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Thursday, October 6, 2022


Will We Hold It Wednesday – S&P 1,920 Edition

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 $3.15 so a .15 credit on the $8 spread and all we need is that 1,550 that everyone is predicting to make 5,433% on cash.  TOS says the margin on the short $110 puts is net $11 so a very nice return on cash too – if it works.  As we can stop out the spread at $2, it's worth our while as long as we don't believe the S&P will fail 1,100 this year.

That one was actually disappointing as SPY closed on 1/18/13 (expiration day) at $148.33 for net $2.33 and a profit of $2.48 on the .15 credit – only a 1,553% gain for the year.  But the good news is we were able to flip to about the same spread for 2014 and THAT ONE worked out just fine.  Our other bullish spread from that post (you never miss a post if you subscribe here, by the way) was less of a disappointment, returning the full 3,100%:

XLF should also fly if we make it through this quarter without slipping into another financial crisis.  The Jan $13/16 bull call spread is $2 and you make 50% in 10 months on that just by getting it right.  You can also sell JPM Jan $30 puts for $1 to knock the net down to $1 and making it a 200% potential upside or sell the JPM 2014 $28 puts for $2.10 and get a net .10 credit and a 3,100% upside potential gain on cash.    

RUT WEEKLYI can only tell you what the market is likely to do and how to profit from it – the rest is up to you!  The suggested 10 contracts at that time were a net credit of $100 and returned $3,000 per set and our worst-case scenario was owing JPM for net $27.90 (now $55.60).  This is exactly the type of  "boring" trading style we were discussing in yesterday's webinar as we build our new Buy List.

While we wait for the correction, we shorted the Index Futures again in our Live Member Chat Room this morning at Dow 16,700 (/YM), S&P 1,920 (/ES), Nasdaq 3,725 (/NQ) and Russell 1,120 (/TF) because we're not anticipating good data today (/NKD 15,000 is also a good short when it breaks and, of course, we shorted oil at $103.50 (/CL)).  We'll take the money and run ahead of the Beige Book (2pm) but I'm pretty sure that will not show the improvement that is expected – now that the weather is no longer an excuse.  

Nonetheless, I'd rather wait and see than make any big bets on the outcome.  


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Yesterday was a day of reprieve, today was not clean and defragment your computer, and especially delete cookies. You don't need any expensive programs, they just do what is free, and you can run them while doing anything else. The cleaning slows down not your browsing. Last AAPL super what you think is not immune. 

Forgot this attack is business computing of all types.

anyone know why GTAT lost 13 points MOC with high volume today ?

I think I may have posted this before, but it's worth a rerun:


S&P and NYSE making new highs… Russell trapped between the 50 and 200 DMA but something has to give in the coming days as the 2 averages will cross!

The new highs are just an illusion driven by only 50 stocks…


“Dow, S&P 500 close at new record highs” – Every Major Financial Publication, June 2, 2014

You wouldn’t know it after reading any major financial publication yesterday, but the average U.S. stock is down over -1% thus far in 2014. But how can that be if we’re being told almost daily that the Dow and S&P 500 are hitting new all-time highs? The answer is likely to surprise you, especially if you have been focused solely on the large cap space.

There is a massive divergence going on between the haves and have-nots, or the largest capitalization stocks and the rest of the equity market. As the table below indicates, the 50 largest stocks in the Russell 3000 are up 4.1% in 2014 while the average return for the rest of Index (51-3000) is -1.1%. Since the small cap index (Russell 2000) peaked back on March 4, the divergence has been starker, with the 50 largest stocks up 3.8% while the rest of the index is down -4.9%.



There might be hidden good news on the job creation front:


PRINCETON, NJ — Gallup’s U.S. Job Creation Index reached a new high in its more than six-year trend, registering +27 in May. The prior high had been +26 in the initial monthly measurement of January 2008, just as the recession was taking hold. The index is based on employee reports of hiring activity at their places of employment.

gallup job creation

Another good chart that shows that the top 10% are getting screwed with the rest:

And the article that goes with it (Long):


The surprise lesson of the income distribution controversy, then, is what it says about today's conservative mind-set. It turns out that many conservatives, for all their anti-totalitarian rhetoric, have Orwellian instincts: if the record doesn't say what you wish it did, hide it or fudge it.

There are substantive issues about income distribution. Nobody really knows all the reasons why incomes at the top have soared while those at the bottom have plunged. Still less is there a consensus about what kinds of policies might limit or reverse the trend. But it seems that many conservatives not only don't want to discuss substance: they prefer not to face reality, and to live in a fantasy world in which the 1980s turned out the way they were supposed to, not the way they did.

Historical P/E ratios:


The chart below shows the long-term historical P/E ratio for the S&P 500.  At a current level of 17.31, the trailing P/E ratio is nearly two points above its historical average (15.35: red line).  While the market is 'expensive' compared to its long-term historical average, compared to short-term time frames, the market's valuation is more mixed.  Over the last 25 years, the S&P 500's average P/E ratio (18.90) is more than 1.5 points above the current valuation, but compared to just the last decade the current P/E ratio for the S&P 500 is modestly above average (16.95).

This market reminds me of some years ago (2007 was it?) when we spent the whole summer grinding up on low volume in a very narrow range.
My delta analysis shows that ES has been in a deep down channel since early March, the entire contract. This is the biggest short divergence I have ever seen, over 320,000 ES contracts. We are coming up to ES roll over too. There must be a significant number of shorts who could trigger a rally if pressed hard enough.

This confirms Phils observations of low volume up days and heavy selling on down days as smart money exited. Does this mean a sell-off is inevitable? The liquidity providers (banks) have done a pretty good job containing the down moves and by implication they must now be heavily long. They may try to force a sustained breakout to get shorts to cover and encourage in new buyers. But as we are already at all time highs and so they must already be well in profit (assuming their net basis is below 1850, half way in the channel) .they could turn bearish at any time. How about 1929 as a target. You can just imagine the MSM headline writers if we touch that and then tank. My target would be 1950


I have 2016: (4)  500 calls bought @ 107.61, now 158.25, sold (4) 650 calls @ 42.97, now 72.10 – also bought (2) 600 calls @ 69.10, now 96.23, sold (2) 700 calls for 35.42, now 53.99. Also sold (3) 550 puts @ 48.20, now 41.80. Problem is I sold (2) 750 calls for 20.55, now 40.50. Would you recommend any adjustments-the 750's are killing me now.  Thanks

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