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Trilling Thursday – Bouncy Markets Face a Test into the Weekend

We are hitting our goals.

The Dow is over the strong bounce line at 25,500 by 160 points (at 200 points it's a 50% recovery), the S&P 500 is right at the strong bounce line of 2,830 and Futures indicated 5 points higher, the Nasdaq 100 is right at it's weak bounce line at 7,250 and the Russell is right at the strong bounce line at 1,510.  With 3 indexes over the bounce line we like to go long on the laggard so this morning's Futures Trade Idea is to go long the Nasdaq over the 7,250 line – with tight stops below OR short the Dow (as it's the over-achiever) if the others fail their lines and the Dow fails 25,600 – with tight stops above.  

That way, we can make nice money in either direction while we watch and wait to see which way our bounce lines resolve themselves (which then informs us whether to get more bullish or bearish into the weekend):

  • 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

Remember:  The 5% Rule™ isn't TA – it's just match.  We don't really care what the charts look like, these numbers are formula-driven and serve us very well – why else do you think 3 of the 4 indexes finished yesterday right at their bounce lines.  We made a quick $500 per contract shorting the Dow yesterday morning but today we're going to wait for a signal from the other indexes before jumping in.

The European Central Bank decided to leave rates steady this morning but threw the bulls a bone, saying they were likely to keep rates steady through "at least" the first half of 2020.  That's a great relief to people who thought a rate of 0.5% would collapse the Global Economy so, as long as we can keep borrowing money for 0.5% – everything will be fine, right?  Right?  Sure it will.  In fact, I'm surprised no one ever thought of this before – let Governments borrow money and lend it to the banks at 0.5% and let companies run up Trillions in debt at 1.5% and all will be well forever and ever.  In fact, here's a chart of interest rates over the past 5,000 years:

screen shot 2015 09 18 at 10.12.09 am

Rates now are lower than they were during the Great Depression only this is a rally with full employment.  Thankfully, the Central Banks' tell us there's no inflation though rents are rising and college costs are rising and medical bills are rising and taxes are rising and food is rising and the tides are rising (meaning insurance payouts are rising so the cost of insurance is rising too) and even home prices are rising – but at least there's no inflation, right?  

Image result for inconvenient truth cartoonWill people ever get tired of being lied to?  Probably not when the lie is that everything is great – that's not the kind of lie you want to uncover the truth of, is it?  People like it when things are fine and they don't like it when other people try to rock the boat and point out what's not fine so it's better to go on believing the lie and hoping you won't live long enough to see it all fall apart – it's amazing our species actually made it this far…

Al Gore wanted to warn us about Global Warming 13 years ago but that was so depressing we voted in a frat-boy President instead and he crashed the economy but at least we didn't have to cut back on our carbon emissions, right?  For a few years we wised up and elected an actual leader but he wasn't much fun and wanted us to eat our vegetables and be nice to our neighbors and chip in on fixing the environment and we weren't having any of that so here we are, once again living the "reassuring lie" and once again hoping the whold thing doesn't fall apart – like it did just 9 years ago.

The Central Banks saved us then and they are saving us now – even though now the economy is at full employment and the markets are at record highs.  That's because it's cheaper to save us from ever having any proper price discovery in the markets than to let the market correct and then try to pump it back up.  That appears to be the strategy of the majority of Central Banks and whether or not they can really keep rates this low into the next decade remains to be seen.

But God help us all if they can't…


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  1. European markets drop as ECB doesn't drop rates disappointing expectations.

  2. 75 years ago!

    Image result for d=day

  3. Good Morning!

  4. Because there was a D-DAY, many of us are here today, including myself…. :)

  5. Wow.  SIG beats solidly and gets pummeled for it!

  6. Good morning!  

    Big chart looks good, all 200 dmas taken back except the RUT but, by the time that comes back – we'll be in another rally.

    Europe/Den – It's ridiculous how addicted we are to low rates – not going to end well.

    Good video, StJ:

    D-Day/StJ, 1020 – Notice how Trump is in Europe taking credit for saving them – like HE had anything to do with it…

    Related image

    "Very fine people on both sides" 

  7. market seams skitzoid so far 

  8. TEVA Director bought 104,500 shares at $9.57 – $9.63 worth ~ $1mln

    Second million dollar purchase by their Chairman this week. 

