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Stock Markets Are Exploding Higher – Here’s How To Participate “Safely”

.NDX WEEKLYUp and up the markets go, where they stop, no one knows!

Well, we do know where they SHOULD stop, and that's here.  In fact, to be very clear – WE ARE SHORT THE MARKET HERE – many of our Members have gone to cash and our short-term trades are BEARISH, looking for a correction back to that 22-week moving average that you can see as a "gap too large" on Dave Fry's Nasdaq chart.  

BUT (and it's a Big But) just like we hedge to the downside on the way up (in case we're wrong), we should hedge to the upside too – just in case that correction never comes.  That's why we regularly run our series of "5 Trade Ideas that can Make 500% in a Rising Market" – those are the kind of high-leverage hedges every bear should have in their portfolio and, yesterday, in our Member Chat Room, I reviewed our most recent 5 trade ideas, from our pre-Thanksgiving post:

  • 10 QQQ March $83/88 bull call spread at $2.18 ($2,180), selling 1 AAPL 2015 $450 puts for $32.50 ($3,250) for a net $1,070 credit and we did this in the STP.   We just bought back the short AAPL puts and they are now $2,400 and the spread is net $2,830 so that's net $430 plus the $1,070 credit still in pocket is making $1,500 in 2 weeks (140%) – that's a good hedge!  
  • DDM April $105/115 bull call spread at $5, selling CAT 2016 $60 puts for $4 for net $1, now $2 (up 100%) – also got away already. 
  • 5 DBA 2016 $22/26 bull call spread at $2.20 ($1,100), selling 5 $21 puts for .65 for net $1.75 ($875) and one CAT 2016 $60 put for $400 for a net $175 credit, now net $380 (up 317%, but miles to go) – that one still works! 
  • AAPL 2016 $450/600 bull call spread at $60, selling $400 puts for $35 for net $25, now $41.60 (up 67%) – That one's still not bad since the full upside is $125.
  • T 2015 $30/35 bull call spreads at $3.45, selling 2016 $30 puts for $2.85 for net .60, now net -.18 - down 130% and still playable (and in the Income Portfolio).  

So, we can still get bullish with DBA and T and AAPL is still very reasonable, especially as it's now $112 in the money to start!  About normal for our 500% plays as we like to diversify them.  We also added another potential 500% trade idea on ABX, as follows:

Certainly now I like ABX at $15.43 and the 2016 $13 puts can be sold for $2.25 along with the purchase of the 2015 $15/25 bull call spread at $2.30 for net 0.05 on the $5 spread so you make every single penny that ABX gains up to $25 for as much as 39,900% back on your nickel!  Worst case is you own ABX at net $13.05 (another 15% off).   

Our bullish premise is long-standing and simple.  At our PSW Investing Conference in Atlantic City in April, we discussed the Money supply and, just as important, the Velocity of Money and how it didn't matter how much money the Fed printed – if nobody spent it, it wouldn't help the economy.  On the flip side of that coin, once the velocity of money begins to increase, there is almost no way the Fed will be able to contain it fast enough to control inflation

That has been the crux of our long-term bullish premise all year and, as you can see from our trade reviews, the vast bulk of our Trade Ideas are long-term bullish while we hedge and hedge and hedge to the short side in our much more bearish short-term portfolio which, so far, has not proved necessary as the expected correction never comes.  

I have long maintained that what we need to move the economy forward is WAGE INFLATION, which is the good kind of inflation (see "Inflation Nation").  I am actually encouraged by the signs of blowback, FINALLY, from the workers (and the Pope, and the President) calling for a raise to the minimum wage and you can expect more strikes and more laws being passed to insure it happens.

This will initially put a squeeze on Corporate profits but, don't panic, they can afford it.  As noted on the right, Big Business makes Trillions and gets another Trillion in tax cuts yet giving a $5,000 raise to ALL 140M US workers would "only" cost $700Bn.  It's called "sharing the wealth" with the workers who produce the wealth – or at least it used to before Reagan all but outlawed the concept back in the 80s.  

The arguments against raising the mimimum wage, which would force the richest corporations (WMT, TGT, MCD, YUM, XOM, DRI, WEN, M, SBUX, BKW, AMZN) to simply pay the poorest Americans more than $7.25 per hour or $253.75 per 35 hour week (they don't get paid for lunch!) or $1,015 per month or $12,180 per year.  Yes, that's how much minimum wage is.  Can you live on it?  Can you even imagine living on it?  It's ridiculous, it's unreasonable and it's unethical to pay human beings those kind of wages! 

Of course, that's not the story you are hearing from the MSM, who are SPONSORED by the criminal organizations that are keeping these wage slaves.  They distract you with ridiculous numbers and never, ever, ever mention the actual annual number that $7.25 per hour implies.  Why?  Because anyone with a pulse, even viewers of Fox, can understand that no one can actually live on $12,180 per year (less taxes).  It is, I will say again, INHUMAN!  

