by phil - January 26th, 2016 8:24 am
Shanghai fell 6.4% last night.
The worst part was the way they sold off into the close DESPITE ANOTHER $70 BILLION that China has pumped into the market through reverse-repo operations this week. The Shanghai is now down 900 points since Dec 22nd and that's just a touch shy of 25%, which is drastic by any account and now lower than the Aug 26th low of 2,927 (20% off) by a wide margin (5%) but still very much in-line with what our 5% Rule™ predicted for China's 2nd downturn. If we (and I think Wi is the Finance Minister) can turn China back around this week, back over 2,927 – all shall be, surprisingly, well.
All is well(ish) according to Siemens CEO, Joe Keaser, who told CNBC this morning that: "The real economy in China is a lot better than people are talking about right now. There is obviously some weakness in terms of real estate and the finance sector but as far as our business is concerned, we do see some decent growth in healthcare, which was very, very strong with double-digit growth in China."
We'll get a nice peek into the Chinese consumer market with Apple (AAPL) earnings this evening and we're playing AAPL to beat, but not too aggressively as we'll be much happier to get a discount if they disappoint. The big disappointment out of China this morning that sent their stocks plummeting was the realization that their Trade Data is fake, Fake, FAKE!!! and heavily exaggerated.
While this may shock retail investors – this is a story we've been covering at PSW since 2013 (and, more recently, see: October's "Monday Mandarin Meltdown – China’s Fake GDP Still Sucks!") so, we're not selling on this "news" just because the rest of the World is clueless as to what's really going on. Tuesday’s data from Hong Kong tallied imports in the territory from the mainland at HK$183.7 billion ($23.7 billion) in December while, on Jan 13th, the Beijing-based Customs General Administration announced December trade data showing shipments to Hong Kong had surged 10.8% to $46 billion – a 100% "exaggeration."
by phil - January 25th, 2016 8:14 am
Nothing really matters
Anyone can see
Nothing really matters
nothing really matters to me – Queen
Is this the real life?
Is this just fantasy? Caught in a landslide, no escape from reality?
Yes, that's about the tone of the markets this week as we wait on the Central Banksters at the Federal Reserve to once again steer the markets off a cliff or into the stratosphere or whatever the opposite of their stated intentions – as seems to be too often the case. We finished last week right where we began on the S&P, back just over the 1,900 line – but it's nothing to be proud of as we're still down from 2,050 (7.3%) from Jan 1st and 9.5% off our 2,100 high, last visited on the morning of Dec 2nd, when I said:
This is getting tedious.
The S&P gets to 2,100 and we short ES Futures at 2,100 (with tight stops above the line) and Russell (TF) Futures below the 1,200 line and Nikkei (NKD) Futures below the 20,000 line and then, tomorrow or Friday, I'll tell you how much money we made shorting and you'll say "why do I never catch these great trade ideas" and I'll say it's because you're not patient enough to wait for the pattern to reset itself and just make the obvious play.
Also in that 12/2 post (and you can get them by Email every morning for just $2 per day!), we noted our Short-Term Portfolio (STP) was up 213.2% and we were loaded for a bear market with our positions and, as of Friday's close, our STP was up 309.8% – a gain of $996,000 in 7 weeks – which is very good protection against a 10% market drop, even if you don't know how to play the Futures. In fact, we even gave away an options play so our non Futures-playing readers could hedge against the downturn:
- Sell 20 SDS March $19 puts for $1.25 ($2,500 credit)
- Buy 20 SDS Jan $18 calls for $1.20
by phil - January 22nd, 2016 8:12 am
Everything is AWESOME!
Europe's markets are up 2.5-3% and our Futures are already up over 1.5% because… well just because so LET'S PARTY like it's 1999 – or that part of 2008 when we thought a small bounce was a sign to jump right back in about 50% from the actual bottom – AWESOME!!!
Just check out the awesome move the S&P is making, right back to test the 1,890 line. Unfortunately, 1,890 just so happens to be the line we predicted we'd bottom at 2 WEEKS AGO (see 1/11's "Meaningless Monday Market Movement") along with 16,200 on the Dow, 9,350 on the NYSE and 1,000 on the Russell. In fact, we're still DOOMED if the Russell can't get back over 1,050 next week. I didn't have a Nasdaq target but we said AAPL would bottom at $96 and it tested $96 yesterday but finished at $96.30 – so I'm going to count that one!
I already sent out a Morning Alert to our Members discussing all the charts and levels and news and stuff, so I won't get back into it here. I also tweeted it out so you can read it for free and get a glimpse into the kind of nonsense we get paid for. In that note, you'll see the following trade idea for our Members:
Still a chance to play copper (HG) on cross over the $2 line.
