Merry Christmas!
For those of you lucky enough to join our Live Trading Webinar yesterday (and apologies to Seeking Alpha readers who were invited but the editors decided not to publish the post due to the "philosophical and social nature, with the investing information secondary"), we came right out of the box with a short play on the Russell Futures (/TF) above the 1,380 line and, during our session, we were able to close the play with a $3,345 gain – in less than two hours!
Be sure to send thank you notes to the SA Editors, who protected you from this very terrible PSW Pre-Market Report, where we also gave you the reasons we didn't think the Dow would make 20,000 (it didn't). We only do one free Webinar per month and you blew it, better luck in January but it's completely random whether or not your invitations will be intercepted by editors.
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For those of you who think making $3,345 in two hours is fun (and we also made $3,850 on our Oil Futures (/CL) shorts, but that trade was from our Live Member Chat Room at 10:34 am), we do have a low-cost PSW Report Membership that delivers these posts to you every day – WITHOUT CENSORSHIP – before the market opens. You get full access to our morning trade ideas and even the ability to view our Basic Chat Room archives that are 7-30 days old – a great way to get an idea of what goes on inside PSW.
Just those two trades paid for 8 years of Report Memberships – not bad for a day's work!
Unlike yesterday, today we are expecting the Dow to get pushed to the 20,000 mark as it's the last chance to make the print before Christmas and they need you to be convincing when you tell Uncle Joe to break into his retirement lock-box and put it into this overbought market. I wouldn't be surprised if our beloved new President doesn't suggest the same with Social Security – there's a few Trillion Dollars they can give right to the Banksters – what could possibly go wrong?
If the Dow fails to take 20,000 today, tomorrow is not an option as the failure today will likely spur profit-taking ahead of the holiday weekend. Sadly, the US markets don't even get a day off this week but the markets are closed January 2nd because God is dead but taking a day off to recover from a drinking binge is something Wall-Streeters can really get behind.
There's certainly no excuse for the Dow not to move higher. Q3 GDP has been revised up from 3.2% to 3.5%, driven by a 5.8% increase in Corporate Profits but, of course, they had easy comps as Corporate Profits were negative in Q2 but shhhhhh, it doesn't fit the narrative! Profits after tax, without inventory valuation and capital consumption adjustments (non-GAAP nonsense), advanced 2.6% from the second quarter, versus a previous estimate of a 3.5% gain. Of great concern to those of us without rose-colored glasses is the 4.6% DECLINE in Durable Goods Orders in November and ex-aircraft, it was -6.6%, so you can't blame Boeing (BA) for this one!
Also keep in mind that quarterly GDP is not as important as annual GDP and there's no saving us from having a lower than 2% year at this point. Another TERRIBLE thing about the GDP report is the MASSIVE $72Bn build in inventories, which is considered a positive to the GDP but may be an indication of unsold goods stacking up at warehouses, so take it all with a grain of salt.
On the whole, I think there's a great opportunity for a contrarian play here, shorting the Dow (DIA) using the 2x Ultra-Short (DXD), which is currently at $13.94. A trade set-up I'd like is:
- Sell 10 BBBY 2019 $35 puts for $4 ($4,000)
- Buy 40 DXD April $13 calls for $1.50 ($6,000)
- Sell 40 DXD April $16 calls for 0.45 ($1,800)
It doesn't have to be Bed Bath and Beyond but they just missed on earnings and will have good put prices to sell and we think they are a real bargain at $35, so we'd be thrilled to be assigned at that price (now $44, so more than 20% off). We take the money we are given in exchange for promising to buy BBBY for 20% off (net $35,000 for 1,000 shares) and we use that to make a net $200 cash entry on the $12,000 spread that's $4,000 in the money to start.
So this trade can't lose (assuming you REALLY want to own BBBY) unless the Dow is well over 20,000, which makes it a perfect hedge and we'll be adding it to our Short-Term Portfolio this morning. If the Dow does head lower and DXD is over $16 at April expirations, the profit potential is $11,800 for a 5,900% return on cash – that's good insurance!
As I said yesterday, nothing protects you like CASH!!! but, for positions you can't bear (oops, don't say "bear") to part with – a little hedging can go a long way to helping you actually enjoy your holidays without worrying so much about your portfolio.
Peace!
