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Thursday Market Fakery – Pump it Up!

"Down in the pleasure centre,
hell bent or heaven sent,
listen to the propaganda,
listen to the latest slander.

Pump it up until you can feel it.
Pump it up when you don't really need it.
" – Elvis

S&P 2,728 again – they can't keep us over it but they won't let us go under it either. 

Today marks two weeks at the strong bounce line and an optimist would say we're consolidating for a move up but a pragmatist would say this is all being done on low-volume BS pump jobs that are faking market highs by holding up the headline stocks while the broad market sells off – leaving the retail suckers holding the bag when the bottom ultimately falls out.  

Notice how, nearly every day, we hit a high early in the day and then sell off?  That's how you catch big game fish, you give them a little line and then you reel them in and then give them a little line and reel them in again – over and over until they are exhaused and you can haul them onto the boat and gut them and have them for dinner.  That's what's happening to Retail Investors at the moment and the Top 1% are baiting the hooks.  

Yesterday the market blasted higher on the release of the Fed Minutes, which didn't really say much other than the addition of the word "symmetric" but it was used in regards to INFLATION, not rates.  Here's the context of the statement that got the market "so excited" yesterday afternoon:

"Participants generally expected that further gradual increases in the target range for the federal funds rate would be consistent with solid expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Participants generally viewed the risks to the economic outlook to be roughly balanced."

Now, keep in mind this a 5-minute chart so it took less than 5 minutes of reading the minutes for traders (bots) to decide that the minutes were doveish and blast the market higher – with the S&P gaining a quick 1% on a volume spike that lasted all of 5 minutes, followed by another volume spike right into the close to max us out at 4pm – to give the global retail suckers the impression that all is well in US equities.

If you want to see something really entertaining, check out the replay of our Live Trading Webinar, where my Nasdaq Futures (/NQ) shorts got crushed in the rally and I stubbornly stuck with them on the way up, scaling in to a larger position and, eventually, a $2,000 loss.  Fortunately, we hung onto them overnight and they ended up making $2,000+ as the Nasdaq dipped overnight - but it was a rough ride for a while!  

There's another chance to short the Nasdaq (/NQ) this morning at 6,950 but let our rough ride yesterday be a cautiouary tale – they don't always go your way so use very tight stops above the line if you don't intend to scale in to a larger position (which can get very expensive, very quickly – as demonstrated!).  

Of course, this is still just the same Nasdaq shorting cycle we began last week at 7,000 and we already took a $2,000 per contract profit off the table last Wednesday and again from Tuesday's call to short the Nas at 6,950, which made us another $2,000 per contract profit yesterday morning.  So you'll have to forgive me for triple-dipping on the Nasdaq but it's our intention to keep shorting it until we get back to our 6,500 target – and that's still $9,000 away!  

Remember – I can only tell you what is likely to happen in the markets and how to profit from it – the rest is up to you!  

Of course we use our Futures trades as hedges, which is why we prefer short entries to long.  On the long side, we have many robustly bullish plays in our 5 Member Portfolios and they make TONS of money when the market goes higher – far more than enough to offset a $2,000 loss – if it were to stick.  As noted yesteray, our main, paired LTP/STP gained $12,997 for in the first two days of the week (the LTP had $500,000 in 1/2 and the STP had $100,000 to hedge against it) so it was that gain we were looking to lock in by shorting the Futures as they popped.  

It's still all about the NYSE and whether it's over or under that 12,800 line but I remember a time when the Dow and the NYSE would run completely neck and neck.  That has gone completely out the Window as the headline index has been jammed 17% higher since Donald Trump was put in power by the USSR so thank you Putin – I guess…

The NYSE is right where we expected the market to be given that tax cuts, repatriation of capital and buybacks that have boosted the indexes over the past year plus.  On the other hand, the Dow is silly and the Nasdaq is sillier and we're back to a 1998/1999 market, where Fundamentals don't matter (for now) and people are paying ridiculous forward multiples for stocks in the belief that this party is never going to stop and there's no piper to be paid.  Is this time different?  Don't bet on it!  

