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Thursday Failure – Fed Fails to Assure the Bulls

Wheeeee – down we go! 

As we discussed in yesterday's Live Trading Webinar, this market rally has been ridiculous and certainly unsustainable (as noted in yesterday's: "Which Way Wednesday – Nasdaq 10,000 Edition") and our plan from yesterday morning ws to short the Nasdaq when it crossed back below the 10,000 line, which it did early this morning.  

As you can see, that's already paying well, as expected and now we'll see how low we can go but the stop is now 9,950 for an even $2,000 gain for the morning and we can always find a fresh horse like S&P (/ES) 3,100 if that fails.  As I said yesterday, these are the best plays you can make in the Futures as it's easy to limit your losses (using a major stop line) and lock in your gains.  

3,135 is the 10% line on the S&P 500 and that's the top of our expected range for the year, this jaunt above the line is only going to be a single weekly candle in hindsight.  

Keep in mind we are not at all technical traders – we are Fundamentalist and yes, TA is a factor in our analysis but, by itself – it's worthless.  In yesterday morning's PSW Report we noted why that market was over-priced and our range for the SPX is based on our projected earnings of the S&P 500, the effect of the Virus, the Bailout, the rest of the Global Economy (not all of which has sugar-daddy Central Banks) and, of course, sentiment – which has simply been stupid, not silly, the past few weeks.  

Abe Lincoln: You can fool some of the people some of the time ...Some of the investors can fool themselves all of the time and all of the investors can fool themselves some of the time but all of the investors can't turn a terrible economy into a bull market for very long – I would think that is obvious but, surprisingly, I find that I have to explain this to almost everyone I meet (not you fine people, of course!).  

Fortunately, we are very well-hedged in our Member Portfolios (which we reviewed in yesterday's Webinar) and we made our aggressive adjustments to the Short-Term Portfolio on Thursday, so the only surprise for us is that it took a whole week for the stupidness to end.  Hedging is how we lock in our gains – it's an insurance policy for our longs that allows us to let them ride, rather than cash them all in – as I was very tempted to do yesterday…

Meanwhile, this is a very small sell-off compared to the rally so we'll simply sit back and see how well we hold up – certainly we're not going to be buying very much if the madness persists but the hedges help us hold onto our longs until we can see if the rally is really out of gas or not.

 


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  1. Damn, went back to our January lines and now we are going down again… Hope I don't have to switch again!


  2. Morning All! The webinar replay is now up! (Unfortunately seems like the audio did drop out towards the end of yesterday's webinar. I trimmed out the silent part in the uploaded clip.)

    YouTube: 

    https://youtu.be/ktjj3aEtHX4

    BitChute:

    https://www.bitchute.com/video/0aieO3e2f1PY/


  3. These guys are rolling back all kinds of stuff simply to please the worse of the base! How does that help to Make America Great:

    https://earther.gizmodo.com/trump-s-latest-rollback-will-allow-hunters-to-shoot-wol-1843966217

    The Trump administration is finalizing a rule that will put animals in Alaska’s national preserves—including black bears, wolves and coyotes—in danger. The change will allow hunters to use cruel tactics, including luring hibernating bears out of their dens with bacon and donuts and entering wolf dens with artificial light to slaughter mothers and their pups. It’s their latest attempt to slip environmental rollbacks into law while Americans’ attention is on protests against police violence and the still-raging pandemic.

    Who the heck agrees with sick changes like that? 


  4. The curve has not been flattened as much as we expected:

    https://ritholtz.com/2020/06/what-coronavirus-peak/

    Statistic: Number of new cases of coronavirus (COVID-19) in the United States from January 22 to June 10, 2020, by day* | Statista

    While the curve has been flattened, MS’s expected rates of daily new infection of under 10,000 in May and of under 5,000 in June infection was too optimistic by an order of magnitude. Predicting the future behavior of crowds of humans is much more challenging than we often realize. This is especially true if you build in expectations of rationality and sacrifice from individuals and institutions lacking any recent history of such.

