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Trade War Tuesday – Trump Pivots to Europe with More Sanctions

Now what?

Apparently, since the EU MIGHT have given Boeing rival Airbus $11Bn worth of subsidies since 2004, the Trump Administration will retaliate by placing tariffs on cheese, bicycles, kitchen knives, artist's brushes, etc.  While this may seem crazy and illogical, it's really just another day in Trumpland, so no one is really batting an eye and, although the German and European stocks have turned down on the news, the US stocks are, as usual, ignoring the inevitable retaliation this is likely to cause.

Technically, Trump isn't allowed to DECLARE tariffs whenever he wants and it's kind of hard to see how cheese is a national security risk but that ship has already sailed with the Chinese tariffs (which are also not going away) but what's the point of even pretending we follow the rules anymore?

We're testing another major level at S&P (/ES) 2,900 this morning but, as noted in yesterday's PSW Report, we shorted it into yesterday's close anitipating that SOMETHING would cause us to pull back after testing that level.  So far, we're up $250 per contract so we can set a stop at $200 and lock in the gain and raise the stop $50 for each $75 we gain going forward.  

Since the S&P is up 50 points on this run, a weak retrace should be 10 points, back to 2,890 so our expectation, at $50 per point, per contract, is to make $500 per contract just following the 5% Rule™ – isn't that nice and simple?  If we're lucky, we get a strong pullback of 20 points to 2,880 and we'll know if we're getting a strong pullback because the weak bounce (2 points) will fail at 2,992 so our stop will the $400 gain at that line by the time we get there.  See, Futures are easy!

Once we go below 2,892, that becomes our stop and it's almost certain we'll bounce back to there and test that line so we can do our calculations on the other indexes to see how they are bouncing too.  Once we get below 2,890, our next stop should be the weak bounce line off 2,880, which would then be 4 points (20% of the 20-point drop) so 2,884 but, if we see support at 2,888 – that's the strong bounce line and that would mean it's not likely we make it to 2,880.  

If you need a "fresh horse" (an index that hasn't fallen yet), try shorting the Nasdaq (/NQ) Futures below the 7,600 line with tight stops above.  The Nasdaq Futures pay $20 per point, per contract and we're certainly due for a pullback there as well as the Nasdaq was at 7,300 on March 28th and tested 7,650 yesterday, which is up 5% in less than two weeks – a bit much – even by this market's volatile standards. 

The 350-point run (which failed on the first attempt) demands a 70-point pullback to 7,580 (weak) or 7,510 (strong) and we picked up those SQQQ hedges last week as we anticipated testing this level.  Of course, the main hedges are for earnings season while the Futures trades are simply taking advantage of technical resistance.  

7,600 should be bouncy on the first attempt to get back below it so we look again for weak (10 points) or strong (20 point) bounces to see if we're consolidating for a move back below 7,600 (weak failure) or a move back towards 7,650 (strong success).  Of course, you could use the same techincals to play in either direction but we prefer to play with the news flow – which we feel has exhausted the positive cycle at the moment – so we look for shorting opportunities – not longs.

This market is overbought, that's a certainty.  There are too many companies trading at 50-100x earnings to conclude otherwise and, at the same time, Global Growth is clearly slowing and we have trade wars being conducted by a clearly erratic and unstable US Government.  How can you not have hedges?


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  1. It's hard to imagine someone trying to sabotage the world economy and stability doing anything different than Trump at this moment.

  2. Comments on Ray Dalio's suggestions to reform capitalism:

    Dalio's conclusion:

    I believe that all good things taken to an extreme become self-destructive and everything must evolve or die, and that these principles now apply to capitalism. While the pursuit of profit is usually an effective motivator and resource allocator for creating productivity and for providing those who are productive with buying power, it is now producing a self-reinforcing feedback loop that widens the income/wealth/opportunity gap to the point that capitalism and the American Dream are in jeopardy.

  3. Wow kind of quiet today - 

  4. Does anyone feel like the rug is going to be pulled out very soon? Big guys have wrung this market to the stratosphere and now….. here it comes. Just a hunch.

