Can one report pull us out of a slump?
As you can see on the S&P 500 chart, we've gone nowhere since early September, which is where we landed after going nowhere all summer and then dropping a quick 2.5% on the Brexit, from which we recovered quickly before grinding back down to the exact same spot – so I guess that was the right reaction after all.
In between we've hear all sorts of amazing BS as "analysts" try to explain the up and down gyrations of the market and we've heard just as many prediction about where the market was going and, despite the fact that 90% of those people were wrong, most of you are still looking to see where those same idiots think the market is going next. Why? Really, why? I just don't get it.
Back on September 1st I asked: "Are you the dumb money?", noting that the "smart money" was getting out of equities at a rapid rate – even as we were making new highs. That was the day after I warned about: "Window Dressing Wednesday – End of Month Market Prop Job" and, by the way, there's a great chance to get into that UNG play at the same prices they were back then – still a great trade!
On August 23rd, I wrote: "Technical Tuesday – 2,200 or Bust!" and the market topped out the next day at 2,193.81 and we are 2.7% below that mark this morning at 2,133.04 – no "bust" yet, just a minor correction. Oddly enough, we did have a lot of bullish picks in that post and most of them are still playable.
On Sept 12th, I wrote: " Monday Market Movement – Hedging for Disaster" and laid out the following hedge with the S&P at 2,160 and the Russell at 1,235:
- Buy 50 (more) TZA Jan $30 calls for $3.15 ($15,750)
- Sell 50 (more) TZA Jan $40 calls for $1.70 ($8,500)
- Sell 5 TSLA Jan $250 calls for $4.70 ($2,350)
- Sell 5 AMZN Jan $900 calls for $8 ($4,000)
We have since adjusted that position, taking advantage of a dip to boost the coverage for our Short-Term Portfolio and now we have 100 2018 $25 calls we bought for $9 and we doubled down on the short Jan $40s at a $1.90 average and we also sold 100 2018 $40s so we want TZA to go up, but not too fast! More importantly, we took a stand on Amazon's (AMZN) idiotic pricing and yesterday's earnings make that a winner and TSLA also will not make $250, which makes that a free hedge with $50,000 of potential upside protection (now $100,000 after our adjustments and still free).
8:30 Update: As we expected, the Q3 GDP came in hot at 2.9%, way up from 1.4% in Q2. More importantly, there was a nice 2.2% bump in Real Disposable Income though, of course, it would be nicer if it kept up with GDP growth. In-line with that growth in Disposable Income is a rising Employment Cost Index (0.6%) and this bodes well for next year as wages are finally rising and that means consumers are going to get comfortable spending again (next week's Consumer Comfort Index is released on the 3rd).
I was just on Benzinga's Pre-Market Show talking about wages and the economy and hedging and trading opportunities – I'm sure there's a replay if you missed it.
Meanwhile, we'll see if good news is bad news as such a strong GDP report pretty much guarantees a Fed Hike in December, though I can't imagine there are many people who didn't see that coming at this point anyway. On the whole, we're plodding along at lower growth levels than we were showing a couple of years ago but at least we're not in a recession – so it is time for the Fed to take the training wheels off the economy and see how we do on our own.
Have a great weekend,
– Phil
