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Follow-Through Thursday – After a Record Day, A Pause or More of the Same?

Wheeeee – what fun!  

That was the first time EVER that the Dow gained 1,000 points in a day so – you were there.  So far, in the Futures, we're only giving back 300 but that's because the BuyBots are sleeping and it sure didn't look like they were done into the close so we'll see what happens once the volume comes back with just three shopping days remaining in 2018 – and good riddance to it after that crappy quarter.

Not even another 10% gain can save this from being a TERRIBLE quarter for stocks but it can save the indexes from breaking down so we'll take what we can get and, in REALLY GOOD news, assuming The Donald can keep away from twitter for a few days, this is the 13th most oversold level the markets have ever been at with just 1.2% of the stocks over the 50-day moving averages and there has not been a year this century in which we haven't had a very nice gain following such an event.

That bodes well for 2019 and we were scrambling to adjust our portfolios yesterday in our Live Member Chat Room as we expected the bounce (see yesterday's Morning Report) but we hadn't wanted to commit on Monday as it was too scary with the markets closed on Tuesday.  Our results were not scary though as our Options Opportunity Portfolio, which opened the day down 6% finished the day up 32% for a 38% swing on the day and we're now positioned fairly bullish going forward and, as noted in our Dec 11th review, that $132,000 portfolio is on track to make another $126,256 (95%) over the next two years – on just the trades that are in there already!  

When the market sold off, rather than panicking, we looked at our perfectly good positions that we down 38% from our last review (12/11) and decided to improve them – mostly by buying back the short callers and rolling our long calls lower where it was appropriate.  We also doubled down on Frontier Communications at $2 as that seemed a bit silly and, by the end of the day, the market agreed with us and they were back to $2.30 – up 15% in an afternoon.

Meanwhile, our very well-balanced Money Talk Portfolio also dropped 40% during the sell-off but keep in mind that's because we mostly play leveraged options plays where we sell a lot of premium so a high VIX is very damaging to our positions during a quick downturn – especially as our hedges are mostly spreads and don't pay off well unless the market stays down into their expiration (and, if it doesn't, then we didn't need the hedge!).  So you can't look at your paper losses and panic – you have to simply go over each position and determine whether or not it's a position you'd want to be in at the current price or whether there are better opportunities to deploy your money.

The last time we made changes to the Money Talk Portfolio was when I was on the show on October 18th (we only make changes live on the show), which I published over at Seeking Alpha.  I won't be on again until January but let's look at how the positions have shifted since our last public review.  

Here's how the Money Talk Portfolio stood on October 18th, these are the unchanged positions from my July 19th appearance on the show:

Notice we had quite a lot of cash as I kept expecting a big sell-off (the one we just had) and wanted to make sure we had cash to deploy if we dipped.  I did the show on Oct 24th and we added the Marijuana ETF (MJ), Micron (MU) and, fortunately, a Russell Ultra-Short ETF (TZA) hedge paid for with short Caterpillar (CAT) puts resulting in the portfolio looking like this as of yesterday's close:

So we're down 24%, about on-par with the S&P 500 over that time but now let's look at each position so we can learn how to analyze positions during a crisis.  It's been very difficult to manage a portfolio that we're not allowed to adjust and can only make moves once every 3 months – a very fun challenge I intend to continue into 2019 as it's been very popular with less active traders. 

  • Alaska Air (AIR) – The 2020 $60 puts are about where we sold them back in Feb so no progress but an optimist would say they are holding up well after the first year.  What matters is whether we REALLY like ALK enough to own them at net $51.80 (the strike price less what we sold the puts for) and yes, we'd love to as that would be $6.5Bn in market cap and ALK made $1Bn last year and should make $600M this year but that's because they integrated with Virgin USA so of course there were costs involved as they consolidated.   Going forward, they should be back to $1Bn very quickly.  We expect to make the full $3,925 that's outstanding

  • Caterpillar (CAT) – One of our favorite songs at PSW is "The Cat Came Back" which reminds us to buy Caterpillar whenever they go on sale and they were on sale on 10/25 when we bought them and they are on sale again this week but our puts are net $88, which would be insanely cheap for this very Blue Chip stock. Even at $124, that's $73.5Bn for the company and last year they only earned $759M while restructuring but this year, in the first 3 quarters, it's been $1.7Bn, $1.7Bn and $1.7Bn so, for Q4, we expect… (drum roll please)… $1.7Bn and that will be $6.8Bn and we haven't even begun to spend on Infrastructure yet.  We expect to make the full $5,338 that's outstanding.