  9. Long /CL

  10. Trump / Phil – In 1940 he would have been exchanging love letters with Hitler calling him a smart guy.

  11. TEVA/Albo – Interesting.   I assume you mean Sol Barer, who I don't think is so rich that this isn't a lot of money for him?  Of course, he also bought 2.5M shares of GNMX last Aug and lost 80% of that money so I'm not sure he's the best judge of when to get in.

    If you feel compelled to play TEVA, the 2021 $13s are $1.60 and you can sell the $18s for 0.80 so net 0.80 on the $5 spread pays $4.20 (525%) if they are going to have some great recovery and you can risk $4,000 by putting a 50% stop on $8,000 with the upside potential of $42,000 if all goes well.  That's the way I'd play it and you can even sell 20 (out of 100 spreads) Sept $11 calls for 0.67 ($1,340) as that's 100 of 600 days you have to sell so 6 sales like that is the whole $8,000 back in your pocket.  

    DDay/1020 – I think Spielberg did an amazing job with Private Ryan recreating the horror of that landing.  It should be mandatory viewing for all citizens and re-viewing for Congress before voting for any military action.

  12. st jeanluc  they deserve each other

  13. /CL – Stops up to entry.

  14. Phil – I also saw Mr. Barer's purchase of GNMX.

    Makes you wonder about his judgment.

  15. Butterfly – I do understand the purpose of the butterfly Phil.  The problem with it is that it is difficult to begin following it when it is established.

  16. /CL out.  Was hoping to see a break above 52.

  17. Phil,

    NG up, but NG october is down. Gap is closing between the two expiration?


  18. CIEN is up 25% at the moment.

  19. My mistake. NG down too.

  20. SIG/Robert – Same store sales were not that good and outlook cut to $3 from $3.25 but, at $18-20/share, this reaction is just silly.  

    Butterfly/Tangled – I disagree, the positions are designed to make quarterly money off the long positions so any time is a good time to get in as it's the quarterly sales that matter – not the long-term anchor positions.  You don't have to take the same long position – whatever is appropriate on entry.  

    /CL/Albo – So amazingly weak.

    Ignoring $66 we came off the high of $65 and a 10% correction is $13 to $52 but we know $52.50 is significant as $50 is the "Must Hold" line on oil so $52.50 is the 5% line – so we favor that and $55, $60, $65….  So, from $65 to $52.50 is $12.50 (19.2%) and $2.50 bounces are $55 and $57.50 and a $2.50 overshoot is $50 and I'd still watch the $2.50 lines in that case.  

    /NG/Kgab – The front month will always move more than the longer ones – they are like long-term moving averages, they will catch up if the front-month move is consistent. 

    CIEN/Albo – At least someone is doing well.

    There goes 1,500 on /RTY.   We can play /YM short at 25,600 again if that line fails.

  21. 1020,

    Great story, thanks for the link….my father was a WW2 vet in Europe….reading that really makes you question the madness occurring in our country these days…..

  22. Phil, where do you look when researching earnings like you did above on SIG?  


  23. Re CIEN. The only thing I noted on the cash & balance sheet was the taxes were cut way down. Their actual earnings for this qtr was about 50% less than the previous. My guess is this is a good short. They have about 3 days to catch up to the short positions but this looks like a balloon that will pop.

  24. RE cien About 24% of its revenue was derived from T and Vz.  And it accounts for  about 11% of Lite. Still don't see the big juice for this stock. Reminds me of ETSY. Big run up then a bigger fall.

  25. pirate    Albo and I first started  playing ETSY in its teens. 

  26. U.S. Readies $2 Billion Taiwan Arms Package Drawing Protest From Beijing

  27. 36 Hours in Majorca

  28. World marks 75 years since D-Day in solemn observances

  29. Stockbern – Yeah, ETSY was a big winner.  

  30. Pirate – I agree with you on CIEN.  I put on a small short this morning.  Very unusual for a stock with a market cap as large as CIEN's (6.92 Billion) to go up 25% in one day on an earnings beat.  I think the thing that propelled them most was this :

    The company has not seen any substantive impact on its business to date and it reminded investors that is has almost no revenue exposure to China.