Someone Is Trying To Corner The Copper Market. One company whose identity is unknown, is "hoarding as much as half the copper available in warehouses tracked by the London Metal Exchange."
by phil - January 21st, 2016 8:18 am
"Help me now I'm calling you
Catch me now I'm falling
I'm in your hands, it's up to you
Catch me now I'm falling." – Kinks
We told you we would be DOOMED!!! back on the 11th if the Russell were to fail 1,050. That was 5% ago and we expected the S&P to follow to 1,890 (10% off 2,100) and we've overshot that to the downside, all the way to our major support line at 1,850 on the S&P 500, which lines up with:
- 15,840 on the Dow (-10%)
- 4,000 on the Nasdaq (Must Hold)
- 9,350 on the NYSE (-15%)
- 960 on the Russell (-20%)
- 15,750 on the Nikkei (-25%)
- 9,350 on the DAX (-15%)
So the Nasdaq and the S&P are the only major indexes not to have gone negative (so far) but both are on the edge and, if they fail to hold their Must Hold lines – there's no reason to think they aren't going to join their brother indexes in stock market Hell. So, let's not cry about it but rather come up with some hedges that will pay BIG MONEY IFF that happens.
The S&P's ultra ETF (SDS) moves up twice as fast as the index moves down and is currently sitting at $24. If we assume just another 5% drop in the S&P, that's a 10% pop in SDS to $26.50 and our worry window is short, so a trade we can protect ourselves with is:
- Buy 50 SDS March $24 calls for $1.70 ($8,500)
- Sell 50 SDS March $27 calls for $1 ($5,000)
- Sell 3 AAPL 2018 $80 puts for $10 ($3,000)
That net's just $500 in cash on $15,000 worth of spreads and you do have an obligation to buy 300 shares of Apple (AAPL) at $80 ($24,000) if it drops another 17% so you need to REALLY want to own AAPL if the market tanks but, of course, you'd also have your $14,500 gain on the…
by phil - January 20th, 2016 8:29 am
Have I mentioned how much I like CASH!!! lately?
Apparently, so do the traders in China, so much so that the Nation's foreign-exchange reserves dropped by record amounts despite the PBOC injecting over $80Bn back into the system through their medium-term lending facility (MLF). That has chased the 14-day repurchase rate, a gauge of funding availability in the financial system, up 3.3% in Shanghai and has pressed the overnight repo rate 2.13%, the highest since April 2015.
“The rising overnight repo rate will force highly-leveraged investors to unwind their positions, leading to a further decline in bonds,” said China Guangfa’s Yan Yan. “The market is still tight, despite the injections. “All the seasonal factors, plus the capital outflows and currency market-related liquidity drain, are tightening interbank liquidity.”
What this means, in plain English, is that the Chinese are printing money so fast that they are draining their reserves at an alarming rate while, at the same time, the pace of new reserves coming in (from their positive trade balance) is dwindling during a manufacturing Recession:
In short, China's ability to act is dwindling at the same time as their monetary actions themselves are losing their effectiveness because the problem is getting bigger – so it takes more and more money to fix. We knew China was going to collapse, that was never in doubt. In fact, in our June Trade Review, my comment to our Members was:
I don't want to be overly dramatic about this stuff (and we are short on both China and Japan through FXI ($51.85) and EWJ ($13.26) as well as short the US markets as full disclosure) but I'm not going to let my people go through what people went through in 2008 if I can help it. If you remember, it was a very slow roll to collapse while the markets made record highs in 2007/8 as well.
by phil - January 19th, 2016 8:25 am
Well, it's been a rotten month.
All of our sectors are down, other than Utilites, and they are still down 3.4% over the last 6 months so that's only a strong bounce (40% of the drop) in that sector anyway. Still, it's the only ray of sunshine we have so far though now, in the pre-market, at least, we are having weak bounces (20% of the drops) in all of our indexes. I went over our bounce lines in the Morning Alert to our Members, so I won't waste space here – it was also tweeted out for the masses. As I summarized there:
Still plenty of stuff to worry about but, in general, it's the same stuff we've been happily ignoring for two years and that's why I flipped bullish on Thursday – there's no new news here – just people finally taking the negatives into account, which moved the S&P (and the rest) back to a line (1,850) I consider a fair value. I don't think this is way too cheap and I'm not expecting a big recovery – I think 10% +/- 1,850 (1,665 to 2,035) is a fair range for the S&P BUT, since we know how to buy stocks for a 20% discount – there's no reason for us to fear the bottom of the range from here.
The World's movers and shakers are over at Davos this week (see our weekend notes) and the people who matter will determine your fate – so nothing for you to worry about. 8) Most likely, they will come up with a plan to boost their fortunes, which means saving the markets by robbing the people through the Central Banks yet again and, hopefully, transferring another $1,000,000,000,000 ($1Tn) from the poorest 3.5Bn people on this planet ($300 each) to the richest 100 – which is exactly what happened between 2010 and 2015.
That's right, in order for the World's richest 100 people to double their wealth in the last 5 years, the World's poorest 3,500,000,000 people had to lose half their total net worth. Now they only have $500 left to give and the wheels are still grinding them into what Oxfam calls a…
by phil - January 18th, 2016 7:42 am
It's Martin Luther King day so the markets are closed.
It's a good day to read his "I Have a Dream" speech – really is amazing when you think of the great social change in this nation that was set in motion by one man with a vision. Here's a great video of the actual event.
It is a testament to the power and effectiveness of Dr. King's movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn't obvious to the majority of people that segragation, whether by law or by practice, was an outrage.
