Now things get interesting!
We made a good bottom call in late August and, in Part 1 of our Trade Review, we had 46 trade ideas in two weeks (the last week of Aug and the first week of Sept) and 36 of them (78%) were winners. I predicted at the close of that post that it was not very likely we'd repeat that in Part 2 and now we'll see how things went during 3 weeks where the Dow went from 14,900 to 15,700 and back to 15,200.
I never know how these things will go until I do the reveiw so this is exciting for me. These are the trades we don't track in our virtual portfolios (which are highlighted daily in our Member Chat Room) so it's a bit arbitrary to pick a certain day to see how they are doing but, as I always say during these reviews, if you use good stop and scaling disciplines, you only have to be right half the time to do very, very well.
We left on on Friday, Sept 6th with "Non-Farm Friday – It's Next Week that Matters" and we had one of our losers that day, shorting oil at $109.50 (/CL). Too bad we didn't stick with that one, right? That's OK, there were plenty more… We also had a bullish play on TSLA, of all things, the Jan $130/160 bull call spread – but that was one of many covers we used along the way up to protect our longer, short positions.
As you can see from Dave Fry's SPY chart, we went nowhere on moderate, churning volume and that's no surprise actually when you have a look at this very helpful summary from theWSJ (via Barry) that summarizes our 4-year recovery in the economy:
How can we NOT have a wishy-washy market looking at these charts? Single Family Home Construction is STILL nowhere near what a rational person would call a recovery. Consumer Spending (70% of our economy) is a DISASTER and Government Spending (20% of our economy) is 6.3% LOWER than it was when we had our crisis. We haven't simply rejected the Keynesian Economics that has led us out of other major recessions – we're activly going the opposite direction!
Try to keep this in mind – what you are looking at, the S&P chart above, for example, is an ILLUSION of prosperity. It's what's being shown to you on stage to distract you from all the people running around backstage that are holding the whole thing up with wires and using lighting (econonic BS) to hide the wires (free money) and sounds (MSM) to make things seem bigger and better than they actually are in the real economy.
If you are in the top 10% and you are sitting in the first 10 rows – then you can sit back and relax, because you're getting a fantastic show and, when it's over – you can just get up and leave. If however, you are in the bottom 90%, you are either working backstage and not enjoying the show at all (and probably have to clean up after the show) or you're sitting in the cheap seats and you can barely see the show, can't understand what they are saying but it might LOOK like something good is going on up there – but you aren't able to participate. That's showbiz!
- HOV 2015 $5/7 bull call spread at .65, selling 2015 $4 puts sold for .90 for net .25 credit, now .10 - up 40%
- NUAN Sept $22 puts at $2.40, closed at $2.73 - up 14%
- AAPL Sept $500/505 bull call spread at $2.70, expired worthless - down 100%
- Oil (/CL) Futures short at $105.50, out at $107.50 - up $1,000 per contract
Dollar bottomed out at 81.78. Keep in mind it was 85 in early July so down almost 5% here so nasty if it breaks lower and clearly this indicates expectations of more easing from the Fed, not less. 80.77 was the Aug low on the Dollar and 80.50 was the June low and, before that, we haven't been lower than this since Feb.
We've been waiting to see our strong bounce lines broken and they were shattered yesteday so, as promised, it's time once again to make a few bullish bets – just in case we do take out those pesky highs. And, even if we don't – we can still make a few bucks, right?
We were in a similar position on April 14th, when I wrote "5 Trade Ideas That Can Make 500% in an Up Market" …a bit of a disappointment with ABX (which means we DD on that one!) but much more than made up for by our overachieving CLF and QQQ plays. In fact, ABX is exactly the kind of lagging play we like to make in an upturning market.
- ABX 2015 $13/18 bull call spread at $2.80, selling 2015 $15 puts for $2.05 for net .75, now $1.90 – up 60%
- ABX 2015 $20/30 bull call spread at $1.10, selling $20 puts for $3.35 for net $2.25 credit, now $1.10 credit - up 51%
- 8 QQQ Jan $75/80 bull call spreads for $3 ($2,400), selling 1 ISRG 2015 $300 put for $23.50 ($2,350) for net $50, now net $1,020 - up 1,940%
- Oil (/CL) Futures short at $107, out at $105 - up $2,000 per contract
- GNK April $3 puts sold for 0.70, now $1.05 - down 50%
- HOV 2015 $3/5 bull call spread at $1.25, selling $4 puts for .90 for net .35, now net .70 - up 100%
- EWZ 2015 $44/49 bull call spread at $2.60, selling $35 puts for $1.95 for net .65, now net $2 - up 207%
- CROX 2015 $12/17 bull call spread at $2, selling $12 puts for $1.90 for net .10, now net .55 - up 450%
Are we overbought yet?
