by Phil Davis - September 25th, 2014 8:01 am
Wheeeee, what a ride!
This is why we use hedges – they kept us from stopping out of our long positions during the dip and, since our long positions pay off in a flat or up market, anything not down is VERY profitable for our Long-Term positions, which outnumber our bearish Short-Term hedges by 10:1 in our Income Portfolio and Long-Term Portfolio.
Markets do, indeed go up AND down on a pretty regular basis and we've made a lot of bottom calls this week, adding more long positions as we got a nice pullback. Now we have the bounces we predicted and we'll just have to wait and see if our strong bounce lines hold up for the week. Yesterday morning, before the Market, our 5% Rule™ predicted we'd see:
So we have 3 greens and two in-betweens and that's certainly enough to get us to stop being bearish but not quite enough to turn us bullish yet. If we are holding the Strong Bounce lines on the Dow, S&P and Nasdaq, however, we could go long on the Russell, with the /TF Futures…
by Phil Davis - September 23rd, 2014 8:07 am
So much for 2,000 holding.
Fortunately, our Big Chart kept us cautiously bearish into the weekend and the hedges in our Short-Term Portfolio functioned perfectly, gaining $13,000 on the day and completely offsetting the drop of $8,000 in our Long-Term Portfolio.
That's without our big hedge, DXD, kicking in yet, as the Dow is still over 17,000 but, should it fail, we'll see those STP gains multiply quickly.
For those of you who are not Members, and don't have access to our various Member Portfolios (and you can by subscribing here), we have done our best to prepare you for this drop as well. Last Thursday, right in the morning post, I shared our short stance with the general public, saying
It's going to be crazy into the weekend but, in our Live Chat Room this morning, I said to our Members:
Futures pumped back up to yesterday's highs at 17,125, 2,001.50, 4,080 and 1,156.5 so I like shorting below 17,100, 2,000, 4,075 and 1,155 – short the laggard, out of any of them cross back over – very simple!
That's our plan into the weekend. As I've mentioned before, we're also using DXD ($24 at the time), TZA ($14.68) and SQQQ ($35.26) to hedge our long portfolios – just in case things unravel over the weekend. We also discussed FXI ($40.30) puts earlier in the week as a play on China melting down so PLENTY of ways to profit from the downside.
This morning, the Futures are 17,050 on /YM (up $375 per contract), 1,979 on /ES (up $1,125 per contract), 4,035 on /NQ (up $900 per contract) and 1,116.50 on /TF (up $4,000 per contract) – so that strategy went pretty well.
In last Wednesday's post, we also shorted Oil Futures at $95 and oil fell to $91 yesterday – up $4,000 per contract in…
by Phil Davis - September 17th, 2014 7:37 am
Wow, what a recovery!
And wow, what complete and utter BS it is. They NYSE is still below 11,000 (our Must Hold line) and the Russell is still below it's 50 dma and we up on less than 10% of the volume (total) that sold off for the last two weeks. But, who cares as long as it paints a pretty picture?
We can thank the Wall Street Journal's Fed Whisperer, John Hilsenrath with yesterday's rally as he wrote not one but TWO articles that whipped traders into a frenzy on his "insider view" that the Fed "may keep the words "considerable time" in its policy statement." Oh, be still my heart! More free money? Really? Will wonders never cease?
Needless to say we took the opportunity to re-short the Dow Futures (/YM) at 17,050 and the S&P Futures (/ES) at 1,993 and the Nasdaq Futures (/NQ) at 4,060 and the Nikkei Futures (/NKD) at 15,950 – all of which we discussed in yesterday's Live Trading Webinar that was, sadly, a Members only affair (but you can join us here).
We also got a chance to short oil at $95 again (a level I published in yesterday's post) and we're thrilled with that and already this morning, it's back at $94.50 for $500 per contract gains. For non-futures players we grabbed the SCO Sept $30s at .25 as a fun play that inventories at 10:30 won't support $95 oil in much the way Fed policies at 2pm won't support these market levels. In fact, here's CNBC's Art Cashin telling you yesterday at noon what I told you pre-market, yesterday morning – BRILLIANT!
Art's actually one of the very few Wall Street analysts I respect (and not just because he repeats what I say), I've followed him since I was a kid – he's a fantastic guy and a lot of what I share with you – I learned from him. As you can see on the Big Chart, the Russell is the laggard and, if the indexes break higher – it's the index we'll go long on but our short bets (TZA) have…
by Phil Davis - August 29th, 2014 8:24 am
Saved by the bad news!
