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Saturday, February 24, 2024

Thoughtful Thursday Morning

Well, this is a nice, orderly sell-off so far.

That makes me very happy.  We have needed a correction for some time and, as Trader Mike points out on this S&P chart, while we do have the double top I predicted on Tuesday morning, we are not in a downtrend until we cross back under that 875 line.  Holding that level will mean we're just having a nice, healthy consolidation month – which is what we wanted to see all along! 

Our Members could not have been happier as we followed our game plan for the week and got pretty much everything we wished for including the silly morning spike in the Dow and Oil that we were able to short into.  If only the Ags fall off their perch we will be entering the holiday weekend with a perfect triple play for the week and back to cash so we can really enjoy our holiday weekend with no worries at all.  Of course our hedged entries are still on but they are hedged and we never worry about them do we?  On the whole, we'd like to see a bit more sell-off so we can start buying again and, as I mentioned to Members this morning when I reviewed my market value outlook, we are still hoping to see 7,900 to punch our Buy List but we're probably going to be willing to settle for 8,100, which was the Dow's May low.

We were willing to settle for $61 oil to short into but we got an early Memorial Day gift as oil went all the way up to $62 despite my warning America that it was a scam and despite my telling Da Boyz at the NYMEX that we would be "shorting the hell out of it" as they took it up.  Today we be jammin' with the USO $33 puts we picked up yesterday at $1.15, just off the low of the day (and they were $1.90 on Tuesday).  OIH was also a gift as they ran up to $104 and my  trade idea of the Oct $85 puts I closed out the morning post with came in at just $4.50 as they spiked up and finished the day already up over 20%.  People ask me why I don't pick more straight stocks sometimes and this is a good case to point out that I'm ALWAYS picking stocks.  If I pick a put on OIH for October with OIH at $104 then you can be damn sure I'm looking for the stock to go down.  Any unhedged option entry we take is a directional play on the stock and when I select a longer-term play, then my outlook for the stock is also to trend that way long-term.  Members should always feel free to ask but it's rare I would take an non-spread option position that is disconnected from my goals for the stock.

We started the day with USO $32 puts at .80 but those rolled up to the $33 puts for .30 (per plan) for net $1.10 for those lucky enough to take the initial play.  This is why options are fun to short as my 9:56 trade idea for Members was: "Putting my speculative foot down on oil at $61.70, shorting the futures with normal strategy (see last night).  USO $32 puts at .80 are the way to go on the options side but expect to have to roll up for .30 twice and DD if oil goes crazy."  USO was $33.75 at the time and finished the day higher than that so a loss if you shorted the stock but taking the put and rolling it up actually turned into a nickel profit.  I liked those puts so much I kept at them even at .85 in our 10:29 Alert but we added OIH $95 puts at $1.90.  OIH was at $104 at the time and the stock finished at $99.70 so a nice 4%+ if you like playing stocks but the puts finished the day at $3, up more than 50%, which is why we prefer playing options….

We had a short bias for the day and we did get almost the same action we had on the last Fed Minutes day sans the stick save at the end.  Fear of the stick kept us from being all gung ho bullish but by 2:04 I had read enough of the Fed minutes to send out an alert saying: "Minutes are out.  Economic outlook is NOT good,  They see growth in 2nd half but hard to quantify beyond that.  Labor deteriorated.  Industrial production down "substantially.’  Retail spending down.     NOT GOOD."  That allowed us to pick up more bearish plays into the silly rally "THEY" tried to force and I posted more extensive notes on the Fed Minutes at 2:20 and sent out an alert that drew a line in the sand at Dow 8,520 which, thankfully, held and let us keep our short plays working.  We finished the day pretty much at the levels I had predicted at 12:30, when I said: "It does look like we’re going down some more, maybe retesting yesterday’s lows of Dow 8,460, S&P 905, Nas 1,717 (watch GOOG to break $400 for sign), NYSE 5,850 and RUT 489."  The actual numbers were Dow 8,422, S&P 903, Nas 1,727, NYSE 5,870 and Russell 489 – not bad from 100 Dow points away at the time…

Now we'll see how our FXPs do today.  We love our FXPs (ultra-short China) whenever that market gets irrational and we have been thinking that a 50% run since March 9th was a tad overdone and, as I said yesterday morning, while it was a close call – copper was the tiebreaker which put us negative.  Declining dollars are not good for China or Japan and I expect both to step in shortly to save our currency (because Lord knows we won't).  Asia continued a stready pullback this morning with the Hang Seng and Shanghai giving up 1.5%, the Nikkei was down 1% and India hit the 2.5% rule, which is to be expected after Monday's silly rally.  As I said to members yesterday, Asia cannot stimulate their economies enough to make up for the Fed's lowered outlook in the US.  In the theme of today, Fitch Ratings said China's baks are showing signs of asset quality deterioration – not good…

Theme part 2:  S&P lowers Britain's debt outlook with a formal warning that their AAA status is in jeopardy.  This sent the Pound sharply lower against everything but the Dollar, which has problems of its own.  S&P said it will revisit the U.K.'s rating after the country chooses a new Parliament in elections that must be called by June 2010, effectively tasking the next government with laying out a credible plan to close a gaping budget deficit and stem a sharp rise in the U.K. national debt.  "This is a gun to the head of the next administration to get the public finances back in order," said Russell Silberston, head of global interest rates at Investec Asset Management in London.  Gosh I hate to point out the obvious but the UK's has less total debt ($1.5Tn) than we add in a year and they have a $2.2Tn GDP while the US is heading for $15Tn in debt with a $13Tn GDP.  If they are getting a warning, we should be on double secret probation at least!


ImageEurope is down about 2% this morning as reports come in that Mexico has joined the GDP death march with a 21.5% annualized decline in Q1.  This is the worst report from Mexico since the Peso collapsed in 1995 and the nation had to be bailed out by the IMF for a now-paltry sounding $47Bn.  For those of you keeping score, Mexico has now taken the lead over Japan (15.2% decline) and Germany (14.4% decline) and they pulled off this stunning victory with the help of their main trading partner, US, with exports to the US falling 30% vs. last year's Q1 and costing this $1Tn economy $150Bn in sales in a single quarter!  Auto production led the decline, off 41% from last year and this is the sound of NAFTA backfiring.  Tourism was way off too and this image from the Gran Caribe Real in Cancun says it all. 

We got the same old-same old on the Jobless Claims today with 631,000 out of work this week, down from 634,000 last week so yay for green shoots!  Continuing claims rose 75,000 to a new record 6.66M and that's the sign of the devil of the problem our economy faces that can't be shouted down by the morons at CNBC no matter how much they spin it.  WE MUST CREATED JOBS TO HAVE A RECOVERY!  I mean gee, did nobody on TV take Econ 101 in college? 

We are going to be cashing out our put positions into today's dip by keeping tight stops on our positions.  We were 100% bearish since Tuesday's top call with our short-term plays and we're not going to chance it into the weekend.  There is a possibility of a short-covering rally tomorrow and we can start our weekend early by not caring either way what happens as we sit in cash.  The only shoe we are waiting to see drop are our Ag puts on MOS and POT, which had great sell-offs into the close and will hopefully follow-through today and FSLR, which is a joke at $200. 

We'll be testing our breakout levels from the other side today and that will determine our stance, as will oil at the $60 mark but we have no need to be greedy as we caught both swings of the last few weeks perfectly and now it's time for a vacation!

Have a good one!



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