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Turnaround Tuesday – US Markets Run Up in the Futures Just Because

Yet another meaningless Monday erased from history.

After all of yesterday's excitement, the Futures have taken us right back to where we finished on Friday, 2,832 on the S&P 500 and 25,300 on the Dow – as if yesterday never happened.  I'm not sure it will last as Europe is flat, not up and China was down yet again this morning so there's nothing really to get too excited about and 25,300 is a good shorting line on the Dow Futures (/YM) with tight stops above – if you feel like playing.

We felt like playing yesterday as Gasoline (/RB) dipped down to the $2 line and Oil (/CL) fell to $66 and I said to our Members at 1:48 in our Live Chat Room:

Wow, Oil etc went down hard and fast, good chance to get back in for the bounce off $66 on /CL and $1.99 on /RB (tight stops below).  

I know, so complicated, right?  How will you ever learn the jargon?  Well, I would think our results would motivated you as those Gasoline contracts made a quick $1,000 each at $2.02 (and back to $2.05 this morning for another $1,260 per contract since) while Oil Futures (/CL) blasted back over $68 for a $2,000 per contract gain ($67.50 in yesterday's close was $1,500 per contract – also very nice!  

Futures trading is the only kind of day trading I like to do as it's a nice quick way to take advantage of market stupidity without incurring a lot of trading fees and, more importantly, without consuming your attention.  As Fundamental Investors, we KNEW $2 was too low for /RB (that did not stop it from hitting $1.98, of course) and we KNEW $66 was too low for oil with 2 weeks until a holiday weekend so it made good sense to take a chance at those levels and notice we waited until AFTER it bottomed – you don't get rich trying to call exact bottoms or tops in the Futures!

 As I was saying in last week's webinar, trading is not hard if you simply learn to be patient enough to wait for the right opportunities.  One of the biggest problems day-traders have is they sit down TO TRADE at a certain time and, if they don't see a fantastic trade set-up, they tend to settle on a so-so trade set-up, just because they don't want to "waste" their session.  That would be like a fisherman brining home old shoes and rocks – because the fish weren't biting.  You can improve your trading percentages dramatically by simply learning NOT TO TRADE more often than you do.

Turkey is still having a crisis and Turkey is a LOT bigger than Greece, with an $850Bn GDP vs. Greece's $160Bn when they collapsed and Greece almost took the whole EU with it so forgive European investors for being A LOT more cautious than US investors are being.  And why not, we're also ingnoring Argentina ($550Bn GDP) who are now paying a 45% (not a typo) prime rate to anyone foolish enough to lend them money. 

Despite what seems to be a tightening move from 40% yesterday, the Peso still fell another 3.5% this morning.  Inflation in Argentina is "just" 22% so far this year, not even what this country calls a lot – as they have suffered two rounds of extreme hyperinflation in the past and, so far, their currency still has the same number of zeroes on it as it did before.  

Oddly enough, as of last month, the people of Argentina think their country is only 4% more screwed up than US citizens feel about their own Nation and Germany, the UK, France, Spain and even Sweden in Europe think their countries are more of a disaster than the people of Argentina do.  Chinese people are the happiest, with 91% of the population thinking their Government has things going in the right direction – even Russians are happier with their leaderhship than Americans are with theirs which is ironic – as it's the same guy!  

Oh, and speaking of disastrous leaders who make poor decisions – guess what Argentina does that other contries don't do (or weren't doing until recently)?  That's right, they have/had the highest tariff rates in the World and it was destroying their economy so their idiot President doubled down and put on MORE TARIFFS and the economy collapsed – can you believe the stupidity?

Maybe our own countries 25% tariffs will be good for Argentina, who become cheaper by comparison – as does any other nation not run by a psychopath…

 


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  1. Predictions from Vanguard:

    https://www.nytimes.com/2018/08/10/business/vanguard-recession-economy.html

    Vanguard tracks data to predict the likelihood of a recession at certain points in the future. In recent years, the company has put the probability of a recession six months out at close to 10 percent. Now, Vanguard says the chances of one by late 2020 are between 30 and 40 percent. That’s Vanguard’s highest-ever estimate for that time frame, Mr. Davis said. (A six-month forecast reported a greater than 40 percent probability before the recession that started in December 2007.)