    However, Mexico is a concern.

  31. Earnings/Robert – I usually go to Yahoo Finance and go back to around earnings day and find articles or releases that discuss them.

    CIEN/Pirate – Good catch but it can't all be taxes at $52.7M vs $13.9M last year.  This helped too:

    Ciena repurchased about 1.2 million shares of common stock for an aggregate price of $45.4 million during the quarter.

    It's a $7Bn company however at $44.50 and MAYBE they get to $2/share at this rate but still, at $2/share, $44.50 not too much to ask.  I think, primarily, they shook off trade war concerns and popped back to where they were.

    And what Albo said!

  32. Rise of the Robot

  33. Phil- Can you take a look at GNC when you get a chance.  Looks like it's priced for BK & has been crushed over last couple of months.  Is it a BUY BUY or BYE BYE?  Thanks!

  34. Albo - I followed you into TEUM at 4.50 but haven't had time to watch the news flow, is 3.50 a good place to DD or hold fast?

  35. its so quiet its like the market is closed

  36. It does feel like the quiet before the storm. Low volume but high volatility – one day it's like back on the program, another day getting a yo-yo. I wonder if "someone" is maintaining the order so the big boys can exit 

  37. Warning to all holders of FTR in an Ameritrade Portfolio Margin Account:  FTR will no longer be eligible for Portfolio Margin as of tomorrow.  I called the margin department and was told that the margin requirement for my position would jump from $7,000 to over $100,000.  I exited my short puts and only left my stock position intact because for me it was not worth using $100,000 + of margin to maintain the position.  It seems that the pain does not end for longtime holders of FTR…

  38. MM -Buying TEUM and selling the Oct 5 call for .55-60 looks like a good play to me.

    There's the reversal of oil I was looking for.  Wasn't patient enough.

  39. wow talk about sticking it to cl into 230


    did anything even happen

  40. TommyT- Looks like a Classic pit-close squeeze to me.  Not that uncommon.

  41. GNC/EMike – They are restructuring bigly so will take a long time to prove themselves.  A lot of their plans were in China, however, so that's up in the air and why they took a hit since their 4/25 CC.  I don't think they are too likely to get damaged as it was China's Harbin Pharma, who put up $299M last year to form an Asian joint venture with GNC.   So really it's all about the China risk but, as a new play, I'd maybe just pick up the 2021 $1 (0.70)/$2.50 (0.30) bull call spread for net 0.40 and sell the $1 puts for 0.35 so it's not too risky, on the whole.

  42. Phil – IRM (Iron Mountain REIT) – What are your thoughts on this from a fundamental perspective. Past five price range has been 25 to 41 (currently at 31), with market issues can probably catch it near $25 / share. Reasonable selection on option expiry's, but IV < HV at moment, thus option premiums not good. Is it worth watching?  Thanks, Eric

  43. FTR/John – And they are just getting back to $2.  That sucks, I wonder what triggered that decision?  In the LTP, we'll get hit for $67,500 in margin, so I'm not dumping out over that but it is annoying.

    CL with a nice pop, finally:

    It's just a game because today would have been the day for margin calls on oil, so people were forced to sell longs in the morning and now it's jumping back up – before their accounts can reset.  

    IRM/Eric – I used to like the business but storing paper doesn't exactly seem like a growth sector anymore.  They rebranded themselves as a REIT and promote cloud services but mostly this is a company that grew earnings by paying just $36M in taxes on $413M in income last year and the projections assume that just keeps going but I don't think it will.  Last Q they made just $41M and paid $10M – I think they loaded profits into last year and took advantage of the tax breaks but the natural business is nothing like $400M in profits and, even if it were, $9Bn (22.5x) seems a bit too much to pay at $31.10.

