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Testy Tuesday – Trump’s China Tweet Gives Us Weak Bounces

Image result for trump china tweetThank you, Mr. President.

You can certainly fool at least some of the people all of the time as President Trump once again tries to fix the markets by tweeting out "Very productive conversations going on with China! Watch for some important announcements!" and that's all it seems to take to ramp the indexes up 1% in the Futures.  Well, that and the coordinated cooperation of his fellow Oligarchs, who have their hands on the market switches, of course.  

The above quote is from March but there are about 100 tweets from Trump telling us how great trade negotiations are going with China, going back over 18 months and EVERY TIME it somehow boosts the markets though, after 18 months of China talks, the market is lower now than it was when we started! 

So let's keep any sort of bounce today in context as we have fallen from 2,950 on the S&P (/ES) to 2,650 (and a quick spike below) so, with a 300-point drop, we expect a 20% bounce (60) to 2,710 (weak) and 2,770 (strong) and, so far, all we have is a weak bounce off the spike low to 2,600 – not that impressive.  Is Trump having trouble fooling even some of the people all of the time?   We're back at the lows but the bounce lines are the same as they've been since October at:

  • Dow 24,300 with a weak bounce at 24,800 and a strong bounce at 25,300
  • S&P 2,640 with a weak bounce at 2,710 and a strong bounce at 2,780
  • Nasdaq 6,870 with a weak bounce at 7,080 and a strong bounce at 7,230
  • Russell 1,485 with a weak bounce at 1,530 and a strong bounce at 1,575
  • NYSE 11,880 with a weak bounce at 12,150 and a strong bounce at 12,400

This is what's useful about the bounce lines from our 5% Rule™,  this is the 3rd time we've bounced off the bottom and each time we failed to get confirmation (all green) we need to flip back to being bullish so we have, fortunately, kept our hedges on but also we haven't gotten more bearish as we failed to go all red – though we were there for a moment yesterday…

Keeping an eye on our bounce lines helps us make better trading decisions in a volatile market and, speaking of volatility, the VIX says don't count your chickens before they bounce as we're still up near the highs on the volatility index and this is after spending most of the year below 15.

We are, in fact, having telephone negotiations with China but you're not going to get a massive trade deal done in 90 days with a few phone calls.  For one thing, the US is asking China to drop their 2025 Plan and that's the cornerstone of their current 10-year plan.  This would be like China saying "How about you stop making America great?"  This is China's big bet on the Future, they're not going to walk away from it – especially while it's working and the US harassment of Huawei is simply another attempt to threaten China by showing how we can mess with their tech companies at will.

Obviously, this is a non-starter but that's what happens when you put China Hawks in charge of Trade Negotiations and, despite Trump's enthusiasm over the phone call, China’s Commerce Ministry, in a brief statement, said the conversation—held Monday evening in the U.S., Tuesday morning in China—was meant to “push forward with next steps in a timetable and road map” for negotiations.  So the call had nothing to do with actual trade negotiations, Trump is lying, what else is new?

I have said since the beginning, Trump has no interest in lifting the tariffs, which are simply a tax on middle-class Americans that completely offsets what little breaks his tax cuts actually gave them.  If he were interested in solving the problem, he's put Kudlow, Ross and Mnuchin on it, not Lighthizer and Navarro.  In fact, it actually says right in the Wall Street Journal:

Trump aides say that Mr. Trump sometimes tweets positive news about China talks to try to boost the stock market. Futures trading suggested a strong opening on the New York Stock Exchange.

Meanwhile, Chinese Foreign Minister Wang Yi said in remarks this morning that Beijing would firmly resist “acts of bullying that wantonly infringe upon the legitimate rights and interests of Chinese citizens” referring to the Huawei kidnapping and the only reason China isn't more upset about that is because they are confident Canada will fold and send the Founder's daughter back to China and not hand her over to the US, where it would be a great embarrassment if they fail to get her to "admit" her company spies on Americans.

