by phil - January 5th, 2016 7:57 am
Would it be too early to call the year yet?
"As goes January, so goes the market" is something a lot of traders believe and we're off to a rotten start, for sure but mostly we just gave back the gains I thought we never should have gotten last week anyway – so NOW we're back to 2,000 on the S&P (/ES on the Futures), we'll see what's real and what's not.
We went long on /ES at the 2,000 line and /TF (Russell Futures) at 1,100 and we made a big call yesterday in our Live Member Chat Room, to cash in those SQQQ March $15 calls ($5.44), from that spread I mentioned in yesterday's post and that flipped us BULLISH into the close, where we were rewarded by the "stick save" (so far).
That's a really great feature of using spreads to hedge like we do because we can flip our whole portfolio from bearish to bullish by simply taking the profit ($5,220 in this case) of our short leg off the table and now we've gone from slightly bearish to slightly bullish and all we have to do to get bearish again is buy another bear leg. Hopefully, we won't need to and SQQQ will top out at $20 and the short calls will expire worthless and we'll make another $5,550 on that leg.
Of course, as I mentioned yesterday, we have huge short positions on Amazon (AMZN) and Netflix (NFLX) so, to some extent, we were locking in some of our gains by flipping bullish on the Nasdaq to cover a possible bounce in those two. I don't think either one of them are done going down but Apple (AAPL) looks like it's going to hold $100 and AAPL counts WAY more in the Nasdaq than those overpriced jokes.
We were hoping AAPL would go a bit lower as we only have one bull call spread in our Long-Term Portfolio. Our plan was to sell some short 2018 puts when AAPL got down to $100 – preferably the $95 puts for $15, which would give us a very comfortable…
by phil - January 4th, 2016 1:21 pm
What a crazy year 2015 was!
We began tracking this new virtual portfolio back in August and, in less than 4 months, we closed 80 option positions on 20 stocks (or ETFs) so pretty active in the beginning. At one point we were up 20% but the net gain on the positions we've closed ended up at just $9,572 or +9.5% from our $100,000 opening balance.
Since that pace was more hectic than we had intended and the market was very choppy, we moved towards longer-term investments which have the downside of being "expensive" to set up – in that the portfolio will tend to reflect the worst-case scenario for buying or selling options based on the bid/ask spread – no matter how unrealistic the pricing is. This is, however, something options players need to learn to understand when they are looking at their positions – and we'll discuss that in detail as we examine each of our open positions:
Notice first that we have $98,672 worth of cash on hand. We started with $100,000 and, using just $1,328 of our original cash, we now control a substantial amount of positions. On the margin side, we are using $48,700 out of $200,000 of ordinary margin (not Portfolio Margin, which would be much more) and, generally, we don't want to use more than 1/2 of our margin – saving the rest for emergencies.
At this stage in the process, we're not so much concerned with the BALANCE of the positions as we are to whether or not they are on or off track for their goals. Options trades can swing wildly in value as premiums fluctuate as well as the price of the underlying security – your job as an options trader is to understand the VALUE of your options so you can identify which ones are misPRICED and learn to take advantage of the differences.
- BBY – If BBY is over $31 on Jan 15th, the short puts expire worthless and we make the whole $900. As it stands, we're about 1/2 up and on track to make $450 more.
- Since we liked
by phil - January 4th, 2016 8:19 am
And we're long!
Sorry if that's confusing but I want to make our position clear before I begin ranting. This morning, I put out an Alert to our Members saying:
This morning's catastrophe is being blamed on that poor Manufacturing Report from China and the Shanghai fell so hard they had to shut it down (down 6.86% in the end). Since limit down on any stock is 10% – that means a huge portion of the market went limit down before they stopped trading.
The Manufacturing report was Saturday morning and Middle Eastern markets didn't freak out about it. I think mostly this is all the BS window-dressing reversing and I do like ES long over the 2,000 line (now 1,995) for a bounce and YM 17,000 and TF1,110 (now 1,108.5, so only on a cross over with tight stops). Same rule as usual, wait for 2 to be back over and then go long on the laggard and very tight stops if any of them fail.
by phil - December 31st, 2015 8:16 am
Whether we finish over or under 2,060 on the S&P no longer matters.
The broader NYSE is DOWN 800 points (7.2%) for the year but you won't hear that from your Corporate Media – because it doesn't suit the narrative of their Top 1% Masters – who want retail investors to jump into the market and buy the stocks they are still trying to unload in a thin market.
What really matters at the end of 2015 is that, despite MASSIVE intervention by ALL of the World's Central Banks, the markets have gone net nowhere for 12 months. If the market were a coma patient, they'd be discussing pulling the plug and just letting it die, right? At what point is a thing no longer worth saving? Like any good "death panel," we should be deciding whether or not taking massive artificial means just to keep the market flat is worth the cost.
