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25,000 Tuesday – Dow Tests a Critical Line from Below

25,000 or bust!

That's what we'll be watching today as the Dow Futures (/YM) rally 116 points (8am) to come back to the 25,000 mark and yesterday, in our live Member Chat Room, we drew out the following bounce lines:

  • Dow 26,700 to 24,700 is 2,000 so huge 400-point bounces to 25,100 (weak) and 25,500 (strong)
  • S&P 2,950 to 2,750 is 200 so 40-point bounces (or what I said above) to 2,790 and 2,830
  • Nasdaq 7,850 to 7,100 is 750 so 150-point bounces to 7,250 and 7,400
  • Russell 1,600 to 1,450 is 150 so 30-point bounces to 1,480 and 1,510
As you can see from the sea of red, we didn't make much progress yesterday but the Russell is back at their weak bounce line this morning so there is some hope that the dip buyers are still out there.  Yesterday's volume was good for a Monday but we ended up flat for the day so non-committal too.

The better news is the S&P 500 tested and held the 2,730 mark we predicted in the morning right on the button and that's our 5% line so a good sign if that continues to hold as it means we're still consolidating in the higher part of our expected trading range (see yesterday's notes). 

Keep in mind the index gains are far less impressive since the Dollar is down over 1% since Friday's open while 40 out of 2,730 S&P points clocks in at 1.46% so we're barely keeping up with Dollar deflation on this "rally" so far.  That also makes Oil's (/CL) drop from $66.50 to $52.50 seem even worse, as that's a 21% correction and we should be getting $2.50 bounces to $55 (weak) and $57.50 (strong) but we were firmly rejected at $55 and smacked right back to $52.50 – a very bad sign if we fail again and it's not likely the markets will recover if oil is slumping this badly.

If oil has a 21% correction and heads lower, it's very likely we'll see the S&P, Dow and NYSE follow as they have plenty of big oil companies in them.  Tomorrow we get the Fed's Beige Book report and it will probably be signaling not to worry but that was a survey taken before Trump threatened to sanction Mexico too.

Fed Chair Powell will be giving the opening remarks this morning at the "Conference on Monetary Policy Strategy, Tools And Communication Practices." at 9:45 at a Chicage Fed Conference.  Yesteray Bullard said that "Unresolved trade disputes and below-target inflation suggest that the Central Bank needs to tread carefully in order to help sustain the economic expansion" and indicated that a rate cut could be warranted.  If Powell makes similar noises, we can expect to see those strong bounce lines so playing the Dow (/YM) Futures long at 25,000 is a good low-risk/high potential reward strategy ths morning – as is oil above the $52.50 line.  Australia's Central Bank cut rates to 1.25% last night.  

Remember, we are playing for the bonces – so don't be greedy!

Image result for warren break up techThe Nasdaq should be bouncy as well as yesterday was a bit of an over-reaction to the news that Congress was investigating big tech but that's a process that will drag out into next year and won't be affecting their Q2 earnings or even their outlook – just be worried when they get called to testify and that's not even likely to happen until the fall – if they even manage to get it done this year.  

There's not much else going on today but tons of Fed speak in Chicaga and we get Auto Sales reports throughout the day and Factory Orders at 10 am but keep in mind that all these reports are pre-Mexican Tariffs – so take anything with a grain of salt if we can't get off this crazy train.

Be careful out there!

 


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  1. The case against Uber:

    https://americanaffairsjournal.org/2019/05/ubers-path-of-destruction/

    Today’s Uber is clearly more popular than traditional taxi service, but this observation is economically meaningless. The only valid comparisons are with a hypothetical, subsidy-free Uber that could produce today’s prices and service levels along with sustainable profits. If Uber could somehow convert the $14-plus billion that it lost in the last four years to sustainable, growing profits, it would be one the biggest corporate turnarounds in history. Conversely, if Uber fails to find the billions of dollars in operating efficiencies that it couldn’t find over the past nine years, it will have a devastating impact on the urban car service industry, and the hundreds of cities that depend on taxis. As it struggles to reduce losses, it will be free to cut service and gouge the customers and drivers who are no longer protected by either regulations or meaningful competition.