  • Nasdaq 3x Ultra-Short ETF (SQQQ) – This was a hedge we picked up in July to protect our portfolio.  Here it's important to note that SQQQ is at $17.34 so the position is $10,000 in the money yet, due to fluctuations in the options contract, it looks like we lost as much on the short calls as we made on the long calls so the net looks like $5,100 so, if the Nasdaq stays low, we'll pick up another $4,900 eventually but, HOPEFULLY we lose $5,100 as the Nasdaq recovers and wipes out our hedges.  It's like life insurance, you don't really want to "win" the bet!   Since we think the market stabilize here but don't go back to their highs, I would call this a potential wash going forward.  

  • Russell 2000 3x Ultra-Short ETF (TZA) – We added this hedge in October and paid for it with the short CAT puts.  Very fortunate as it's a $20,000 hedge we paid $4,600 for (not including the short puts) so the upside potential is $15,400 (334%) and guess what – we're at target!  If I could have, I would have cashed at least 1/2 of the long calls out but I can't make the move so we'll see how it plays out but, like SQQQ, I don't expect a full recovery so we should retain a bit of value long enough to take a profit off the table next time I'm on the show but no firm expectations.  

  • Barrick Gold (ABX) – This will get confusing as they are buying Randgold (GOLD) on Jan 1st and the combined company may use the GOLD symbol so our options may change.  We're happy witht he merger and we're happy with our targets and the combined companies made $2Bn last year – even with depressed gold prices so the $6.5Bn purchase doesn't bother us and the combined valuation at current prices is about $24Bn so 12x earnings is very fair and I won't be surprised to see $3Bn or even $4Bn dropping to the bottom line by 2020 as gold goes higer and the merger efficiencies kick in.   The current net on this spread is just $2,350 out of a potential $12,500 so $10,150 expected to gain.

  • General Electric (GE) – We got aggressive on them way too early and it's killing the portfolio at the moment.  My intention is to roll the short puts out to 2021 at a lower strike and to add a new 2021 spread as I think GE will stage quite a comeback over the next few years – we were just in way too early.  All we can lose is $675 more at this point and I don't think we will but not counting on anything here.  

  • General Mills (GIS) – Also performing very poorly but, unlike GE, this sell-off is just ridiculous and we expect to be back at $44 in short order, which would put our spread $6,000 in the money vs it's current -4,070 net value so we have a conservative $10,070 to make on this one.  $38 on GIS is just under $23Bn and the company makes a rock-stweady $2Bn a year so we're talking about a p/e of about 11 down here so even 14x earnings would put them 20% higher at about $45.  If they are still this low next month, we'll improve the position.

  • L Brands (LB) – This was our 2018 Trade of the Year Runner-Up to Hanes Brands (HBI) and neither one has been doing well now but we already cashed them both in when they were doing well (and got back in again).  In the MTP, we got back in in July but it was too early at $32 but the sell-off to $25 is idiotic as that values the company at $7Bn when they very consistently drop $1Bn to the bottom line.  This year has been a restructuring (see a pattern in our buying?) but next year they should make about $2.50/share and again, 14x is reasonable so our target would be $35 so check and check and we expect to make the full $30,000 against our current value of -1,440 so $11,440 expected to gain.  

  • Marijuana ETF (MJ) – Here we're just betting on a white hot sector.  The valuations of the Cannabis Companies that are already public are ridiculous but that doesn't mean that some of them won't be 10-baggest and it's better to spread the risk with the ETF than try to pick the winners from the flame-outs.  As MJ came down to $30 in October, we decided to jump in and the rest is just due to the market collapsing and we really love them at $24.  Nothing unreasonable about our 2-year target for the full $40,000 and currently -$1,250 so $41,250 expected to gain on this one.  