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 3,025 3,118 3,008 3,511 3,846 4,226 4,237 4,300 4,463 +6.9%
    Operating Profit $m 445.5 532.8 497.2 490.8 570.7 755.5 749.6     +11.1%
    Net Profit $m 95.0 317.8 122.4 102.6 182.3 308 292.9 292.6 335 +26.5%
    EPS Reported $ 0.46 1.55 0.58 0.41 0.69 1.31 1.26     +23.1%
    EPS Normalised $ 0.66 1.61 0.78 0.44 0.96 1.44 1.33 1.05 1.17 +16.7%
    EPS Growth % -34.1 +142.8 -51.9 -42.6 +115.7 +50.0 +35.2 -27.0 +11.1  
    PE Ratio x           21.9 23.7 30.0 27.0  
    PEG x           n/a n/a 2.69 n/a

  44. does anyone know if today is last day for july cl futures contracts

  45. CL/tommy, last trade should be June 20, but broker may force close earlier to make sure no delivery

  46. FTR Margin I don't know what you guys holding to put up the new margin of 100K

    Called TDA and the margin will be as follows you holding 10 puts @ 3 $ stike will be 1000×3= 10K

    so you must hold a 100 puts to get knocked with 100K

  47. Phil / GNC – Thanks Phil, I forgot about their China factor.  Couldnt figure out why they were dropping like a rock.

  48. /CL/Tommy – 11 more days according to TOS though that does seem too soon.

    FTR/Yodi – Well I was just doing the straight math of our obligation to buy shares but, since I don't mind owning the shares and the money is put aside – it's not really an issue. 

    Nice push up into the close but /RTY still negative.

    Oil blasting to $53.23 – crazy!  

    Well, not enough to make us more bullish but can't get more bearish either.

  49. hi phil i very stupidly and comepleatly the opposite of your great advice find myself with a cl/ august short contract at  61.66  down about 6oo  bucks with the way it popped at two thirty would you bail or let it ride a hope for a little pull back.

  50. Hello Phil. Base on FTR becoming unmarginable, would you expect this to put more downward pressure on the stock? I am,sure their a lot of people that will be surprised tomorrow and have to adjust.

  51. Phil, Thoughts on MAC, it has dived so yield is 8%??

  52. On etrade FTR has been at 100% margin coverage for several months.

  53. /CL/Tommy – $61.66?  Do you mean $51.66?  I don't think that's coming back, frankly.  Could get much worse if things normalize – it sure got ugly fast for our longs on the way down.

    FTR/Robert – I think, because it's a $2 stock, people aren't going to be too jammed up by not having margin – assuming it's not just TD and all brokers are doing it.  If I sold the 2021 $3 puts for $1.80, my net is $1.20 at $0 and maybe they were only asking for 0.30 and now it's 0.90 but, as Yodi said, you have to have quite a lot of contracts for that to be a big issue (100 = $9,000 more) and there's only 1,333 open puts at $3 and 2,340 at $2 so 360,000 shares represented out of 25M shares of stock is not really going to be enough to crash it – even if they all panicked out.  And, as Den notes, it's just TD on this particular day so very little effect overall.

    MAC/Millard – They own a lot of malls so very tricky.  Notice how earnings are projected to head lower, not higher:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 1,029 1,105 1,288 1,041 993.7 960.4 950.1 886.1 910.9 -1.4%
    Operating Profit $m 25.5 55.0 86.0 96.7 62.9 25.4 45.4     -0.04%
    Net Profit $m 420.1 1,499 487.6 517 146.1 60.0 101.4 49.9 60.9 -32.2%
    EPS Reported $ 0.93 10.5 3.08 3.52 1.12 0.42 0.71     -14.8%
    EPS Normalised $ 1.05 3.71 1.42 0.68 0.83 0.56 0.63 0.34 0.40 -11.6%
    EPS Growth % +12.4 +253.8 -61.6 -52.2 +21.8 -31.9 +3.3 -40.1 +18.9  
    PE Ratio x           66.2 58.8 110.4 92.8  
    PEG x           n/a n/a 5.83 3.89

    So not for me (or anyone else, it seems).

  54. Migrants detained in Mexico are sent BACK to Guatemala as part of tougher security on the border following pressure from Trump over tariffs

  55. A Texas-sized problem for Trump

  56. Plant-based burger maker Beyond Meat beats forecasts in 1Q

  57. Japan plans carbon emission cuts, more nuclear energy