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?