    What about that second peak in December/January?

    Well, based on the most recent data, re-openings in various states, and the rise in infections and hospitalizations, we may be seeing a 2nd wave in June/July. That Winter wave might end up as the 3rd or 4th wave. It is yet another unforced error created by a lack of leadership and a mistrust in basic science.

    Will Fauci be able to save us next waves? I have my doubts.


  5. Good Morning.


  6. Pharm-RMED – a  bit of follow up on this. Any idea on a timeline? I.E., the laser/PAD treatment is in clinical trial stage now so if "all goes well" with the FDA, how far away are they from having a marketable product?


  7. Big Chart – 50% gain on the Nas in 3 months.  Shame on us for only adding the same in the LTP last month, right?

    I'm telling you, StJ, when we capitulate on the Big Chart it's probably the best reversal indicator in the world.

    Audio/Greg – Damn, that was some brilliant stuff! 

    Hunting/StJ – Why would people even want to do that?  Biden is right, we have some sick individuals in this country…

    A second wave of coronavirus cases is emerging in the U.S., raising alarms as new infections push the overall count past 2 million Americans.

    Texas on Wednesday reported 2,504 new coronavirus cases, the highest one-day total since the pandemic emerged.
    A month into its reopening, Florida this week reported 8,553 new cases — the most of any seven-day period.  California’s hospitalizations are at their highest since May 13 and have risen in nine of the past 10 days.


    A fresh onslaught of the novel coronavirus is bringing challenges for residents and the economy in pockets across the U.S. The localized surges have raised concerns among experts even as the nation’s overall case count early this week rose just under 1%, the smallest increase since March.

    “There is a new wave coming in parts of the country,” said Eric Toner, a senior scholar at the Johns Hopkins Center for Health Security. “It’s small and it’s distant so far, but it’s coming.”

    Texas Reports Record 2,500 New COVID-19 Infections In Latest Sign Of Nascent 'Second Wave': Live Updates. 

    Caterpillar Extending Plant Closures With Virus Sapping Demand.

    Simon Property Ends Taubman Deal as Coronavirus Hits Retail.

    Market gone wild: Penny stocks are up nearly 80% on average in the last week.

    Google Searches For "Day Trading" And "Call Options" Explode To Record Highs.

    Opinion: ‘You should be nervous!’—legendary money manager slashes stock market exposure from 55% to 25%.

    Total US Debt Increases By $1 Trillion In One Month.

    "Chaos Is Coming" – Bullion, Bonds, & Big-Tech Bid As Dollar & Dow Dumped.

    US Ramps Up Tough Actions Against Beijing.


  8. Here's my movie clip of the day – Freejack was a pretty good movie and you can't tell much from the trialer but the society these guys live in (rich with fantastic tech in walled communities, poor live in combat zones) is very close to what we're accomplishing 30 years later.  They predicted 2009 – only off by 10 years…

    And the Freejacking is real too – that's what some people in the Top 0.001% think they can do – clone themselves and be young again somehow – which is why they are trying to eradicate inheritance taxes.  All part of the plan….  


  9. I dunno, Mick Jagger and Emilio Estevez?…… ;)


  10. Markets signal, we want negative rates.


  11. I'm telling you, StJ, when we capitulate on the Big Chart it's probably the best reversal indicator in the world.

    Phil … after 12 years I now know to be sure of shorting an index at a market top I have to sit on my hands until you throw in the towel … you're always that tiny bit early when the crazy is at its height. Ah, 2007-2008. What a ride. 


  12. COVID

    Some thoughts because we have been 100 in it.