  2. Improving the CAPE ratio:

    https://alphaarchitect.com/2018/08/03/a-qa-discussion-with-vanguard-researchers-on-the-fair-value-cape-ratio/

    These guys at Vanguard are trying to fix some issues with the CAPE ratio:

    The traditional CAPE regression essentially determines the valuation of the equity market (over or under valued) relative to the historical average level of the CAPE. If CAPE ratio is higher than its historical average, the market is said to be over-valued and vice versa. The first problem with identified with that approach is that a “normal” equity market valuation depends very much on the broader market and economic environment.  For instance, it’s well known among practitioners that low earnings or dividend yields are to be expected during periods of low interest rates. Low earnings yields means high price-earning ratios, but that doesn’t mean the market is over-valued. So, in the fair value CAPE model, we statistically adjust the historical relationship of the CAPE ratio to various economic fundamental variables such as real interest rates, inflation, equity volatility, bond volatility and then forecast these variables 10 years out.

    The actual CAPE ratio is in dangerous territory now:

    Maybe the revised one is not so bad… I don't see a link in the article.


  3. Good Morning.


  4. Good morning and wheeee! on the Dow already. 

    I love the smell of $250 per contract in the morning.  It smells like…. sushi dinner!

    Anyway, morning is all I've got to give now – I'm heading off for a nice catamaran/snorkeling kind of day trip, which I love as catamarans are my favorite – I like to ride on the netting in the front and watch the water fly beneath me – it's like flying…  

    I won't be back until late and a full evening is planned (it's Pirate Party Night!) 

    Dow needs to stay positive and hold the 20% line on the Big Chart but it should be firmly bouncy as we made that "M" above it testing from the top.  Also, the Nas will get support from the 20 dma at the same time and /RTY 1,680 should be support too but, if those fail – short the laggard with tight stops above.

    As Vanguard notes – we're certainly overdue for a proper correction.

    CAPE/StJ – If they start adjusting for all that nonsense then what about tax rates or the economy in other countries or tariffs or….  It goes on and on – you can't have a single indicator that solves for the entire economy.  Values are ridiculously high and it's been a great indicator in every crash so far.  


  5. Oops, forgot to mention NYSE at Must Hold line – HUGE indicator, especially with the 50 dma potentially failing at the Must Hold line, which would be a TERRIBLE sign for the market.  Think about how the 50 dma is drawn – if the NYSE is below it, the average draws lower but there's still upward momentum as the last 30 days have been well above it so just being a little below the Must Hold line won't stop the 50 dma from making a positive break over that line because the 20 candles above will pull the 20 candles that are just below to a 50 dma that's certainly above the line so the only we we turn bearish enough to worry is if the NYSE breaks below the 200 dma (12,700) over the next few days – after that it would likely be too late to matter.

    So, in short, if the NYSE holds the 50 dma for the rest of the week, it will break over the Must Hold line and THEN it is time to make new lines for our chart BUT, until then, I remain cautious.


  6. Have fun Phil!  :)


  7. That was a quick fizzle – the trend seems to be for a future ramp up and then selling during the day!


  8. LQDA going parabolic!


  9. Good morning!

    Anyone follow casino stocks? Noted WYNN down to $148….. from the 190’s but even lower than the Steve Wynn resigning price of around $168.


  10. Maya1 WYNN to me it is a yoyo stock lost quite a bit of money on it. At the 85 range it would look better.


  11. Even LVS they all to high. For an entry they need to come down to reality. I held that stock at an entry of 52!!!!


  12. Will GE and ABX ever stop bleeding every week? Dangit!


  13. Contrary to my normal entry I have established a new short term armchair trade on ABBV.

    Originally I opened a play on 7/30 where the stock was trading at 89.95.