  • Micron (MU) – They were recovering but then got slapped back but, fortunately, we jumped in at the October lows and these lows aren't much lower.  Why, because $30 is $35Bn and MU made $14Bn in 2018.  Yes, $14,138,000,000 and next year, even if the year sucks, they will make $10Bn, but probably $14Bn again so the people who are selling this stock are IDIOTS and this should have been my stock of the year for 2019 but I went with IBM.  In fact, if anyone has $30Bn I would very much like to buy the whole company at this price!  I'll be shocked if we don't get our full $15,000 on this spread but, currently, it's showing net -$475 so $15,475 left to gain on our 2019 Trade of the Year runner-up.  

  • Wheaton Precious Metals (WPM) – This was our 2017 Trade of the Year and, like HBI, we already cashed out the winner and this is a triple-dip at this point.  You can use the "Cat Came Back" song for WPM as well as they tend to sell off harshly on a regular basis and we just jump in when they do.  WPM is what you call a "streaming" company, they buy gold and silver in bulk from the miners at fixed prices and sell it on the open market for hopefully more than they paid and they are pretty good at their jobs, dropping over $400M to the bottom line so far this year and at $19, the whole company is $8Bn so 20x earnings seems like more than we like to pay but we think gold and silver are entering a bullish cycle and WPM strongly benefits from those as they have locked in some very low priced over the past 18 months (their general cycle from contract to sale).  We were very conservative in our $22.50 target for 2 years so I have a lot of confidence we'll collect $18,750 and the current net is just $5,363, so we have $13,387 left to gain

If all goes well between now and Jan 2021, the above positions should make $111,035, which would be 130% of it's current value.  We're currently using $80,000 worth of our $170,000 in ordinary (2x) margin so we're not keen to add more positions that require margin but we do have $85,850 in CASH!!! laying around, so we won't be sitting on our hands either!  

Meanwhile, for all the excitement in the market yesterday, all we managed to do was hit our weak bounce lines (see yesterday's Report) and those need to hold up through Friday or it will actually be a bearish sign into the Holiday Weekend (Markets closed Tuesday but Monday is full day though the rest of the World takes both days off) so we are not out of the woods just yet. 


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  1. Phil// what do think of this story?  Any material impact on Apple based on this?

  2. Good Morning.

  3. Rookie/China boycott – The Chinese citizenry in general are pretty good at these boycotts. They all joined hands and boycotted Korean products in general, and Lotte products in particular, for the THAAD missile deployment on a golf course owned by Lotte. Never mind that the missiles were forced down Korea's throat, and that the people who lived in the immediate area protested strenuously – indeed still are. That was a rough boycott, and included backing off from tourist travel.

  4. Snow// are you suggesting that this will have material impact on Apple?

  5. Rookie/AAPL – I think it could, yes. Don't panic on my advice, though….

  6. Expecting another rally attempt, but I could be wrong.

  7. FU TRUMP!!!!!

  8. Good morning!  

    After a technical bounce yesterday, we're now getting a technical pullback of that bounce so we just have to see if the bullish buying was a one-time automated reaction to hitting our 20% lines or if there's enough here to get us back over the lines.  Notice that yesterday, we were looking for a 1,080 bounce in the Dow per the 5% Rule and the Dow, did in fact, gain 1,080 on the day.  Could you imagine the coverage if Cramer made a call like that?  Anyway, I'm very happy to toil in obscurity with you guys!  

    • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 
    • S&P 2,950 to 2,360 is 590 points so 120-point bounces to 2,480 (weak) and 2,600 (strong) 
    • Nasdaq 7,700 to 6,160 is 1,540 points so 300-point bounces to 6,460 (weak) and 6,760 (strong) 
    • NYSE 13,200 to 10,560 is 2,640 points so 528-point bounces to 11,058 (weak) and 11,586 (strong) 
    • Russell 1,750 to 1,400 is 350 points so 70-point bounces to 1,470 (weak) and 1,540 (strong)

    We turned colors on all but the RUT though Nas and NYSE only made it to black (at the line) so watch those to indicate which way we're going to break this afternoon.  Europe is all bad news this morning and we got crappy data from China so down 2-2.5% over there and we're following but, hopefully, when they close, we can go back to moving up.

    6,125 is the -2.5% line on /NQ so that's fun for a bullish toss but TIGHT stops below!!!  Lined up with 22,350, 2,415 and 1,310.