  2. Good Morning!


  3. Good morning!  

    Looks like an up 200 (1%) open so we'll see what sticks.

    Big Chart has no danger  sign (another red box) so far but yesterday didn't count so we'll see how today goes.  Now we need to take back those 200 dmas so watch for signs of rejection – IF anyone gets to test them today.  Nas can do 100 points easier than SPX can do 30 and the Nas 200 dma is also the 10% line -so I'd call that super-significant.

    Uber/StJ – For insiders, the whole thing is a market-share game while they wait for self-driving cars that put all the money they pay drivers into their pockets (less the cost of the cars).  The numbers are astounding so they are willing to put up with a lot and this public round gave them a few years' worth of bagholder cash to burn while they wait.

    How Much Do Uber Driver Make: Ridester driver survey best and worst cities for earnings

    These are, apparently, what the drivers net after car expenses etc.  Pretty depressing for most of them BUT, for UBER, which has 5.1M drivers and let's say they average just 20 hours a week that's 100M x $10 is $1Bn a week in wages AND, of course, if UBER has a fleet of 1M self-driving cars going 24/7, they can negotiate discounts on buying the cars (what would Musk do for that business), insurance, repairs, etc – so their costs would be much lower than their driver network.  So we're talking about the potential to make $50Bn a year – as much as AAPL and that's just with the market share they have now.  


  4. Phil,

    I still hold October NG futures. My base is $2.6. Do you think I should give up? 


  5. /NG/Kgab – Well I'm still in /CL but now I had my chance to DD at $52.50 so 8 at $54.60 and I PRAY I can get back to 2 long at that price.  IF you intended to hold /NG long, you certainly should have DD'd at $2.40 so your average would be $2.50, which is very reasonable to catch up on and, if you didn't intend to DD at $2.40, you should have been stopped out no lower than $2.55 because, again, it's not realistic to expect an 0.20 move in any short period of time.  Between now and October, I have faith – it's likely to be a strong hurricane season and we still have the positives of LNG exports constantly ramping up.


  6. Druckenmiller Piled Into Treasuries on Trump’s China Tweet



  7. Mexico says it sees good chance of avoiding 5% US tariff


  8. Joe Biden’s climate plan targets net-zero emissions by 2050


  9. The Couple Who Feds Say Scammed Berkshire Hathaway for Millions


  10. TEVA

    TEVA Director bought 111,000 shares at $8.915 – $9.09 worth ~ $1mln


  11. Powell really sparked the rally saying fed could cut rates if trade spat escalates  good for a % gain


  12. A Slower Economy. A Trade War. Now, China Faces Rising Food Prices.


  13. I was in Israel this past week. Driving by the imposing TEVA building up on high in Jerusalem gave me the shivers. Tel Aviv was buzzing – the area around Dizengoff Square was superb – great restaurants – shawarma to die for. There is something about being surrounded by your enemies that energizes the nation's young. People must be earning good money because prices seemed high. Brought the bible stories to life (whether you are a believer or not) and filled in a part of my historical geography that was missing. Fantastic experience. 





  14. Tesla is up 5% on pick-up pumping. And so are my bear put spreads. Ya gotta love options. 


  15. TEVA – Turns out the insider who bought Teva stock is Sol Barer, Teva's Chairman..  Prior to this purchase he owned very little stock directly..  Mr. Barer was former Chairman and CEO of CELG.


