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Testy Tuesday – Is S&P 2,500 the Market’s Waterloo?

It's been very exciting.

Back on the 13th, I titled the morning Report: "Which Way Wednesday – S&P 2,500 or Bust!" and we've been teasing the line in the subsequent two weeks but now failing again as oil prices rise ($52 this morning, which is our new shorting line!) and Global tensions mount.  Meanwhille, on the home front, the Republican agenda is failing in a most spectacular fashion as repealing Obamacare simply isn't going to happen (thank God!) and now they are far over-reaching on Tax Cuts, with a plan that will add Trillions of Dollars to the National Debt with no offsetting spending cuts – all just to benefit the Top 1% – it's not going to fly either.

The markets are still wildly underpricing the overhanging threat of war in North Korea.  We are, in fact, still at war with North Korea – having never signed a peace treaty since that war started in 1950.  Meanwhile, back in the middle east, Turkey's President and Trump Thunder Buddy, Erdogan has threatened to invade the Kurdish region of Iraq as he is enraged by their vote for independence (Turkey also has a larget Kurdish region so he considers it a bad example).  

Key to this conflict is a major oil pipleline that runs from Kurdish Iraq through Turkey which Edrogan threatens to cut off (hence the jump in oil) as well as warning: "“Our military is not (at the border) for nothing.  We could arrive suddenly one night."  We need to take Edrogan seriously – this is the guy who had his security detail beat the crap out of protesters in Washington DC and again in New York – even after he was told what they did in DC was not acceptable.  

Janet Yellen will speak this afternoon at 12:45 and MIGHT seek to clarify Fed policy moving forward but is more likely to remain enigmatic – since that seems to be working.  As I noted yesterday, we have a dozen Fed speakers this week and, last night Neel Kashkari came out on the dove side, saying he thought it was far too soon to raise rates.  Nonetheless, the markets have flattened out in pre-market trading so far as we wait for Evans (very doveish) and Mester (neutral) to spreak at  9:30.

Apple (AAPL) tested the $150 line yesterday and that's 10% off the highs so, in the very least, we expect  weak bounce back to $153 or a strong bounce to $156 according to our 5% Rule™.   A 10% correction is exactly what I predicted on 9/6, when I was interviewed on Money Talk, so now is a great time to sell those 10 2019 $140 puts ($12) and to buy the 20 2019 $150 calls ($18) against the short 20 $165 calls ($12) for a net cost of $0 on the $30,000 spread.  That's a better deal than we got back on the 6th – but I did say it would be better to wait!

Despite the $6,175 current loss, the rest of the Money Talk Portfolio is up $11,612.50 so our net gain in less than a month is $5,437, which is 10% of the $50K portfolio.  I'll be on TV this morning, live at the Nasdaq and that portfolio is up $22.5%, after starting with just $25,000 in April.  You've got to love this market, it's just a money-printing machine.  

Notice we have a hedge in the Nasdaq Portfolio and, so far, it's only a small loss – even though we took the insurance way back in late May.  That means the Nasdaq hasn't gotten any stronger since that time – despite how you may FEEL it's doing.  That should be a good enough warning sign to be very careful as the Nasdaq continues to struggle to get over the 6,000 line on the 100 Index (/NQ).  

In our main portfolios, we've been using the Nasdaq Ultra-Short (SQQQ) as a primary hedge and recent weakness in the market-leaing "FAANG" stocks should be a concern to traders who are banking on the market continuing the 20% run we've had since November.  I wish I were a believer but I'm too much of a Fundamentalist and the Fundamentals are telling us to stick to CASH!!! at the moment and our main portfolios are roughy 75% cash (but very leveraged in our upside plays).  

As you can see from this chart, the gains of the past 100 years have mostly come from 50 companies which make up the bulk of our portfolios – nice, steady blue-chip companies that build wealth for their shareholders with great consistency.  Through good times and bad, these are the kind of stocks we look to buy whenever they go on sale.  


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  1. Phil – I was listening to a podcast recently and they had some oil "expert" on as a guest, not sure of his actual credentials but he did raise an interesting point. 

    Essentially he was saying that due to the confusion of the hurricanes and re-routing of tankers during that time period there was customs receipts for an additional 5 million barrels of oil than was reflected in the weekly report numbers. Apparently he contacted the EIA about this discrepency thinking that perhpas the barrels will be counted in a different week, but the EIA told him that they will not count those barrels and they will be added in at the end of the month as an after the fact adjustment with no official announcement or report. 

    Have you heard of this procedure before? Is this just another part of the boosting oil scam? it seems like not counting those imports and not telling anyone about it doesnt do much other than artificially mistate the supply of oil and boost prices…. thoughts? 

  2. Russell going to 2000 it seems!

    And the Dow to 1M as predicted by Buffett who might still be around in 100 years to see it.