  5. Good morning!  

    Wow, IMF downgraded Global Growth and suddenly everyone is surprised and scrambling.  Nas still holding up as "THEY" scramble to push AAPL over $200 to hold up the market but I think this is just the normal pattern of chasing people into the 10-year note auction overall.

    Sabotage/StJ – Amen to that!

    Dalio/StJ – I hope more of the Top 0.01% start speaking out on this.  I've been shouting into the wind for years…

    Quiet/Batman – I think when the Dow drops 200 points at the bell – people tend to be minding their portfolios.

    Wheee indeed! 

    That's goaaaaaaaaaaaalllllllllllllllllll!!!! on /ES at 2,880 – don't be greedy, Nas is fresh horse.

  6. Nice call on /ES Phil !

  7. aapl nflx still up and fb. Amazing how easy it is to manipulate the markets. CMG still going up!! Over 5 bucks!!

  8. There will be renewed calls for the Fed to cut rates! 

  9. Thanks Willsons but it's just math.  Good old 5% Rule…

    Well, math and paying attention like this morning Italy said they'd grow 0.1% instead of 1% and we already know Italy sucks but it's hard to imagine that the IMF wouldn't be downgrading growth if that's an indicator.  Also, the sheer desperation Team Trump has with their demands for the Fed to ease while we're scoring record market highs – makes me think the whole thing is faked (and it is with last year's one-time tax breaks that no analysts are talking about like we are) and they know it's going to fall apart right into the next election.

    CMG/Pirate – Wow, that ruins my morning!   As to the rug, yes, very much so! 

    Speaking of companies trading at 100x earnings:

  10. Guy on Bloomberg is calling the IMF forecast "grim".  

    IMF sees Turkey contracting 2.5% in 2019, down from 0.4% expansion in Oct.

    The IMF just cut its global growth forecast to the lowest level since the financial crisis

    IMF slashes trade (import and export) forecasts across the globe for both 2019 and 2020

    The IMF has cut its global growth outlook for 2019, with all major advanced economies—including the U.S.—seeing deterioration in their outlook

    is the problem child in the developed world for the . IMF cut 2019 GDP forecast by a whopping 0.5ppts and for 2020 by 0.2ppts.

    The IMF adds to a chorus of concern about competition

    "In the face of significant financial vulnerabilities associated with large private and public sector debt in several countries, there could be a rapid change in financial conditions owing to, for example, a risk-off episode or a no-deal Brexit" – IMF

    IMF no longer sees stable China in 2020, instead it drops from 6.3% to 6.1%. Stimulus will be short-lived

  11. Cash usage is decreasing worldwide, and central banks are contemplating whether to offer a digital alternative. Watch the live discussion moderated by Christine on Wednesday, April 10 at 2pm EDT (6pm UTC).

    Nigeria does not have much time .. GDP growth has been below population growth in 2015, 2016, 2017, 2018, and is forecast to be below 2019. IMF says might continue 2020, 2021, 2022 … how many years can Nigeria get poorer and poorer per capita before we have a social collapse?

  12. Weeds/Pstas – That's why I like Ken (New Age boss), he's a real pot scientist and it's all about quality and customer satisfaction to him and I see in CA that that actually does matter to the consumers – as the market matures, the users get very picky and tend to go with trusted brands that deliver consistent quality (and results).  It slows the growth process as there's only a few "really good" growers we can work with but the end result is clearly better than the competition.  Replicating in other states is tricky too – we have to bring our CA growers to MA and build greenhouses to go with our manufacturing operation – there's nothing local that's even close to our standards.  

    That promotion thing is silly, kids are very hung up on titles for some reason.  

    /ES 2,885 and 2,888 is the strong bounce so we'll see if it goes over 8 or below 4 to give us a signal for the next leg.  Looks weak…

  13. See what I meant about taking those profits at 2,880?  That's the best way to use the 5% Rule – reminds you of where the greed line is! 

    Spoke too soon on /ES, testing 2,888 again.