    However I feel the stock is still on the lower side of the channel, so I was tempted to enter another play.

    Buy the stock at 95.95 and sell the Aug 24 strangle at 2.09.

    The breakeven points are 92.90 and 98.60. Combined return is 6.8 %. Naturally I intend to hold the stock for future trades.


  14. Possible even you have seen it on TV.

    A large bridge in Genoa, autobahn A10 has collapsed. I think we even have used the same bridge on our way to Croatian..

    That shows you how things go. Obviously many autos where on the bridge. Many dead. You going with about 100 to 120 km/h and suddenly no more road underneath you. 40 meters down you go.

    Terrible thought.

    Possible a cheap Job or missing maintenance.


  15. Further archchair XOM buy stock @ 78.23 and sell the Sep 21 77.5 / 80 strangle @ 2.00 Break even 75.50/85. Combined interest 2.3 % per month.


  16. Hi any one else on this site?????????


  17. Hi Yodi.


  18. ;)


  19. Im on and off reading your posts


  20. Yodi 

    Morning!

    WYNN- at some point I think it becomes a value…I just don’t know where that is yet…will look at it later.

    Bridge…sad, but that’s why infrastructureis important.

    Meanwhile, I am short TSLA, BUT not as much as Phil is and ready to take my profits and run….don’t trust the owner of the company!!


  21. Hi Yodi, I here too.. quick question how many people still owns HMNY and how many shares?


  22. Glade some are awake.

    Maya1 TSLA I think I will sit this out. That stock can only go one way at the end, and ifff there is any truth in respect of an investor, I love to shake hands with such a nut.


  23. Hi Yodi!!!

     

    Aware of the Genoa bridge…as you, I have been there!

    Yodi, what about TSLA, I know you are not a friend of unicorn companies, but here it seems that a small short time speculative investment can be played.


  24. SORRY, i WAS ASKING AS YOU WERE TYPING


  25. DaveH sorry I am not in to this play HMNY, so can not comment.


  26. HMNY- just curious why is MS buying on 10 August? was reading the SEC filing…


  27. daveH--i own HMNY toilet paper. fortunately, i never doubled up on it. I expect it to be a zero but would love for it to recover. Hopefully, they will either pull off a miracle save or file soon so we could use it to offset gains.


  28. Hi Advill,

    Yes we crossed this bridge on our last trip direction Cratian. Just thinking as on our travel we cross many grand bridges, horrible feelings!!!

    TSLA Phil set up a play 8/8. The stock was somewhere at 377. Did you get that one?

    I waited a day and did not get the top of the trade but still I am up today 1600$


  29. My trade suggestions.

    I find the site is very quiet while the Boss is gone sailing.

    Obvious my armchair trades are more expensive, than the normal option trade.

    In general it depends on your approach of trading and the cash you have available.

    I normally go in both direction.

     Do I find a promising stock with a div. more than general 3 or 3.5%, and it is not on top of its channel, I feel it is a reasonable investment for the future.

    Even on a down draft and if the stock is below my purchase price at a given time, it makes no sense to sell the stock in a panic. General this is the time to buy more.

    Obviously I also have stocks like F and GE which do not look to great at present, but even here I still have not given up.

    Meanwhile I carry on selling my strangles even the stock is down, and I am adding $$$.

    Do I find promising stocks with low or no div. here it is always better to do the usual option plays,

    Leap BCS with puts, and selling cherry calls while I am waiting. Again this type of play is much less capital incentive. However any option trade, in contra to a stock purchase, has a limited live time.

    In addition to standard option plays without stock, one does not receive any div. So as you can see, both type of plays are good in its own way.

    If you have any questions please ask.


  30. Hi yodi – what do u mean by "cherry calls"? Is that selling more calls for income as the underlying is moving up – w idea that those calls will expire worthless?


  31. ABX is ridiculous. Want to sell some calls or buy naked puts to offset the losses – but with my luck, the stock will start going UP as soon as I do.


  32. Good Afternoon Everyone,

    I am here too keeping an eye on things while working.  

