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Thursday, March 28, 2024

Testy Tuesday – Dow 17,000 Edition

RUT WEEKLYRussell 1,200 already failed.  

That's strike one for the rally.  Strike two would be the failure of Dow 17,000 and strike three would be the NYSE failing to hold 11,000.  One day does not a correction make and yesterday was another very low-volume affair so we certainly aren't going to draw any conclusions until we see a proper trend.  

What we do know for sure is that the ENTIRE move above 1,160 on the Russell, 11,000 on the NYSE, 16,850 on the Dow, 4,400 on the Nasdaq and 1,960 on the S&P was also low-volume BS and can't be trusted either.  

With the Russell slipping 1.77% in a single day, you can see why we made TZA (ultra-short Russell) one of our primary hedges in the Short-Term Portfolio.  In fact, we pressed that bet on Wednesday morning, while the index was popping in the morning as I said to our Members in the Live Chat Room:

In the STP we have 20 TZA Aug $15 calls at 0.70 and they are now .40 with TZA at $13.49.  We can DD or we can spend 0.23 to roll them down to the $14s.  Since TZA was $15 last week and since Aug is 43 days from expiration, I think it makes more sense to roll closer to the money than DD.  Keep in mind that, if TZA goes $1 lower and we had doubled down, we will have spent .40 more to have 40 contracts that would be $2.50 out of the money but if we roll again for another .23, we would have 20 of the $13 calls for about the same price and our net $1.16 would still be back to even on less than a 10% move higher, vs 20% we'd need to get back to $15.55 (break-even on 2x).  

So let's roll our 20 TZA Aug $15 calls (.43 now) to the $14 calls (.66) for 0.23 per contract.   Our short puts are the $12s, so no worries yet (and not even if they fall another $1.

The plan is working well as already the Aug $14 calls are back to 0.91, up 50% from Friday's entry on that 1.77% pullback in the Russell – now THAT'S LEVERAGE!  Trades like that are why our protective Short-Term Portfolio gained 2% yesterday while the market was pulling back.  Our STP is bearish protection for our Long-Term Portfolio which, so far, is holding up well because it has it's own internal hedges on each position.  

SPY 5 MINUTEHaving that kind of balance in our portfolios allows us to relax and watch the markets long enough to pick up on new patterns – without having to make rash decisions.  That too has value – even though it doesn't immediately show up on your balance sheet.  The ability to take a long weekend or, God forbid, a whole week away from the markets without worrying is also a huge plus to our system that is often underappreciated.  

In yesteday's Live Member Chat Room, we adjusted a bit more bearish with some QQQ puts right at 9:35 as we could see the weakness (the same weakness we had expected) taking form right at the bell.  When you are balanced, it's easy to make very minor adjustments that move you more bearish or bullish on the fly. 

NYSI DAILYThe overall market is still bullish (because the Fed is still there), this is just a short-term correction we're expecting and we're not even sure we'll get that the way things are going.  It's hard to imagine the individual earnings of a lot of these companies will justify their incredible valuations and that's where we think they may run into trouble.  

As you can see from Dave Fry's NYSI Chart, we're already as overbought as we were in February and, though that didn't cause the market to drop, we did flatline until May, when we had worked it off a bit.  

With big, technical lines like S&P 1,200 and Nasdaq 4,500 so close (and we're already at Dow 17,000, Russell 1,200 and NYSE 11,000) – it simply doesn't seem likely we'll be able to fly over them while the Summation Index is so overbought – in the very least, it needs a rest.  

 

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