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PSW February Trade Review – Part 1

What an interesting month this has been!  

It will be even more interesting as we begin our trade reviews with the last week of the previous month and, when we left off in our January Trade Review, on the 24th, we had been shorting like crazy on the way down.  Despite the massive flip-flop in the market, we caught it pretty well and came up with 118 winning trade ideas in January against 27 misses for an 81% success rate.  

Always keep in mind that it's fairly arbitrary when we do the review vs. when we initiated the trade – especially in a market that fluctuates as wildly as this one.  As long as you follow strategy rules for stopping out, stay balanced and portion your trades appropriately, all you need to do is pick a few more winners than losers and the money should take care of itself.  

January 25th was the day we began our January Trade Review (Part 1 here) and we were thrilled with the drop at the time.  It's always a good exercise to go over the month with the benefit of hindsight – aside from seeing which premises played out and which did not – you also may find some trades that are real hidden gems – ones that we still like but are cheaper than our original entries.  Here we go:

Jan 27:  Monday Market Momentum – Reversing or Just Bouncing?

What a lovely correction!  

As noted in our Weekend Trade Reviews, we saw this dip coming from a mile away and, from the outset, we were never expecting more than 10% at most.  We're not even close to 10% so far but is it already time to fish the bottom or should we maintain a "Cashy and Cautious" stance?  

There has not been much in the news to persuade us that the markets are stronger than we think and, if they are as weak as we think and only propped up by the Fed, then Wednesday's Fed meeting is a literal do or die for the indexes. 

  • Silver (/SI) Futures long at $20, now $21.30 - up $6,500 per contract
  • DDM April $100/105 bull call spreads at $3.50, selling BTU 2016 $13 puts for $2 for net $1.50, now $2.63 - up 75%
  • TNA March $60/70 bull call spreads at $6.80, selling SHLD 2016 $20 puts for $4.30 for net $2.50, now $4 - up 60% 
  • CLF 2016 $18 puts sold for $4.50, now $3.95 - up 12%
  • Oil Futures (/CL) long at $95.50, out at $97.50 - up $2,000 per contract  
  • Russell (/TF) Futures long at 1,130, out at 1,140 - up $1,000 per contract 
  • Nikkei (/NKD) Futures long at 15,000, out at 15,400 - up $2,000 per contract 
  • AAPL 2/7 $500 puts at $2.05, out at $6.50 – up 217%
  • AAPL 2016 $500/650 bull call spread at $55, selling $450 puts for $41 for net $14, now $6.85 - down 51%

While I have my list up, here's a few more of our "Worst-Performing Stocks that Might Not Suck as much as Their Price is Indicating" or The WPSMNSTPI Index(tm):  

  • Consumer:   SPLS, COH, IGT, SHLD, WFM, PM, SVU, ADM
  • Energy:  BTU, RIG
  • Financials:  PGR
  • Health Care – None
  • Industrials – GE, DE, CAT, CMI
  • IT – AAPL, JDSU
  • Materials – X, FCX
  • Telco – TWX, WIN, T, CTL
  • Utilities – ED 

Note that, while long-term, we're still overbought, short-term, we worked off oversold very fast so our 5-10% correction logic is holding up so far – we just don't seem to have it in us to have a proper market panic at this point – and that's fine, 10% would be lovely – if we even get that far!  ?

.SPX WEEKLYJan 28:  Tempting Tuesday – AAPL Bites into Nasdaq's Gains

Long-term, we're still long on AAPL and we will be pressing out long bets on this pullback (see my notes on AAPL earnings and trade ideas in this morning's Member Chat) but we're not in a hurry until we see the indices shape up better than this.  

The Nasdaq was only saved by the 50 dma and will open today below it (4,085) while the the rest have plowed through theirs and may be on the way to visit the 200 dmas – 5% below this point and on the way to the 10% correction we expected.

This does not change our 5% Rule's™ ranges at all – these are just the very short-term moves we need to see in order to start pulling back our bearish bets(long in place) and begin to consider some bullish plays.

  • 5 AAPL 2016 $450/600 bull call spread at $54.30 ($27,150), selling 5 $400 puts for $33 ($16,500) for net $21.30 ($10,650), now $37.90 ($18,950) – up $8,300 (78%)

We had our weekly Webcast (replay here) that afternoon and we went over several bullish picks and added them to our portfolios.  

