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World of Worries Wednesday – Emerging Markets, Trade Wars Weigh on Markets

Wheee – this is fun!

Congratulations to those of you lucky enough to get the PSW Report yesterday, where we told you about our Gasoline (/RB) Futures Shorts at $2.05 as we plunged all the way to $1.98, which was good for 0.07 per contract and, while 7 cents may not sound like much, it was actually a huge one-day move and, at $420 per penny, per contract, it was good for profits of $2,940 for each contract – what a great way to start the month!

Of course we began shorting /RB on Friday, at $2 so our average (as we doubled down) was $2.025 so we only picked up net 0.045 for $1,890 per contract gains but it was on 2x so it all works out in the end!  Silver (/SI) was also a huge winner as it popped back from $14.13 (even lower during the session) to $14.20 for an 0.07 gain and /SI contracts pay $50/penny so $750 gains per contract there as well.    As I said to yesterday:

“From here, we’re expecting RBOB to go down to between $1.80 and $1.85 over the next month and stabilize there…There’ll be the traditional pre-Thanksgiving run up, where it could get a little higher, and we’ll be shorting it again at that time.”

In Davis’ logic, gasoline’s surge to 3-1/2 year highs of $2.2855 in May, matching US crude’s rally, was fundamentally flawed.

“With every holiday, we drive the price of gasoline up in anticipation of demand. But we’re constantly disappointed because every new car today is averaging 35 miles per gallon versus the 25 miles we get on older cars. That’s 40 percent less gas consumption. And it’s happening every year.”

“The population is basically static and people aren’t driving more miles. So, the usage of gasoline continues to go down as we get more fuel-efficient cars. That’s why every time there’s a big spike in gasoline driven by expectations of demand, I will just short it.”

Davis said he could understand if gasoline futures rose slightly in November in the event sanctions on Iranian oil drove up the US crude market as well as Brent. “Even then, I still believe there’ll be adequate supply of gasoline, and we do not import that from Iran. It’s fine if RBOB reflects a little of the tightness in crude but not on a relative dollar-to-dollar term.”

Image result for plan the trade trade the planSo there's our plan, pretty much the same one we've been sticking to all year as I'm a strong believer that Fundamentals do matter – at some point.  The real trick is figuring out when they are going to matter and, if not, learning to be patient enough to wait for them to matter again.  

It's also a good trick to learn to wait for the right set-up before trading but that's very hard to do as people tend to feel like they're not accomplishing anything if they don't trade something every day but people like Warren Buffett are perfectly content to watch and wait PATIENTLY, knowing that, eventually, an opportunity will come along that has a very high reward/risk ratio with a high probability of success.   You don't need a lot of those to have a very nice portfolio.

We've been "Cashy and Cautious" as this rally has re-tested the January highs and, while we do have many, many long positions still in our Long-Term Portfolio as well as our other Member Portfolios, they are well-hedged – just in case things finally start to matter.

Image result for selling pressure price drop stocksWhat's mattering this week is no actual trade deal between the US and Canada as well as a sharp sell-off in Emerging Markets led by Argentina, Turkey and Brazil though South Africa is now a contender, having just officially declared itself in a recession.  China is also shakey over trade war issues and mainland stocks are at their lowest levels in 4 years and Russia is no prize either as sanctions bite on their economy.

That's a lot of things to keep ignoring and now that the Big Boys are back from vacation – there's a lot of meetings at trading desks around the World where they have to decide if Q4 is going to be worth the risk with all these items up in the air. If there's a change in sentiment and big funds start trying to sell equities – I very much doubt they'll find many buyers to support these ridiculous prices.

As a Fundamentalist, I can't tell you WHEN this bubble will pop – no more than an engineer can tell you when a bridge will collapse.  We can only tell you that something is unsafe and that you should be careful.


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  1. FU UBS!!!!!


    DJ General Electric Price Target Cut to $13.00/Share From $16.00 by UBS

  2. Good morning, All

    There will be no webinar this week. 

