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Thank Trump It’s Friday – Market Madness Continues Despite Massive Uncertainty

And we're short again!  

Nasdaq (/NQ) 7,000 seems like a lovely shorting line and we grabbed a couple this morning in our Live Member Chat Room along with Russell (/RTY) shorts at 1,580 – these are now the June contracts, so they are a little higher than our shorting lines earlier in the week but essentially the same.  Not only that but we bought back half the covers on our primary SQQQ short yesterday afternoon – essentially flipping us much more bearish into the weekend.  

We're expecting a pullback on the Nasdaq next week (not today) to at least 6,850 and 150 /NQ points is good for $3,000 per contract gains and we weigh that against stopping out over 7,005 with a $100 per contract loss – so it's a very nice reward vs a fairly small risk – the kind of trades we love to take in the Futures.  The same with the Russell but 1,580.50 only costs us $25 per contract vs 1,550 would be a gain of $1,500 each.  

We have Non-Farm Payrolls out at 8:30 and economists expect 200,000 jobs to be created, which is the same amount of jobs we always create – there has been no improvement at all under Trump and, in fact, we've been drifting lower but hourly earnings are on the rise (due to Obama-era Minimum Wage increases that are kicking in now) and that's good for the economy – though not so great for Corporate Margins.

With unemployment hovering around 4% – everyone is working so the labor market is tight and we're expecting to see some serious wage inflation over the next few years that, in turn, sparks a broader inflationary cycle in the economy.  In fact, China was ahead of us in increasing wages (still much lower than ours) and now they have 2.9% inflation – double what it was a month ago but possibly a blip from the New Year celebrations last month.  

Meahwhile, the GDP estimates are in free-fall and no one seems to notice, no one seems to care as the Atlanta Fed has taken their ridiculously optimistic GDP Now forecast down from 5%, which rallied the markets to all-time highs in late January, to 2.7% and very likely to be revised below 2% by the time it's official.

Although Trump claims GDP is over 3%, the FACT is that Q4 was 2.5% which made 2017 2.5% – well shy of the mark and the trend is not positive and now we are engaging in Trade Wars – which never, ever, in the history of mankind on the planet Earth – has ended well.  

But party on markets – we'll take the short side of that bet!  

Not that we don't have longs, of course.  Just because we think it's ridiculous that Amazon (AMZN) trades at 252 times earnings and Netflix (NFLX) is at 253 times earnings and Tesla (TSLA) trades at infinity times earnings (because they are negative with no chance of turning positive this decade or, maybe, EVER) doesn't mean there aren't stocks we do like. 

Our Long-Term Portfolio is full of them and we're already up 11.6% for the year – so of course we're going to press our hedges in the Short-Term Portfolio to lock in those ill-gotten gains.  After all, it's only March 9th so 11% in two months is 66% for the year and we certainly don't expect to make that so we have to assume there will be a correction at some point – so we hedge to lock in our profits.  

That's also why we favor playing the indexes short vs long – we already have massive bets to the long side and we will make MASSIVE amounts of money if the rally continues so it's only the downturns we need to guard against with our day-trading plays.  

That doesn't mean we never go long in the Futures.  Yesterday, in our Live Member Chat Room, at 1:42 pm, we went long on Gasoline Futures (/RB) as they hit the $1.875 line.  On the way down to $1.87, we decided to stick with them and we scaled in and out and ended up with 2 contracts at $1.867 avg and already this morning we're up over $1,600 ($800 per contract) with a stop at $1.885 to lock in $1,500 gains.  That's how we have a nice weekend over at PSW!  

Hopefully we hit $1.90 for $3,000 gains so we can afford to see Hamilton (mezzanine) – that would be nice…  That also means you can make $1,500 from here with 2 long contracts at $1.8875 and a stop at $1.8849 would lose about $105 per contract so still a pretty good risk/reward ratio on those but, be aware, we'll be raising our stops each time it crosses the next 0.005 because we already got our fill – so it's nowhere near as safe as it was when we featured it for our Members yesterday.