  16. TEVA/Albo – Bad buy I think.  The US isn't the only country that's going to be suing them.

    Powell/Batman – As was expected but will the bounces hold is the question:  

    • Dow 26,700 to 24,700 is 2,000 so huge 400-point bounces to 25,100 (weak) and 25,500 (strong)
    • S&P 2,950 to 2,750 is 200 so 40-point bounces (or what I said above) to 2,790 and 2,830
    • Nasdaq 7,850 to 7,100 is 750 so 150-point bounces to 7,250 and 7,400
    • Russell 1,600 to 1,450 is 150 so 30-point bounces to 1,480 and 1,510

    Picked up two greens but need to see all 4 indexes holding weak before we consider this progress.  Still, a 1.5% day across the board is great – it just so happens we needed 2% from a 10% drop.

    Israel/Winston – So cool.  Try Egypt if you haven't.  

    TSLA/Dawg – I know, they are amazing at promoting stuff they don't have.

    Coffee doing very well now that CA decided it doesn't give you cancer and also:

    Coffee supply threat: who gets what in the value chain | Financial Times

    Coffee Won’t Need Cancer Warning in California After All

    I love buying things that are down for silly reasons!  

    Coffee/Kgab – Good harvests coming in on flat demand:

    In April 2019, the ICO composite indicator fell by 3.2% to 94.42 US cents/lb, which is the lowest monthly average since July 2006 when the price reached 88.57 US cents/lb. Prices for all group indicators fell in April 2019. Low prices discouraged sales in March 2019, and world coffee exports amounted to 10.98 million bags, 3.8% lower than in March 2018. Shipments in the first half of coffee year 2018/19 increased by 4.1% to 63.15 million bags, reflecting the ample supply of coffee on the international market. Shipments of Brazilian Naturals rose by 18.4% to 21.7 million bags, and Colombian Milds grew by 8.6% to 7.95 million bags. Exports from Brazil in the first half of coffee year 2018/19, fuelled by significant growth in its harvest and encouraged by a depreciation in the exchange rate, increased by 26.5% to 21.29 million bags, driving the growth in global exports. Between April 2018 and March 2019, world exports rose by 4% to 124.72 million bags. The exports in this period coincide with the crop year for a number of countries, including Brazil and Indonesia, the world’s largest and fourth largest producers

    Market fundamentals are one of the main drivers of the current low prices as coffee year 2018/19 production exceeds consumption by 3.69 million bags. This is the second consecutive season of surplus with a cumulative total of 8.35 million bags.

    So no luck in this round.  We're waiting for an event that knocks down production.  Notice the balance is just 4M bags, plus or minus out of 165M so 2.5% is the difference which means an event that damages just 5-10% of a major producer's crops could swing things in our favor.  Also, we're now below the level at which it's worth it for a lot of farmers to grow coffee so, if they switch to other crops or go on strike – we can win that way too.

    If you are not going to buy when prices are low – when are you going to buy???


  17. MDLZ: Need advice, Long 20 Jan21 $55 call and 20 Jan21 $38 put, short 10 Jul19 $45 call, 10 Sept19 $50 call and 10 Sept19 $50 put. 50 day and 200 day avg going up and diverging so not a good butterfly candidate anymore, right?? how to pivot and not get too badly hurt?


  18. Well, 400 points is a good start to recovering.  I'd start tightening up the stops on the /YM longs – that was  a nice day's move! 

    /CL done on the $1,000 gain for the day too.  API is too random tonight to risk.

    MDLZ/Millard – Ask me tomorrow afternoon when I have more screens and a faster connection.  I imagine they'll come down eventually but how long do you want to keep rolling?  2021 $55s are $3.75 and the $45s are $8.70 so $4(ish) to roll down $10 seems better than paying off the short callers and then you can just roll them along or you can DD on your longs and roll the short calls to higher levels.  Remind me tomorrow.


  19. Egypt – tried Cairo on business a couple of times. Did the pyramids, bought the best cotton shirts available – but it’s too crazy for me – taxi ride to the hotel nearly gave me a heart attack. And unfortunately too often political craziness of the kind that kills. 