    AAPL/Rookie – China is 11% of AAPL's revenues but boycotts there are not like boycotts here as they tend to get strong followings so it is possible it does hurt AAPL so not to be taken lightly but $152 is already 25% down from $1Tn at about $205 and AAPL is making $60Bn so let's say they drop to $50Bn and $1Tn is 20x – still not bad and $750Bn is only 15x – certainly too low, even if they drop 15% of their earnings – which they won't.

    And what Snow said.

    Rally/Albo – I hope so because the damage from thinking a one-day spike like that is quickly erased on the way down could stop people from buying anything for quite a while. 

  9. Just wait-the bots will kick in this PM probably. It's like a cat playing with the mouse until the mouse drops dead.

  10. pirate--I hope those BOTS knock it up and not down!

  11. MY hunch is they won't let it tank again. How are the hedge funds going to be positive at the end of the year? It's all about CYA CYA all the way with this insane setup. They do have  a lot to be grateful for from the Orange Menace and Ryan giving the 1% those billions in tax breaks.

  12. Phil, on the Lines that you show above, why is the RUT high/low levels  1750 to 1450; should it not be 1250; Just trying to understand the logic….Thanks

  13. took a shot at some aapl friday 160 calls for .14 in case they ramp it to paint the year

  14. Phil – what are your thoughts on MT here?


  15. RUT/Jasu – Those are the 20% drops, not the bottoms, so RUT is simply way below the 20% correction I thought the others would be able to hold.

    MT/Coulter – Tarrifs and Global slowdown are not good for MT at all so this is not their year and next year is not likely to be their year but $20 is $20Bn I can SHOW YOU THE MONEY!!!

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 84,213 79,440 79,282 63,578 56,791 68,679 75,416 77,610 76,267 -4.0%
    Operating Profit $m -2,645 1,197 3,034 -4,161 4,161 5,434 6,731      
    Net Profit $m -3,352 -2,545 -1,086 -7,946 1,779 4,568 4,995 5,727 5,015  
    EPS Reported $ -3.92 -2.63 -1.11 -7.99 1.86 4.46 4.89      
    EPS Normalised $ 0.17 -1.98 -0.94 -4.87 1.44 3.90 4.84 5.49 4.87 +86.4%
    EPS Growth % -91.6         +170.2 +21.4 +40.7 -11.4  
    PE Ratio x           5.38 4.34 3.83 4.32  
    PEG x           0.13 0.11 n/a n/a

    So, really, I don't give a flying F what other people think, MT is a BUYBUYBUY down here for sure.  In the LTP, we rolled down on 10/19 to 40 2021 $20 calls with 10 short 2020 $30 puts and, of course, we already bought back short calls we had sold along the way so about even on the overall trade and not in a hurry to cover.

    As a new trade on MT, I would go with:

    • Sell 10 MT 2021 $20 puts for $4 ($4,000)
    • Buy 25 MT 2021 $20 calls for $5 ($12,500)
    • Sell 25 MT 2021 $27 calls for $2.60 ($6,500) 

    That's net $2,000 on the $17,500 spread so $15,000 (750%) worth of upside at $27+ makes for a nice little trade.  

  16. Phil, thank you for the clarification.

  17. dow going to give it all back today?

  18. I doubt we give it all back but very ugly as a day.  Can't take any of this seriously, however with the holidays.

    Date Open High Low Close* Adj Close** Volume
    Dec 27, 2018 242.57 243.81 239.52 239.96 239.96 94,218,773
    Dec 26, 2018 235.97 246.18 233.76 246.18 246.18 217,880,800
    Dec 24, 2018 239.04 240.84 234.27 234.34 234.34 147,311,600
    Dec 21, 2018 246.74 249.71 239.98 240.70 240.70 255,345,600
    Dec 21, 2018 1.435 Dividend
    Dec 20, 2018 249.86 251.62 244.65 247.17 245.74 252,053,400
    Dec 19, 2018 255.17 259.40 249.35 251.26 249.80 214,992,800
    Dec 18, 2018 257.20 257.95 253.28 255.08 253.60 134,515,100
    Dec 17, 2018 259.40 260.65 253.53 255.36 253.88 165,492,300
    Dec 14, 2018 262.96 264.03 259.85 260.47 258.96 116,961,100
    Dec 13, 2018 266.52 267.49 264.12 265.37 263.83 96,662,700
    Dec 12, 2018 267.47 269.00 265.37 265.46 263.92 97,976,700
    Dec 11, 2018 267.66 267.87 262.48 264.13 262.60 121,504,400
    Dec 10, 2018 263.37 265.16 258.62 264.07 262.54 151,445,900
    Dec 07, 2018 269.46 271.22 262.63 263.57 262.04 161,018,900
    Dec 06, 2018 265.92 269.97 262.44 269.84 268.27 204,185,400
    Dec 04, 2018 278.37 278.85 269.90 270.25 268.68 177,986,000
    Dec 03, 2018 280.28 280.40 277.51 279.30 277.68 103,176,300

