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Weakening Wednesday – Did China Find the Market’s Achilles Heel?


Finally a nice little dip and we nailed it yesterday as I said to our Members at 3:08pm in our Live Chat Room:

  • /NKD down 125 today but the US indexes could care less.
  • /YM 25,400 is a fun short with tight stops above.
  • /ES 2,760 finally got a reject
  • /NQ 6,700 finally caused a pause – also a good shorting line
  • /TF 1,565 is good to play for the cross below
  • DAX 13,400 is a good check line too
  • Check out the 5-year charts.  There are 30 year-old traders with 5 years' experience who have no idea whatsoever that markets can go down.  ?

I put out an Alert to our Members at 6:06 am (and tweeted it too) calling for profit taking on the dip, saying:

I'm taking the money and running here, /NQ was my play and now testing S2 at 6,644 and my fresh horse is now /TF below 1,550 (but I doubt it) with /YM at 25,235 and /ES at 2,738.  If anything, I'd play long for the bounce here but huge winner ($11K) so I'm just happy to watch for now.

Seems like we're only selling off because the Dollar dove and took /NKD down 250 and our indexes followed it lower – otherwise I'd be more inclined to stick with it.

/RB is still a good short at $1.85, of course, with tight stops above. 

So far (8am), all we've had are very weak bounces so we'll short again when those lines cross back below, shorting the laggard after at least 2 of them cross with very tight stops above, of course.  It would be a real sign of weakness if we fail those levels and we do have our SQQQ hedges to carry us through – in case of a real disaster.  

This market dip was caused this morning by China's announcement that it is ready to "slow or halt" US Treasury purchases and that sent the Dollar diving – especially as the Bank of Japan had already announced it too was trimming its purchases of long-dated bonds.  “If the [largest] foreign holder of U.S. Treasuries were to suddenly stop, that would cause a problem,” understated MUFG chief macro strategist Derek Halpenny. “The dollar needs to weaken to a level that attracts buyers back to the U.S.”  

Even more of a danger to stock indexes would be rising bond rates and the 30-year notes have already jumped 4% in the past 30 days to 2.8%, a critical juncture as that puts it above the dividend rate of the S&P 500 and, since bonds are "safe", it makes for a compelling argument for some investors to begin cashing in their outsized market gains and putting the money away into inflation-beating (per the Fed) bonds for long-term security.    

We have a $20Bn, 10-year note auction today at 1pm and we'll see if anyone shows up for that but, without China and Japan buying our bonds and the Fed curtailing their own bond buying – what will the real rate need to be?  Especially with the Dollar's sudden weakness making the need for interest protection that much greater.  Over the next two weeks, there's a looming glut of bond supply from the U.S., the U.K., Japan and Germany – things are getting interesting indeed!  

Not only are bond returns getting more attractive but Credit Default Swaps, which are used to protect the bonds, are also trading at decade lows, making it even more attractive to move money into bonds in Q1.  What will the market be able to offer investors to compare to a risk-free 2.8% annual return?  At these prices?  This is why we're still mainly in CASH!!! ahead of Q4 earnings and 2018 guidance – we're not so sure the market can justify these levels anymore.

Meanwhile, we can amuse ourselves with our Futures plays.   We hit our $1.85 shorting goal on Gasoline (/RB) this morning and we're waiting to see what kind of bounces we get on the indexes to hopefully re-short those.  As noted above, they can cross our lines and then we can short or we can play the bounce lines using our fabulous 5% Rule™ which tells us the Dow, for example, fell from 25,400 to 25,225, which is 175 points so a 20% weak bounce would be 35 points, to 25,260 and let's call 25,300 the strong bounce line, where we'd like to poke short again (with very tight stops above).  

On the Nasdaq (/NQ) the drop was 6,700 (ignoring spikes) to 6,650 is 50 points so 10-point bounces are 6,660 (very satanic) and 6,670 and remember, weak bounce failures are a sign of — weakness!  