Of course, there's the problem. The cost of artificially maintaining the markets falls on the Bottom 99%, who's children and children's children will be burdened with the deficit bills we are running in order to keep the stocks held by the Top 1% from falling faster than they can liquidate their positions.
Although Obama has done a fantastic job of slowing the growth in our debt (getting close to $19Tn total now), the damage was already done and still our Government refuses to tax our Top 1% people and Corporations, who are the sole beneficiaries of all this aid. Sure, you can argue that retirees had Trillions invested in pension funds that were also tied to the market but very few individuals had more than the $70,000 it took to bail them out – an amount they are now burdened with as debt.
In fact, less than 20% of all stock market wealth is held by the bottom 90% (income cut-off is $120,000/yr and over $750,000 total wealth) and barely 5% by the botom 80% – those that earn less than $60,000 per family. Debt, however, is distributed evenly by population so it disproportionately falls on the poor and, of course, when they have to cut social programs to pay…
by phil - December 30th, 2015 7:34 am
"I don't know how they do it? Plunge Protection Team? Abenomics? Japanese buying futures? No matter what The Dow will not be allowed to end the year in the red…"
How they do it is a process called "Ramp and Camp", where the US indexes are pushed higher in very low-volume trading in the Futures (and Jim Cramer explains how easy it is to fool the retail suckers here), which is the "ramp" and they the TradeBots are set on auto-pilot and do just enough to hold the indexes at the desired levels, also taking advantage of any retail interest they generate to sell to the suckers as they come in to hold the bags.
Notice most of the volume for the day comes right at the open and then again in the selling into the close. The most surprising thing about manipulating the markets is how cheaply it can be done! Speaking of manipulated markets: Remember 6 months ago when China halted the sale of half of stocks on the Shanghai Stock Exchange? Major shareholders were banned from selling $185Bn worth of stocks, which will finally hit the market on Jan 8th – I'd circle that day on your calendar!
China is. by far, the blackest of all possible swans in 2016 – it's a story we predicted would kill the markets this year and it's still early innings on our China watch. Another interesting black swan issue brought up by MarketWatch is the possibility of a Sovereign Wealth Fund cashing in its assets. After all, the whole point of SWFs is to put money aside for a rainy day and how much of the $4.3Tn controlled by SWF's is from oil countries that are weathering the worst Financial Storm in their history?
MarketWatch agrees with my note from yesterday, that one of the biggest potential black swans of 2016 could be the death of the unicorns. Rounding out their unexpected potential catastrophes of 2016 could be…
by phil - December 29th, 2015 7:59 am
Things are looking up this morning.
Europe has come back from Boxing Day with a nice 1.5% pop in Germany, Italy and France while the UK and Spain are up about 1% as well. 11,000 is the bull line on the Dax and 10,500 is the bear line – so we're bouncing around in-between at the moment, just as we are on the S&P between 2,000 and 2,100 and the Dow between 17,000 and 18,000.
On the whole, it's all just one big consolidation – but what are we consolidating for? None of your time should be spent looking at the index charts this week – not when the volume is less than half of what it is on normal days. Yesterday on SPY, for example, just 66M shares were traded and the average volume is 118M. That was the lowst full-day trading of the year and it followed Christmas Eve's 48M so the two days together barely added up to a "normal" day.
What you should, however, be concerned about is how FAKE the action was as it drove the McClellan Oscillator well into overbought territory. The McClellan Oscillator is a breadth indicator derived from Net Advances, which is the number of advancing issues less the number of declining issues. It's a momentum indicator, similar to MACD that gives us an idea of whether or not a rally is broad-based enough to be sustained and, clearly, this one isn't.
What we have going on at the moment is good, old-fashioned window-dressing – aimed at painiting a picture of 2015 that will be sold to potential investors in 2016. The brokers need you to put your money in the market so they can charge you fees – that's how the game is played and it really helps their sales pitch if the market wasn't negative the year before so all stops are pulled out to get us green at the end of the year.
Case in point – while JPM and other big banks have already raised the deposit rates they pay to their Top 1% clients, the only increase that was passed down to the…
by phil - December 28th, 2015 6:46 am
2015 was a tough year for traders.
Not for investors, mind you, we did great but trading and trend following was a tough road to follow in 2015 as so many of the "usual" tricks didn't pan out as expected. A lot of that is because our governments have been lying to us – even as they do their best to manipulate the economy. You can't trust the data, you can't trust the reports and you can't trust what they say they will do or know when they will actually do it. That makes for a rough trading climate.