Germany is introducing their first minimum wage at €8.50 per hour, or about $11.47.  That brings them in-line with the EU average, which is more 50% more than American workers recieve.  In Luxembourg, a country run by bankers, the minimum wage is $14.24 and in Australia, it's $16.88.  Even Japan, with their "20-Year Depression," pays their workers $8.32 per hour!  

Anyway, I'm done with this topic, other than to point out, on the Macro Side, why it is both necessary and good to raise the minimum wage as it puts our massive supply of money into the hands of people who will actually spend it on goods and services, which creates jobs and, ultimately, more corporate profits, rather than leaving the money in the hands of people who buy stocks and bonds (and yes, I know that's us but, sometimes, you have to fight for what's right for others, not just yourself).  

In the tradition of our 80% successful "5 Inflation Fighters Set to Fly," I'll be listing 4 more trade ideas below after a bit more contemplation this weekend.  ABX is our one Inflation Fighter miss (so far) and that trade adjustment is listed above.  I'll probably use DBA again too (also above), as it has plenty of room to run.  Keep in mind, we're NOT bullish (short-term), but we want to have a few aggressive, long-term, upside trades to help balance out our shorts:

With the S&P at the 1,800 line, it's a very easy place to play it bullish and simply stop out of the trade if the S&P fails to hold 1,800.  Clear enough?  SSO is the Ultra-long on the S&P 500 (2x), currently at $97.66 so a very small move higher on the S&P (1.25%) should take us up to $100 yet the March $92/97 bull call spread is $3.20 with $1.80 of upside (56%) if the S&P simply stays above 1,800 and we can enhance that gain "safely" (these are not 500% plays) by picking a stock we would REALLY like to buy if it gets cheaper, like ISRG, which had a nice dip recently and ran the price of the April $300 puts to $5.50 with ISRG at $377.38, so almost 20% lower on ISRG to net $294.50.  

We can use 5 short shares of the ISRG April $300 puts (a $2,500 credit) to offset the purchase of 10 of the spreads ($3,200) and we drop the net to $700 on the $4,000 spread with 471% of upside ($3,300) if the S&P simply holds 1,800 or better.  We stop out below 1,800 (call it 1,780 or less to allow some room) and take back the money and then it simply becomes a bet that ISRG holds $300 through April.  

 

 

 

IN PROGRESS

 

 


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  1. The entire week of down days erased on Friday! Can't we get a good corrections?


  2.  

    Phil

    §  AAPL 2016 $450/600 bull call spread at $60, selling $400 calls for $35 for net $25, now $41.60 (up 67%) – That one's still not bad since the full upside is $125.

     

    Is  selling the 400 calls correct or should it be puts

     

    Thanks


  3. Hey StJ // Charts
    Look at the chart you posted on 11/25
    They are almost identical !


  4. interesting perspective on Bitcoin in light of the Chinese news from a national


  5. Thanks QC!  


  6. Embedded image permalink



  7. Bank of America: Bitcoin Will Be ‘Serious Competitor’ to Cash
    http://www.inc.com/will-yakowicz/bank-of-america-report-bitcoin-serious-competitor-to-cash.html


  8. BoA:  Now there's an instiution that always been ahead of the news.


  9. "Any sound that Winston made.."  Isn't that our Winston?


  10. You would be surprised who are the fully paid up members of the Thought Police. 'Safely' is the new 'Dangerous'. Look at your YTD returns. If you have not made more than the returns on the S&P 500 ask yourself who your advisors are. If you feel comfortable under performing because you have been told a crash is around the corner – fine. If you feel comfortable because even though this feels like a bubble, there are many 'rational' explanations why it is not a bubble – then that is fine too. Remember, everyone is selling something – even though it doesn't feel like it. 

    I am essentially in cash – with a few strategic positions that will make a fortune if they go the right way, but limited pain if they go the other way. My cash pile is greater than my Net Liquidating Value (for TOS afficianados). I am working on increasing steadily my option buying power. 

    Remember, we are the little people. They screw us first and then offer us salvation. If you have gains, protect them. If you have losses, take them, stop and understand why things did not work out as planned.

    IN PROGRESS


  11. Sent from Bloomberg for iPad

    Watch this video at http://bloomberg.com/share/video/Uel86BRDQdSfJqGe2fI4tw

    Pimco’s Gross: Fed `Wants Out’ of QE
    Dec. 5: Bill Gross, co-chief investment officer at Pacific Investment Management Co., talks about the outlook for the Federal Reserve’s program of quantitative easing, the state of the credit markets, investment strategy and the future of the City of Detroit following its bankruptcy.

    Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8


  12. From Bloomberg, Dec 7, 2013, 6:45:06 PM

    Senators from Mexico’s two biggest
    political parties proposed a bill to break the nation’s 75-year
    oil monopoly by amending the constitution to allow production
    sharing contracts and licenses for outside producers.

    To read the entire article, go to http://bloom.bg/1gfRIy7
    Sent from the Bloomberg iPad application. Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8


  13. From Bloomberg, Dec 8, 2013, 2:02:32 AM

    China’s exports rose more than
    estimated in November, pushing the trade surplus to the highest
    in more than four years in a sign global demand is helping
    sustain a recovery in the world’s second-biggest economy.

