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Thursday, October 6, 2022


Flailing Thursday – Trouble at 2,700

Well, that about sums it up, right?

As I said in yesterday morning's Report: "On the whole, I'd rather if we consolidate here before even popping above 2,700 again as 2,850 was too high.  Hopefuly we can hang around 2,650 for a week or two and form a proper base before trying to move higher again – but traders are so impatient.…" 

Well, it's been a day and people are already freaking out because we haven't flown back to 2,850 and it's going to be a while before they realize 2,850 shouldn't have happened in the first place and it's more likely that this (2,700) is the top of the range, not the bottom – at least through Q2.  On our Big Chart, 2,640 is the 20% line on the S&P and, even being generous, THAT should be the middle of a range we move 5% up (2,772) and 5% down (2,508) in, so call it 2,500 to 2,800 with 2,650 the middle line.  That's where I think we'll settle once all the dust clears.

This morning, however, in our Live Member Chat Room, we are playing for a bounce using the following levels:

I also like /TF over 1,500 and /NQ over 6,600 and /NQ is lagging and likely to pop big if we get moving.  /YM 24,800 and /ES 2,675 will confirm and tight stops if 2 of the 3 fail to hold those lines!

Remember, 25 points (back to 2,700) on the S&P (/ES) is good for $1,250 per contract – nothing to sneeze at.  The Russell (/TF) hit 1,520 yesterday and that's up $1,000 per contract and the Nasdaq hit 6,700 and getting back there pays $2,000 per contract, so it's well worth playing for the bounce and the BOE gave a more hawkish statement this morning and that should keep the Dollar in check and allow our indexes a bit of breathing room today.  

In the Futures, we tested 2,550 on Tuesday and our 30% line is 2,860 and 2,640 is 20% so, ignoring the spike below, we have a 220-point drop and our 5% Rule™ tells us to expect a 20% weak bounce off that fall (44 points) back to 2,684 and then the strong bounce line is 44 more points at 2,728 and that is EXACTLY where we topped out yesterday.  It also tells us that we can expect a 44-point overshoot of 2,640 on the way down and we saw that (and a bit more, but not during market hours) as well so, so far, things are going exactly as we expect they would – indicating the Bots are in charge of the moves.  

As you can see, we're following the 5% Rule™ pretty much to the penny so it's not a good time to "think" when we can just watch and see what happens.  If the market is recovering, we should get back over that strong bounce line and hold it into the weekend and, if the weak bounce line fails to hold this morning – it's more likely we head back down than up.

Our base level on the S&P (what we call the "Must Hold" line) is way down at 2,200 and that is where we think the bottom line value for the index is and the 20% line (2,640) is the highest we think the S&P should go in 2018.  This is why I was so upset when we were over the line.  The indexes simply haven't yet grown into that valuation yet.  Since we ran the numbers (last fall) we've had the Tax Cuts and the Repatriation of Overseas Cash so I'm willing to bump up to the 10% line (2,420) as a base but that still makes 2,860 way overbought and 2,650 is the level we're expecting to consolidate around into Q2 earnings.

We use our 5% Rule™ for futures trading as well – as we did yesterday when Gasoline (/RB) made a 2.5% correction back to $1.755.  Live, during our Weekly Trading Webinar, we picked up 2 long contracts and used a 3rd to lower our basis a bit and ended up picking up a quick $1,121 profit – LIVE, so that was worth attending the Webinar for, right?  

This morning, I put out a note to our Members and even issued a Top Trade Alert to go long again at $1.76 and we'll see how that plays out into the weekend.  We expect at least $500 per contract gains and we're happy to take those quickly off the table, along with similar gains on our Nasdaq (/NQ) longs

Bear (oops, don't say "bear"!) in mind 2,684 is likely to be rejected on /ES, so that's the point at which we want to take profits on /NQ (6,605) and /TF (1,510) and then, if we brake over, /ES becomes a good play over 2,685 with tight stops below along with the others (and /YM should be 2,850).  That's all it takes to play the Futures and we call that our Pony Express Strategy, where we ride a horse up to resistance and then get a fresh horse for the next leg up.  All the futures contracts pay similar amounts for similar moves, so it doesn't matter which one we play so we go for the one with the best lines at any given moment.

Not much else to do but watch and wait today.  Unless we're over our strong bounce lines tomorrow, we'll be re-hedging into the weekend (we're a bit bullish at the moment) but I'll be surprised if we clear 2,700 – let alone 2,728 and that means we're back to the same hedges we were using before the crash.  

Meanwhile, enjoy the bounce but "Don't get excited!"  



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Good Morning –  one hit/one miss on earnings…

TWTR  +++ pre-market up 27% on earnings beat

TEVA – pre-market down 8% on lower 2018 guidance… although is it trading at a forward PE below 10. 

Most experts seem to agree that a war with N. Korea would be a catastrophe for a lot of people:


It was a chilling conversation. Stavridis said there was at least a 10 percent chance of a nuclear war between the US and North Korea, and a 20 to 30 percent chance of a conventional conflict that could kill a million people or more. Flournoy said President Trump’s tough talk about North Korea — which has included deriding Kim Jong Un as “Little Rocket Man” and threatening to rain “fire and fury” down on his country — made it “much more likely now that one side or the other will misread what was intended as a show of commitment or a show of force.”