We'll see how all this plays out but, meanwhile, we will watch the indexes to see if they bounce and, of course, next Wednesday the Fed makes their final rate decision of the year and, just this morning, our Core PPI came in at 0.3%, miles above the 0.1% expected and that's AFTER oil prices have come down considerably so the Fed MUST raise rates to stave off inflation – not usually a big plus for the markets.

We will see tomorrow whether or not the CPI confirms inflation heating up tomorrow and we also get Import and Export Prices on Thursday followed by Retail Sales and Industrial Production on Friday – so plenty of data to get us through the week and certainly nothing I'd bet on giving us a strong bounce – Santa or no Santa.

 

Look for rejections at our weak bounce lines for signs that the selling is far from over!

 


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  1. Russell bouncing of our Must Hold line.


  2. Phil are we going to roll down the MU spread or did I miss that

    Thanks


  3. Good Morning.


  4. Good morning! Fading the ol' trump open at /NQ 6785, stop at 6800. Maybe it's different this time.


  5. FTR – Phil, Have you changed your perspective on this company?   I took your comments yesterday to indicate that you may be reconsidering this company as being a good long term investment. 

    For me, the premiums were so rich that I added a short term straddles, and double dipped with few short puts expiring 30/60/90 days out which helped fund my hedges, and I own shares and 2020 short puts.  If I misunderstood your comments, please redirect.   TIA


  6. Good morning!

    Well, this is the best news I've read all day:

    I don't know why the WSJ cut the video down, it was a great 9min segment that was very encouraging as to the advances in the industry.  Another company is putting out Chicken in a couple of weeks.

    Big Chart – Seeing the RUT bounce off the Must Hold confirms it's still working but, sadly, it also confirms that maybe we shouldn't be too quick to adjust the levels (not that we have been).

    MU/Coulter – I'll be reviewing everything this week.

    Tariffs/StJ – Well, Trump really destroyed our exports since tariffs in poor countries make a huge difference but $1 or $1.25 at the Dollar store is still cheaper than anything that can be made in the US.

    Musk/Jabob – He did that one already.  Looks like he ran out of new BS so he's going back to the oldies.  

    Fading/Ati – Good call, that was a good line to short.

    FTR/Grass – Was in a technical group on 5G over the weekend and yes, I'm rethinking the very survival of wired cable, and telco and, frankly, with 5G, AAPL won't need any of that stuff and AAPL/DIS could quickly take over the World if they teamed up.   

    I was at dinner with studio types yesterday and we were discussing the impact 5G will have on the industry as sending a video will be as easy/fast as sending an image.  Even with LTE, I often choose to use my IPhone as a hotspot rather than use a hotel's iffy WiFi and 5G will be 2-3x faster and more stable than even a great LTE connection.  There's going to be a lot of disruption.


  7. Phil/ CHK,

    What are your thoughts on CHK? Seems like its cheap what would be a good entry set up ?

    Thanks

    Pat


  8. testTubeSteak.  well i've tried impossible burgers and beyond meat burgers; you can now get impossibles at White Castle!.  I'm a fan. (they cost more than traditional beef cookies, but ok)

     Beyond meat is going public soon.  (Ft last week)








  9. Oil/Jabob – Also moving against a strong Dollar so doing better than it looks.

    Of course Brent bounced off $60, now we'll see if it's strong or weak.

     

     

     

    Wow, what happened to our "rally"?

    50-point bounces on Euro Stoxx is 3,050 and 3,100 but bigger drop is from 3,400 so 80-point bounces to 3,080 and 3,160 is what we're really looking for:

    CHK/Pat – I think LNG exports will double next year and keep up demand and, eventually, CHK should benefit.

    As a new play, I'd go with:

    • Sell 10 CHK 2021 $3.50 puts for $1.40 ($1,400)
    • Buy 30 CHK 2021 $2 calls for $1.25 ($3,750)
    • Sell 30 CHK 2021 $4 calls for 0.65 ($1,950)

    That's net $400 on the $6,000 spread so upside potential of $5,400 (+1,350%) at $4 and worst case is you own 1,000 shares at net $3.90 ($3,900) so good risk/reward ratio.