    1. Summer, the virus is  less active due to natural conditions

    2. Mutations of the virus are evolving into a less aggressive  second wave

    3. Keeping a minimum of precautions as social distance, alcohol (in hands), and masks will be good enough.

    4. Viral risk, meaning viral charge and probability of having it in your reduced bubble (at least in Spain) after confinement  is 300 X  smaller

    5. U.S urbanism is a significant advantage against Europe, India, China, and Japan

    6. ICUs care  and treatments are  tune-up to actual knowledge

    So in my mind, a second wave is highly improbable, in my mind, there is no major risk in most of the U.S population.


  13. We might go through another "can States pay their debts" conversation. MUB July 113p.


  14. Second wave / Advill – I think that we are not out of the woods yet! The trend in some states is not good and some are states that don't the infrastructure needed to deal with large number of cases.

    As long as we don't have coordination at the federal level (not likely with Trump), the risks are there.


  15. I cleared out of APG ET NWN FCEL BIIB BDX for a pullback. I was predicting a 'W' recovery from the beginning so the next slope down needs to come eventually, though I originally felt more like the second drop would be more like September/October. The question is ….. TVIX??????


  16. JETS tanking hard, and for this one, single instance, I'm not referring to the NFL team


  17. DOW is only 500 points away from a circuit breaker. Maybe trump should invade seattle, he's gotta do something at this point.


  18. Early/Malsg – Yes, I still have work to do there.  

    Meanwhile, 9,800 should be a little bounce on /NQ – it's the -3% line for the day, 0.5% bounce to 9,850 would be weak bounce.  Failing that and look out below!  

    No major risk/Advill – Tell that to Arizona!  You don't live in Florida, do you?  No one has a mask on.  Even people who are supposed to have them for work like restaurants/retail are not all complying.  I predict officially 5M infected and 250,000 dead by end of summer and God help us all if the changing weather takes us up from there.  

    JETS/BDC – Wow, you can see why we didn't jump in there

    RCL is a short in our hedge fund:

    Holy crap – 25,500!

    Good, this is where we should be – I'm comfortable here.  


  19. RMED/pstas – the product is already marketed for PAD in the larger veins of the leg. The company is going for the bigger prize, up near the heart.  They are a year or so away for results, and then if all is aligned, 3-6 mo from there on FDA approval.  All told, 1.5 yrs.


  20. FYI…Still in the BDX and BIIB positions from yesterday….which seems so long ago.


  21. So much for /NQ bouncing – I got out and missed getting back in.  Dow about to be down 5% for the Day – another Trump milestone.

    Good test of our hedges though….


  22. Phil/Short Calls,

    Is it a good idea to close out your short calls on this day where they are showing 30 to 50% profits. These are leap short calls.

    regards


  23. Only if you are super-comfortable about your hedges otherwise.  You could always flip to 1/2 more aggressive covers too.  That's not a rule – I just don't think this is a one-time panic – especially into the weekend we have to be worried about a 10% leg down after a 40% bounce. 


  24. Wow, what a turn-around.  Yesterday, during the Webinar, LTP was $900K and STP was $450K and now STP is $515K and LTP is $815K.  Very nicely balanced but what a ride!  

    THIS is what I mean about locking in those gains.  LTP lose $85K in a day so taking 30% of our $100 gains and putting it into hedges saves us $55,000 in net losses (more or less).  

    Sure we make a bit less on the way up but KEEPING your money on the way down is what allows us to be aggressive when things are cheap.  


  25. weekly DIA 260c are almost a guarantee


  26. /VX curve was looking flat-ish until today.  Now back in backwardation except for a blip around elections.  Might be signalling sell-off round 2 is starting.


  27. Phil / Hedges

    Planning to buy additional hedges today. Would you suggest getting into the SDS Jan 21 20-30 spread or the 15-30 spread?


  28. Here's another good "it's just the flu" example


  29. Virus / Phil – Someone from Johns Hopkins (where they keep the stats) was predicting 200K deaths by September so not far off with your predictions! You look in Europe, they waited until the curve was flattened much more than here – I fear that many of these governors were looking at pleasing our Dear Leader rather than looking at science.