Sadly, many of the lessons he taught us have already been forgotten, some great quotes:
- Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.
- Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.
- It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.
- The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.
- Human progress is neither automatic nor inevitable… Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals.
- Never forget that everything Hitler did in Germany was legal.
- We will remember not the words of our enemies, but the silence of our friends.
- The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows.
- A nation or civilization that continues to produce soft-minded men purchases its own spiritual death on the installment plan.
- A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.
- One of the greatest casualties of
by phil - January 15th, 2016 8:14 am
China is really falling apart!
The Shanghai Stock Exchange dropped another 3.5% today to finish well-below 3,000 at 2,900 – ending at the low of the day. That puts the index officially in bear market terrory (again), now 20.5% off it's December 22nd high of 3,651. The latest fall in China’s stock market followed a state-run media report that some Chinese banks were no longer accepting stocks as collateral for loans. At the same time, official data also showed weak demand for bank loans.
It doesn't matter if it's true or not – what matters is people are in the mood to panic – so it doesn't take very much to start a stampede – as we saw yesterday when our own markets stampeded up for the same no reasone they stampeded down the day before and now our Futures are down 1.5% on a combination of China concerns and now the 5% drop in oil we're seeing as that sector panics over Monday's release of Iranian oil – which will add about 500,000 barrels a day of unneeded oil to the already saturated markets.
We extensively discussed oil and other commodies in Tuesday's Live Webinar for our Members (replay available here) and I explained why it was not done going down at the time, so I won't re-hash it here but we are finally getting to the point where we might take a long poke on the Ultra-Bullish Oil ETF (UCO), which is now under $8, not much below USO, which is now under $9. We'll keep an eye on that in our Live Member Chat Room next week.
Speaking of keeping an eye on things – you are very welcome for yesterday's call to go long the Russell at the 1,000 line (and yes, we did it again this morning). One of the huge benefits to having cash on the sidelines is we have plenty of margin left over to play the Futures and make these quick in and out trades – without having to risk the overnights.
by phil - January 14th, 2016 8:30 am
I told you we would be DOOMED!!!
That's right, in Monday morning's post I said:
Unfortunately, it's too late for the Russell, which already blew through that line and is back at 1,050, where it MUST HOLD or we are DOOMED!!!
That's right, DOOMED!!!, and I'm not afraid to say it. Panic is in the air and the VIX hit 27 on Friday, just shy of the August high and that means people are FREAKING OUT and the markets can be very dangerous when that happens.
Now we will be watching the 1,000 line on the Russell and, if that fails – we could be looking at another 5% drop for the S&P – all the way to about 1,760 before the next time we'll want to play for a bounce. As I pointed out in my Morning Alert to our Members, none of this is a surprise to us as we called for cashing out when the S&P was at 2,085 back on August 13th (see: Thoughtful Thursday – Contemplating the S&P 500) and, I've repeated it every time the S&P hit 2,100 since.
Why? Because the VALUATIONS of the actual S&P 500 components did not support 2,100 for the index, that's why! This isn't rocket science folks – over time, value does tend to win out over price – and certainly over Technicals… At the time (8/13), I had concluded:
Over the last year, those overseas revenues have been in rapid decline and we're not picking up the slack at home so there is NOTHING here that justifies the S&P trading at an all-time high – especially when it's 10% higher than last year's trading range with a negative overall growth rate (mostly energy/commodities dragging it down).
So, upon further examination, there is no change to our stance of being short the markets at these levels which, on the Futures this morning, are 17,400
by phil - January 13th, 2016 8:21 am
Not too exciting so far.
As we predicted on Monday, the 5% Rule™ is in play and we have, so far, held the line at the bottom but now we need to see if our bounces are weak (+1%) or strong (+2%) into Friday's options expirations. It's entirely possible, since it benefits the most Fund Managers, that we pop 2.5% and end up even for the month – right back where we started when they sold all those option contracts on Dec 18th.
Yes, that's right, the markets are a manipulated joke but, as long as you understand and accept that – you can play along with the manipulators and make some good money. Clearly the markets are a bit oversold here and, oddly enough, it's the overwhelming level of doom and gloom coming from the MSM that makes us want to go long now.
After all, what are they telling you to worry about? China, the Fed, Oil, Commodities, Terrorism, North Korea, Junk Bonds, Brazil, Puerto Rico… These are all things we've been talking about all year when we went SHORT at S&P 2,100. Now that we're back to 1,900 (down 10%), I'm a lot more comfortable that the market is now taking into account these risk factors. None of these problems are new folks – the media simply stopped ignoring them this month.
As I mentioned yesterday in our Live Webinar, we KNOW the energy sector's earnings are going to be a disaster – that's a given. How much of that will spill over to bad debt for the banks is something we'll find out this week as JPM, BLK, C, PNC, FRC and RF all give their earnings reports (Thursday night and Friday morning). If they manage to be relatively unscathed by the collapse in commodities and the collapse in China – then the main reason to panic will quickly fade into the background.
For those who watched the Obama's final State of the Union Address last night (and here's the 2 min version) it was starkly apparent that the American people have been hammered with negativity about our economy from a dozen…