    Beyond/Rexx – Yes, it's going to be a huge new industry.  Prices should get competitive as they scale but, taking into account the carbon costs of meat – they are already far cheaper.

    TLRY/QC – It's a stay-away stock to me, could fly up or down by a large amount.


  10. Phil/5G – we could introduce a mmWave-causes-cancer campaign (vis-a-vis "smart meter" idiocy) and maybe get paid off to shut up? What do you think? 


  11. How the IRS Was Gutted


  12. beyond/ yes I prefer these to the scoops.  are the scoops on the way?http://www.tcm.com/mediaroom/video/1207415/Soylent-Green-Movie-Clip-The-Scoops-Are-On-Their-Way-.html


  13. Covered /NQ short scalp at 6702.

    Really eying /BTC – boy, everyone seems to be quite confident that it's dead. Is there any reason why it wouldn't be vulnerable to a short squeeze?


  14. "crypto is dead" was the central thesis of the articles I was reading when BTC went from 30 to 2 in 2011

    I've seen four more identical cycles since then. no one can predict future prices, e.g., short squeezes. but that's might thought on it.


  15. Phil / 5G – If you are that bullish about 5G then you should check out the company I work for, Crown Castle (NYSE – CCI).


  16. Holy cow, just watched the President throw a temper-tantrum saying he will shut down the Government if he doesn't get his wall and, sadly, he's saying it to Schumer and Pelosi, who aren't even in power yet, because Trump doesn't have enough Republican votes to get it done so he's flailing about trying to somehow shift blame to the Dems – they're not taking the bait so now Trump has to choose to look foolish and ineffective or shut down the Government for Christmas.

    5G/BDC – More likely to work than praying BitCoins come back.. cool

    Scoops/Rexx – I don't know, living in Florida now, I can see the case for scoops.

    Related image

    Great job Ati, congrats!  As to BitCoin, possible squeeze as people are so anti but, in general, I think it's a dead fad.  

    CCI/Fel – I like the company, but not the valuation (100x earnings).  I suppose a lot of that may be from infrastructure investment and will flip positive down the road but I'm just not comfortable paying  $48Bn for $4Bn in sales at 10% profit margins.

     


  17. Yodi,

    What do you think of CM now? How would you adjust your 85 put options?

    One option I found is to buy back and sell jun 80 for the same price.

    What do you think?

    br 

    Gabor









  18. Gabor, CM yes I do have the same position. But do remember you will get only assigned if the put option

    is 100% ITM. Most traders do not like to pay any additional premium. The market over one day is one of the craziest I have ever seen. I started today with a plus of 75K which is down to zero at present.

    I will hang on to the put until it is really 100% ITM. Your roll to Jun 80 put is a good idea. I still will look for a shorter Time however. If it makes you feel better roll half and wait a while for the other half. The stock at 80 is not a bad entry either. So we have choices.


  19. Hello Phil and the Gang.  Crazy market!  Just waiting before picking up positions.  Phil, what part of Florida are you in?  I am in Naples in SW Florida.


  20. Gagor further more we still have 10 days to experation. Your might even have changed leaders at that time.

    Things go very fast now and these days.


  21. Money Talk Portfolio Review:  Nothing to change here as my hands are tied until I'm on the show again.  Fortunately, because of that restriction, we've been playing conservatively and well-balanced.  We had topped out at $118% ($109,117) so this sell-off has cost us but still up 88.5% at $94,225 and there's nothing here we don't think will come back eventually. 


  22. Florida/Robert – Delray Beach.  Went to Naples for a weekend, very nice.


  23. Phil, Delray Beach is very nice.  I have a few friends over there!


  24. morgan stanley seeing slower loan growth for mid cap banks and new eia energy forecast lowering forcast wti and brent prices for 2018 and 2019 and increased us supply not helping market


  25. all, I think the trend is any time the market is up you can buy short-term puts.

    I think this is the trend for the next year or more.

    BTC phil / agree on the fad element being done, but is there utility underlying that will continue? I believe yes. Some are saying 8 years before prices return. Could be so, could be less.