Not so much according to Dave Fry's NYMO chart, where it looks like we can get away with another few days before gravity takes its toll on our indexes and that will take us right into next week's Fed meeting and… uh oh…
Darn, we were so worried about International terror with Syria and China that we forgot about the Domestic Bankster Terrorists, who are celebrating 40 years of destroying the working class (since Nixon took us off the gold standard and allowed workers to be paid in scrip).
- 10 Nasdaq (/NQ) Futures short at 3,175, out at 3,075 - up $2,000
- 20 AAPL Nov $440/465 bull call spreads at $29,000 ($14.50), now $28.50 - up $96% (should be killed ahead of earnings, of course!)
- TLT at $102.50, now $108.29 - up 5.6%
- TLT weekly $103 calls at ..30, expired at .55 - up 83%
- Oil (/CL) Futures short at $108.50, out at $108 - up $500 per contract
- MOS 2015 $40/45 bull call spread at $2.50, selling 2015 $35 puts for $2.50 for net $0, now .90 - up infinity%
By the way, speaking of Vegas – THIS is why being able to trade Futures is so valuable. The margin on the /NQs is $2,400 per contract and my call was to take 10 of them this morning AFTER we saw AAPL fall hard BECAUSE we KNOW that it will drag the Nasdaq down. That's why I was able to make a SUPER-CONFIDENT call to short 10 of the Nasdaq Futures (/NQ) for the STP to offset our AAPL longs.
The reason they sell $49 IPods is because they make them for $6 and, if anything goes wrong, they just replace the whole thing in 2 seconds and have a happy customer. Even with iPhones and iPads, they pretty much just give you a new one but that's fine because if you sell 10 $499 phones and pay $350 and make $150 and you have to replace 2 for $350, you still make $1,500 – $700 = $800. If you sell 40 $199 phones and make $1,600 and have to replace 8 at $160 that's $1,600 – $320 so you have to sell 12 cheap phones for every one expensive phone to make the same overall money, taking service and repair into account (and not including 12x floor space, sales people, warehouse space, shipping charges…)!
AAPL will sell $199 phones when they can make them for $120 and they will eventually and then they'll own the low end of the market. Just not today..
Carl even pushed my proposal that AAPL just take their $150Bn pile of cash and buy back their own stock. I've said this for ages (since $400) but, even at $467, AAPL has only a $460Bn market cap against $40Bn in CURRENT profits and buying back 1/3 of the company for $150Bn of cash that traders are currently ignoring anyway drops the market cap to $300Bn but has no effect on the $40Bn in sales (p/e of 7.5), not to mention their normal $12Bn dividend would shoot up to 4%.
Hell, I say cut the dividend and borrow $300Bn at 3% and take the whole damned thing private if no one else wants to buy them with a p/e of 7.5! The trading public doesn't DESERVE to own AAPL if they don't think it's worth more than $500 a share. End of rant.
- Oil (/CL) Futures short at $108.50, out at $108 - up $500 per contract
- WTR at $24.67, selling March $25 puts and calls for $3 for net $21.67/23.34, now $25.15 - on track
- PHO at $23.40, now $24.71 - up 5.6%
- MT 2015 $13 puts, sold for $2, now $1.18 - up 41%
- MT 2015 $13/17 bull call spread at $1.58, selling $13 puts for $2 for net .42 credit, now .95 - up 126%
- MT at $13.91, selling 2015 $13 puts and calls for $5.90 for net $9.01/11.01, now $16.17 - on track
- LULU Jan $62.50/70 bull call spread at $3.50, selling $60 puts for $3.20 for net .30, now $4.05 - up 1,250%
- Oil (/CL) Futures short at $108.50, out at $106.50 - up $2,000 per contract
Yes Burr, ABX. I just picked them for a 500% play. So far, heading down 500% but we're at least 75 FU's from Jabob before we have to worry.
As to Elliot Waves (and all TA for that matter) – here's a good read on Random vs Non-Random Walk Theories which summarizes things very nicely.
This is the problem with following ANYTHING too closely – the SCIENCE of the Bell Curve. Even if you are right, you are still going to get burned by "anomalies" 32% of the time and even if the thing you are thinking of following is completely insane – it's still going to seem right 32% of the time and, as Roulette watchers know, anything can randomly come up enough times in a row to make you swear you see a pattern.
Spin the wheel enough times and anything can happen. The key is more cash management than anything else. The most valuable thing in the market – as Buffett will attest, is having cash ready to deploy when an opportunity presents itself (and they always seem to).