    Ken


  33. Hi Yodi,

    I begin your type of playing with cherry calls. My question is, that what do you do, if the stock go up quickly. How can you roll your sold calls?  eg. You hace a stock at 43.8. You sell your 45 calls against a stock for $1. The stock go higher quickly to 48. Your calls is now about $4.5.  For the next month you can roll it to 46 calls for the same price. The next month to 47 calls etc. If the stock won't go higher you can work it out in a few months.
    This is the "method"? 
    Thank you for your help
    Gabor


  34. Somavision, yes you got the basis. Cherry calls are shorter month even monthly call sales, you sell against you leap BCS. Just remember to sell only half of the cherry calls against your leap position.

    In todays market things are much more unpredictable, so your cherry call will not always run worthless. Sometimes you have to roll to a higher further out month, to prevent assigment.

    But in general if the stock goes up over your strike of the cherry call, your combined option play will show a profit.


  35. thx yodi


  36. Hi Gabor, I did partly explain your question above.

    The first step in this play is exercise patients. If the cherry call has still premium you want to wait, as these suckers change from day to day. No one will call for the stock and pay you extra premium. Some stock like CMG coming to my mind, holds premium up to the last day even the last hour before expiration. That stock goes like a yoyo. 10 up today 10 down tomorrow. So with some of them you need to exercise patience.

    Only when a stock is due to pay a div. say within a week or a day, make sure the premium is more than the div. If the premium is below the div. You might get called, so better roll or even close the position.

    General one should not sell cherry calls during the month stock pays a div. Just another thing stocks can drop after the div. payment by the amount of the div.!!!!

    Your example 45 strike and the stock is up to 48 from 43.5, I would mostly roll over 48. Sometimes you will not find a strike at 48 possible 47.5 or 50. So this you have to take in to consideration. If it is a strong stock I sometimes even sell a put to the same month I roll the call to, just to reduce the cost of rolling.

    But make sure you like the stock at the given strike of the put.


  37. But in that case you lost with the rolling. In your revenue calculation you never calculate with the lost of the rolling. It can be more than your revenue of the cherry calls if the stock goes up fast.


  38. Thanks Yodi


  39. Gabor you can not always win, remember your BCS has increased aswell. and your leap put has lost as well so you all have to take this in to consideration.


  40. Yodi-Thank you for explaining. I thought I figured it out and now I'm more confident.


  41. You see that is the beauty of the archair. You always hold the stock. So the stock goes always up with a delta of 1 and the sold call normally has or starts normally at a delta of about .50 meaning the stock is always ahead during the race up.


  42. Thank Yodi,

    I understand, my question was about to understand the good rolling tech.

    I thought you roll yourself slowly out of the loss. Because in that case you have a chance that the sock go lower and you are back in track.

    So I am thinking about which is the better? If the stock go up then loosing on rolling and start the next month on a normal strike or to roll only slowly upper yourself.

    It's bad we cannot win always.. …


  43. Especially to our new members on board, come out of the closet, I trust you here to make some money, so do not be scared to ask. I myself still have many questions.

    I see many follow the daily future trades, to me more of a gamble, but Phil has a hand on it. I know how it seams to go, but you can lose quickly. That is why he always sets stops, but even stops can be over run.

    Yes Gabor sometimes you can not have the cake and eat it.


  44. Wow, Yodi, running the show today! Always appreciate your comments!


  45. PSW

    any good stock recommendation for my friend who wants to keep $5000 in one stock. At this market level it seems there won't be many. dividend or no dividend is fine.

    thanks as always.

    regards


  46. Does anyone on the board have insight into CTL? Do you see it continuing this rise? TIA


  47. Heh! Sometimes I think we need 'likes' for posts on this site. Great posts, Yodi, see, people really do appreciate your help.


  48. Yodi,

    awesome as always! thank you for explaining in lay man terms.

    But all said and done I guess you require a bigger account to play this setup or play it with stocks having price range from 10 to 30 in a 50K account. Normal margin too….

    regards


  49. Thank Yodi, but what do you think about the rolling question.

    How is better to roll? Or how do you do it if there is no straight answer?