What we can bet on is our Trade of the Year on Limited Brands (LB), which is taking a hit today as guidance was brought down to the $2.70-$3.00 per share for 2018, which we knew was going to be a rebuilding year.  Here's how we're playing it from our Live Member Chat Room last night:

LB – Oh no, they will only earn $2.70 per $34 share?!?  Why God, why????  Holy crap people, the reason we like them is because people are idiots and don't know how to value a company – don't go run and join them as soon as we hit a bump in the road!

Same with GE, back at $14 again, where it's a screaming buy.  

These are INITIALLY 2-year trades and sure, it would be great if, like THC or IMAX or SPWR or VRX or CMG they took off in the first Q and blew through our targets without any trouble but it would be juvenile to expect that to happen every time – as much so as it would be completely irrational and ignorant of the working of Finance to think that it's easy to make 300% returns on trades just because that's your opening ask when you set up a spread.  

If it were that easy – then the premiums would be such that we'd only be able to get 20-40% initially, since the odds so strongly favored a winning outcome.  

We're down net $11,000 on our LB position in the LTP, worse tomorrow and it looks like this:

Short Put 2020 17-JAN 37.50 PUT [LB @ $34.05 $0.06] -15 5/11/2018 (604) $-14,550 $9.70 $-0.55 n/a     $9.15 $-0.25 $825 5.7% $-13,725
Long Call 2020 17-JAN 30.00 CALL [LB @ $34.05 $0.06] 30 4/20/2018 (604) $23,400 $7.80 $-0.10     $7.70 $0.70 $-300 -1.3% $23,100
Short Call 2020 17-JAN 40.00 CALL [LB @ $34.05 $0.06] -15 4/24/2018 (604) $-6,375 $4.25 $-1.15     $3.10 $-0.70 $1,725 27.1% $-4,650

Currently it's a $30,000 spread and is currently valued at $4,725.  At $2.70 per share, let's say they are worth 14x so $37.80 and at least 12x so $32.40 is very fair (on low end of guidance with each 0.10 beat adding $1.20) for Jan 2020.  Since our calls are $30s, it doesn't make sense to stay in for $32.50 so we have to decide whether to fold with a $15,000 (guessing) total loss tomorrow and lose 1/3 of a $50,000 allocation block which we can easily make back if we have a 1/4 investment ($12,500) that does make 300% – so one winner wipes out 3 losers.

Or we can spend $5 to roll the $30 calls to the $20 calls ($15,000) and buy out the 15 short $40 calls for $2.50 ($3,750) and then sell 20 of the $35 calls for $4.50 ($9,000) so we've spent net $9,750 to be in the 2020 $20/35 bull call spread with the short $37.50 puts.  Since we think it's ridiculously low, we could sell 15 more of the $30 puts for $6 ($9,000) and then we're back to our original $11,000 loss on the $45,000 position that's $36,000 in the money at $32 and, since we still have 10 calls uncovered, we can begin selling 10 July $35s for $1 ($1,000) and, if we do that 10 times, we erase $10,000 in cost and drop our net on the $45,000 spread back to $11,000.  

Yes, we have to work at it and yes, we're committing $20,000 to make $45,000 instead of $11,000 to make $30,000 we originally hoped for but now we have a wider spread that's 90% in the money with a very good chance of success and a in a good position to generate a bi-monthly income while we wait. 

This is not a flaw in the strategy – IT'S THE DESIGN!

As a new spread, that would be:

  • Buy 30 LB 2020 $20 calls for $6 ($18,000) 
  • Sell 20 LB 2020 $35 calls for $4 ($8,000) 
  • Sell 15 LB 2020 $30 puts for $6 ($9,000) 

That would be a net $1,000 CREDIT on the $45,000 spread so the upside potential is $46,000 at $35 and 33% of your gains aren't even capped (but it is our intention to sell some short calls as they recover).  The ordinary margin on 15 short $30 puts is about $5,000, so this is a very margin-efficient way to make $46,000 and, since it's our Trade of the Year, if you sign up for a new PSW Annual Premium Membership ($9,995) by May 31st and this trade doesn't return more than $10,000 by May 31st of next year (or your renewal date) - I will give you another year for free!  You don't even have to make the trade – just subscribe (and stay, of course), so you either pay for the year with profits from the trade or you get two years for the price of one.  

How's that for a trial?

 


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  1. Good Morning.