Speaking of picking up the scraps our Members leave behind – Imax (IMAX) is getting cheap again at $20.35 and that trade was featured last Month on Money Talk, where we adjusted that portfolio to get more aggressive as they tested $19.  IMAX shot up to $24 in Feb but back to $20 now means yet another chance to enter this trade at not too much more than we paid at the time:

A Wrinkle in Time comes out this weekend but, much more importantly, the Avengers is coming along with plenty of other potential hit films so we still love IMAX and the Sept calls capture the summer box office.  The $15s are now $6.10 ($12,200) and the $20s are now $2.60 ($5,200) for net $7,000, which is up $1,000 (16.66%) from our entry in a month but it will still pay back $10 for a $3,000 additional profit (42%) in Sept if IMAX does manage to hold $20.  That seems like an easy way to make money, right?

So there are PLENTY of stocks we like long and, when they pay you 42% in 6 months – we don't need many of those to make really good returns.  That's how our Long-Term Portfolio can be over 80% in cash and still make 11.6% in just over 2 months  That leaves us plenty of cash on the sidelines to improve our positions (as we did with IMAX last month) and, most importantly, to hedge – because these markets are crazy and so is our leader – anything can happen and we need to be ready for it!  

8:30 Update:  Non-Farm Payrolls came in strong at 313,000 and last month was revised up 39,000 (20%) so very bullish but not necessarily good for the markets (though they are popping) as the wage inflation will pressure Corporate Profits and, of course, low unemployment and high inflation will force a Fed hike at the March 21st meeting – they simply don't have any reason at all not to hike now.  

So we took a loss at 7,005 on /NQ (-$100) and 1,580.50 on /TF (-$25) but now we can re-short at 7,050 and 1,590 with the same 5-point tight stops over but that should be about it as it was a knee-jerk reaction that's very likely to spark some profit-taking at these levels.  We can add a short at Dow (/YM) 25,100 too!.

Don't forget, nothing has changed other than this single data point and the Fed tightening cycle will be the story of the next two weeks.  In fact, we have Charles Evans from the Fed speaking right now on CNBC on his way to a speech on Monetary Policy in New York this afternoon.  He's not a voting Member and he's the biggest dove on the Fed but even he is saying these jobs numbers are "very strong" and the Fed is likely to remain on a tightening path with at least 3 rate hikes.  

That will, of course, take longer to filter through the news than the headline jobs so plenty of time to line up our shorts and we'll look to make more favorable adjustments to our hedges – using the additional gains from our longs this morning.

Next week will be very busy with CPI and PPI and Retail Sales, the Philly Fed, Industrial Production and Housing Starts and then it's time for earnings again as Oracle (ORCL) reports on the 19th, Lennar (LEN) and FedEX (FDX) on the 20th and our 2017 Stock of the Year, Wheaton Prescious Metals (WPM) rports on March 21st and there's another bargain to be had at $19.66 – down from $22.50 in Jan.  

We don't play WPM to win, per se, we simply play them not to lose and there's huge premiums so sell so what we like on WPM is:

  • Sell 5 WPM 2020 $20 puts for $3.55 ($1,775) 
  • Buy 10 WPM 2020 $15 calls for $6 ($6,000) 
  • Sell 10 WPM 2020 $20 calls for $3.50 ($3,500) 

That's net $725 on the $5,000 spread that is almost 100% in the money to start.  All WPM has to do is be above 20 in Jan 2020 and the short puts expire worthless and the spread pays $5,000 for a $4,275 (589%) return on cash (the ordinary margin on the short puts is $1,014) and those are the kind of "set and forget" trades we love to have in our Long-Term Portfolios (we already have longs on WPM in all 3 of our bullish portfolios).

We'll see how the day plays out but, if we do finish at the opening highs, we won't be all that bearish into the weekend after all – as it would be a technical victory for the week.  Still, I love the shorts this morning – seems like a fun play!  

Have a great weekend,

- Phil


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  1. FU FNSR!!!!!!!!!!!