S&P (/ES) 2,760 to 2,740 is just a 20-point drop and you'd think 4-point bounces to 2,744 and 2,748 would not be a problem but I see 2,744 failing already. 

The Russell (/TF) is always fun to play as it's so volatile and I'd have to call this 1,565 back to 1,550 which gives us 3-point bounces to 1,553 and 1,556 and the RUT is testing that strong bounce line – so that will be our leading indicator this morning.

So the RUT is my favorite short at the moment, at 1,556 with very tight stops above that line and, if we get a real strong bounce on all our indexes – THEN we can do a little dip buying but the macros (bonds, Central Bank tapers) aren't suddenly going to go away later this morning – this is the new market reality and what we're going to see is whether or not the market responds to reality.  That, in itself, would be a good clue for how to play it.

Meanwhile, Crypto mania continues at Kodak (KODK) of all things announced they will be doing an ICO (Initial Coin Offering) and the stock doubled yesterday and is doubling again this morning because – Crypto! 

We're going to like KODK short here ($12), probably playing the July $7.50 puts for 0.50 or less as a fun play.  Actually Kodak has a good idea to actually use blockchain to tag images and track ownership rights of photos, which will make it much easier to pay photographers for using their materials without going through middlemen. 

On the other hand, now Movie Pass parent Matheson Analytics (HMNY) has jumped in on the game and they are announcing a possible ICO but they are vague about the details so it's probably total BS and only good for a 50% gain.  And THAT, my friends, is how the Nasdaq is sailing to record highs for no reason whatsoever.  This is exactly what happened in 1999, when every company just slapped a .com at the end of their name to attract investors and money poured into the Nasdaq, driving up all the prices until the whole thing collapsed under its own weight.  

In fact, Warren Buffett was just on CNBC this morning, saying:  "I would buy a 5-year put on every cryptocurrency."  Them's fighting words!  

This is all very silly and we are still mainly on the sidelines into earnings.  Join us today for our Live Trading Webinar (1pm, EST) and we'll look over our new Watch List and, of course, check in on our Futures trades.  


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  1. ??Good Morning – Phil – SVU reported this morning.  Stock is down 9% pre-market.  Doesn't look good so far ,,,your thoughts on a new 2020 entry? 


    More on Supervalu's Q3 results

    Jan. 10, 2018 6:57 AM ET|By: Niloofer Shaikh, SA News Editor

    Supervalu (NYSE:SVU) reports Wholesale net sales rose 52% to $2.89B in Q3, primarily due to sales from the acquired Unified Grocers business, sales to new customers and increased sales to new stores operated by existing customers.

    Retail net sales dropped 4.1% to $1.02B and identical store sales fell 3.5%.

    Gross margin rate slipped 310 bps to 10.5%, primarily due to the change in business segment mix.

    Adjusted SG&A expense rate improved 230 bps to 9.3%.

    FY2018 Guidance: Net earnings from continuing operations: -$20M to $2M; Adjusted EBITDA: $475M to $485M.

  2. I'm sure the elites are thrilled that Trump and his entourage will be in Davos! Wonder if lil Kim the rocket man knows where Davos is…

  3. Not adding lines hoping for a correction that will save me some work!

  4. The best healthcare in the world – where kids are more likely to die than in any other rich country:

    A child born in the United States has a 70 percent greater chance of dying before adulthood than kids born into other wealthy, democratic countries, a new study has found.

    The research, published in the journal Health Affairs on Monday, shows that the United States lags far behind peer countries on child health outcomes. It estimates that, since 1961, America’s poor performance accounts for more than 600,000 excess child deaths — deaths that wouldn’t have happened if these kids were born into other wealthy countries.

    And these GOP guys just gave $1.5T to their rich friends and can't find a couple of billions for kids insurance and these kids are actually dying! And it's not an exaggeration. Shameful!