    Amazing to see this kind of back and forth though – we may have to put on some bigger emergency hedges.  

  19. Phil,   

    Just a suggestion, in these times, I think some words of wisdom on margin management would be great for all members, including me.    I had to close some of my puts collecting half my target profits, but that's just fine (profit better than loss).   I know in earlier posts some of the veterans here – Winston, Yodi have warned us about the double edged sword of put sale positions when the market crashes.   Ideally, for a $X portfolio – how much % is recommended to be in margin and what levels % should we start layering more and more hedges.   And I hear about paper losses but those translate to daily margin declines even if they are not realized losses.  As the margin declines, it is difficult to fully leverage opportunities for rolling towards better positions as you suggest.    I added all the hedges you recommended March 100X SQQQ spreads and in addition I have a longer term June 25X SQQQ naked. Is it possible to plot the margin on the PSW LTP portfolio over time and see how it has moved with this market crash?   Or do we also need to set up STP/LTP style portfolios – I dont know how many other members are maintaining both, but for now, I just have one – LTP similar with the hedges added in there…   thanks as always. 

  20. Margin management has been the hardest thing for me to get comfortable with, so I agree that getting more insight from Phil and others on how best to manage it would be really helpful.  

  21. I miss Mr Stick!!!

  22. UVXY 130-180, but probably lower end, before it's shortable.

  23. jabo-Patience especially in this market. It's coming.

  24. Have traded /NQ and /ES a couple of times from the long side today.  Currently long .ES.

  25. hockey stick into close – see if it can be nailed

  26. Same here Albo – just one long /ES remaining, hoping for 2455/60 range. 2400 was hard to resist. 

  27. GBTC under 4 again

  28. Atitlan – I'm in from 2405 with stop moved up to 2418.

  29. pension funds desperately moving cash and positions around, trying to make EOY/EOQ numbers not look too bad. Low volume nonsense. That and interest rates squelching buybacks (the only reason for the trump bump in the first place) and 2019 looks grim starting on trading day #1.

  30. GOP/Trump can blame Dem election victory and Dem's are motivated to tank the market anyway. It's a political win-win for them, but for you the investor if you aren't short you are dead meat.

  31. Sold 1 @ 2454 moved stop up to 2425.

  32. Margin/Learner, Palotay – As a rule of thumb, you want to keep half your margin available as that gets chewed up fast in a 20% drop.  You also have to be aware of what things take up the most margin and cut them faster than others in a drop.  It's things like naked short ultras that really eat up the margin and the trick is, BEFORE you get below 40% of your margin, start trimming things like that.

    As the the LTP/STP – The idea, since the STP is loaded with cash, is to have them on the same margin account.  ToS lets you have multiple portfolios under one account – not sure how others handle it or you can just have all the positions in one place and just keep your mind focused on which ones belong where (you can use PowerOptions for that like I do).  

    Ideally, you need to be aware of how much margin your short puts can require (always figure double what they now require at least) and make sure your hedges will cover that with cash on the way down.  For instance, the LTP margin requirement jumped from $800,000 to about $1.1M at max and now the value of the portfolio has dropped from $750+ to $650K so margin has fallen too from $1.5M to $1.3M, which makes it tight.  STP, however, jumped to $417K from $350K so now $800K in margin and we're only using $350,000 of it so COMBINED we are fine with margin but the LTP separately would be tight.