As Fundamental investors, we've been worrying over the same question all year, which is: "would we have an economy at all without the non-stop flow of funds coming from our Central Banksters?" So far, we haven't been given the chance to find out because the money keeps pouring in and it seems to make the markets happy – at least for a little while…
In Japan, however, where the Government embarked on a MASSIVE stimulus program called "Abenomics" back in Dec of 2012, the effects of a stimulus that dwarfs that of the US, China or Europe in terms of percentage of GDP (over 15% in Japan) has already faded out with Household Spending already going right back off a cliff:
That's because, unlike Americans, Japanese people understand math and they KNOW they don't have enough money to retire with – so they stop spending money and no matter what further steps the Government takes to punish the savers (negative interest on savings, constantly devaluing the currency, etc.), it's not enough to convince Japanese families to forego their future in return for some short-term pleasures.
The December data we're getting out of Japan is, in fact, horrific:
- Household Spending plunges 2.9% YoY – worst since March (post-tax-hike)
- Jobless Rate jumps to 3.3% (from 3.1%)
- Industrial Production drops 1.0% MoM – worst in 3 months
- Retail Trade tumbles 1.0% YoY – biggest drop since March (post-tax-hike)
- Retail Sales plunges 2.5% MoM – Worst drop since Fukushima
by phil - December 26th, 2015 5:28 pm
I hope you get everything you want this holiday season and, most importantly, I hope you have time to spend with your family. I love waiting for my kids to wake up on Christmas morning to come out of their rooms so I can videotape (gosh I’m old, there’s no tape anymore) them in those first moments of Christmas morning – how can I not be of good cheer anticipating that?
I have something I can give you for the holidays as well. Not peace on Earth but perhaps peace of mind heading into the New Year – a way to help insure some future prosperity with a few inflation-fighting stock picks that can brighten up your portfolio, which also can be used to help balance your home's budget against unexpected cost increases.
This isn’t an options seminar or one about risk or leverage – these are just a few practical ideas you can use to hedge against inflation as it may affect your everyday life using basic industry ETFs and some simple hedging strategies to give you an opportunity to stay ahead of the markets if they keep going higher.
We haven't felt the need for inflation hedges since 2011 as the Fed has kept us in a somewhat DEflationary cycle but our 2011 hedges were good for 300-600% returns and we're simply going to repeat the same, simple concepts here to set up good, rational hedges against inflation to insure a financially healthy and happy 2016:
Idea #1 – Hedging for Home Price Inflation
Let’s say you have $40,000 put aside for a deposit on a home but you’re not sure it’s the right time to buy. On the other hand, let’s say you are worried that home prices will take off again (I doubt this but you never know). XHB is the homebuilder’s ETF, currently at $34.49 and they bottomed out at $31.62 in August and still well off the highs for the year of $39 right before the flash crash.
by phil - December 24th, 2015 7:45 am
Why it’s almost Christmas Eve, Mr. Scrooge!
The Global markets are closed tomorrow and we’re bound to have a very slow half day today – if you are looking for a continued Santa Clause rally on today’s trading, you are very likely to be disappointed. Today is a day for relaxation and reflection. Remember, the words of Jacob Marley, who said:
Business! Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence were all my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!
Marley was a man who worked and worked until the day he died and regretted it every day after. If you don’t believe in an afterlife and you don’t believe in leaving behind the World a better place than you found it, at least find some time for yourself so people don’t call you "a squeezing, wrenching, grasping, scraping, clutching, covetous old sinner" after you’re gone.
I was inspired by an old post on Barry’s site titled "Give and You Will Receive" listing 13 good ways we can all give every day.
by phil - December 23rd, 2015 8:20 am
Here's an indicator that has successfully predicted major market corrections:
It's the so-called "Smart Money Indicator" which tracks the number of bearish put options vs the number of call options with the expectation that options traders have some clue as to what the market is doing – as they tend to be more serious investors (the ones that survive, that is). Of course, it also gave a false warning , like it did in 2003 and 2012 and last fall, when we first went over the 2:1 line but now it's just getting silly and open put contracts now exceed call contracts by 3:1 for the first time ever.
Once again, I'm not saying we should join them and get all bearish – I wish it were that simple. Unfortunately Fundamentals have been thrown out the window in this Global QE environment and all I can do is warn you that it's not a good time to be betting the market goes higher and the smart move is to have a ready supply of CASH!!! on the sidelines – just in case the market completely collapses.
We're well-hedged and very cashy in our Member Portfolios and thank goodness for that because, according to Bespoke, the average stock in the S&P 500 is 20% BELOW it's 52-week high. That would be called a correction but, as I've noted before, there are 8-10 stocks that have accounted for all of the S&Ps positives this year. Other than those few headline stocks, EVERY SINGLE SECTOR is off 10% or more this year:
The smart money is in CASH!!! We are in CASH!!! Cash is good, it's not some failure on your part if you don't see anything good to invest in and you sit on the sidelines. This is something I have to work very hard to teach our new Members – that sometimes the only winning move is not to play. Yes, while you are in cash you will see things you wanted to buy going up and you will regret it. That's because human nature is to focus on "the one that got away" rather than the stocks you actually would have bought that tanked. Think of every…