  2. Good Morning.

  3. Good morning!  

    I have a lot of shorts now!   Now comes the patience.  

    /RB just missed goaaaalllllllllllllllllllll!!!! at 1.90 but we'll take $1.895 and run!  

    SPX well over 2,740 50 dma at 2,760 but it's still only day 1 over the line and the new contract added 10 points so nothing to get excited about yet.  NYSE taking out the Must Hold line  at 12,800 would be a lot more significant as it's right at it now.  

  4. buying wpm spread at 3.50 doesn't seem possible unless it drops more…

  5. $15s just went off for $6.03 and $20s $3.43, that looks like $3.40 to me.  

  6. How do you buy things, Jabob?  Do you bid on each leg or do you ask for the price on the spread (that never works).  

  7. that is 3.60 not 3.40

  8. i usually buy call spreads.. not one leg at a time.

  9. /RB took profits at 1.895 and 1.899. Cheers Phil.

  10. when i see a bid of the 15's at 6 and an offer of the 20s at 3.50…

    doesn't seem like buying the call spread at 2.50 is likely to happen.

    but the return on the spread will look great if WPM goes up, of course.

  11. LOL, my bad math!  

    Anyway, the point is, when I have a spread I fill the legs by offering less for the calls I want to buy and asking for more from the calls I want to sell.  So let's say I'm trying to fill 10, I'll put an offer in on 2-4 of each and see which one fills first and then I'll play with the other side until that fills and then I'll work on the next set – sometimes it takes more than a day but, if you keep at it, you either get what you want or only end up with a little bit of a full position – and you move on to the next one and you don't buy that unless you get a good price.  Same with selling – unless there's some urgent reason to get out.  

    It's no different than scaling in and out of the Futures except it takes longer and moves slower. 

    Good job Dave! 

  12. In the OOP, we're going to buy back the 40 SQQQ Jan $30 calls, now $1.65 and we're going to roll the Jan $20 calls, now $2.45, to the $15 calls, now $3.65.  

    We already bought back the short SQQQ Jan $30 calls in the STP.

  13. Shorting NFLX, Anyone?

    Despite a downgrade a couple of days ago, it’s back up from 317 to 325…

    Be careful!

     Maybe we need a ‘Contra Phil’ portfolio and see how these ridiculous value stocks do in that…just for fun, although high chance we win big, at least the way the market is going…

    However, will will need serious protection for that kind of gambling…Maybe Phil…can you devise one in your ‘spare time’? Haha!

  14. Phil,

    What are your future shorts that you have open now?

  15. I scanned the largest 50 ETF charts. I found that Mid Cap and IT Sector related ETF led the gain.  It seems rather systematic or maybe thematic.  Does that make sense for average investor to be smart enough to target mid cap growth stocks – given the other well known stocks are down?  All bond and energy related ETF were negative.  Growth stocks don't have debt only brick and mortar companies – interest rates don't matter.

  16. NFLX/Maya – We sold 3 NFLX April $300 calls in the STP for $22 and they are now $24.50 and our "protection" is to roll them to the June $350s (now $19) or the Sept $380s (now $20.50) or 2x the Jan $490s (now $10) and, if you think NFLX will burn you at $500 in Jan and you have shorts instead of longs – then you are playing the markets very incorrectly!  

    Keep in mind, the purpose of STP plays is to hedge.  We're shorting a silly high stock in case the market corrects and we're getting paid $6,600 to bet NFLX doesn't gain 66% by Jan.  To me – it's a good bet but feel free to go "contra" on it.  cheeky

    And again, this is balanced against longs in the LTP that are gaining $25,000/month if the market keeps going at this pace.  

    Futures/Japar – Let's see, I have:

    • 4 short /YM at 25,115, will reduce to 2 if even.
    • 2 short /RTY at 1,585.40 – happy to hold into weekend or DD at 1,590 and again at 1,600. 
    • 5 short /ES at 2,765.85 and would like to get back to 2 short there if even.
    • 10 short /NQ at 7,061.175, looking to get back to 4 even.