  3. There seems to be no argument left to repeal Obamacare except for the fact that it bears Obama's name. It's just rage based insanity right now:

    So here’s the nickel summary. Graham-Cassidy is—literally—opposed by every single constituency in the health care industry. That includes doctors, nurses, hospitals, patient advocates, and pharmaceutical companies. It is wildly unpopular, polling around 20 percent approval. The Republican base isn’t clamoring for it. It would leave more than 20 million people uninsured without saving very much money. It would remove protections for pre-existing conditions. And it would cost the country 580,000 jobs, tanking the economy for the next decade.

    And yet Republicans are still trying to pass it. Can anyone explain why?

  4. This on the other hand is good news – some companies are finally realizing that it's cheaper to keep good employees than retrain new ones every 6 months. See what Costco had been doing and what Target plans on doing:

    Target Corp. is raising its minimum hourly wage for workers to $11 starting next month and then to $15 by the end of 2020, a move it says will help it hire and keep the best employees and make shopping a better experience for customers.

    The free market might be ahead of regulations this time! Not that it had much of a choice.

  5. Lately, we've seen some rotation out of large cap tech.  That is reversing on the open today.  Will be interesting to see if the strength lasts.

  6. Good Morning.

  7. Go LB!!!

    please no tease!!

  8. Dadi Cinema Enters IMAX Business With Five-Theatre Agreement In China 

    Sep 26, 2017 07:30:00 (ET)

  9. Good morning!  

    I have to leave shortly to be at the Nasdaq, should be back about noon.

    Watch 2,500 on /ES – if we're over that, then shorting things is a bad idea!  If it's failing – it makes a great short under the line (tight stops above).

    I'd almost like to see Kim detonate a nuke, just to see if it actually can stop the markets from going up for more than a few hours.  Really – what would it take???  AAPL is driving things higher this morning as the $3 gain is 1.5%, and AAPL is 20% of the Nasdaq so 0.3% added to the Nas from AAPL alone and also 25 Dow points and adds to the S&P as well.

    Oil/CRS – I don't know what the evidence is but sounds like the kind of BS they pull.  It's like the "other oil" scam.  It's a clear category yet they ignore significant changes in it all the time.

    Big Chart – Nas below 50 dma.  Needs to take that back or people might actually worry.  It's a long trip back to the other 50 dmas.  

    Why/StJ – Because they can claim they are saving $2Tn on the budget by repealing Obamacare, which does have line-item costs and the benefits are intangible.  That allows them then to claim their $4Tn giveaway to Billionaires is not a budget-buster and a little BS with numbers and they claim GDP growth that increases tax revenues (despite cutting rates drastically) and PRESTO – it's a balanced budget bill they can steamroll over the Democrats with.  That's why cutting Obamacare is so life and death – it's the only way they can get their tax cuts through the way they (and their masters) want them.  

    Hence the desperation – their jobs depend on getting this done now that they have the Republican Congress, Senate, Court and Presidency.  This all cost our oligarchs A LOT of time and money and now they Reps have run out of excuses as to why they aren't getting things done for the bosses.  Already GOP funding is drying up – it will get much worse if they fail on tax reform.  

    GOP donors threaten to withhold funds unless their agenda is passed …

    Behind New Obamacare Repeal Vote: 'Furious' G.O.P. Donors – The …

    Keep in min these are just middle-aged men protecting their jobs – they don't give a crap about anything else.  

    $51.50 on /CL  - Back to 5 short for me! 

    If you are going to scale in – don't forget to scale out!  

  10. Billionaire Michael Bloomberg: ‘I Cannot for the Life of Me Understand Why the Market Keeps Going Up’:

  11. Phil,

    Best 2-4 month hedge now TZA given RUT's double top? And what's best new position?

  12. FWIW – NGL

    On August 22, I posted details of a position I put on in NGL, based on a recommendation from Briefing Trader.  At the time, the stock was $9.45 and the yield was 16.5%.  Stock has appreciated 20% since then.


  13. TSLA/Jabo

    Jonas is trying to prop up stock before delivery numbers.  Numbers might show best quarter but believe losses might be largest ever and if Model 3 is showing behind on deliveries already, stock is toast.

  14. Phil,

    Russell Shorts are you still in that trade ?



  15. we know why the markets keep going up – top 0.01% capital needs to go somewhere. This trend is hard to "stop," if it's even possible at all – it's baked into the central bank currency/debt paradigm that currently runs the entire world's financial system.

  16. I guess we should go long copper and miners:

    Balhuizen said he expected the electric vehicle boom would be felt — for producers — first in copper, where supply will struggle to match increased demand. The world's top mines are aging, and there have been no major discoveries in two decades.

    The market, he said, may have underestimated the impact on the red metal: Fully electric vehicles require four times as much copper as cars that run on combustion engines.