HBI down 6% pre-market after earnings guidance weaker than Consensus.  

The phony deficits hawks:


Republicans used to profess to be extremely worried about the budget deficit. Many of us suspected at the time that they were full of it. And one big thing we’ve learned this week is that they were, indeed, full of it.

Back in 2012, Senate Majority Leader Mitch McConnell called the budget deficit “the nation’s most serious long-term problem.” That same year, House Speaker Paul Ryan called it a “serious threat” to the economy. They were full of it.

Not just in the narrow sense that they both went on to enthusiastically endorse a $1.5 trillion tax cut late last year. Nor even in the somewhat broader sense that the real cost of that tax cut is much higher than $1.5 trillion when you consider the various accounting gimmicks and bad-faith phaseouts that were used to squeeze it under that figure.

Even under the weird linguistic conventions of American conservative politics where deficits caused by tax cuts don’t count as real deficits, today’s budget deal — a big, multi-billion dollar increase in military spending “offset” by a nearly-as-large increase in non-military spending — gives up the game entirely. They don’t care, on any level, about the size of the federal budget deficit.

In some ways this is healthy, since deficit alarmism was never a good idea on the merits. But in other ways, they’ve picked a terrible time to own up to not caring — the great wheel of macroeconomic history has finally spun back to a position where deficits are plausibly an actual problem for the economy, albeit a modest one.

The XIV story – makers of their own doom!


So XIV has $ 1.5B notional short VIX futures, and an NAV of $ 1.5B ($ 100/share).   Now let’s make up some numbers: Imagine what happens when the short VIX futures go up 40%.  XIV now has $ 2.1B in short futures exposure, and and NAV of only $ 900MM (because it has lost $ 600MM on the short futures position).  So what does the XIV manager have to do?  He goes out and buys VIX futures to reduce his exposure and get it back in line with the NAV.

Herein lies the rub…  As the XIV manager goes out and buys VIX futures, in massive size, in an illiquid volatility market, he drives the price up…which drives the NAV down… which requires him to buy more VIX futures… Rinse, repeat.   This is why we saw VIX futures spike late in the day on Monday, and especially into the 4:15pm ET benchmark (times on these charts are Central time, fyi).

So, the ETN’s own rebalancing creates negative convexity – where its own executions drive the price to a level where it must continue to buy more, higher – a vicious feedback loop. 

Good morning, All!

The webinar replay is now available!


This move in TWTR is incredible ! ! !

I'm there, but unfortunately, more than 1/2 the position is covered.  Never expected this.

Thoughts on HBI earnings? 

Not ready to jump on TWTR yet – they are still quite expensive for a social network company that is not adding users! And that faces problems with disinformation bots… 

Buy back the OID March 30 calls at .08 and sell March $26 for .73

FU SVXY!!!!!

HBI – looks like the quarter was fine…. with some compression in profits,  I don't understand the outlook…. I had them pegged at 2.09 for '18 and 2.23 '19 for ….  so this is a pretty major change…..  still good for a 23 price target 26 ish. but Im concerned at what is changing in the cost structure

HBI – a 26ish price target 

LNG/ all

Cheniere has now 4  compression lines operational, they have long-term contracts that were negotiated well before today prices level, from my point of view  and what has been reading for years about the contracts they  have, they must be doing a killing with the price they are buying NG and the prices of the LNG  ready to freight., price is not so low  right now  but selling puts 2020  is  $10 with a $55 price.

Will appreciate  your comments, 

LNG / Phil….I will wait,  ER is on Feb 21st., but if they touch near $50 before will buy some. 

People are going to wake up to the fact that we are adding at least $1.5T to the debt to get to 2.5% growth which we were getting without the tax cuts anyway! But the top 0.01% will get their money and the rest will inherit the deficits. Such a joke!

Sold 30 CHK 2.5 puts for .49.

Jan 2019.

I know we like WPM but PAAS covered calls pays nicely and there has been a lot of accumulation of 

2020 $17 calls

Phil IRBT – down 30% today 

Weak guidance pulls the plug on iRobot

Feb. 8, 2018 8:42 AM ET|About: iRobot Corporation (IRBT)|By: Clark Schultz, SA News Editor 

Shares of iRobot (NASDAQ:IRBT) fall sharply in early trading after the company issues disappointing guidance.

The company expects 2018 revenue of $1.05-$1.06B vs. $1.02B consensus and full-year EPS of $2.10-$2.35 vs. $2.80 consensus (via GAAP).

CEO update: "In 2018, we plan to capitalize on the incremental investments we made in 2017 with the introduction of new products in the second half of the year. We expect double-digit revenue growth in all regions as we continue to evolve and extend our proven sales and marketing initiatives in overseas markets. In the U.S., we expect continued strong sales following our 40+% growth in 2017."


where is mr stick ;-(  


IRBT – mega ouch for any suckers that bot yesterday.

ALB holding up.  That's one I think we'll grow into. 

Retail group: Annual retail sales to rise 3.8 to 4.4 percent

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