    Dollar came down to help out this morning:

    Growth/That – Sounds like a valid strategy as long as you are not chasing.

    At the moment, I'm taking this pop as a great chance to short at high entries but it's painful to work into them when the move is against you.  We'll see how things go when Europe closes (11:30).

    Other than NFP, which goes up and down for various reasons – there's no news driving this move and, of course, very low volume.  Last NFP was 2/2 and the S&P was at 2,800 and we closed 40 points lower that day (/ES is up 27 now) and fell to 2,650 on the 5th and 2,600 on the 6th so ouch!  

  17. Evans is on Bloomberg now saying the Fed should wait until June to raise rates – that's why we're popping at the moment.  He's a one-man market booster today, running around NY spinning the dove side of the Fed to anyone who will listen into the weekend.  

    Will take a while for his effect to wear off as he's being quoted and tweeted all over the place.  

  18. Phil. Please comment on labor report. Seems posit to me. 313k jobs and 4.1% unemployment 

  19. Hi Phil:  What is your take on FNSR post-earnings?  They are down a good deal.  Time to add? 

    Also, SKT is down a good deal today.  Any thoughts on why — is it just the likelihood of interest rate increases?  Time to add?  If so, would you cover with the Jan 20 20s now or wait until SKT ticks back up?

  20. John, SKT thinking for starters to buy more stock and sell more puts. Hold on selling calls.

  21. Yodi:  Thanks for your feedback.  I always find your posts to be quite valuable.

  22. looking for more armchair trades PSA buy stock 197.80 and sell Sept 190/200 p/c for 20.15 combined return about 1.85% per month.

  23. Trees UCTT BCS Jan 20 15/25  3.85 sell Jan 20 15 put for 3.30 and 1/2 cherries calls  Apr 22.5 for .95

  24. Armchair IRM still playable buy stock 32.75 and sell the Oct 30/32.5 p/c for 3.70 return about 1.95 per month!

  25. Yodi – thank you for your armchair trade ideas.  I, too, find your posts very helpful.

  26. bai you wellcome hope you like this site.

  27. Labor/Batman – Yes, read the post.  Main point is yes, economic positive other than tight labor markets and keeping the Fed in tightening mode (despite what Evans says).  But, of course, you could have read that in the post!  angry

    FNSR/John – The revenues are there, they just didn't make any money and that was mainly due to one-time, non-cash items.

    Q3 FY18 revenues of $332.4 million compared to $332.2 in Q2FY18 • Datacom revenues increased $9.5 million, or 3.7%, compared to Q2FY18 • Telecom revenues decreased $9.3 million, or -12.3%, compared to Q2FY18 Q3 FY18 non-GAAP financial measures • Gross margin of 28.6% compared to 30.3% in Q2FY18 • Operating margin of 6.8% compared to 7.8% in Q2FY18 • Earnings per diluted share $0.20 compared to $0.23 in Q2FY18 Strong balance sheet • Cash and short term investments of $1.2 billion as of January 28, 2018

    So they're not going to turn around soon, it's a long-term investment.  No compelling reason to add more unless it's a good deal. 

    SKT/John – Traders simply baffle me, they sell perfectly good stocks just because they aren't trending up.  Why would you not want this stock for $21.29 just because retail is in a tight cycle at the moment?

    AND they pay a $1.36 dividend!   In the LTP, we bought 2,000 shares at $22.25 but we sold the $20 calls so this has no effect on us at all but it might be a nice time to sell the puts in the OOP, where we don't own them yet.

    PSA/Yodi – You like those storage trades, don't you?  I like them in general but only making $7.50/share so I'd rather wait for a better pullback.  UCTT is a nice, boring company that's a great value.  I like that for the LTP:

    • Sell 10 UCTT 2020 $20 puts for $5.75 ($5,750) 
    • Buy 20 UCTT 2020 $15 calls for $9.50 ($19,000)
    • Sell 20 UCTT 2020 $22.50 calls for $6.50 ($13,000) 

    That's a grand total of $250 out of pocket on the $15,000 spread that's almost entirely in the money.  Good for a $14,750 (5,900%) gain on cash if it manages to go up $1.42 in 2 years and TOS says the margin is just $1,898 – so a very efficient way to make $15K in two years!  