    Of course, in the LTP, just look for short calls you can buy back to reduce margin like 10 short AAPL June $200s that are just $2 and up 93% so silly to hold that margin open for $2,000 if you need the margin. Same with 15 short AMGN Jan $200 calls, that are down to $1.50 and up 87% – those kinds of things are no-brainers and should, obviously, be winners in a long portfolio if the market heads lower.  Just look at all the expensive stocks you sold short calls against to start.  Hell, we have 20 short CMG Jan $485 calls at 0.85 – if we just kill those 3 our margin requirement would drop about 33%.

    Another thing to look at is short puts you don't need like we sold 5 AVGO 2020 $180 puts for $18 and now they are $12 so kill them to save margin and there are CAT puts that are down $1 and FNSR puts that are up 70% – huge margin off the table closing things that aren't important.  

    Mr Stick/Jabob – Here he is!  Nice 100-point gain on /NQ longs this time around.  

    Oh ye of little faith!  

    /ES/.Albo – Good call.


  34. Nice one, Albo! I got in right at 2401 and out of the last one for the day at 2455. Looks like I should've held for 10 more points! 

  35. You too !

    Still long 1, which I plan to take over night.  With stop in place.

  36. RE: Margin – Phil.. thanks…helpful… the margin eating puts are what I have been trimming.

  37. Green now I believe in anything!!!

  38. Good call on AAPL Coulter – I followed you on that one with AAPL 157.5s. Purchased for .18, now over $1. 

  39. thx just need it to go green now

  40. @ coulter531:  Sell those AAPL 160s now for .28 and double your money!  Don't wait till tomorrow! (A bird in the hand),

  41. I agree with BDC on 2019…. the shorts need to look out before then!

  42. SANTA LIVES!!!!

  43. Up 250!?!?  What a joke this market is – wild stuff…

    Nas finishes up 200 from our entry – I'm done for the week, thanks…

    Anything/Yodi – That was friggin' crazy.  How can you take anything seriously when it can change like that?  

    And AAPL is so lagging, if they can pop it back to $170 that's $14 and 8.5 Dow points per is 120 Dow points whenever they need them from AAPL (would only take one bullish analyst note).  

    Yesterday's EWG is still in the money at $1.30/0.60 so a double already as DAX Futures followed us higher:

    Nice, sloppy recovery:

  44. thank you mr stick! i missed you ;-)

  45. Bounce Lines – we closed over the /YM's weak bounce (22680) the past two days, /ES is flirting with their weak line (2480), and NQ and RTY seem miles away.  Does the 5% rule bounce lines always align?   Meaning they will eventually catch up with each other?   Like when you are going long/short the laggard noted throughout PSW.   

    Reason: I didn't make any changes to the Portfolio, expect additional hedges, just in case of…. DOOM!    So, understanding those bounce lines will help determine when I might want to cash out a few longs on my SQQQ's.  

  46. Good morning!  

    Was up 250 in Futures and fading a bit.  As long as we hold the weak bounces, it's good progress into the weekend but, if they fail, we should add a few more hedges – so that's our job for the day.  

    Catching up/Grass – That's the old Tug Boat Theory:

    Submitted on 2014/05/08 at 11:50 am

    Notice how we were nicely in sync until late April, when the Nas and RUT began dropping out and, so far, the others have ignored the problem.  As I often say, think of them as tugboats and the S&P (thick line) is the big ship.  If they all pull in the same direction, the S&P will follow but, when they diverge like this, then it's chaos for  a while but none of these little ships can get too far away from the S&P before the tow line snaps them back.


    So, we should, if the market is healthy, expect to see the RUT snap back up off the 1,100 line (-5%) but we also know, from the 5% rule, that a 1% move in the RUT (10 points) is only 1/2 the weak bounce we expect off the 100-point drop from 1,200 in March.  We already had a strong bounce off the April low so only getting a weak bounce now begins to form the dreaded shoulder side of a head and shoulders pattern.  So, either the Dow, NYSE and S&P will snap lower and join the RUT in oblivion or the RUT will get back in line and move up.

    That's why the RUT is so important at the moment, confirmed by the Nas, which seems very bouncy as well.  

    Laggards/Nols – I don't get the question.  You the laggard is the index that hasn't crossed your lines yet, whether long or short.  Why would you go long the leader?  I use the example of tug boats pulling a barge.  They all have lines and they can go in different directions but only to a point and the majority will tend to pull the stray into line.  That's all we're doing, we're betting the stray laggard ends up getting pulled along with the pack – that makes a lot more sense than betting the leader (with the taught line) will keep going the same way. 


    Submitted on 2015/07/28 at 10:11 am

    Of course, knowing the RUT has failed and understanding our Tug Boat Theory of Market Movement, we can now watch 1,215 with great interest because the RUT is now the canary in the coal mine for 5% failure and we'll see if they snap back over or if they broke through the barrier first and will now lead the others down below.  

    Submitted on 2015/08/13 at 7:06 am

    So the S&P is more of an outlier than the usual key indicator.  It never closed below it's strong bounce (off the assumed 5% drop that never came) at 2,060 and, when the strong bounce line offers strong support – it's usually a bullish sign that we're consolidating for a move up, not a move down.  

    Of course, the other tug boats disagree, and they are trying to drag the S&P lower but, as long as the S&P has power – it's by far the biggest boat and it's going to get it's way.  So now we have to get off the charts and consider the macros…

    First of all, the Dollar was slammed down from 97.50 at Tuesday's close to 96 yesterday and that's almost 2% of our 40-point recovery (2%) accounted for.  So the S&P's dramatic rescue is nothing more than a "trick of the light" performed by the Dollar.  

    We also know that almost 60% of the S&P 500 has fallen below their 50 dmas and have lost more than 10% off their highs.  That means, since the S&P is only 2.5% off the highs, that the other 40% is doing some very heavy lifting.  There are two ways to look at this though because maybe the top 40% deserve their valuations:

    These 25 companies are 44% of the index, so we need to consider whether they are fairly priced or have further to fall and we can pretty much ignore the other 475 companies.  I don't have a quick answer but I can say that XOM, CVX, AAPL, PG, IBM, INTC, HPQ, WMT are getting tempting while MSFT, JNJ, JPM, T, WFC, BAC, CSCO, KO, GOOG, PFE, PEP, PM haven't corrected at all (the others I could take or leave).  

    Maybe we'll make this the morning post and get into detail on our 12 leaders and see if they are toppy-looking or if maybe they all deserve to be on top…

    Submitted on 2015/08/24 at 5:01 am

    Given the state of the US economy vs Europe, where Germany is stuck, I was willing to concede 1,850, as a Must Hold Line for the S&P, which is 15% higher than the 100% at 1,600, but I've never been happy with the move higher that never consolidated and now you can see why.  No consolidation means no support all the way back to that line.

    Unfortunately, 1,850 is still 7% lower for the S&P (only 5% lower this morning!) and if that index drops, then the others will drop below their supports following it down – even though they already led us lower.  The Nas is still out of control at 4,700, which is more than 15% over the Must Hold line at 4,000 – twice as crazy as the S&P but most of that is AAPL, and we think AAPL is deserved but, unfortunately, so many stocks went up just because AAPL went up that the whole index is a house of cards.  

    Still, I expect to see support at our -10% line on all the tugboat indexes (the leaders) and the S&P should be back to where the tugs want it ("normal") very soon, likely around our 1,942.50 target with 1,850 providing a solid floor.  If that happens and the tugs begin to head back up – then this has all been just a healthy pullback and it's time to go shopping!  

    The whole point of the Big Chart is to remind us where the trading range is and we've had several conversations this year about adjusting the lines as we ALMOST got a breakout but the NYSE never got going and that was always a great warning (since it's the broadest index) that things were not as they seemed.  

    So the range is still the range and we should be no more surprised by 10% down than we were by 10% up – that's why it's called a trading range!  Look how well the S&P is obeying the 5% lines.  It hit the 10% line at Thursday's close and we stopped at the 7.5% line (1,988.75) before the panic selling took us another 1% lower and this morning we're completing the trip to 1,942.50 which, of course, will be at least a little bouncy.

    Big Chart – Holy crap, I don't think it looked that bad in 2008!  Especially the Nas dropping 15% in a week – that's as bad as China!  Do we have the cajones to make a V bottom out of this?  That would be epic…

    As to changing the levels, StJ, I can't just change them, the levels are based on major consolidations and the Nasdaq is out of control because of AAPL and a few MoMos that make it an unreliable bullish indicator but the rest are performing just like they are supposed to, with all the little tugboats dragging the S&P down eventually (even though the ropes almost snapped) while the Nas is now the 4th little tugboat that is now forced to follow the S&P and the 3 other tugboats lower.  

    And you can see the length of the ropes is exactly what we expect with the Nas up 10% from the S&P near Must Hold and NYSE and Dow down 10% and RUT down around 7% so, as it always is, 10-15% is the most an index is likely to be away from the S&P.  That's because, in part, that the S&P holds the largest cap stocks from the other indexes but it doesn't explain the RUT falling in line so the invisible rope theory will have to stand.  

    We can't draw new support lines until we see MONTHLY consolidations and, even then, nothing will change 4,000 on the Nasdaq other than crossing 5,000 and holding it long enough (with confirmation from the other indexes) to show that it is time to adjust the lines.  As I said, AAPL is the primary cause of 4,000 to 5,000 and the new Must Hold would have been 5,000 if the NYSE had ever gotten over 11,000 for more than a day but thank God we have those rules or we would have let ourselves get fooled into getting too bullish and thinking those ridiculously high lines would provide support, which clearly they did not in the end. 

    Submitted on 2015/09/10 at 3:13 pm

    So, since Tues am, we lost weak on the NYSE and lost strong on RUT and SPX but Nas went green.  That's all that happened so, no change in my attitude.  Tug boat ropes between NYSE and Nas are stretched tight as they go in opposite directions so we'll see who wins (it will be NYSE).

    Submitted on 2015/10/07 at 11:50 am


    Channels/Burr – If I had a list.  I watch the S&P at significant points and see where the other are lining up.  As a rule of thumb, we have 5% lines, 2.5% lines and 1.25% lines to guide us.  In the S&P chart above, you can see there's very little resistance to the downside below 1,980, which is why it's such an exciting place to short!  Above that, we have tons of lines (so slow going, which means you are not likely to get burned badly by shorting) and then a breakout above 2,000 back to 2,035.  

    As in the tugboat example I use, the S&P is the tanker the others are towing and they aren't going to be able to go too far off in another direction if the S&P isn't turning too, so we watch the S&P to give us key indicators and then we look to see where the other boats are at any given time and then, to accomplish any major move – we know they all have to begin moving in the same direction from there.  

    Lines/Craigs – You can't expect the indexes to all move completely in lock-step.  The chart gives the probable 10% up and down range based on valuation and, since we valued things two years ago, the Dow and Nasdaq have had the most component changes so we'll probably have to adjust this year but the indexes can go as far as 20% apart from each other – though almost never further – that goes back to my Tug Boat examples.  And no, there are no Must Hold lines for commodities.  The Must Hold lines work because we are able to do a detailed valuation of dozens of index components using FUNDAMENTALS AND MATH – it's not some TA crap.  There are no steady fundamentals for commodities other than reasonable floors that can be set when they become unprofitable to extract or ceilings when they become too expensive to use.   

    Good morning!  

    Big Chart – Well you don't need me to tell you that failing the 15% line on SPX and the -5% line on NYSE would be BAD!!!  There's our tug boat theory in action, 20% is about as far as that rope stretches before someone snaps back and the S&P and NYSE are 20% apart (Nas doesn't count because of silly APPL influence).  Looks like a 5% sell-off is coming to me but, then again, I'm not a chart guy so 10% would be better. 

    Submitted on 2018/06/19 at 10:14 am

    So that's why we're short the Nas and Russell – they have the furthest to fall but, since the main issue is trade and they are less susceptible to trade issues than large caps and industrials, they are not yet getting hit very hard but then we have to remember my tugboat theory in which the indexes may go their own way – but only to a certain point and then the rope snaps them back in line with the main body.

    Submitted on 2018/07/27 at 3:48 pm

    /YM/Ati – That's my tugboat theory.  The indexes can go off in their own direction – to a point – but then the one that's not following the rest tends to get snapped back at some point.  The S&P is like the ship they are towing and /RTXhas the most slack in the line to do its own thing but /YM and /NQ don't stray too far from /ES for very long.