  20. Through on RH earnings next week? With IV >100, lots of premium to sell!


  21. Using this sell off in GBTC to start to rebuild my position.  Slowly.


  22. sorry, Thoughts on RH…


  23. Anyone notice this "recovery" has little volume…?


  24. Egypt / Winston – Had a great time there, went all the way to Abu Simbel, but I do recall that drive between Luxor and Aswan escorted by military vehicles! In general, I didn't feel unsafe there but there were signs that cannot be ignored if you have traveled in a lot of places. Of course, we have metal detectors in our schools here…  


  25. Volume/Mito – Day isn't over yet but yes, very low volume for this kind of move:

    Date Open High Low Close* Adj Close** Volume
    Jun 04, 2019 277.12 279.92 276.62 279.75 279.75 54,138,028
    Jun 03, 2019 275.31 276.55 273.09 274.57 274.57 96,253,300
    May 31, 2019 276.20 277.12 275.24 275.27 275.27 86,862,800
    May 30, 2019 279.11 280.04 277.81 279.03 279.03 62,523,800
    May 29, 2019 278.91 279.36 276.71 278.27 278.27 104,972,900
    May 28, 2019 283.09 284.15 280.13 280.15 280.15 70,029,400

    Egypt/Winston – Yes, but I love seeing the places that legends began.  My cousin is a World-famous expert on Byzantine culture – great person to tour the region with AND she gets to go inside the pyramids at all the research sites (really good at haggling too).  

    Speaking of Byzantine culture – I really liked that new Aladdin movie.  

    RH/JMD – Also, best to ask tomorrow afternoon, when I'm back at the command center but I generally like RH when they are low in the channel.

    GBTC/Albo – Not for me.  


  26. Haggling / Phil – I was taught a tip that has worked well in many places. Usually the seller puts the merchandise in your hand (or tries to) to get you to get the ownership feeling (or whatever psychological response it generates) but it works both ways as I usually hand them what I want to pay for the merchandise so they have the money in their hand and they don't like giving it back! You have to haggle a bit first to get an idea of what to hand over but it shortens the process dramatically.


  27. Haggling/StJ –  I will try that next time I buy a car!   I wish it worked at Whole Foods…   

    Tomorrow morning I’ll get a post up and show up around noon, maybe sooner.  


  28. Here you Pstas:

    Crestmont P/E


  29. Thx


  30. Haggling / Phil – They don't even haggle at car dealerships anymore. It's a lost art…


  31. Also Pstas:

    Standard Deviations from Mean

    I don't know about the stats behind the charts but seems to indicate some danger ahead unless we can boost earnings by 100%. Not impossible though, after all we have the best economy ever right now.


  32. It could all collapse tomorrow but if you traded by the P/E chart you’d have been short for the last 5 years. And bankrupt. I think it all makes more sense if you consider interest rates vs dividend yield. And on that basis we are due for a correction since 10 yr is 2.123 and S&P is 1.86. So maybe a 15% drop is in order  


  33. The old market maxim of revert to the mean will someday come to pass. Inevitable but when?

    I have raised cash levels and hope to add more if we get more of today's type action. Downside risk outweighs upside IMO. 


  34. Skyworks came out with a revised estimate based on stopping business with Huawei as the US Gov put them on the entity list.  They were a 12% customer – and they took EPS guidance down from $1.5 to $1.34.  Not good but also not end of world. Stock down so much already……


  35. Trump just closed Cuba again.  Hope it wasn't anything I said.  I've got to tell you, Trump does a lot of stuff after I write about it. 

    Treasury Secretary Steven Mnuchin said in the statement that the restrictions are a result of Cuba continuing "to play a destabilizing role in the Western Hemisphere, providing a communist foothold in the region and propping up US adversaries in places like Venezuela and Nicaragua by fomenting instability, undermining the rule of law, and suppressing democratic processes."


  36. Cuba / Phil – So funny…  When talking about destabilizing, the irony seems to escape anyone in the Trump administration, the biggest destabilizing influence in the world now.


  37. Was today's Market action just a short squeeze playing out, on top of the Powell PUT??