    • Aimed at improving transparency, CareSource, Ohio's largest Medicaid managed-care provider, is switching its pharmacy benefit management (PBM) contract from CVS Caremark (CVS -0.3%) to Cigna's (CI +0.3%) Express Scripts. The new contract will commence on January 1, 2020.
    • CareSource President & CEO Erhardt Preitauer says, “We believe the current PBM model has significant room for improvement. [The company] saw an opportunity to reinvent the model with a focus on transparency, driving real value for stakeholders, building stronger partnerships with local pharmacies and controlling costs.”
    • CVS has been under the gun for more than a year after a 2017 study found that it charged taxpayer-funded companies like CareSource almost $200M more for prescription drugs than it reimbursed pharmacists.
    • The Express Scripts contract will feature transparent pricing that will be verified by an independent third party.
    • Noted Apple (AAPL +1%) analyst Ming-Chi Kuo predicts the company will shift to mini LED displays for its computers and tablets over the next two years.
    • Mini LED backlighting could appear in the 31.6-inch iMac coming in Q2 or Q3 2019, a 10- to 12-inch iPad coming in Q4 2020 or Q1 2021, and a 15- to 17-inch MacBook in H1 2021.
    • The LCD panels will come from LG Display (NYSE:LPL).
    • While Apple has moved its phones over to OLED screens, larger OLED displays are cost prohibitive. Mini LEDs offer a thinner panel and better picture quality than traditional LCDs with a lower price tag.
    • LPL shares are up 2.9% to $9.43.
    • Ford (F -1.1%) is close to striking a deal with Mahindra & Mahindra (OTCPK:MAHDY) to form a new joint venture entity in India in a move that could end its independent operations, according to Reuters.
    • Sources say Ford will hold a 49% stake in the new JV, while Mahindra will control 51%.
    • The JV is likely to build and sell SUVs and electric vehicles in India on top of the cars Ford already offers.
    • Mahindra ranked behind Maruti Suzuki and Hyundai Motor India in car sales last year in India.
    • Bayer (OTCPK:BAYRY -0.2%) confirms it is cutting 4,500 positions in Germany, or ~14% of its workforce in the country, part of its attempt to save €2.6B/year from 2022 through efficiency programs following its $63B Monsanto acquisition.
    • The reductions are part of Bayer's larger package announced in November to eliminate 12K positions around the world.
    • The Monsanto deal brought Bayer into the line of fire for thousands of lawsuits claiming that glyphosate, the main ingredient in Monsanto’s Roundup weedkiller, causes cancer.
    • Shares of the U.S. planemaker are down another 1.1% today as Goldman Sachs became the latest to lower its PT on Boeing (NYSE:BA), which it rates at Neutral.
    • "We revise our 12-month price target to $393 from $425 which reflects the flow through of our reduced estimates, still based on 18.7X CY19E P/E. We have also revised our core 2021-2023 EPS estimates to $25.91/29.43/32.17 from $26.81/29.30/33.47 to reflect changes in the 737 ramp. Key risks: (1) the pace of air traffic growth, (2) 737 MAX reliability, (3) DoD spending priorities."
    • "For this year, we assume no MAX deliveries in 2H March and all of 2Q 2019, but that all of those deliveries catch up in 2H19."
    • Japan’s JERA says it signed an agreement with a Mitsubishi unit to buy as much as 1.2M mt/year of liquefied natural gas from the Royal Dutch Shell-led (RDS.A -0.6%) LNG Canada project.
    • The heads of agreement is for ~15 years starting from April 2024, says JERA, a joint venture between Tokyo Electric Power (OTCPK:TKECF) and Chubu Electric Power (OTC:CHUEF) and the world’s top buyer of liquefied natural gas.
    • Buyers from the project so far include trading house Vitol as well as Asian utilities such as Tokyo Gas, Toho Gas and Korea Gas.
    • Daimler (OTCPK:DDAIF) says Mercedes-Benz brand deliveries fell 4.1% in March to 227,644 vehicles. Deliveries in Europe were down 5.6% and NAFTA region deliveries were off 5.0%. Deliveries in China rose 5.9% during the month.
    • For the full quarter, Mercedes-Benz deliveries were down 5.6%, with all regions showing a drop except for China.
    • Mercedes-Benz sales update: "The first three months of the year featured important model changes in the highest-volume SUV and compact-car segments. The company expects an increasing vehicle availability in the next months and therefore global sales to increase slightly overall in 2019. Since the beginning of the year, Mercedes-Benz has maintained its market leadership in the premium segment in Germany, UK, France, Italy, Switzerland, Sweden, Portugal, Poland, Denmark, South Korea, Australia, Canada, Brazil and other markets."
    • Royal Gold (RGLD +0.1%) is little changed after reporting FQ3 sales of 60K gold equiv. oz., comprised of 48K gold oz., 510K silver oz. and 1,200 mt of copper related to its streaming agreements.
    • RGLD says its average realized price for gold and silver both rose 7% from the year-ago quarter to $1,303/oz. and $15.51/oz., respectively, while the average copper price lost $0.02 to $2.74/lb.
    • Q3 cost of sales was $319/gold equiv. oz.,compared to $327/gold equiv. oz. in Q2.
    • Goldman Sachs analyst Toshiya Hari says the firm is increasingly negative on memory spending and thinks investor expectations for an H2 wafer fab equipment recovery will fade.
    • The analyst expects semi equipment companies to revise their WFE forecasts over the next few months and for analysts to cut earnings estimates. Goldman now expects the WFE market to drop 25% Y/Y compared to its previous -20% Y/Y forecast.
    • Goldman reinstated KLA-Tencor at Sell this morning and remains Neutral on Lam Research (LRCX -1.4%), Applied Materials (AMAT -1.7%), and semi caps broadly.
    • Other semi equipment names that could move on the note: IPG Photonics (IPGP -1.5%), Teradyne (TER -0.8%), Cree (CREE -1%), Entegris (ENTG -0.2%).