  2. Probably true in general but not sure that I would want more exposure to the market now:

    https://www.marketwatch.com/story/why-you-probably-have-less-money-invested-in-stocks-than-you-should-2018-05-23

    How do investors weigh the upside and downside risks? Most investors are risk-averse. They are not interested in a stock that has a 50% chance of going up 20% and a 50% chance of going down 20%. They want stocks that, on average, have positive returns. In fact, studies of loss aversion suggest that the pain of a prospective loss is typically twice as powerful as the pleasure of a possible gain — most people would not buy a stock with a 50% chance of a 20% loss unless there was a 50% chance of a 40% gain.


  3. Good morning, All!

    The webinar replay is now available!

    https://youtu.be/KKpx9SOnkXg



  4. http://ir.quicklogic.com/news-releases/news-release-details/quicklogic-corporation-announces-pricing-155-million-public

    Yuck ! 

    The reason they are raising money is to support the large launch of new products, but painful nonetheless.


  5. go LB!

    Please no tease!!!


  6. Phil: GE

    Do you really want to remain completely uncovered in the LTP.  Can’t we sell anything?


  7. Good morning… ha.. LB, moving up!… looks like this is true value now!


  8. Tdump calls off NK meeting….you KNEW this would never happen….


  9. …the meeting, that is….


  10. LB probably short covering. I'm waiting.


  11. Good morning! 

    Damn, I guess we should have let LB sell off more before pointing out how stupid the sell-off was – now it's up so no changes to our play if we can't get good prices but, of course, if we can roll down $10 for $5 – we want to do that!  

    Big Chart – I think the NYSE will be drawn to that death cross at 12,550 like a magnet. 

    Loss aversion/StJ – I find it works the opposite way, people tend to be quick to take a 20% loss but slow to take a 20% gain – or even a 40% gain.  If you don't learn how to take gains – you're never going to win.  

    Speaking of losses – the NoKo summit is officially off!  Trump blew it…  I don't know why the market would care so much about it though but down we go – just an excuse to sell off, I think.


  12. LB pays 7%dividend? Wow. Seems like a solid company though cash flow is down a little.


  13. BBY beat and is down almost 5? 11% short interest? What a freaking crazy market.


  14. GE/DC – Has LB taught you nothing?   Our LTP position is this:

    Short Put 2020 17-JAN 18.00 PUT [GE @ $14.18 $0.00] -20 1/8/2018 (603) $-4,800 $2.40 $2.08 n/a     $4.48 $0.07 $-4,150 -86.5% $-8,950
    Long Call 2020 17-JAN 13.00 CALL [GE @ $14.18 $0.00] 50 2/9/2018 (603) $19,000 $3.80 $-0.73     $3.08 $0.08 $-3,625 -19.1% $15,375

    I think GE is very undervalued at $14.50 so I'm not at all inclined to sell calls at this point.  If you buy a house for $500,000 and the market turns down and someone offers you $350,000 – do you feel compelled to take it or do you say "I have a perfectly fine house I'm happy to live in long-term, so I'll wait for a better price?"  If you plan to own GE for 20 years – who cares about the price in May of 2020?  

    CAN you sell something?  Sure, anything you want.  I just wouldn't do it myself.  In this exact position, if I were worried it wasn't going to recover, I would sell 25 (1/2) of the 2020 $18 calls for $1.20 ($3,000) and roll the 50 $13 calls at $3.25 ($16,250) to 50 of the 2020 $10 calls at $5.20 ($26,000) for net $6,750 and that would leave me with 50 2020 $10/18 bull call spreads and 20 short $18 puts at $21,950 so the break-even is $14.39 (ignoring the short puts, which we can roll for years) with an $18,550 upside at $18+.  With the $18,550 upside now in place, you can work on getting the $21,950 investment back by selling 15 (1/3) July $14 calls for 0.93 ($1,395) and 10 sales like that will recover about $14,000 while you wait.  I plan on doing that, but I want to sell $15+ calls for $1+ – so I'll wait. 