- Oil (/CL) Futures short at $108.50, out at $106.50 - up $2,000 per contract
- LYG Apr $3/5 bull call spread at $1.55, selling $5 puts for .65 for net .90, now $1.33 - up 47%
- K 2015 $55 puts sold for $3.501, now $2.50 - up 28%
- K at $60.60, selling 2015 $60 calls for $4.60 and $55 puts for $3.50 for net $52.50/53.75, now $62.43 - on track
Everything we were worried about is "fixed" and most of the Global markets are snapping higher this morning. That suits us just fine as we got much more aggressively bullish at our Strong Bounce lines on Tuesday (see "5 More Trade Ideas that Make 500% in an Up Market") and, even better, we nailed it again on oil, which is DOWN to $106.50 again this morning (/CL) for $2,000 PER CONTRACT gains!
$106.50 was our primary target for oil to drop, but we do expect to test $105 between now and Friday - perhaps much lower if we are lucky. We moved our USO puts to October, just in case oil took longer to fall than we thought but our very aggressive SCO (ultra-short oil) position stayed open over the weekend and would pay off VERY nicely at $105 or lower.
- Oil (/CL) Futures short at $107.50, out at $105 - up $2,500 per contract
- SCO Oct $27 calls at $2, expired at $3.56 - up 78%
- NAK at $1.45, now $1.50 - up 3.4%
- CZR 2015 $7.50 puts solf for $1.80, now $1.50 - up 17%
Since we already pushed ourselves a bit more bullish as we took out the strong bounce lines last Tuesday, now it's time to look at a downside hedge like the Qs because BALANCE is the key to a portfolio that lasts. And, by the way, if you want to pay for a short hedge today with a long play tomorrow, may I suggest selling the AAPL 2016 $320 puts for $32 for a net $288 entry. What's not to love about owning AAPL at 36% off the current price?
Meanwhile, we're just wating on the Fed and ignoring the horrific 1.6% drop in Retail Store Sales and we'll ignore the 4.9% drop in European Car Sales and we'll just sit back and enjoy the drop in oil (now $105.86!) while we wait to see which 6 words the Fed changes on tomorrow's statement.
Yeah, that will make everything all better… sure it will…
- Oil (/CL) Futures short at $106.50, out at $105 - up $1,500 per contract
- SQQ Oct $23/26 bull call spread at .45, expired worthless - down 100%
- AAPL 2016 $320 puts sold for $32, now $17.50 - up 45%
- ECA Jan $16/18 bull call spread at $1.20, selling 2016 $15 puts for $2.20 for net $1 credit, now 0.35 - up 135%
- WLL 2015 $50 puts sold for $6.40, now $2.80 - up 56%
- TTWO Dec $16/19 bull call spread at $1.30, selling Jan $15 puts for $1 for net .30, now .60 - up 100%
MORE FREE MONEY is chasing the same amount of stocks and bonds (consumer and corporate spending are flat so it's not going into goods and services) and that's depressing the rates bonds need to pay to attract the deluge of cash while pumping stock prices to the moon and beyond. So much so that the McClellen Oscillatoris now pegging the most overbought it's been since mid July, the last time the S&P topped out (1,709 was the 8/2 high).
We went over the ramifications of this our Member Chat Room this morning so I won't re-hash it here but it's something we're going to be paying very careful attention to today. We remain bullish for the moment (see last Tuesday's post) but also skeptical that we'll be making those new highs – or keeping them, at any rate…
No, this is not a chart of One Direction fans vs how much skin Miley Cyrus keeps covered, this is a chart of the Monetary Base of US Dollars ($2.7Tn, up from $800Bn in 2009) vs the CPI (lower)over time. As I pointed out at our Atlantic City Investing Conference in April – it doesn't matter how much SUPPLY of money you have if the VELOCITY is low – you still won't boost prices. And here it is in red and blue.
- CCJ Oct $20 calls at .55, selling 2015 $20 puts for $3.30 for net $2.75 credit, now $3.80 credit - down 38%
- Oil (/CLX3) short at $106, out at $105 - up $1,000 per contract
- 2.5M AAPL 2016 $400 puts sold for $65, now $41.25 - up $5,937,500,000 (36%) (this was my idea for AAPL to utilize their cash reserves, rather than directly buying back stock).