    BHP, Balhuizen said, is well-placed, with assets like Escondida and Spence in Chile, and Olympic Dam in Australia. BHP said last month it was spending $2.5 billion to extend the life of the Spence mine in northern Chile by more than 50 years.

  17. I'm back.

    TZA/JMD – Not that it's been working, but, with TZA at $14.65, a 10% drop gives you a 30% pop so about $19 and you can buy the April $13s ($2.85) and sell the April $18s ($1.35) for net $1.50 on the $5 spread.  That gives you $3.65 (270%) upside protection by itself so, if you want $13,500 protection you can do 40 of those spreads ($5,400) and then offset the $5,400 with short puts on anything you REALLY would like to own if the market drops 20%, like 3 AAPL 2020 $135 puts at $13.60 ($4,080) or 10 LB 2019 $35 puts for $4.40 ($4,400).

    Keep in mind, the initial cost of insurance is fairly expensive but, going forward, simply roll the long calls lower in strike and further back in time whenever their price (now $2.85) drops to the net of the spread ($1.35).  That way, you recover the cash you lay out for the insurance and you sell more calls to net out the same(ish) $1.35, but with more time.

    NGL/Albo – Good one.

    TSLA/Rustle – It's amazing how many passes that guy has had.  

    /TF/Pat – Sadly, yes.  I don't know whey, they never go down – even when the other indexes are going down they keep going up!  I only have the 5 now at 1,4445 avg, so I shouldn't complain but just once I'd like a win without having to DD twice to get even first.  I'm going to go with 5 more at 1,460 if we hit it or 1,455 on the way back down at the moment.

    Yelen is speaking.

    Up/BDC – It's all about sentiment, once it changes, good luck getting the money to stay in! 

    Copper/StJ – Will take a while for electric production to impact it.  We use a lot of copper for a lot of things.   In fact, use of PVC pipes instead of copper is what caused the glut in the first place (not to mention the recession).

    An average American car contains about 55 pounds of copper wiring. An electric car has three times as much mostly thanks to their rotors, and here's how those miles of wire disappear in an engine bay. Cylinder blocks used to be made out of cast iron before the industry switched to aluminum.

    So 25M tonnes of copper is 50Bn pounds a year.  Global auto sales were 78M last year so 78M x 50 = 3.9Bn – 8% of total copper but adding 24% to that would be a lot.  Of course, we ramp up over 12 years (at least) and, 12 years ago, we mined 15M tons of copper – 40% less.  It's my impression that copper is not hard to come by (notice output by country never goes down except Zambia for some reason) and they can mine more if they need to – especially at slightly higher prices.  

    So not the kind of home run play Lithium is – that stuff is going to have shortages for sure!  

    Speaking of home runs – Go /DX!  

  18. Hey CRS,  my friend Bloomberg would like to know the name of the guy who is checking into those 5 million barrels of oil. Please let me know if you can    

  19. Heard it on a podcast by this guy Erik Townsend, but he was saying that it was his friend Samir Madani (founder of who was telling him about these unaccounted for barrels. 

    coles notes:

    they had projected 12.8 mil barrel build due to approx 5 mil barrels of unaccounted for oil in the confusion after Harvey. This was the oil that they had customs receipts for but were not counted in the EIA number. EIA claimed that they dont add these barrels back in, will make adjustment at the end of the month but will never show in a weekly build or draw number. 

  20. I have a hypothesis, as countries stop using dollars to trade oil, are those dollars now flooding back here? Inflation helps nobody but the government as they get to tax you on it. It does drive the markets up but what you gain is lost in purchasing power. Dent called for deflation (which we've had, even with QE we couldn't get the numbers up) changing to increasing levels of inflation as dollars came home. 

    Any thoughts as to WHY small caps are so strong? Perhaps the expectation that tax cuts (that won't get passed) would benefit smaller companies more as the large caps have armies of accountants and oodles of loopholes already? Just pondering, there must be a reason somewhere. 

  21. IWM shorts are killing me, gonna have to take them off and as Naybob's wife said… "nobody want's to see that"

  22. Phil, Hurricane season is coming to a close; With /NGV7, rolling over, would you suggest a trade on /NGZ7,  or have you stopped trading natgas futures? Thanks as always….Also please recommend a trade on QCOM, and AAPL….I missed AAPL yesterday on the $3 price drop to sell a 135 or 130 put. Thanks as always

  23. Phil, can always wait for the falling knife to reverse its downward motion!

  24. is a great site but how do you use it?

  25. Thanks CRS! 

    Republicans giving a press conference and vowing they will not stop until they kill tens of thousands of people a year by denying them health care – no matter what it takes.  

    Small caps/Mkucs – I think just the general inflows into the market through ETFs (dumb money) is disproportionately hitting the small caps.   The Russell 2,000 averages 1/322 the Russell 1,000 in value so, even with twice as many stocks, it's 1/161 the size:

    Related image

    Doesn't take much for it to blast higher (or lower) when money flows in and out. 