    You have a stock for $45 and sell a call at strike $46 for $1.
    The stock goes up to 50. You wait for the expiry of the call. You have 4-1=$3 loss on that call. You can roll the call to $51 and lose $3.  Or you can roll the call to $48 and you are even. If the stock go lower, than fine. If the stock remain $51 then next month you roll to $50, etc.
    The first case you cut your losses and go on. The second case you give a chance to recover. Or am I missing something? The only thing I see that you could called away..


  50. Gabor,

    In theory things go always different than in reality.

    You can just never control where the stock is going. So I prefer to cut my loss on the cherry call and take it from there.

    You did not take in to consideration the position of your leap options which is always your main play. As I said you can not win all the time. Not all cherry call run worthless.


  51. LB and M are having a great day


  52. somavision/CTL

    One of my largest holdings in at 14.5 on the stock. I also sold puts and have a small BCS as well.  Since, I have collected dividends and did multiple rounds of sold puts and calls the trade is almost free.  I am not in any great hurry to cover. Technically, it still looks like it has more to run, and I can afford to be patient.  Anywhere above $23 I will begin to look for a conservative cover most likely ATM and three months out.  This works for me.  On the other hand, if you are looking at starting a new position, I would probably wait for the stock to settle down and retreat before entering. After all, it's over 20% in just over 2 weeks and over 50% since the beginning of the year.

    I think you may get another opportunity to sell the 2020 $20 puts for around $4 and still buy the stock at 10% yield and cover for even more.  I will continue to hold my shares regardless.  Just my two cents.


  53. Pat I agree with a smaller account you have to take much smaller steps.

    I have been there.


  54. Many thanks to Yodi for running the show today while the boss was out!  Have a great evening everyone-


  55. thx for sharing dclark


  56. Pat swap.    I like. F = ford .60 dividend  was around 9.50 today they are retooling and are being hurt by tarrif  but they make money and sell lots of trucks


  57.  Thanks for running the show, Yodi,  great discussion.  

    Bitcoin very interesting as it tests the year’s lows.   I am still waiting for $1000 where I might consider taking a poke.  

    Now off to the Pirate Party!   


  58. Somavision – I have posted many times on CTL.  It is my largest stock position.  The stock is up some 20% in the last week.  I think the stock goes higher over the next 12 months, but should succumb to some profit taking soon, one would think.  I agree with Dclark that selling puts makes a lot of sense to try and get a position.


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  62. You welcome Phil, I enjoyed it. I feel we have a certain amount of new comers, who are holding back to ask questions. As you know when I started with the group I bombarded you with questions. So I learn a lot.

    But still learning every day! I think we also have members who do not have or do not wish to put a lot of cash in to the market. Especially with the armchair trades, it takes more cash to purchase the stock.

    Here we should set up some smaller type of option plays.

    One member asked for a stock to recommend to a friend for a 5000$ investment. I do not recommend advising friends on certain type of investments. You always are the man if the 5K bring fruit but boy o boy when it goes against the investment, you are the worse.

    Enjoy your vacation. We leaving for our journey to Spain next month.




  63. Phil, 

    Gold and Silver seems to be at a rock bottom level. Do you sense an opportunity? 

    Thanks as always

    Pat



  64. Good morning! 

    Wow, Turkey retaliating knocks our stocks down 150 points – I wonder what's going to happen when China retaliates for real?

    Silver got crushed along with gold and copper on the strong Dollar:

    Good time for entries on any of these.

    Gasoline hanging tough – that's a bullish sign and getting closer to the holidays so might be worth a risk AFTER inventories.

    Honey badger, of course, don't care:

    I'm picking up some /NQ longs at 7,400 but tight stops below and other lines are /ES 2,825, /YM 25,125 and /RTY 1,685.  If ANY of them fail – don't be long (and /RTY is the lagger to the downside) but, otherwise, I like /NQ and /ES best for longs (and of course /SI and GLD, but those can be painful).