    Good call Yodi.

    IRM/Yodi – Way too pricey at $32.75.  That's $9.3Bn for paper storage and people produce less and less paper.  Revenues just $200M means p/e over 45 and I just don't see growth making up for it.

  28. Meanwhile, indexes going up and up.  Nas almost 7,100 now, /ES 2,780, /YM 25,250.  Nobody's selling and the Dollar is back below 90.

  29. Phil IRM good point but same price as Mar 2016. I do hold the stock and it might be a good idea to add to it. Not to sneeze at a 7% div.

  30. Phil  – I agree on FNSR.  It looks like dead money for at least two more quarters.  Only play that I see is just the sale of some puts on a drop down to 16-17.

  31. But as usual to my comments do your own research and do not bet the farm on it.

  32. soPhil/ NFLX

    I see your ‘valuation’ short play- However, these markets are crazy and AMZN has been crazy valuation for a decade.

    So, except rarely, I stay away from these stocks unless the set up for short looks too good to not play….

  33. NFLX/Maya – Well I like to do them once in a while then things get very silly.  Often we get in trouble and have to roll them but they work out eventually and reaffirm my faith in the universe.  

    Speaking of faith in the universe – I'm still waiting for the indexes to pull back.  frown

    Scandal du jour:

    • In an amicus briefing, a set of former Justice Dept. officials is weighing in with concern over whether President Trump had improper influence over the DOJ's decision to pursue blocking the $85B merger of AT&T (T -0.1%) and Time Warner (TWX -0.1%).
    • The group includes Preet Bharara (the Manhattan U.S. attorney removed by Trump) and John Dean, former Nixon White House counsel and attorney general.
    • They're asking the court to review whether there was a possible agenda at work behind the decision to sue.
    • “President Trump has urged a criminal investigation of his political rivals; he has suggested that he can instruct the Department to halt investigations into his associates; and he has claimed an ‘absolute right to do what I want to do with the Justice Department,’ ” the filing says.
    • “Indeed, this case is being pursued under a cloud, with a perception — at least by some — that DOJ brought this case at the behest of President Trump in order to punish CNN for what he viewed as unfavorable coverage of his administration.”
    • Only a statistician might be able to understand, but the Atlanta Fed's GDP tracker is seeing slower Q1 growth following this morning's stronger-than-expected jobs report.
    • The outlook calls for 2.5% GDP growth vs. 2.8% previously. Five weeks ago, growth north of 5% was forecast.
    • The Blue Chip consensus remains at about 2.7%.
    • Previously: February job gains way ahead of expectations (March 9)
    • Coming shortly after reports earlier this week about Amazon (NASDAQ:AMZN) looking to enter the checking-account business, Housingwire's Jacob Gaffney says the company is on the lookout for someone to run its newly formed mortgage lending division.
    • Who that hire might be is in question, but a check of the talent at the top 10 nonbank lenders should provide clues, writes Gaffney.
    • Quicken and Wells Fargo (NYSE:WFC) are the country's top two mortgage lenders.
    • Japan's household spending rebounded in January to 1.9% driven mostly by higher costs for necessities like medical and fuel, while workers' wages after adjustment fell 0.9%, fastest since July 2017.
    • The decline suggests the government will struggle to convince large companies to raise wages by 3% or more this year at annual negotiations with labour unions.
    • "The slowdown in base pay in January suggests that the Bank of Japan won't be able to tighten monetary policy anytime soon," said Marcel Thieliant, senior Japan economist at Capital Economics.
    • Restaurant same-store sales fell 0.8% in February, according to data from TDn2K.
    • Comparable traffic was down 3.1% during the month as harsh winter weather in key regions factored in. Guest spending rose by 2.4% during the month, a deceleration from the 3.0% pace seen in January.
    • TDn2K: "We had several external factors in February that cloud our view into the underlying performance. There were weather events that included winter storms as well as record rainfall in some areas. The Winter Olympics captured the attention of almost 20 million Americans nightly for two weeks. Plus, Valentine’s Day fell on Ash Wednesday, a time when many people were involved with church activities. Each of these events impacted sales to some degree."