Jan 29:  Which Way Wednesday – FOMC Edition

So far, the Fed and the ECB have been fairly successful in exporting all the inflation – mainly to third-world countries but now the BRICs are feeling the pressure as well as G20 fringe economies like Turkey and Indonesia and their Central Banks are hiking rates in an attempt to keep things under control while our own Central Banksters keep screwing over the bottom 90% by pretending inflation doesn't exist.

If you were watching yesterday's live Webcast or read the morning post, you know we predicted that we'd get to our weak bounce lines of Dow 15,940, S&P 1,794, Nasdaq 4,100, NYSE 10,080 and Rusell 1,138 and that we would likely fail them and head lower.  

  • Oil (/CL) Futures short at $97.50, out at $96.50 - up $1,000 per contract 
  • Silver (/SI) Futures long at $19.83, out at $19.97 - up $700 per contract 
  • Nikkei (/NKD) Futures long at 15,000, out at 15,400 - up $2,000 per contract
  • DBA ($24.22) Jan 24/28 bull call spread at $1.20, selling CAKE July $40 puts for $1.40 for net 0.20, now $2 - up 1,900%
  • SLW ($22.24) Jan $20/25 bull call spread at $2.10, selling 2016 $15 puts for $1.60 for net .50, now $2 - up 300%
  • CLF ($20.02) 2016 $13/22 bull call spread at $5, selling $18 puts for $4.40 for net .60, now net .50 - down 16%
  • LULU ($46.05) 2016 $40/55 bull call spread at $6, selling $35 puts for $4 for net $2, now $5.07 - up 153%
  • XCO at $5.44, selling 2016 $5 puts and calls for $2.95 for net $2.49/3.75, now $5.05 - on track 
  • LGF ($31) 2016 $25/35 bull call spread at $4.80, selling $25 puts for $3.80 for net $1, now .90 - down 10%
  • BRCM ($28.87) 2016 $23/30 bull call spread at $3.30, selling $23 puts for $2.20 for net $1.10, now $3.85 - up 250%
  • BBY ($24.36) 2016 $20/30 bull call spread at $4, selling $18 puts for $2.75 for net $1.25, now $2.10 - up 68%
  • SCO ($32.70) March $32/35 bull call spread at $1.10, selling March $30 puts for .75 for net .35, now -$1.77 - down 405%
  • EBAY ($52) 2016 $45 puts sold at $4.60, now $3.15 - up 31%
  • HOV ($5.97) 2016 $5 puts sold at 0.95, now .30 - up 68%
  • Natural Gas (/NG) Futures long at $5, out at $5.40 - up $4,000 per contract
  • RFMD 2016 $5/10 bull call spread at $1, selling $5 puts for $1.25 for net .25 credit, now $1.40 - up 660%
  • Oil (/CL) Futures short at $97, out at $97.10 - down $100 per contract  
  • FB March $43 puts for .53, out at .27 - down 49%
  • CAVM March $31 puts sold for .80, now .05 - up 93%

If we get infrastructure spending, X, CLF, GE, Utilities, CAT, Rails, ACM, CBI, FLR, JEC, KBR, MDR, TTEK, URS, STRL, UBS, UTX, FWLT, PWR, TPC, WG, USCR, CX, CMC… are some of the ones to watch.  Depends what kind and where, of course.  

SPY DAILYPlease take note of what happened here because THIS is the core of our trading strategy.  We WAITED, very PATIENTLY for a situation in which the market pulled back and the VIX (volatility index) went up so we would get good prices for selling premium and then we moved our CASH off the sidelines with so many picks in one day that I got tired of making trades so had to just add a list of other stocks I like (in anticipation of Obama's Infrastructure Initiative, which we now know for sure is coming).  

Notice we had a watch list on Monday, Tuesday we did NOTHING but watch and Wednesday, we pulled the trigger.  We did not catch the dead bottom, but we were actually prepared for worse as we made only small entries in our virtual portfolio but look how quickly the move up gave us spectacular gains.  Also, look how mush SAFER this is than messing around with momentum stocks!!!  

BE THE HOUSE – Not the Gambler!

We spent a month setting up these trades (see previous Trade Review) by getting to cash, buying some short positions at what we thought was a top and that gave us the cover to aggressively BUYBUYBUY at what we thought was a bottom.  Because we're buying value stocks that we REALLY want to own long-term, we don't have that gut-wrenching fear that comes from trading momentum stocks and, as you can see from the HUGE monthly gains, we don't need no stinkin' momentum stocks to make very, very good returns, do we?  

To be very clear – once again I have called for CASH!!! at this point (2/27) in the market.  If you are a long-term investor, and you have your hedges, it's fine to stay in these positions but, if you are a trader, then it's CRIMINAL (you are stealing from yourself) to leave positions that have gained more than 40% in a month on the table!  