    Crazy/Pirate – You bet!  Hard to figure out what the market will like or not like.  Used to be that profits were what mattered but no longer…


  15. NoKo / Phil – But Trump still gets the Nobel Peace prize for trying, right? Richly deserved if you want my opinion.


  16. By the way, important note on the above strategy:  In the money options don't really "expire" on you so, when I say we will make 10 sales of $13,950 against our $21,950 GE position – it doesn't mean we'll end up with nothing in 20 months.  What will happen is, if GE is at $14, we'll maintain $20,000 of value on our 50 $10 calls and we'll owe $8,000 to our short caller so we'll then take our $12,000 and set up a 2022 spread of a similar size and then sell another $14,000 worth of short calls over the next two years.  Even if GE is still at $14 in 2022, we will have collected all the money we've laid out and we STILL have $20,000 in value from the new position (we already netted out the loss of the $18 puts) – and that's assuming GE is flat! 

    Can GE go down more?  Sure, then we roll and add to the position again and, as long as they don't go BK – we'll eventually get our money back and whatever is left is profit.  

    Even if it were a $50,000 allocation and even if it took us 4 years to make $20,000 – that's still 10% a year on our money in a crap position.  And remember – that's assuming that, every quarter, we're looking at earnings and deciding to stay in based on the new information.  Any time we don't feel like we're going to get a good return on our allocation – we pull the plug and move on! 

    Prize/StJ – Had they handled this properly, he literally could have been in contention for a prize for starting a twitter war with a nuclear opponent.  That would have been funny.  I think the real reason Trump is blowing up the peace talks is to create a distraction as the scandal keeps growing and the evidence keeps mounting that many, many of these guys will be going to jail.  

    I'm heading to Albuquerque (not by choice!) this afternoon and I will try my best to wake up tomorrow and make a post on time but may not be a realistic goal considering I arrive there at midnight or 1am by the time I hit the hotel and markets open at 7:30 am their time.  


  17. Phil – AlbeTurque….. Safe Travels.  

     

      I spent 2 days interviewing with a company there ( funny thing is the company was based in NY but they had conference there). Weirdest interview….  played tennis with CEO and CFO..  


  18. Phil – AlbaCracky…. Have fun…. :)

     

    Never been there.  ;)


  19. Good Morning.


  20. Yup, lot's of folks going to jail….starting with Tdump being lead out of the W.H. in cuffs….

     

    Yea, I know. Dem Porn. 


  21. I like those kind of "interviews", Batman – If you are going to be that high up in a company, you should get to know the guys you'll be working with every day first.

    Nas is still lagging badly:

    No fun 1020, just a rehersal dinner (my Nephew) tomorrow, a small wedding Sat and head home on Sunday because it would be impolite not to go.  I would have loved to go to Vegas or something for the weekend but – even though I love seeing my family – weddings are a bad setting for sitting down and talking.  At least the kids can check another state off their list…

    You're late, BDC!  surprise


  22. Albuquerque – I had to look up the spelling on this one – Is supposed to be a nice city with some cool architecture and surroundings….It's on my list for the air balloon festival.



  23. 1020/ Albuquerque

    I used to live in El Paso, so spent time in Albuquerque.  The balloon festival is wonderful.  Must spend time in Santa Fe if you go.




  24. lalalinda2 – I'm surprised we have not visited New Mexico. Spending the years we did in the Southwest, I've always admired the architecture and natural beauty of the state.





  25. ~~GE : CNBC's David Faber reporting that GE does not plan to cut its dividend.


  26. thx albo!


  27. Balloon festival/1020 – We have one of those in NJ but, since it's one of 1,000 things we have going on – no one makes such a fuss…  cool

    Image result for joker balloons animated gif

    Trump is so proud of dismantling Dodd-Frank.  Because it was really crushing the economy and the Banking Sector these past 8 years, right?