August has been a spectacular month in which we ignored the most bad news ever ignored by a species that is still not extinct. With any luck, an asteriod will head straight for us next month and we can rally the markets another 5% in anticipation of more Fed easing on impact. The asteriod struck the other side of the Earth this morning as Russia Invaded Ukraine and Euro Zone Inflation plunged to 0.3%, miles below the 2.0% target considered "healthy".
This is, of course, GREAT NEWS, because it means Super Mario is free to go ahead and do something – like he always says he will do but never does. That doesn't stop people from believing it because they WANT TO BELIEVE – they want to think someone is going to save them and make all their hardships go away. 11.5% of the people in Europe are still out of work, double the rate in the US. Over 25% of the people under 25 are out of work, about the same as the US. These are horrific figures – of course people are eager to hear the words of a potential savior.
Since it's Friday, we're not going to debate the merits or discuss what a farce it all is – we've done that this week. Today we'll talk about making money.
On Tuesday, in the morning post, I suggested the TNA Sept $72.50/76.50 bull call spread at $2, selling the Sept $68 puts for $2. 10 of those would not have cost you a penny (since it netted out to $0), though about $7,500 in margin on the short puts. Today the spread is $2.50 and the short puts are $1.15 for net $1.35 or +$1,350 in 3 days, which is an 18% gain on the committed margin despite the fact that TNA has essentially gone nowhere.
I don't point this out to brag, we have plenty of trade ideas that have done much better – I point this out because it was a free trade idea, right in the morning post which anyone could have done and it…
by Phil Davis - August 5th, 2014 7:40 am
Actually it's a rule of thumb at PSW that dip buyers need to get burned 3 times before they wise up to a proper correction, so they still have at least another try in them before they finally walk away from this crazy market. As you can see from Oppenheimer's S&P chart, 56% of the S&P has plunged back below their 50 dma in the past 30 days.
This is EXACTLY what I've been warning you about. At the same time the indexes LOOKED like they were rallying, MOST stocks were actually being dumped while a few (AAPL, for expample) were kept aloft to maintain the ILLUSION that the market was still strong. That's how they keep the retail buyers moving in while the institutional investors head for the hills. Yesterday's action was nothing but another low-volume bounce – the kind we teach our Members to ignore:
Short-term, we're certainly oversold but we'll be very critical of a low-volume recovery until we see those 50 dmas retaken on the indexes. Those are way up at 16,877 on the Dow, 1,954 on the S&P, 4,368 on the Nasdaq, 10,912 on the NYSE and 1,160 on the Russell. Anything less than that and there's nothing to be particularly bullish about.
That doesn't stop us, of course, from picking individual short-term longs. On Wednesday, for example, I was on TV on Money Talk and we featured this play on GTAT as my "Options Play of the Month." Last night, GTAT knocked it out of the park on earnings and the stock shot up over 10% to $15+ already in pre-market trading. That will put us well on track to the full $14,000 return on this spread and a 1,650% gain on cash ($13,200 profit on the $800 we invested)! Not bad for a few day's work, right?
By the way, if you never want to miss trade ideas like GTAT again – sign up right here for Membership and you will be among the first to hear about our new trade ideas every day!
by Phil Davis - July 22nd, 2014 8:13 am
How would you like to make $10,000?
If the Russell can finish this option period (24 days) 2.5% higher, at 1,178 or higher, we can turn net $1,000 or less cash into $10,000 for you. After all, if the Fed is going to give away money – why shouldn't we get our share?
I'll preface this by saying that our Members are already long on Russell Futures at the 1,150 line, as we made that call in our live Member Chat Room (become a Member here) earlier this morning.
If the market is going to remain bullet-proof (and missile-proof too, it seems) then the RUT is now the lagging index and we can construct a play to take advantage of it breaking back up by making a play on TNA, the 3x Ultra-Long Russell ETF.
Very simply, if we buy the August $72.50 calls for $3.45 and we sell the Aug $76.50 calls for $1.70, we have a net cost of $1.75 on the $4 spread that's $4.64 out of the money (at goal) and that's 6.4% out of the money so, to be safe, we'll need a 2.5% gain on the Russell, from 1,150 to 1,178.75 to make the full $4. 25 contracts at $4 = $10,000 so we can work with that.