  5. Looking for patterns where there are none:

    This matters for you as an investor, because you may end up making investment decisions based on seeing patterns that are nothing more than random chance. Many investors tend to chase performance by investing in those funds/sectors with the best recent track record. However, there is plenty of evidence that doing so typically leads to worse performance in the long run.

    The thing that many investors tend to forget is that randomness will always exhibit some patterns. In fact, the British mathematician Frank P. Ramsey proved mathematically that no matter how complicated you make a system, as it grows in size it will have to show some substructure. This is known as Ramsey’s theorem and illustrates why patterns exist within randomness.

  6. "couple of billion"/StJ — any thoughts why Bezos won't pay for this himself? It would be a good thing to do 

  7. Good Morning.

  8. ~~Phil,

    What would be the best instrument to short the Australian Housing market ? Any Australian construction companies listed on the US exchange ?

    Thanks as always


  9. /RB – Thanks for the McMuffin money this morning!

  10. Phil KODK is 2.85 for the Jul 18 7.5 put

  11. Good morning!  

    Nice little dip on /RB already.  I only got 2 in at $1.84845 but good for $1,300 already at $1.835 so locking in $1,250 ahead of inventory (why risk a nice gain?). 

    Nas popping 6,666, itching to re-short but scary.  

    SVU/Learner – I've lost interest.  Maybe if they get back to $15 but even $17.50 is not that exciting.  Lower same-store sales and declining margins – what is it you want to buy into?  

    Davos/Mkucs – Kim was not educated in the US, so of course he knows where Davos is.  

    Big Chart – BIGGER!!! 

    Health Care/StJ – Did you read this sickening article?

    What the dip in US life expectancy is really about: inequality

    Patterns/StJ – The human brain is essentially a pattern-recognition system.  We're pre-disposed to see patterns – even when they aren't there.  That's why there are so many TA people – their brains reward them for "seeing" things.  

    Bezos/Mike – Because what is a better use of $2Bn, offsetting the damage done by f'ing Trump and the GOP or supporting candidates who will stop this idiocy from happening in the Future?  Bill Gates, God bless him, has spent $50Bn doing charitable work around the World but he could have bought the G7 for $35Bn and Trillions could have been spent fixing these problems instead.  

    Australia/Pat – I have no idea but it's an interesting premise.  

    You're welcome Tshroy!  

    KODK/Yodi – Well that's an insane price.  I said 0.50 or less and I mean it.  If the price doesn't get real – there's no reason to play.  Shows what BS traders think this move is.  Tempting to sell the July $12.50 calls for $3.20 but who knows how crazy things can get.  At least the puts limit the losses.  

    The logic on 0.50 puts is that they can easily double on a pullback but not likely to lose more than 0.25 before we have to pull the plug.  That risk/reward makes them worth a toss but paying more is silly.

  12. Phil for a fun game I bought the July 18 2.5 put for .30 cents just fun

  13. Bezos/Phil, so let the kids suffer now for the greater good over the long run? I understand the logic but I have a hard time with it especially in regards to Bezos who can do both now (and do a lot more now if sitting on top of the one largest personal fortunes wasn't important to him)

  14. Phil, JHX.

    Regarding my previous Australia question I was doing some research and found JHX listed on the US markets which might have exposure to Australian housing markets. They also have some business outside Aus and NZ would like to get your thoughts on them if you think it could be a good play



  15. Morning All!

    Join us for this week's LIVE webinar here:

  16. We're using a new platform (gotowebinar), and it seems to be a more full-featured product. But there will be some minor adjustments all around. 

    One thing I want to let you all know about is "chatting" on the new service. On the right side of your screen you'll see a little question mark in a bubble… click that, and it will bring up the Q&A panel where you can ask your questions.

  17. 0.30/Yodi – Still a rip-off. 

    Bezos/Mike – Well feel free to make the case to him but this is how rich bastards win because they start the fires and force nice rich people to expend their wealth putting them out while the rich bastards hire politicians to deregulate and lower taxes so they can get richer and start more fires, forcing their nice, rich rivals to expend more of their energy putting out fires in a never-ending cycle.

