by phil - June 4th, 2014 8:29 am
Yesterday was a close one!
We briefly failed our first test of 1,920 (see yesterday's notes) but another low-volume rescue kept us from fulfilling the "Wave C" predicion on this Elliot Wave chart – for now.
Not that I'm an Elliot Wave person, of course – my theory is that, if you are going to draw 5 points on a graph you can imagine all sorts of random patterns and SOMETIMES you will be right. About half the time, in fact.
I believe in bigger numbers and our own EXCLUSIVE 5% Rule™ says the S&P bottomed out at 800 (in 2009) doubled to 1,600 last Spring, consolidated there for a quarter and now has made a 20% move to 1,920 – just like it was supposed to since it bottomed in 2009 (see our many, many predictions over the years). In fact, it was March of 2012, with the S&P at 1,404, when we set our new goals for the S&P to 1,600. As I said at the time:
That's right, it turns out our +10% line is still pretty much right on the money, only now we switch our focus to our goal of 1,600 and begin running our numbers off there, rather than from 800. I know I have been (and still am) Fundamentally bearish on the market at the moment – I just think we are making this move too soon – but that is not to say I think the move is unmakeable.
Once we did get the dip in June that we expected at the time (down 10%, back to 1,278 and, fortunately, we had wisely cashed out our Income Portfolio before things turned ugly) we were happy to go gung-ho bullish with our Buy List – the same kind of Buy List we just finised assembling in yesterday's Live Trading Webinar. In fact, right in that 3/17/12 post, I laid out this play to profit from our prediction:
For example, we expect the S&P to work it's way up to 1,600 and that's SPY $160 and the Jan (2013) $146/154 bull call spread is $3 and you can sell the $110 puts for
by phil - June 3rd, 2014 8:25 am
That's 2 closes over 1,920.
It's almost enough to make us regret cashing out our Long-Term Portfolio last week. We didn't expect to call a perfect top, when you have a large portfolio it can take days to unwind your positions and, despite the very low volume – we'd like to thank all the retail bagholders who bought our shares at top dollar in the last few days.
Thanks Dave and Bill and Jack and Joe and – well, that's about it as volume is so low, there can't be more then 3 or 4 guys trading in this market!
Last June started off with low volume too – as well as record highs – and then we dropped 5% into July. We're simply taking our 119% cash and waiting for the dip – is that so bad?
Yesterday was only the 3rd lowest volume day of the year and the action was wonderfully fake around a PMI report that was released, revised and then revised again – all in the same morning!
In the end, they decided on 56.4, which was in-line with consensus but not before giving us a glimpse on how quickly this market can fail on bad news.
In our Live Member Chat Room, we took full advantage of the over-reaction on the bad news to go against the panicking sheeple and buy TNA (3x bullish ETF on the Russell) in a 9:57 Alert I sent out to our Members.
That trade was so obvious I tweeted it out as well (you can follow me here) saying:
Those calls came in cheaper (because our timing was perfect) at $1.50-$1.40 and they topped out at $1.70 and finished the day at $1.61 but should be cheap again this morning, which is why I'm mentioning them now as they make an excellent upside hedge – in case the market does better than we think.
by phil - June 2nd, 2014 8:32 am
I know it sounds like a broken record (kids don't even know what that means) to say "record highs" over and over again, but that's what the Federally fueled rally has given us – over and over again.
Certainly the Fed remains EXTREMELY accomodative but they also stand to lose hundreds of Billions of Dollars on their current bond-holdings if rates ever do rise (because they hold Trillions of low-rate bonds, which lose value if higher-rate bonds become available) – so how long can this game last?
It's not just the Fed, of course – other people do buy our bonds (and hold our bonds) and, right now, the people holding high-interest bonds (5%+) are sitting on a gold mine as they are far more valuable than 2-3% bonds. What happens when that begins to unwind? Suddenly there will be a flood of bonds hitting the street at 5%+ that the Government, who still borrow $50Bn per month, will have to compete with to raise capital. Doing this at the same time as the Fed is withdrawing their stimulus can be a disaster.