- CZR Dec $15 puts sold for $1.35, now .85 - up 37%
- CZR 2015 $7.50 puts sold for $1.80, now $1.50 - up 17%
- 20 SCO Dec 24/28 bull call spread at $2.10 ($4,200), selling 10 $28 puts for $3 ($3,000) for net $1,200, now $3,600 - up 200%
- USO Oct $40 puts at $2, expired at $3.55 - up 77%
- IWM short at $107, now $111 - down 3.7%
AAPL/8800 – As you may have noticed, the only real move we've made on AAPL all year is to buy more when it's cheap and cover (a little) at $500. There's been no change in my overall value supposition since they were at $600 or at $485 when I made them my buy of the year in January (with a $350/450 bull call spread, selling the $350 puts to pay for it). So I was never shooting for the stars, just drawing a value line in the sand at about $500 where I really don't have a problem betting the farm on them. Whether they go up or down or when they do it isn't important because I see it as a long-term play but – if you felt over-extended and are now relieved to be back at $475 – then by all means cut back to a sensible size because no position is worth the heartache you get from watching a $500 stock move up and down 20% on a regular basis if the bet is more than you can comfortably afford.
We have gone from 14,700 to 15,700(6.8%) in 3 weeks. At this pace, we'll be at 19,000 by December 31st and over 20,000 in January and 32,000 at the end of next year! Wow, that is so normal, right?
Of course, the Fed DID put $1Tn into the market yesterday. Actually it was more like $2Tn because they are continuing to put $85Bn PER MONTH ($1Tn per year) into the markets through QE but they also withdrew $1,000,000,000,000 – not just from your savings account – but from every single asset you have, when they devalued the Dollar by 1% yesterday.
That's right, the US Dollar responded to the Fed's complete lack of respect for the money supply by dropping a full point yesterday and now sits at 80.03, down 4% since the Dow began rising 6.8%. Since the Dow is priced in Dollars – doesn't that then mean that the Dow is really only up 2.8% in a steady currency? 14,700 + 2.8% is only 15,111, not 15,677 and 15,111 is STILL below the 5% line. If I'm right, then 15,200 is going to be serious resistance and we can expect the Dow to grind to a halt 89 points from now, at 15,766 so that will be our new shorting target (if they even make it there).
- Oil (/CL) Futures short at $108, out at $106 - up $2,000 per contract
- RAD 2016 $4/5.50 bull call spread at .50, selling $4 puts for $1.20 for net .70 credit, now net 0.20 credit - up 71%
- TTWO 2015 $15 puts sold for $2.10, now $1.80 - up 14%
- TTWO at $17.55, selling 2015 $15 puts and calls for $5 for net $10.45/12.73, now $17.97 - on track
- TTWO 2015 $15/20 bull call spread at $2.50, selling $15 puts for $2.10 for net .40, now .50 - up 20%
- CCJ 2015 $17/22 bull call spread at $2, selling $15 puts for $1.10 for net .90, still .90 – even
This is a very good time to point out that our long-term plays (the vast majority of our trade ideas) can also be very nice short-term plays. You don't have to make short-term risks to make very good money on spreads. RAD is up 71% in a month, TTWO up 14% and 20% on two of our trade ideas. Granted, that's not usual but the point is that you don't have to make all or nothing bets ahead of earnings – those well-hedged, long-term ideas can do quite nicely.
Oh boy did I tell you so – over and over again – on oil. Again, this is physics to us, not guessing. There were far too many contracts and they arefake, Fake, FAKE and, one day, hopefully we can just make a book collecting all my various proofs that NYMEX trading is nothing more than a massive scam perpetrated on the American people in order to massively overcharge them for the 2nd most abundant liquid on the planet.
It's OK though, as long as you people can't be bothered to write to your Congresspeople and DEMAND ACTION, we can keep using this scam to our own advantage and short their fake rallies, like the one pictured here – which banged right into our $108.50 target (a bit over) and then plunged all the way to $106 for a $2,500 PER CONTRACT gain.
Just go back and read my last month's worth of posts and see how many times this worked – I definitely told you so on that one. Am I that good? No – IT'S A SCAM!!! It should be illegal, but no one stops it so we may as well trade it, right? At least over in Europe they are trying to reign in the madness but, despite some of our Members sending articles like this one to their Congresspeople – we are unable to get traction against this nonsense in the US..
- SPY Oct $171 puts at $2.05, out at $4.10 - up 100%
There was not much to do that Friday as we were already positioned more bearish, the SPY puts were just an additional short call for the drop we expected. At the end of the day, the chart had become very ugly, very quickly:
Well, that brings this two-week review to a close. As promised, it was a wild ride and it gets wilder over the next 10 days. We were fortuntate to be generally bullish and we had 56 trade ideas with only 6 misses, a whopping 92% winning percentage on our trade ideas.
A few of the trades are not so far along that they are not still playable and, of course, the losers are always interesting ones to discuss in future chat sessions as we generally play the Fundamentals so, just because we were wrong in the first month of a trade, doesn't mean we still don't like it for the next year or so.
Looks like we'll have a part 3 as September has been a very busy month!