But what about the cost of the 25 contracts (at $1.70 x 2,500, that's $4,250)? Well, there's a couple of ways to offset that. One way is to sell 25 TNA Aug $65 puts for $1.70 to offset the cost. The danger there is, if the Russell goes down 2.5% (to 1,121) or lower, we'll be assigned 2,500 shares of TNA for $65 ($162,500) – that could be unpleasant.
Instead, we can commit to being long TNA at $45 in 2016 by selling just 5 2016 $45 puts for $8, and that raises $4,000 and commits us to owning "just" 500 shares of TNA at $45 per share ($22,500).
Now, if you don't want to be bullish on the Russell when TNA is down 37% (Russell 1,006), then why are you long on it at 1,150?
by Phil Davis - June 27th, 2014 8:14 am
I forgot to talk about something important yesterday.
Turkey was caught FAKING their trade data, with Prime Minister Erdogan, working with Economic Minister Caglayan LAST YEAR to manipulate their $800Bn economy by sending gold overseas to boost their export numbers. How a team that included Turkey’s economy minister sought to manage the current account deficit, as the gap is called, by juicing exports to Iran is laid out in a 300-page document prepared by Turkish investigators in 2013. Caglayan and his collaborators also came away with tens of millions of dollars in bribes, according to the document, which has been cited in parliament by opposition lawmakers.
That's how things are being done in the World's 18th-largest economy and, notice CHINA (3rd) is one of the countries participating in this scam, as is Iran (21st) and Dubai in the UAE (30th). We already know China is involved in all sorts of economic manipulation, including building entire empty cities just to boost their GDP numbers. China, in fact, is in the midst of another set of scandals, with tens of Billions (GS estimates $160Bn) in bank loans backed by silver and copper collarteral that does not, in fact, exist (maybe they "got it" from Turkey?).
by Phil Davis - June 10th, 2014 8:34 am
Here we go again!
As you can see from Dave Fry's S&P chart, we're back in the top of the channel on a Tuesday and I will refer you to April 1st's "Triple Top Tuesday" and December 31st's "Terminal Tuesday" – both of which were points we thought the market was topping out before.
Actually, in both cases, we did have a mild pullback, but nothing that broke the trend – so far.
Back in that December post, we were playing gold (/YG) bullish at $1,185 to finish the year, based on our premise of MORE FREE MONEY in 2014 keeping the markets afloat. We also went bullish on SHLD at $40, which is like $30 post-spit.
In the April post, it was our 3rd try at 1,880 on the S&P and we had just cashed out our Income Portfolio and I we lost $10 betting the Nasdaq would be above 4,200 at April expirations on a TQQQ spread (now 4,350 – so bad timing) but our support held and kept the damage to a minimum. We also (in the morning post) called for selling the AAPL Jan $450 puts for $5.90 to pay for those spreads and AAPL just split 7:1 so those are now the $64.29 puts at .25. 7 x .25 = $1.75 so up $4.15 (70%) already on that play.
We also had bullish trade ideas for HOV, CHL, FCX, ABX and RIG – right in the morning post! Our best play, however, was shorting the Russell Futures (/TF) at 1,180 in Member Chat at 10:53 – as that was the beginning of an $9,000 per contract pullback on that index – all the way back to 1,090 (where we went long).
As you can see from Dave's Russell chart, we're just playing a channel with our trades – it's really not that complicated. Yesterday the Russell hit 1,180 and – guess what – we shorted it again! Now you are catching on to our "secret" strategy!
by Phil Davis - 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 Davis - September 4th, 2012 8:26 am
If it's Tuesday, we must be at the week's highs.
Obviously, we're still bearish and the news we've been discussing this morning in Member Chat certainly hasn't changed my opinion on that. Back on August 7th (first Tuesday of last month), I said we were about $700Bn in stimulus short of what we need to support S&P 1,400 and we knew we would have to wait a month to see how much we got from Draghi and Bernanke but, so far, and with Ben already out of the way, we have zero.
At $10Bn per S&P point that puts our fair value all the way down to 1,330 but keep in mind that the $500Bn we did get only lasts for 6 months so more like 1,310 at this point without a proper commitment by the ECB or Fed this week. Even 1,310 would be up 50 from the June lows and it would represent a neat 2/3 retracement of the rally since then. Our $25,000 Portfolio has, if anything, gotten more bearish as we dragged along the top but another thing we've done each Tuesday has been to take aggressive bullish positions to cover ourselves IN CASE someone actually does put up the cash needed to goose the markets over our breakout levels (see Friday's post for current positions in the virtual Portfolio and our levels).
On Tuesday, August 14th, our trade ideas were as follows: