Well, we're right on track…
Back on Dec 26th, in our Morning Report, when the market was collapsing, we began playing for a bounce. At the time I said:
Each month the Government is closed knocks 2% off our GDP and the slowing economy will contract wages and Corporate Profits and, guess what? That will make the deficit explode as it lowers the rate of tax collections. That's why the market had such a harsh reaction to this shut-down but it's still been an over-reaction nonetheless and we are certainly now looking for at least a weak-bounce correction, which would be a 4% gain on the indexes from these levels. Let's call it from the 20% correction lines:
- 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)
Remember: I can only tell you what is likely to happen and how to profit from it – the rest is up to you! Once we hit that goal we began looking for the strong bounce lines and, as of this morning (8am), we're at:
- 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)
So 8 of the 12 red boxes have turned and the S&P 500 (/ES) Futures are at 2,586 after being rejected at 2,599.50 into yesterday's close. That's the second rejection on /ES and we expect the 3rd time to be a charm but, this morning, the Futures are pulling back a bit so we may have to wait until next week to turn all green (except the Russell (/RTY), which is very unlikely to make it next week).
Keep in mind we are not doing TA here (TA is BS), our 5% Rule™ simply uses good old-fashioned math to determine these bounce levels and, when the market is being traded by robots, math trumps Rorschach every time! In yesterday's PSW Morning Report, for instance, I put up the following chart of the S&P 500 along with this comment:
The market sold off as word of the White House Meeting failure spread in the afternoon and we kept going down overnight but progress on the China talks (because Trump was NOT at that meeting) are likely to keep us from failing the weak retrace line at 2,567.50 so I like that on the S&P Futures (/ES) as a bullish play with tight stops below (next stop would be 2,535).
Here's what actually happened:
As we predicted, the S&P held the top of it's bounce range, which indicates it's likely consolidating for a move above but that's not something we expected until next week so we took our profits and ran as we got back to that strong bounce line. Trading the Futures is not hard – it's learning not to be greedy that's difficult!
By the way, if you would like to get our PSW Reports pre-market every day (it's on the site and usually via Email while in progress around 8:35 am), you can sign up for that HERE. The annual cost is $995 and that's $2.72/day but yesterday's /ES trade made $1,500 for each contract and, of course, we make plenty of other calls – usually options and Futures plays – that more than justify the cost. Also, you can earn unlimited discounts by simply referring others to our service (by giving them free trials) – so you don't have to pay anything if you know a lot of people!
Just to show you how our system works, I'm going to give you a trade idea that can pay for the entire Annual Report Subscription and, IF YOU SIGN UP FOR AN ANNUAL REPORT THIS MONTH AND THIS TRADE IDEA FAILS TO MAKE AT LEAST $1,000 by next January (you don't actually have to make the trade but you do have to actually pay for the full Annual Membership) I will give you a FREE 2020 Trend Watcher Membership, worth $2,499 – how's that for a good deal?
Since the pressure is on me, I'll have to go for what I think will be a sure thing and that's my beloved Apple (AAPL), which I only just made a long call on in our Jan 4th Report, pretty much righ at the lows. AAPL is up 10% since then but nowhere near its true value so, as a new trade idea to make $1,000 by next January, I like:
- Sell 2 AAPL 2020 $140 puts for $13.50 ($2,700)
- Buy 2 AAPL 2020 $130 calls for $35 ($7,000)
- Sell 2 AAPL 2020 $155 calls for $21.25 ($4,250)
The net cash outlay for this trade is $50 but we're using the short puts to pay for the spread and that obligates you to buy 200 shares of AAPL for $140 ($28,000) so you have to REALLY want to own AAPL at the recent lows to make that trade. Otherwisse, you can just take the $130/155 spread for net $2,750 and that will pay $5,000 for a gain of $2,250 (82%) by itself. If you can afford to own AAPL, however, then adding the short puts will cost about $3,520 in ordinary margin and reduce the cost of the spread to $50 in cash and then your upside is $4,950 for a whopping 9,900% return on cash in 12 months.
Keep in mind that AAPL is at $153 this morning so the trade is almost completely in the money and all AAPL has to do is not go lower and this trade will be a huge winner and, if you think I'm cheating on our deal by picking an almost sure thing that will easily make $1,000 in 12 months – I would say to you: ISN'T THAT WHY YOU SHOULD SUBSCRIBE TO OUR SERVICE?!?
If you don't want to learn how to use options and futures trading to your full advantage, don't subscribe. As I said above, I can only tell you what is likely to happen and how to make money trading it – the rest is up to you!
My biggest worry on this trade is that Trump blows his trade negotiations with China and a year won't be long enough to recover. Clearly Trump has made a complete mess of his wall negotiations and, if he can misplay that so badly – it's not much of a stretch to imagine that China will eat him for lunch because there's nothing worse than a bad negotiator who thinks he's a good negotiator!
Other than that, I think we'll drift along around these levels in 2019, a bit up and a bit down but AAPL – being the World's Greatest Company – should easilly be over our $155 goal – just $2 to go!
Have a great weekend,
– Phil