We were talking about inflationay pressure in Member Chat this morning and anyone who has a stomach has some idea of what the real inflation rate is in this World. This chart is from India, where inflation has "slowed" to 8.64% but last year's 15% average led to the ousting of the old government in the recent election.
Revolution is a slow process, especially in democracies – where the population has the illusion of choice. We are always enticed by the chance to "throw the bums out" in a few years but then, inevitably, the new bums are just as bad and then we want to throw them out too.
That's because you can't fix a broken system when everyone is playing just a slight variation on the same news. The way our own Government measures inflation is a joke, because 57% of the measured inflation rate is Owner's Equivalent Rent, which means, even if you are not buying a house, when your house gets more affordable (lower price, cheaper mortgage), that's considered to detract from the total rate of inflation of everything else with…
by phil - May 31st, 2014 8:44 am
May got off to a fantastic start.
In our first week alone (see Part 1) we had 47 trade ideas between our morning posts and our Live Member Chat room and, already, 42 of them (89%) are winners. Keep in mind the main purpose of these trade reviews is to look at the LOSERS and see if perhaps we have a better entry opportunity than we had before.
We missed on SDS (ultra-short S&P) but that was a hedge and we are still using it into June. We missed on PNRA and that's just a better opportunity to get in. We missed on TWTR and we already doubled down on that one and already cashed out with a profit in our Long-Term Portfolio (see our other review), not because we don't still like it but because we went to cash on our Long-Term Porfolio, since it was up 19% in 6 months and we decided to sit out the summer correction in CASH!!!
We don't know if our timing is perfect getting back to cash but even if we finish the whole year with the $98,430 gain we have now (out of $500,000) in the Long-Term Porfolio – we've certainly done our job. Can we do better? Of course we can – that's why we do these reviews – to see what's going right and what's going wrong so we can make adjustments along the way.
If CASH!!! turns out to be a mistake, then we can re-deploy it – that's not complicated, is it? I know that, as a trader, you feel like you are SUPPOSED to trade – especially those of us who are retired and, if we're not trading – we get kind of bored.
Well, we had 11 new trade ideas this Wednesday and Thursday alone (summarized in Friday's post) AFTER we went to cash – so it's not like we died, we just took adavantage of a positive turn in our portfolio to realize our virtual profits. After all, they aren't really profits until you take them off the table! Good poker players learn that the hard way…
by phil - May 30th, 2014 8:21 am
I hurt myself today
To see if I still feel
I focus on the pain
The only thing that's real – Nine Inch Nails
Were we wrong to cash out?
It's hard to feel bad about taking a 19% profit off the table after just 6 months (in our $500,000 Long-Term Portfolio) but we had another low-volume pump-job yesterday that sent some of the positions we closed up sharply and left us regretting our timing – just a little.
Still, the time to sell your positions is when other people are buying, not while everyone is panicking. We got great exit prices and, on the whole, it was fairly stress-free. S&P 1,920 was our predicted top and we pulled the trigger to take the money and run at 1,910 because, as experience has taught us – it doesn't pay to be greedy!
Last week and this week, I laid out my case for why the economy is not as good as it seems and certainly not good enough to be paying all-time highs for stocks. As you can see from the chart on the left – I'm certainly not the only one who thinks so as the "smart money" has flown out of the market this year, taking advantage of each record high to sell, Sell, SELL!!!
We were a little more patient, we moved our Conservative Income Portfolio ($500,000) to cash at the end of March and avoided the April sell-off and have since been buying bargain stocks in that portfolio. We had left our more aggressive Long-Term Portfolio ($500,000) on the table but this last leg of the rally left it up a ridiculous 19% for the year – and that's halfway to our best-case goal so it's a good time to take a break, step back, and see how the market handles early June.
It's not like we can't find anything to do with our cash. In additions to our usual Futures trading, we still have our Short-Term ($100,000), Butterfly ($100,000) and $25,000 Portfolios to play with and, since Wednesday…
by phil - May 29th, 2014 5:02 pm
And then there were 2.