  14. Electric bikes can boost older people’s mental performance and their well-being

  15. I'm here until 2, by the way – have a meeting after that.

    Indexes breaking higher now.  No reason I can see.

  16. Europe Claims Progress in Prodding China to Open Its Market

  17. And down again.  Can't make heads or tails out of this action.

    • LTP still $1,385,132 – same as Friday
    • STP $719,940 is up $2K.
    • MTP $134,480 is also pretty much stuck in place.
    • Butterfly $165,996 – the $990 is new.
    • OOP $437,343 is still showing HOV at old amounts so I guess I have to re-enter it manually.  That is up $6,000 though from Friday.

    So, on the whole, we're very well-balanced and we'll just have to wait for a clear signal to make our adjustments.  Expirations aren't until next Friday so mostly watching and waiting this week.

  18. Well, gotta run

  19. FWIW


    Both MRRL and MORL,  2X Leveraged Mortgage REIT ETNs, declared .0524 distributions that go ex-divd on April 9.  


  20. OOPS !  Fat Finger.

    Should be .524

  21. Alibaba-Rival JD Targets Deep Job Cuts as Morale Sags

  22. Inside Trump’s ‘truly bizarre’ visit to Mt. Vernon

  23. Good morning! 

    /ES back to 2,890 but Russell took serious damage at 1,568 and the 200 dma is 1,573 so, of course, that's our big watch line this morning to see if we're really recovering.

    Dollar is back down to 96.50 from 96.70 so down 0.2% gives us that degree of skepticism re. this morning's gains.   

    /RB is $2.0325 and I'd love to short it but Easter is right around the corner, so dangerous.  /CL at $64.50 again and I feel better shorting that at $65 but we'll see how the report goes.   API showed a huge draw in Gasoline, more than offsetting the build in oil:

    Private weekly US oil inventories Crude larger than expected BUILD; Products continue big DRAWS +4.1 (+2.294 exp) -2.4 (-1.3 exp) -7.1 (-2.009 exp) -1.3

    Europe Is Sinking the Global Economy While Juicing U.S. Stocks.

    Investors may think the market is reaching a top, but I’m not buying it, Jim Cramer say.

    Charts show a double-digit rally could be in store for tech and oil stocks, Jim Cramer says.

    Oil Algos Confused As Huge Gasoline Draw Trumps Crude Build.

  24. Very slow start this morning with lower volume than Monday in first 40 minutes. It appears that wait and see is the watch word right now.