    • Mortgage rates continued their rise to multiyear highs in the latest weekly survey from Freddie Mac.
    • The 30-year fixed-rate mortgage averaged 4.66% for the week ending May 24, up from 4.61% last week and again reaching its highest level since May 2011, while the 15-year fixed-rate mortgage averaged 4.15% vs. 4.08% a week ago.
    • “Mortgage rates so far in 2018 have had the most sustained increase to start the year in over 40 years,” says Freddie Mac chief economist Sam Khater.
    • A year ago at this time, the 30-year and the 15-year fixed rates averaged 3.95% and 3.19%, respectively.
    • AGNC Investment (AGNC -1.9%) leads mortgage REITS down; others with significant declines ARMOUR Residential REIT (ARR -1.1%), Orchid Island Capital (ORC -1.2%), and Annaly Capital Management (NLY -0.8%).
    • AGNC's public offering of 30m shares of common stock priced for total expected gross proceeds of about $558M, about $18.60 a share.
    • AGNC expects to use proceeds to finance the acquisition of agency securities, non-agency securities (including credit risk transfer securities), other mortgage-related assets and hedging instruments, and for other general corporate purposes.
    • Source: Press Release
    • Previously: AGNC -1.8% with offering said to come at $18.60-$18.80/share (May 23)
    • General Electric (GE +1.8%) recoups a slice of yesterday's heavy loss after CNBC's David Faber reports that the company does not plan to cut its dividend.
    • GE shares plunged to their biggest one-day drop since April 2009 after CEO John Flannery told analysts that the company would "have to see how this plays out" when responding to a question about the 2019 dividend – remarks that may have been misinterpreted by investors, Faber says.
    • Even GE bear Stephen Tusa at J.P. Morgan offers something of a defense of the company, saying a combination of "technicals, confusing math and excitement created by some in the media" have brought shares to an "irrational level," though he still rates GE at Underweight with an $11 price target.
    • Shopping-center REITs have been oversold, and the end of April represents a near-term bottom for the group, Baird analyst RJ Milligan wrote in a note, Bloomberg reports.
    • Milligan raised the sector to overweight.
    • Q1 earnings showed fundamentals are stable, though still challenged; Baird likes companies with lower leverage and higher growth, including Regency Centers (NYSE:REG), Retail Properties of America (NYSE:RPAI), and Weingarten (NYSE:WRI).
    • Toys "R" Us closings will likely erode bad debt reserves later in the year; however, most exposed strip centers reiterated same-store NOI guidance and should be able to meet growth expectations, barring any other sudden closures/bankruptcies, Milligan writes.
    • Previously: Rough session for mall names on Toys 'R' Us liquidation (March 9)


  28. IMAX – if you can get $1 for IMAX Sept $20 puts, that's a 27% return on margin in 120 days (83% annualized), and not bad put backing for any near term hedge you might want.


  29. WHR/Phil – dutch auction. why are they doing this to themselves?


  30. Dodd-Franck / Phil – If Obama had found a cure for cancer, Trump would make it illegal on the ground that it hurts the healthcare industry! It's now almost a certainty that we will have to bail out some banks sometimes in the future. And as before, no one will be held responsible, they will get massive amount of money from all of us and look for ways not to pay taxes once they are back on their feet. And they will be enabled by one of the parties in power. Sickening!


  31. Anyone playing /RB for rise into the long weekend?


  32. IMAX/Scott – More summer blockbusters to come too.

    WHR/Scott – Not sure why the sell-off.  I guess they didn't get all they wanted from the auction but not really a negative – just means people didn't want to sell.

    /RB/Ult – I think it drops after the weekend but too dangerous to play.

    RUT turned green! 


  33. Phil/GE

    Yes, sometimes it’s hard not to hear the noise and stick to a value proposition and to remain uncovered for any period of time.  I am glad I didn’t do anything…for now.


  34. Today glad, tomorrow sad, Tuesday happy again…  I don't see the point in looking at these things more than once a quarter…


  35. LB/Morning Post --  Phil,  The new trade on LB has the price on the 30 call listed at $6.  This is either a typo, or I am changing to your broker.  


  36. LB/Grass – It's a no play.  LB was 10% down pre-market, now 2.7% up so we never hit the numbers we expected on a 10% drop.  I wrote the post before the market opened and before LB popped back up in hopes we could take advantage of the morning dip – but the dip reversed before the bell.  frown


  37. Well, I have to get to the airport – I'll check in via IPad later but seems like we're done going up and back to drifting.  


  38. Safe travels Phil!


  39. this market seemingly can't stay down! unreal.


  40. Phil/ Santa Fe   Second the idea if you have time. Excellent food there.


  41. QUIK ?


  42. Stockbern -  See my 9:35 post.


  43. Albo, thanks I'm behind reading chat today


  44. 2,727.75 – Amazing!

    Time/Scott – I will have no time. 


  45. How to Play $80 Oil






  46.  Good morning!

    Well, I was going to have a post up on time, but my computer crashed. Anyway, I’ll get there soon.