Just two positions remain in our Long-Term Portfolio now, short puts we sold against HOV an EGLE that are "losers," so far. Of our other 29 virtual trades, which we finished closing today, only 3 have a loss, which gives us an 83% winning percentage – which is pretty much in-line with our usual performance for PSW Members (see our Trade Reviews).
If you want a quick summary of my reasoning for getting back to cash – it's the same one I had back in March, when we cashed out our Income Portfolio. I was interviewed on TV at the time, where I made my case for caution. Since then, the S&P is up from 1,890 to 1,920 and that rubber band is simply stretched too tightly for our liking now – so we cash out our more aggressive portfolio too.
Without further ado, here's our trade history in the Long-Term Portfolio, which died a sudden death on May 28th and 29th (there were a lot of positions to close) of 2014, at the age of just 6 months:
AAPL was our Stock of the Year pick, so that was a no-brainer and we were willing to allocate a much larger than usual block to it. ABX is one that can still work (and we will certainly be going back to this portfolio – in addition to our new Buy List, as we seek to redeploy our cash in the 2nd half of 2014) as are BTU, CLF and EBAY. EGLE is still open and the price is now correct, which is one of the reasons we ended up with more profit than we thought.
GLL taught us not to play GLL, the bid/ask spreads were ridiculous. HOV is our other still-open position, IRBT is new but we shut it down anyway (still playable) and LGF, LULU and RIG are still playable as new positions. We didn't shut everything down because we don't like them – we just wanted to be in cash through June 10th and, if the market is
by phil - May 29th, 2014 8:30 am
Revisions, revisions – REVISIONS!
We get our first revision of our Q1 GDP at 8:30 this morning (was 0.1%, probably lower now), but the big revision has already came last year and, as I predicted at the time, people have already completely forgotten about it.
Last July the Commerce Department decided to include the "knowledge economy" - investments in research and development and entertainment and the arts. Previously, that spending was included as intermediate components during the production of other goods or services, but now they will be measured as fixed assets and reflect their ongoing contributions.
That allowed R&D and, more significantly, entertainment to be counted as fixed assets and boosted the GDP last year by $471Bn or 3%. That's right, we added 3% to our GDP last year (essentially ALL of our "growth" by changing the rules). Another change is how the BEA calculates pension contributions. The agency will now consider compensation to reflect the value of the pension promises made by the employer, rather than the employer’s cash contributions to the pension fund. The new method better reflects the retirement benefits a worker earns, BEA said. As a result, the personal savings rate averaged 4.7%, an upward revision of one percentage point, for the period between 2002 and 2012.
This year, the change didn't go away but the artificial boost it gave us has and our Q1 GDP was barely positive at 0.1%. Yet, just this week, our own Mainstream Media has THE NERVE to make fun of Italy for revising their own GDP to include illegal drug sales, prostitution and illegal arms trafficing, adding just 1.3% to their own growth this year.
Seriously, can not one single reporter in the media remember that we diddled with our own GDP not even 12 months ago? Did you remember? "Gosh honey, look how quickly our children have grown – now that we're measuring them in centimeters!"
In fact, aren't we legalizing marijuana and moving that onto the economic books going forward? Let he who is without spin cast the first stone, right? Of course we're all ameteurs compared to Japan, who are actively pushing women into…
by phil - May 28th, 2014 8:33 am
Wow, what a rally!
Or, perhaps I should say Wow! What?, A rally??? It's a small distinction but clearly the fact that we are having a rally will come as a suprise to pretty much everybody – except the 2 or 3 people who run the machines that made the 62M in volume we limped into yesterday.
Not only is there no volume but MORE than 1/2 the volume came in the last 15 minutes of the day and THAT volume was almost all negative. It's the same pattern I've been warning you about all month (it's not June yet, is it?) and, as noted by Dave Fry on his chart – a very possible bull trap in the making.