SPY 5 MINUTEJan 30:  GDPhursday – Brother Can You Spare $64Bn?  

We don't KNOW that this is a bottom but we do KNOW that some of the stocks we're watching have values that we now consider fair.  That means we don't mind making long-term commitments to a few of them using our patented "How to Buy a Stock for a 15-20% Discount" strategy.  When we find stocks that have pulled back 10-20% already and we can add an additional 15-20% discount to our entry – it's a good time for us to bring a little cash off the sidelines.

The Dow is down 5.1% for the year so we expect to see a 1% bounce (weak) on any sort of good news this morning and, if we don't get it – we'll be looking ahead to a very possible 10% overall correction, which was the most we expected with our bearish stance – which is why we are comfortable buying stocks 15-20% below where we are now.  See how simple our logic is?  

  • Oil (/CL) Futures short at $98.50, out at $98.25 - up $250 per contract
  • 4 SCTY 2016 $90/120 bull call spreads at $7 ($2,800), selling 5 March $85 calls for $5 ($2,500), for net $300 (earnings play for 2/24), out at $1,250 - up 316%
  • TWTR Jan $75/90 bull call spread at $3.60, selling March $70 calls for $4.85 for net $1.25 credit, now $2.95 - up 336%
  • TSLA March $195 calls at $11.50, now $59 - up 413%
  • Russell (/TF) Futures long at 1,130, out at 1,140 - up $1,000 per contract
  • Dow (/YM) Futures long at 15,767, out at 15,850 - up $415 per contract
  • Silver (/SI) Futures long at $19, now $21.25 - up $11,250 per contract
  • Gold (/YG) Futures long at $1,240, now $1,330 - up $2,988 per contact
  • AAPL 2016 $450/600 bull call spread at $56, selling $400 puts for $31.50 for net $24.50, now $37.20 - up 51%
  • AAPL WEEKLY
  • 5 CMG Jan $570/610 bull call spreads at $10 ($4,000), selling 5 March $550 calls for $7.50 ($3,750) for net $250, now -$1,450 - down 480%

TSLA off to the races again.  March $195s we talked about for cover over $180 (at $9.15) are already $11.50.  That's how these work because $2 is enough to roll longer-term short calls up $5 in strike and $5 would be enough to roll them $10, etc.  It is VERY IMPORTANT to have a discipline to cover the MoMos like this when they break on you. 

Jan 31 – Flailing Friday – Window Dressing Failing in Futures

Keep in mind it's an end of month window-dressing day so anything can happen – we are still leaning towards playing for another move up off our Futures support and, after that, we're just going to watch our 5% lines.  

  • Dow (/YM) Futures long at 15,600, out at 15,700 -up $500 per contract
  • Russell (/TF) Futures long at 1,120, out at 1,130 - up $1,000 per contract 
  • S&P (/ES) Futures long at 1,765, out at 1,770 - up $250 per contract
  • Gasoline Futures (/RB) long at $2.64, out at $2.68 - up $1,680 per contract 
  • CMG Jan $650/560 bear put spread at $22, selling June $490 puts for $14 for net $8, now $44 - up 450%
  • Nikkei (/NKD) Futures long at 14,675, out at 14,700 - up $125 per contract
  • JDSU 2016 $12/17 bull call spread at $1.90, selling Jan $12 puts for $1.22 for net .68, now $1.25 - up 84%
  • Oil (/CL) Futures short at $97.95, out at $97.25 - up $700 per contract

If you are going to invest for the Long-Term, you need to realize that corrections are inevitable and the rewards for Conservative play over time will far outweigh "going for it" with aggressive positions.  

Wow, that was a lot of trade ideas for one week – 46 tades and 7 of them were misses for an 84% success rate.  Remember – if we're over 85%, we're not hedging properly as we need to have bets in both directions – just in case we're wrong.   Of course, some of our losing bets are OPPORTUNITIES, like the AAPL spread from Monday, CLF and LGF on Wednesday and even Thursday's CMG spread, which is down 480% but that means we now get a $1,450 credit for initiating it now.  

That's another good reason to stop out of losing trades BEFORE they go down 480% on you – you can always wait for the next review and find some other losing trade to chase – maybe it will be the one you stopped out of at a better price….

Well, that's a lot of trades for one post, we'll stop there and I'll try to get another week done over the weekend.  

 


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  1. scottmi

    CRM dbl diag.. Bullseye this morning!

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