from our Chat Room): Oil/Sundev – Try this chart and click on any contract for specifics but I'd stick to Dec contacts as they are move liquid. Dec 2015 is /CLZ5 but check with your broker, of course. Oil there is currently $87.22 so you are contracting to BUY oil at $87.22 per barrel in Dec 2015. At the same time, you are offering (by shorting front-months) to SELL oil at $107 in October of 2013. Should you fail to do so (because oil goes higher and you can't buy Oct barrels cheaper to cancel), you can roll your obligation to Nov, Dec, Jan 2014, etc. until you arrive at Dec 2015 (assuming oil never goes down), at which point you have an $87.22/whatever bull call spread on oil. That's the logic but the execution is a bitch and a half and requires a good deal of monthly trading and a substantial tie-up of cash and margin should the trade go against you for 2 years. Dec 2014 is $93.83 so also useable and more likely to spike up with current contracts than the 2015s and still 16 months away.
See, this is not rocket science folks. This is why I URGE you to come to our seminar in Las Vegas on Nov 10th and 11th or, if you can't make that, to plan on attending our Atlantic City Conference in April. Why would you NOT want to have this tool in your trading toolbelt? Like any education, you have to take the time and make the effort to LEARN the concepts and, once you understand them properly, the trading will come much easier to you. Malcolm Gladwell says it takes 10,000 hours of practice to become an expert at something – Yodi can attest to that! Meanwhile, we have plenty of students who have made great, great strides in far less time – but it all starts with putting in those first 100 hours...
Notice that we practice those "7 Steps to Cheat the Rule" at PhilStockWorld: 1) We coach 2) We surround ourselves with like-minded individuals 3) We build expert habits 4) We don't waste time on the small stuff 5) We deliberately practice 6) We teach others and 7) We find someone to kick your butt if you fall off track. See, I don't like being the butt-kicker, but it's my job!
Note on our hedges from that post: Again, this is INSURANCE and we have 60 of those spreads (now $6,480 after the roll) which pay up to $30,000 if the Russell drops far enough to trigger a $6 move in TZA, probably about a 7% dip to 944. If it doesn't happen, our longs are safe for two more months and we collect far more than $6,000 in short premium we've already sold. At this point, in fact, we're very tempted to double down again to drop our basis and rasie our protection level but, as I said, we're not that nervous – yet.
WAR! What is it good for?
About $3Tn for the last one since that day in 2003, when Donald Rumsfeld told the American people that the "limited" action we would be taking in Iraq would cost no more than $60Bn. Funny how quickly things can get out of hand – isn't it? Also funny how quickly we forget the mistakes of the recent past.
Economically (for us), war is stimulus and despite the sequestration, companies like NOC, LMT, RTN, GD, etc. have been flying up ALL YEAR LONG – almost as if they knew we'd find some reason to go to war long before Syria became the primary target. Any war is a good war for our Defense Industry, as long as we begin firing off $1.4M Tomahwak Missiles at SOMEONE! On March 19th of 2011 – just that ONE day, we tossed 124 of them at Libya. That's $173.6M on just the consumables! I'll bet the local Tomahawk salesman got a fat bonus that quarter…
- Oil (/CL) Futures short at $108 (it never gets old!), out at $107 - up $1,000 per contract
- Gasoline (/RB) Futures long at $2.82, out at $2.86 - up $1,680 per contract
- PLUG at .60, selling March $2.50 calls for .15 for net .45, now .68 – up 13%
- T 2015 $30 puts sold for $2.25, now $1.93 – up 14%
- TSLA Jan $190/170 bear put spread at $12.20, now $11 – down 10%
- F 2015 $15/17 bull call spread at $1.06, selling $15 puts for $1.52 for net .46 credit, now 0.30 credit - up 33%
169,000 jobs were added and that's in-line but July was revised DOWN by a whopping 58,000 jobs to just 104,000. Amazingly, the market is interpreting this as a positive (as it keeps the Fed on the table) and we're up about half a point now but this is nothing to get excioted about and I'm going to like shorting the Dow Futures at the 15,000 line (/YM) with tight stops as this is just silly.
Lack of jobs and low pay for jobs means lack of demand for Dollars and that's spiked both gold and oil up about 1% this morning while sending the Dollar as low at 81.93 on the report but now it's stabilizing back at 82.35, still 0.4% lower than yesterday and accounting for almost 100% of the index gains in the futures. This is certainly not a rally we should be buying into.
- Oil (/CL) Futures short at $109.50, out at $109.60 – down $100 per contract
- Oil (/CL) Futures short at $110, out at $108 – up $2,000 per contract.
- SCO Oct $28 puts sold for $2.60, now .10 – up 96%
- SCO Sept $27 calls at $1, closed at $1.84 – up 84%
- TSLA Jan $130/160 bull call spread (hedge against shorts) at $18, now $21.50 – up 19%
Well, you can see why we need two parts for these things! That was only the first two weeks and we already had 46 trade ideas (not even including our virtual portfolio positions) and, as of Friday's close, 36 of them were winners. That's just 78%, not as good as our last few reviews but, as I said, we just so happened to nail it a few times over the summer – it's not a streak that was likely to continue.
That's why good cash management is always key when trading. Look at our oil Futures trades: If you keep tight stops and you lose $100 when it moves against you but make $500 or more when it goes your way – then you can lose 4 out of 5 times and still come out ahead! If, on the other hand, you over-bet on our SQQQ heade on the 4th and you didn't stop it out – the entire thing was wiped out in two weeks.
See our Education Archives for several articles on Portfolio Management as well as Trading Psychology.