    /NG/Jasu – We're generally long /NGH8, back to our simple premise of more exports pushing prices up over the long-term.  I like them at $3.20, now $3.236 but $3.30 has been a good profit-taking position.  It's a bit less volatile than the front-months but still has dipped to $3.10, so be careful if you play it.

    QCOM/Jasu – I do like them down at $50 and you can sell the 2020 $40 puts for $4.10 and I'd consider that free money (as I don't mind owning QCOM for $40) and then the 2020 $45s are $10.20 and you can sell the 2020 $57.50s for $5 so net $5.20 less the short puts is net net $1.10 on the $12.50 spread with $11.40 (1,036%) upside potential at $57.50 in two years.

    AAPL/Jasu – Clearly the trade in today's post is still playable – strikes don't change just because AAPL moves $3 – just the net cost of the trade does!  Hey, who said AAPL would gain $3 today?  I really don't get why TA people can't predict a stock's movement – only takes me 10 seconds to do the math!  cheeky  

    Reverse/Jasu – If you are not scaling in, then waiting is very important.

  26. Phil, Thanks, I should have done the weak/strong bounce on AAPL…..a little slow on the uptake today!

  27. AAPL – more rumors and innuendos….

    Sensor production issues for iPhone X; analyst expects X to boost profit margins

  28. Lithium / Phil – I expect that we'll move away from lithium batteries before we have big shortages.

  29. this "bitcoin store" penny stock was a total scam. I lost $1000 on this one. Probably equal to GRNBF's in terms of the breadth of the scam. You guys must really hate your children

  30. Slow/Jasu – Well it's only Tuesday, just warming up for the week!  

    Lithium/StJ – Not sure what will take over and, more importantly, when.  The problem is, just what TSLA/SCTY is doing will double demand for lithium and they are not the only ones.  That's a much more immediate problem than copper but, of course, even the LIT rally got overdone.  

    Of course, the run was, in the bigger picture, from $16 to $24 (50% and good consolidation there) so $32 would be the next stop (100% gain from $16) or $36 (50% from $24) at most and we overshot $36 but by $4, which is what the retrace would have been anyway (so weak overshoot).  So back to $36 is impressive if it holds and $32 would be a great spot to consider going long again.

    GRNBF/BDC – My children got 1/2 out at $1 with a stop on the rest at 0.75, basis was 0.26 so, no hate there.  Not sure what makes one more of a scam than the others – I just pick the ones that have a good story and good marketing.  Speaking of which, any progress on GreenCoin? 

  31. A little selling into the close for a change.

  32. Maybe I can keep my shorts on :)

  33. MS just put out a note saying there will be 32M Tesla's on the road by 2030.  Must be time for them to raise more money!  

  34. Really has been relentless though.

  35. the greencoin foundation ran out of funding. the asset remains of course.

  36. Funding/BDC – Well call me and let's see if we can make a plan for it.

    Gotta check out now – will check in this evening.

  37. First stab in the oil demand:

    Gasoline and diesel cars in California may have a bleak future. According to Bloomberg, the state is considering instituting some type of ban on the sale of internal combustion automobiles. The news source got this information from the chairman of the California Air Resources Board (CARB), Mary Nichols. Nichols also told Bloomberg that if such a ban happened, it would likely not occur through an EPA waiver, citing the unlikelihood of the Trump administration permitting a new change. Instead, some other regulation would probably happen.

  38. Cali/StJ – Often leads the nation.  

    NAK presented this morning and popped back up – we won't know what they said until Friday since we didn't attend the forum and there seems to be a news blackout.

    API with a surprising build in /RB and the rest as expected:

    Crude -0.761MM, Gasoline +1.470MM Distillate -4.527MM Cushing +1.064MM

  39. aiCoin – ICO coming up. Interview here, though not sure i have any idea what the basis/premise of the coin/exchange is (will have to listen again). It is episode 7 linked right on the home page here:   I find the whole series of podcasts with host Anne Stevenson-Yang to be quite interesting. 

  40. Foxconn will not build iPhones in Wisconsin:

    Your $799 iPhone 8 Plus has $288 worth of components in it

    IHS Markit's annual cost breakdown of the new iPhones suggests that making an iPhone 8 Plus runs about $17 more than the 7 Plus.

    Manufacturing costs are $7.36! Nice margins for Apple. I guess they can afford that new HQ while Chinese workers struggle to make ends meet. So I guess even at $400, Android phones still bring in some profits.

  41. Good morning! 

    Breakfast meeting ran late, so a little behind.

    China/StJ – What's really crazy is how high their property costs are on those wages.  Must be in debt their whole lives.  Just a modern form of slavery.