  34. Meet The Richest People On The Planet

  35. On fire today! I’m short /NQ and /YM

  36. nflx amzn new alltime highs….

    gooble gobble

  37. Me too Jeff!  Wiped out my /RB & /KC gains.  

    I lost my Internet connection and I’m waiting for to come back – hopefully.

    Will relocate in a half hour if it’s not back on. 

  38. New all time highs!!!

    Trying to short the high flyers but keep losing internet in Alaska Airlines at 37k ft!

  39. Hard to say if the indexes keep rocking up into the close or fall back…..what say Phil?

  40. Well that's lovely, went past all my stops when the internet was out (on a hotspot now).

    Just gotta grin and bear it I guess..

  41. All my shorts stops triggered!

  42. Yeah, this is relentless.

    I'm down about $15K, up from $10K before I lost connection so, at this point, I'll see how it closes.  Will cut back to 1/2 over the weekend – in case it goes even higher Monday but then I'll probably double back up at a higher avg.

    Of course, if I can recover to a $5K loss this afternoon – I'll probably be happy enough to go flat into the weekend and just chalk it up to a bad day.

  43. So I take it everyone is pretty well-balanced?  

    Certainly this is a good upside test.  

    We could be more bullish as the LTP is only up 1% today, not keeping pace.  

    STP, on the other hand, has not taken much damage so far so – BALANCED.

    Oil blasted to $62 and /KC hit $120 again.

  44. How much volume is there in the rise du jour?

  45. About normal for Friday maybe 2/3 of an average day. Not that the average days how much volume lately either.

  46. Phil, which indexes are you short?  i am short /TF although i think /YM might be a better candidate for a pullback.  hoping to get back to 1580.

  47. Sadly, I'm mostly short /NQ (see above) with some /YM and /ES for bad measure. 

    Incredible move today and, if it does hold up Monday, we'll just have to stop thinking and start going with the bullish flow.

     Also, Europe didn't close up today, so they have a lot of catching up to do if they decide to open bullish as well.

  48. Well, sorry about the web outage (still out).

    Amazing finish at the highs of the day, we'll see if it sticks next week.

    Have a great weekend,

    - Phil

  49. Who needs coal when we have fusion close to be a reality (maybe)

    The dream of nuclear fusion is on the brink of being realised, according to a major new US initiative that says it will put fusion power on the grid within 15 years.

    Probably will be defunded by Trump and the Kochs!

  50. Phil, did you lighten up on your index shorts before the close? 

  51. UCTT/Phil- is that a trade to be added to the LTP?

  52. This is pretty cool! Commercially feasible nanotube sheets that pull CO2 from the air and turn it into gasoline or jet fuel. Also desalinizes water using less energy than current methods.


  53. At Pennsylvania rally, Trump endorses himself

  54. Bannon: ‘Let them call you racists’

  55. California bullet train costs soar to $77B; opening delayed

  56. I capitulated on my /YM shorts, it just looks like they have too much room to run. Hold /NQ shorts and will DD at 7150 to get to 4 at 7100. Will sit tight there. 

  57. I’m still half in and will do again if we’re higher, but a bit of a suicide mission at the moment.  Don’t forget, Europe and Asia are catching up to us from Friday and that’s pushing our futures. The real action will come when we open but, then again it’s going to be Monday.   

  58. The 64 most outrageous lines from Donald Trump’s untethered Pennsylvania speech

  59. Suicide mission…that’s the first time I’ve seen you describe a position that way! I’m gonna see how the week goes. Will probably try to use a bullish offset if we keep going higher.