    JHX/Pat – They are an Irish company that says they do cement and fiber.  I don't see anything in their ridiculously long presentation to indicate they are essential to housing in Australia.

    Thanks Greg!  

  18. Net build in petroleum and terrible demand numbers:

    • EIA Petroleum Inventories: Crude -4.9M barrels vs. -3.9M consensus, -7.4M last week.
    • Gasoline +4.1M barrels vs. +2.6M consensus, +4.8M last week.
    • Distillates +4.3M barrels vs. +1.5M consensus, +8.9M last week.
    • Futures +0.59% to $63.33.

    That's going to send everything lower, /CL below $63.25 is the fresh horse now but /RB still has a long way to fall at $1.825 (tight stops above, of course).

  19. Phil/GNC

    I have GNC in my IRA.  Thinking about doubling down and selling 2019 $2.50 calls which would get me out even.  Thoughts.  Thanks.

  20. Webinars / Phil & Greg – We use GoToWebinar and Zoom here at my company and I found Zoom to be easier to use. Maybe not as powerful, but cheaper, simpler and does the job. Maybe you can check it out and do some testing.

  21. Phil,

    Regarding SBUX, steadily rising revs and inc over past 5 years, icomin company, popular product.  Stock price doesn't seem to have progressed porportionally with rev/inc growth. P/E has been 28-31 past 5 yrs. Thinking of selling Jan puts at $52.50 for entry at 2 yr low rather than bcs.Your thoughts appreciated.


  22. SBUX above; typo- iconic (not icomic) company

  23. GNC/Baron – Just keep in mind that they COULD go BK, so make sure you are not over-committing to the position.  I like them because I don't think they go BK and I like their turnaround plan but it's still a risk.  

    Can GNC Holdings Inc Recover in 2018? 3 Cons, 3 Pros

    Zoom/StJ – Well now you tell us!  

    SBUX/8800 – I love them when they are cheap but not on the watch list because not at all cheap at the moment at 30x earnings.  I really don't like their new "Blonde Roast" campaign as it indicates to me they are running out of ideas if this is what they choose for a winter promotion.

    OMG – I thought you meant icomic!  What a duck up…  cheeky

  24. Meetings/Phil – yeah, I like Zoom as well, and a non-profit whose board I'm on uses GoToMeeting, which I like as much as Zoom. I would guess GoToWebinar is related to GoToMeeting……

  25. Phil/TZA

    Got assigned 1100 at 20 (from an old put hedge I kept). 

    Don’t have any other hedges at this time. Would you suggest selling tza and moving to a bcs or leave it or move to a sqqq hedge after selling tza. Thx

  26. Phil,

    Thx for the SBUX thoughts. Because it is a quasi-cult and semi-addictive product – and I am somewhat bored (which has  led me astray before) – I may try shorting a few 52.50 puts since I can live with owning SBUX at its low even though, as you suggest, better prices may be had in the future. I'll share your Blond Roast disappointment with them.

  27.  We looked into Zoom (among others). The one problem with Zoom is their attendees/pricing structure. To get 500 attendee slots, like we currently get with gotowebinar, it cost $25+ more per month.

  28. Thanks for the input Greg! I have not looked at pricing for large webinars (we usually do 50). I generally like the interface better though and had better luck with connections from people outside the US.

  29. CES tech show stuffed with gadgets we don’t need – or do we?

  30. stjeanluc – We're not locked in to a long term contract or anything, so if we have problems I will certainly check it out more in depth. We'll see after a few with gotowebinar if it's the right fit.

  31. World Bank predicts solid 3.1 percent global growth in 2018

  32. GoToWebinar/Snow – Same people as GoToMeeting, which we used to use but they discontinued the cheaper product. 

    TZA/Ravi – Well, at $11.71 you can sell April $12 calls for $1 so, if you do a 1/2 sale like that every 3 months, you can pull in $2 per long in dividends and still have protection.  TZA fell from $20 to $12 last year, which is down 40% while the RUT went from 1,350 to 1,550 (15%) so there's not much decay which means it's a good long-term hedge.  

