Really?
Of all the things that could have or, frankly, should have stopped this ridiculous rally, is it finally going to be the long-anticipated, totally baked-in, quarter-point Fed rate hike that causes a correction? And yes, we bet on it – I just told you yesterday that we cashed in our Dow longs and picked up the TZA spread (and we shorted the Russell Futures (/TF) for a fantastic gain too!) but that doesn't mean it isn't stupid – it only means we know how to bet on stupid!
The Dow took a nice 200-point plunge after the Fed's rate announcement, right after having spiked up to the high of the day at 19,900 on the /YM Futures (we don't really care what the index does). We were doing a Live Trading Webinar yesterday afternoon and our main trade of the day was 5 Russell (/TF) Futures shorts and the Russell plunged from 1,372.50 to 1,352.50 for a very nice $5,000 gain during the webinar so congratulations to all who played along.
This morning, we're settling around 19,750 on the Dow and 1,355 on the Russell but that's actually pretty strong when you take into consideration that the Dollar has climbed to 103, which is up another 1.3% from yesterday's close so of course the indexes, which are priced in Dollars, will be looking weaker when the Dollars they are divided by are stronger.
The problem is that technical indicators don't take Dollar strength into account so when the Dollar moves up 2% in 24 hours, the TA people just look at the charts and see a market dropping 2% in response and assume there's technical weakness and that triggers all their sell signals and then real selling begins and you can begin to have a cascading failure but hopefully the people who run the ever-increasing number of trade-bots have turned them off post Fed and are waiting to see how today shakes out before hitting the panic button (which is what happened last year).
Meanwhile, gold and silver already panicked and we particularly like Silver Futures (/SI) at the $16 line for a long-term long. Gold is trickier as it's still up at $1,130 and I'd love to see $1,050 but I doubt we'll get that lucky. Meanwhile our favorite miner, Barrick Gold (ABX) is back around $14, where we love them as a long-term long.
Silver can be played with Silver Wheaton (SLW), who are not an ETF but a company that holds long-term purchase agreements on silver, so their fate is tied directly to the price of silver but the market tends to drastically over-react when silver gets cheap. This morning they should be down around $17.50, where we will very likely initiate a long trade in our Options Opportunity Portfolio and, if they can get back to $15, they may edge out DBA as our 2017 Trade of the Year. Here's David Zeiler predicting gold hits $5,236 an ounce (up 450%) – will silver be far behind?
We're out of our index shorts at the moment as we expect a bounce in the very least and we don't think the Dollar will get much over 103 – other than a panic spike or a short-lived squeeze. Already the Gulf Central Banks are following the Fed's rate increase to maintain their Dollar peg and other CB's have been waiting for a chance to raise rates as the cost of supporting artificially low ones is bankrupting their countries.
In Nigeria, the interest rate is 14% but inflation is 18.5% so you are still getting a raw deal putting your money in Nigerian Banks. That country is heading back to levels they hit during the crisis a decade ago – the one we made fun of right before our own economy collapsed.
Short positions on Japanese banks are at 6-year highs and we shorted the Nikkei (/NKD) Futures in our Live Member Chat Room this morning just under 19,500. The last big spike in shorts in Japan began in March of 2015 and that is when the Nikkei flattened out at 21,000 but it didn't fall until August, when it rapidly collapsed 20% by October and was back to 15,000 by Feb 2016 and was still 15,000 in July but now back at 19,500 is up 30% in 6 months so a bit of a stretch – don't you think?
Another opportunity to go long this morning is coming from Oil (/CL), as it tests thee $50 mark – that's usually good for a bounce but very tight stops below as, on the whole, we think it's heading back to $45 this winter, despite the OPEC production cut fantasy camp event. Gasoline (/RB) would also be a fun play off the $1.50 line if we hit that – also VERY TIGHT STOPS BELOW.
So plenty of fun things to play while we see what kind of bounces we get but, as I said yesterday, it's either Dow 20,000 or 18,500 and, since we were at 19,900 – it was an easy risk/reward call to short into the Fed uncertainty. Now the Fed has passed and we're at 19,750 down 150 and we expect to see 19,800 on /YM, which is about 19,850 on the index – anything less than that is bearish.