  3. Do you think EM is a buy here (maybe EWZ)? Don't you think Trump will cave and knock the $$ down soon? :-)

  4. Pretty tame market considering that we have more confirmation that our president has the intellectual capacities and the temperament of a 5th grader and that his cabinet members have to hide papers so that he cannot start WW3!

  5. Now they want to get involve with states taxation proposals – what happens to more power to the states:

    The Internal Revenue Service put the tri-state area on notice: The charitable workarounds New York, New Jersey and Connecticut approved following the new federal cap on deductions for state and local taxes aren’t acceptable to the federal government.

    And the ROFLMAO comment of the day about that:

    “Congress limited the deduction for state and local taxes that predominantly benefited high-income earners to help pay for major tax cuts for American families,” Treasury Secretary Steven Mnuchin said in a statement. 

  6. Mid-terms years usually show some strong performances by the market:

    This one could be interesting for many reasons!

  7. Good Morning!

  8. why are the gold miners weaker again today?

  9. CGC, continues spiking up, may as well light one up

  10. TSLA continuing to be a great short.

    Has anyone been playing VRAY? I was in at around $7 and out when it spiked up. Interesting technology, wouldn't mind owning some more if it gets a little cheaper.

  11. Nasdaq down…pressured by the Tech CEO’s on the capital but it has been overbought too.

    TWTR being hit for 4%, but so are  ? and AMZN

  12. ?= Aapl

  13. Good morning!

    EM/Jabob – I think this is a structural failure as EMs simply can't print money the way we are, so they are failing first – the same way the small banks failed first and then the big ones had to be bailed out.  Not sure who will bail out the US, Europe, Russia, Japan and China when it all hits the fan but, until then, just like banks writing bad loans and calling them profit centers – we will keep printing money until some auditor somewhere goes "Hey…"  

    I can't believe the Dow popped at the open – what a farce!  I like /YM short here (25,975)

    None of the other indexes are buying it so far.

    If only I'd held onto those Nas shorts – all better now!  At least I have the SQQQs.

    WWIII/StJ – At least if we lose we would get new leadership! blush

    Gold/Jabob – Gold is still not looking strong and Q3 (Jul, Aug, Sept) is clearly going to be much worse than Q2, which averaged over $1,300 so $1,200 is about 10% off but the earnings are off the marginal spread to costs so 10% can wipe out 100% of the profits.  

    ABX, for example, only drops 10% to the bottom line so 10% less selling price means effectively no profit for Q3.  Same goes for most miners.

    CGC/Jomp – It's the new dot com.  A lot of these guys won't ever cover the excitement but some will exceed it.

    VRAY/Ati – Still not making money but scored a $1Bn valuation.  

    With not even $100M in sales, it's not something I can get behind.

    Nasdaq/Maya – This hits right at the FAANG stocks and the Nas is so overbought, could be the start of a nice correction finally.

    Ha, I forgot I had one short /CL.  Just cashed that at $68.50!

  14. P.S. TSLA report on German TV Mercedes has, and Audi as well as BMW will bring electric cars (SUV type) on the market with a range of over 400 to 450 Km. So I do not think TSLA will have much more to sell in Europe. See today's drop!!!

  15. Phil/Cannabis,

    How are these to invest in currently?







  16. DXD/Phil- just to be sure on our DXD hedge.. We are holding 100 Oct 30s and we sold 70 nov 30s and also bought 100 Jan 28/34 BCS? Are we looking to cash out the Oct 30s yet? but it seems like it doesnt worth much even w today little sell off..

  17. Cannabis/Pat – I certainly haven't gotten that far into that sector so far.  These are all essentially early stage companies with huge risk and it's very hard to say who will or won't end up lasting the eventual shake-out.  It's kind of like Biotech Investing.  I am going to be working with Ken Stannis, who is the head of New Age and a foremost expert on all things pot-relatated and I'm going to get him to start looking at the sector from an investing standpoint and, hopefully, we'll be able to get better perspective with his help but, for now, I couldn't tell you a good one from a bad one but they all seem very richly valued to me.