    To read the entire article, go to http://bloom.bg/1gOyCfY
    Sent from the Bloomberg iPad application. Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8


  14. From Bloomberg, Dec 7, 2013, 9:26:28 PM

    Goldman Sachs Group Inc. (GS) and Deutsche
    Bank AG (DBK)
    are among five Wall Street firms in addition to JPMorgan (JPM)
    Chase & Co. whose hiring practices in China are being probed by
    U.S. regulators, the New York Times reported.

    To read the entire article, go to http://bloom.bg/1iLkZm2
    Sent from the Bloomberg iPad application. Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8


  15. Sent from Bloomberg for iPad

    Watch this video at http://bloomberg.com/share/video/674y1LUrRxOGVH6I_FBwlA

    Are We on Track for a December Taper?
    Dec. 6: Deutsche Bank’s Carl Riccadonna, Citigroup’s Steven Wieting and RBC Capital’s Tom Porcelli discuss how investors are interpreting the November jobs report.

    Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8


  16. From Bloomberg, Dec 6, 2013, 3:00:00 PM

    Consumer borrowing rose in October by the most in five months as credit-card use picked up and Americans took out more loans for car purchases and education.

    To read the entire article, go to http://www.bloomberg.com/news/2013-12-06/consumer-credit-in-u-s-rose-in-october-by-most-in-five-months.html
    Sent from the Bloomberg iPad application. Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8


  17. From Bloomberg, Dec 7, 2013, 7:39:28 AM

    Here are my longer-form weekend reads:

    To read the entire article, go to http://bloom.bg/IxLprl
    Sent from the Bloomberg iPad application. Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8


  18. From Bloomberg, Dec 6, 2013, 12:40:51 PM

    Whatever else you might say about Massachusetts Senator Elizabeth Warren, she has never been reluctant to take on the rich, the powerful or those who’ve avoided being held accountable for their role in the financial crisis. The latest example: a letter she sent this week to the heads of the six major too-big-to-fail banks asking them to disclose how much they give to think tanks.

    To read the entire article, go to http://bloom.bg/IHQo81
    Sent from the Bloomberg iPad application. Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8


  19. Winston 
    December 8th, 2013 at 6:09 am

    I am essentially in cash – with a few strategic positions that will make a fortune if they go the right 

    What position do feel are worth holding (strategic positions)

    Thanks


  20. Man, it's coming down hard here… Close to 2" of snow now. I guess I'll have to get the skis out!


  21. Stjeanuc where are u at ? I'm in DC area. 


  22. From Bloomberg, Dec 8, 2013, 6:02:20 PM

    Japanese Prime Minister Shinzo Abe
    urged companies to increase wages faster than gains in the cost
    of living to break the legacy of 15 years of deflation, and
    praised Toyota (7203) Motor Corp. and Hitachi Ltd. for pledging to help.

    To read the entire article, go to http://bloom.bg/1bpKKyr
    Sent from the Bloomberg iPad application. Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8






  23. 2014 Will Be Filled With Political Landmines In The Emerging Markets
    http://www.businessinsider.com/emerging-markets-political-landmines-2013-12




  24. Where / Micro – S. Jersey near Phila.


  25. David Simon: ‘There are now two Americas. My country is a horror show’
    http://www.theguardian.com/world/2013/dec/08/david-simon-capitalism-marx-two-americas-wire




  26. 6 Things To Ponder: Bulls, Bears, Valuations & Stupidity | Zero Hedge
    http://www.zerohedge.com/news/2013-12-06/6-things-ponder-bulls-bears-valuations-stupidity


  27. Calculated Risk: AAR: Rail Traffic increased in November
    http://www.calculatedriskblog.com/2013/12/aar-rail-traffic-increased-in-november.html


  28. qcmike/Strategic Positions: Deep LEAP ITM BCS on AAPL, BA, GS, PCLN all supported by short term ITM/ATM sold calls which provide a high level of protection and are unlikely to be called away given the premium remaining (but I am happy if they are). The spreads were mostly financed by the sale of LEAP puts at relatively low net cost. Long call – short call – short put net was between 10-20% of the BCS strike differential (i.e. a BA 115/125 BCS was placed for $2 – theoretical example).


  29. Good morning!

    Got caught up this weekend and didn't get a chance to finish this post but news is slow so, no time like the present…


  30. Good morning Phil.
    Dollar droping.
    Indexes responding slowly.
    Oil short looks risky.
    Please advise.


  31. So much for catching up, my internet is down.  I'll give it an hour before I have to relocate.  

    Not a good time to short oil with Dollar weak but Nikkei might be a good short since they don't like a strong Yen.   


  32. 3 Fed speakers today and two are hawks so i do like shorting oil off the bottoming Dollar at $98 or below 97.50, but very tight stops over the lines.  

    On the whole, I think Futures should be lower than they are so 16,000 is still a good line to short the Dow (/YM).