    Of course, you have to weigh holding $13,000 worth of TZA where you'll collect $2,000 back with full upside on 1/2 vs flipping back to 20 Jan 10 ($2.85)/$15 ($1.65) bull call spreads at $1.20 ($2,400) that pays back $10,000 if TZA hits $15 and you can still sell calls against those.  

    SBUX/8800 – Nothing wrong with put sales on things you really want to own but, with the LTP, we prefer to be patient and wait for things to actually pull back.  

    And, speaking of webinars – it's Webinar time!  

    But first, this:

  33. are others having issues getting into the webinar as well?

  34. I had to restart my computer and then it worked… one issue is that I cant see questions posted by others.

  35. Yes, cannot see questions others are asking! Was pretty easy to sign in… Thanks Phil.

  36. Wow, that was exhausting.  Went over the whole watch list. 

    Meanwhile, strong bounce failures on all indexes does not bode well for tomorrow but also not bearish unless we stay under those lines (see above) into the weekend.  Took a poke short on /TF, that didn't work and longs aren't working for a bounce so calling it a day trade-wise. 

  37. phil. joined the webinar late…couldn't see where to post questions. saw a "raise your hand symbol" and the comment panel on the right seemed to be to webinar staff with no comments in it.

    anyway, thoughts on NG??

  38. Phil – Thanks for the webinar. I'd say all was great other than not seeing the other's comments and questions. :)

  39. HMNY -Sold 1/3 at 9.20.   Missed the early morning spike. 

    Shorts have been very active in this name.

  40. Phil/webinar

    I was not able to listen since I did not had the headphones. But I was not able to dial in using my land line. I could that with previous one.


  41. Hands/Lunar – That was too complicated for me, was just trying to answer questions.  NG as in Nova Gold or Natural Gas?  NG I'm not a big fan of but /NG I love long-term.

    Friggin' Trump is, one year into his Presidency, sitting there in a press conference saying "Hillary didn't want coal, she wants windmills."  WTF is wrong with that guy?   Does he not know that he won?   

    AMZN/Jabob – That's interesting.  Anmuth is a pretty good analyst too.  

    Comments/1020 – We'll see if that's an option.

    HMNY/Albo – Saying crap like that makes me not trust their core business.

    Headphones/Pat – What?  You don't have a speaker on the computer?  We'll check on land-line access.  

  42. /NQ at 6,666 – someone thinks that's funny.  

  43. Coal / Phil – The more tragic part of Trump's idiotic statement (of course they all are), it's that no one else wants coal except the coal industry. Doesn't he realize that other countries will eat our lunch with renewables? I am currently slowly reading "Fire and Fury" and even if 10% of is true, this guy should be removed from office. But the worse people are the enablers around him and in the GOP Congress! Once he is gone, they'll talk like he never existed or like they opposed him all the way. After WW2, everybody in France was in the Resistance!

  44. phil / Bitcoin – how would you go about shorting this?

  45. OOPS – hit send by accident.  Meant is there an ETF that can be shorted with options… or and ETF that tracks it that has options?  GBTC tracks it but has not options?

  46. At the moment, that’s the best short though.   The other ETF’s aren’t on line yet and shorting the Futures is very dangerous.  

    Trump/StJ – Yet they are doing a good job of spinning the book as “fake news”.  Their fanatics have been brainwashed to believe that anything negative about Trump is “fake news“  and, any news that they read that they don’t like, or doesn’t conform to the party line is automatically “fake“ and that anyone speaking out against them is part of some vast “deep-state” conspiracy to destroy America.  I find it terrifying, but also fascinating….

  47. A Perfect Storm Is Coming to Mexico

  48. Less than meets eye: Bonuses, not raises, from US tax cuts