So who is actually buying stocks this year? No one. Well, no one human, that is. Over 90% of the trade volume you see is high-frequency trading and most of the other 10% of the volume is Corporations buying back their own stock and buying each other with all the FREE MONEY the Fed is handing out:
Almost $160Bn worth of buybacks in the first quarter of this year is a stunning amount. That's twice as much as Corporations paid in taxes! If we figure the average S&P company pays 20% of their (non-hidden) profits in taxes, then that means that 40% of these companies' earnings is being used to buy back their own stock. That is just bat-shit CRAZY!
They could be hiring, they could be opening new stores, buying new equipment, reasearching or developing but nooooooooooooo – they can't find anything better to do than buy back their own stock?
Boy, the economy must really suck if there's no better use of cash than that. Last time buybacks peaked out (and I bitched about it then too!) was Q3 of 2007, at $135Bn. At the time, I thought it meant the Gobal economy must be in big trouble if Corporations had nothing better to do with their money.
Now, M&A I approve of – in fact, when MSFT announced their ill-fated $40Bn buyback and dividend in October of 2008, my comment to our Members…
by phil - May 27th, 2014 8:34 am
Not just from your holiday weekend but welcome back to the top of the S&P as we attempt our 7th breakout of the year. That's right, a month never goes by when we don't have a new rally that takes us back to the top of the channel, nor does a month go by when we don't re-test the bottom of the channel either – but let's ignore that as it's unpleasant.
Interestingly, as you can see from Dave Fry's S&P chart, there have only been 9 positive weeks out of 19 in 2014 but oh boy did they make them count – with almost every one of them setting a new record – before the selling resumed. Despite all these "records" being set, the average capital allocation strategy hasn't performed all that well in 2014, so far:
Thank goodness we're not pursuing any of those! Thank goodness also that we didn't give our money to any hedge fund managers, as hedge funds are off to their worst start of the year since the Financial Crisis. Not listed here is our "Be the House – Not the Gambler" strategy, which we will be reviewing live today at 12:15 EST in a Live Webinar (sign up here for free).
Selling risk to others in our Member Portfolios has given us 10%+ gains for year (so far). In fact, the only strategy we agreed with from the above chart was gold, which we bet heavily (along with DBA) at the beginning of the year. We were still knocking it out of the park in early May, with 40 of our 47 trade ideas in early may coming up winners already (see our May Trade Review).
Remember, this isn't about making good picks, per se – it's about having a good strategy that gives you a high probability of success – even when you are wrong about a trade. BEING THE HOUSE and selling risk (through options) to others is the closest thing we get to a "sure thing" in trading. It's not fast, it's not sexy - but it works!
by phil - May 26th, 2014 6:30 am
1,900 on the S&P, 16,600 on the Dow!
The month isn't quite over yet but we're up about 3% for the year now although, as Dave Fry points out, on record low volumes – which makes the whole thing sort of suspect.
It seems contrived but those that can engineer a new record SPY close were able to get the job done Friday.
To some extent, we've sat out this "rally" as we moved to mostly cash last time the S&P tested 1,900 and we're certainly not true believers just yet. Nonetheless, our virtual portfolios are well outperforming the market despite having very little of our cash committed. Our $500,000 Long-Term Portfolio is up a whopping 12.5% for the year ($62,500) with $499,650 of cash remaining, while even the more bearish $100,000 Short-Term Portfolio is up 0.7% ($700) with $83,840 left to deploy.
That's because we're teaching our Members this year "Don't Gamble With Your Investments - BE THE HOUSE – Not the Gambler" this year. Our key strategy where use options to sell risk to others, which gives us an excellent probability of making good money in up, down or sideways markets. Clearly, we've had a little of all of that this year!
We have the modest goal of making 20% a year, which keeps us on track to turn $250,000 into $5,000,000 in 15 years - allowing us to retire in style.
We have also been constructing a new Buy List (part 1 and part 2, so far) for our Members, our 20 favorite post-earnings bargains. Those are our "official" trades but, at Philstockworld – we're all about teaching our Members HOW to trade – using the principle of "Give a man a fish and you feed him for a day but teach a man to fish – and you feed him for a lifetime." Not only does it benefit our students but many of our students become masters themselves and enrich our trading community over time.