    DXD/Dave – We paid $2 for the Oct $30s back on 7/26 so, if we can get out even, we should be thrilled at this point as we already added the longer roll.  In the STP, we sold 70 Nov $30s for $1.25 and they are now $1.45 and, if we can get $2 for the Oct $30s, we should buy back 20 of the 70 Nov $30s to drop us to a 1/2 cover with the Jan $28/34 bull call spread.  

      Essentially, that's what I said last week:

    2018/08/27 at 2:07 pm

    • DXD – We were so sure we'd get a better price for short calls that we did not cover the Oct $30s.  That cost us $11,000 so far!  Now DXD is below $30 and we have 0.90 left so let's go for 100 of the Jan $28 ($2.75)/34 (0.90) bull call spreads at $18,500 and, rather than collect just 0.90 ($9,000) for our Oct $30s, let's sell 70 Nov $30s for $1.25 ($8,750) and, hopefully, we can get out of the Oct $30s at a higher price and the short calls will still be covered (1.5x by the longer spread) or, if not – then the short Novs go worthless and we're back to rolling our longs.  Let's call the coverage $30,000 on the full spread. 

  18. NASDAQ/Phil

    Good morning!

    Start of a correction, yes, I think too but not before next Tues…appl excitement into their event of Sept 12 (which may have been moved from Tues, Sept 11 as they generally have them on Tues?) it may be difficult to drag the index down without AAPL. 

    Let’s see what happens…it’s down today for sure for no obvious reason, but congress thing may be the excuse.

  19. Crazy Poor Middle Easterners

  20. PatSwap:

    CVSI has a steady hemp derived supplement business and its products do not contain THC. They're available nationwide in health food stores and should benefit from the "legalization" of hemp under the farm bill. They've have chewing tobacco substitute under development with FDA and heave recently been slammed by Citron et al over whether the patent rejection was really final or just "final".

    Nobody likes the founder Michael Mona. He's been moved off the board as part of an SEC deal but is still around.

    The company has a lot of retail sales growth (like all of them) and if the patent comes thru it could be a nice stock to own.

    Disclosure: I have lots of shares in this one.

  21. Saudi Arabia criminalises online satire

  22. Best Interest Rates on Cash – September 2018

  23. Tuesday/Maya – True, that is a big potential positive event.

    So far no major damage in Congress for tech, may lead to a Nas recovery.  

    Kavanaugh hearing is dragging on..

  24. sunilram…appreciate your inputs….thanks.

  25. The aapl event is Wed, Sept 12….maybe it was considered and thought not appropriate for 9/11 as aapl generally has these on Tues? (I could be corrected on this)

  26. Well that will be a good day for a Webinar then.

    Got a bit of a bounce but it's fading now.  

    I have to go to my meeting – don't let the market collapse while I'm gone! 

  27. Both AVGO & OLED up on a weak NASDAQ day.

    OLED trading above the 200 dMA.

    AVGO trading above the 50 dMA

  28. ~~

  -10% amid China weakness & additional reporting by WSJ that CEO Liu Qiangdong's arrest in Minnesota was for suspicion of rape  (26.41 -3.02)

    WSJ Article (As mentioned in the article and throughout the weekend, Qiangdong was released without bail, but Minneapolis police say he remains under investigation

    JD has been trashed this week.  Starting to look interesting, IMHO.

    Word is Liu could be charged with rape as early as Friday.  I would be surprised if that happens.  He's a billionaire and unfortunately those things have a tendency to go away for those guys.

  29. Woodward book prompts West Wing witch hunt, sources say

  30. Utah driver sues Tesla after crashing in Autopilot mode

  31. Why Companies Should Add Class to Their Diversity Discussions

  32. Strong earthquake reportedly buries homes in Hokkaido, Japan

  33. Secular Stagnation Revisited

  34. Phil,

     Still a good time to enter /SI  at 14.25? 

  35. Phil,

    Are you accumulating /RB shorts with a target of 1.85-1.80 like you mentioned above?

  36. japar/RB- I think phil cashed out his 2 shorts on RB at around 1.98ish

  37. Dave,

    Yeah I saw that. Was just wondering about going forward given the prediction of a 10c move lower before thanksgiving