  26. Gonna switch to an all volatility trade portfolio! Getting 3.6% annual portfolio return using max 5% of my margin on these trades. That's over 70% return on that trade for 15 minutes of work each month. Going to refine the trade parameters to double that. The objective is 15% portfolio return using 10% of my margin. That leaves plenty of safety for rolls and opportunities on big spikes.


  27. Options Opportunity Portfolio Review (OOP) – Part 1:  $132,916 is up 32% but that's down $19,000 (19%) since our last review, definitely our worst month of the year.  We do, however, have a ton of cash ($74,200) so we're ready to buy on the dip – we just need to see where the dipping stops.  Certainly there will be room to improve our current positions but we're at a dangerous point where the market could go up or down 10%. 

    Up 10% puts us back to where we are, up 20% from here so no worries there and down 10% will lose us another 20% but then the things we want to buy will be much cheaper and, if we buy now, we will lose more and then we can't afford to buy the next dip so the smart play here is to do nothing and wait and see what happens.

    • HMNY – Dead money most likely.
    • SCO – I'm pretty sure this is the bottom for oil so we'll just keep rolling them until oil goes up so we expect to recover $8,175 eventually.  
    • AAPL – Short puts seemed like a great idea but AAPL now $172 so ouch!  Eventually we hope to reverse it and it should pay us $19,925
    • LB – I have a lot of faith in these puts expiring worthless but maybe 2021.  Still, good for $7,300. 
    • JO -  Nasty sell-off took out our lovely gains.  I think it will recover but I'm not going to call this one I'm counting on as a future winner.  It's about even now and tying up $2,800 to make up to $8,000 so I guess we can see how it goes for the moment.

    • TZA – We could use the money so let's cash in our 50 Jan $7 calls for $6 ($30,000) as it's more than the $5 spread and we can roll the short calls along to a new spread if 1,400 fails on /RTY but, if not, we expect the short $12s to fade out and pay us $8,950 (in a bullish market).
    • FTR – I don't know why those short calls are so expensive but I won't pay 0.25 to cancel them.  The 15 2020 $8 puts at $5.20 ($7,800) can be rolled to 30 2021 $5 puts at $2.70 ($8,100) so we still have $2+ per put in our pocket so net $3 on 3,000 is not terrible as a worst case and it would average us in to 4,500 shares at about $4.35.   Not confident enough to project winnings here.  
    • ABX – Coming back nicely and net $9,455 out of a potential $20,000+ (1/2 covered) at $15 is money I will count on so $10,545 potential here and even room for a bonus.
    • ALK – Really fell off a cliff but that just means you now have a chance to get in again.  It's a $5,000 spread currently priced at -$3,990 so $8,990 to gain on this one.

    • BBBY – Back to the bottom on this one and they died in October and stayed dead but the short Jan calls will go worthless and we can then sell 2021s and adjust so I'm inclined to stick with it, at least through earnings but not going to count on them to generate profits just yet.
    • BHC – Very erratic but the bottom of their range is still over our target so i will expect the full $7,000 and now priced at $3,410 so we'll hold this for our $3,590 potential
    • C – Usually I'd buy more but the markets are too iffy.  We're down $5,000 on this one and I do like them but not enough to waste firepower here.
    • CDE – Another one I like bu I can't count on.
    • CHK – Nat Gas is way up and they haven't responded so we'll wait for earnings (2/20ish) but these guys are on track to make 0.80 per $3 share – this price is kind of silly!


  28. Hello StJeanLuc.  What do you mean by "all volatility trade portfolio?"  I have heard that term but not familiar with the instruments.  Can you elaborate?  TIA!

     

    stjeanluc 
    December 11th, 2018 at 2:48 pm | PermalinkTweet thisIgnore this user

    Gonna switch to an all volatility trade portfolio! Getting 3.6% annual portfolio return using max 5% of my margin on these trades.


  29. Options Opportunity Portfolio Review (OOP) – Part 2:

    • FCX – This is a new trade so, of course I expect it to make the full $17,500.  There's an error there as it says long puts and it's short puts but let's say we're aiming to add $14,000 on this trade
    • FNSR – Way in the money and we're at net $10,625 out of $14,000 with a year to go.  It's borderline where we might cash out but $3,375 would still be a decent win for next year
    • GE – This is a $30,000 spread now priced at -$4,875 but I can't say I'm counting on making $34,875 – but it would be nice!
    • GNC – They were doing so good and then they collapsed again so we'll call this another wild card though I'm very confident they'll make way more than 0.20 next year for a p/e below 10.  We'll have to wait until Feb earnings to see.

    • HBI – It's in our range and I am confident we'll get our $14,000 and currently just net $2,650 so $11,350 left to gain
    • HRB – Well in the money at $1,625 on the $3,000 spread so no reason not to wait for our $1,375
    • MJ – Has been all over the place and thank goodness we sold those calls.  That's keeping us profitable and it's a $40,000 spread currently valued at $4,100 so $35,900 left to gain is worth waiting for but let's say we're counting on $20,000 at $35 so just $15,900 of upside potential we feel confident about.

    • MU – Down and down she goes!   See, here's why going over your expectations is a good exercise because, with a $45/60 spread, I have no expectations of making a gain so we MUST adjust this spread, which is currently net about even so not real harm.  We can leave the short 2020 $35 puts and the short $55 calls to go worthless but the spread has to come down and we will switch to 20 of the 2021 25 ($15)/38 ($9.20) bull call spreads at $5.80 so we have a $16,000 spread that tops out well below our original $1,500 credit spread so we're spending about $4,000 to net in now for $2,500 on the $16,000 spread and NOW I can count on this thing generating $13,500
    • NAK – Came back a bit but a long way to go for us.  Not counting on this one but it could happen and $2 would be $20,000 vs current -$935. 

    • NLY – On track and we're in it for the dividends, not the price appreciation.
    • OIH – Oil is a mess right now so we won't count on our $14,000 but I kind of do think it will play out and currently -$2,335.
    • SPWR – On track and I think $8 so $9,000 and currently net $1,130 so $8,870 upside potential

      

    • SQQQ – Well, we took down TZA so this is our only proper hedge.  Since we're aggressive here, I feel good about cashing the TZA longs but not so good that I don't want to keep the hedge, which is currently net $25,937 and, if all goes well – we'll lose it all!  
    • WBA – Way in the money on our $15,000 spread, now net $9,107 so we'll count on that $5,893.
    • WPM – At the money and net $4,545 and I certainly see $20 for $15,000 so $10,455 is in our future

    So we like our positions and the reason I'm cashing in $30,000 worth of TZA hedges is because I like to get $30,000 of CASH!!! off the table and also because I think AAPL is stupidly cheap and it has a dramatic effect on the market so, barring something new hitting the news cycle – I think we may stabilize around these levels (might go lower, might go higher).

    Overall, we're confident about gaining net $126,256 over the next two years so it's a nice set of positions and now we have about $100,000 in cash on the side so I'm pretty happy with this going into the holidays (and Q1 earnings).  


  30. Well, a bit of a comeback but the bottom line is not even weak bounces today so not very constructive.  Hopefully it wasn't crazy to tilt the OOP more bullish.


  31. Volatility / Robert – I meant trading only with VIX instruments like VXX.


  32. When you say NLY is on track…   on track to what?


  33. stjeanluc 

     Example please of your volatility trade portfolio!

    Thanks


  34. FNSR / Phil – There is still the question of the merger going through, and if I recall the price was $26.


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  37. The Case for the 6-Hour Workday



  38. Canada-China relations turn icy over arrest of Chinese exec


  39. Phil, what are your thoughts about MU on a fresh trade.  Looks like good point to initiate a position.  Sell Jan 2021 35 puts for 8.00 and buy the Jan 2021 23 ($16.375) / 40 ($8.3) for $8.08 so net debit of $0.08 per contract.  If MU stays the same ($35 ish) puts expire worthless and BCS is worth $12.00.  If MU below $35.00 you are assigned stock at $35.00 (or roll short puts).  If MU goes up Max value at $40.00 is $17.00.  TOS says tying up $536.47 margin per contract.