  30. OMG, this is tragic!  

    Closed my /NQs too early. 

    Hedges/Jij – Yes, by all means shut the barn door after the horses have run away.  wink  Keep in mind a Jan hedge gives you very little short-term protection as there's not much net delta.  That's why we like them for long-term protection as they hold their value but short-term, they won't make you feel much better.  

    S&P 3,200 was our original projected top and really 3,135 is the 10% line and 2,565 is the -10% line and that's down 15% from here so we expect a 30% pop in the 2x SDS if the sell-off bottoms out in our predicted range.  

    SDS is at $20 so $26 is our target.  Now, how to take advantage?  People are selling Aug $25 calls for $1.30 and they only have 70 days left so should drop 0.02/day while we wait (if SDS is flat).  The SDS Jan $20 calls are $3.80 so that's net $2.50 on the $5 spread but it's not really a $5 spread since you can roll the short calls.  Now the SDS Jan $15 calls are only $5.80 so I think I'm happy to pay $2 more for those and we can pay for that by selling the Jan $30 calls for $2.20.

    So, officially, as a nice hedge, I'd go for (in a $100,000 portfolio that's unhedged):

    • Buy 30 SDS Jan $15 calls for $5.80 ($17,400)
    • Sell 30 SDS Jan $30 calls for $2.20 ($6,600) 
    • Sell 30 SDS Aug $25 calls for $1.30 ($3,900) 

    That's net $6,900 on the $30,000 spread that's $15,000 in the money so you make money UNLESS the S&P goes much higher – in which case your longs should do well. Of course you have 148 more days to sell short calls to so figure 2 more $3,900s and you have a free spread.  Aren't options fun?  

    Just the flu, BDC:

    Replying to

    and

    As physicians, we need to do more for the public to amplify the understanding on the morbidity and sequelae of COVID-19, and not just talk about the mortality rates. ….I know we don’t know all the info yet, but we have to make this translatable for people.

    Pleasing Dear Leader/StJ – I simply can't understand why people can't understand numbers.  We started with 15 people KNOWING the virus was spreading (Trump was on TV claiming it was contained) and he FAMOUSLY "closed the airports" but none of that helped us from getting to 1.5M (x100,000) 90 days later.

    Now we have, as I noted in yesterday's Webinar, 2M infections and 800,000 outcomes, 12% of which are death and another 5% unreported infections (antibody) so 19/20 of population still susceptible and they are going to mix with, we would have to guess, 5M (2.5%) of the population who are infected but not reported and therefore not observed (and still contagious since 66% of the known infected have not had outcomes so 50% of the unknown sounds about right). 

    So, in the typical mall, restaurant, retail store  or street corner, 1.5/100 people you are near could have the virus.  As noted above, PPE cuts down your risk considerably, as does being safety conscious but states like Florida, Arizona and Texas are none of those things – and cases are spiking.  

    Now, if this were China, we would have already locked those states down, forced everyone to shelter in place and tested them all and taken the infected away to "clinics" – some never to be seen again.  

    Suspected coronavirus patients scream as they are dragged from ...

    Apocalyptic scenes engulf Chinese cities as lockdown expands to ...

    But noooooooooooo!  This is America – F*ck Yeah!

    How fear and anger change our perception of coronavirus risk ...

    Equal time – Liberals are idiots too:

    Experts say protests following George Floyd's death could trigger ...

    F Yeah!

    The new coronavirus: What we know so far

    Pass it around man….

    We are so doomed…


  31. Phil./ VIX shooting up to 38….  

     Looking at some BRK.b short callers '22 180 puts at 12 ish would be good – not there yet…  

     

    I cleared out my old long callers and short putters form march  last week …. ready to load up…    sold out of more Apple longs yesterday and today…  have only 5X Sept '20 260 puts ( 8) looking for more but think this may need to come down around 320 to pul the trigger on more…. also looking at the 'jun '22 260 puts around 28 to 30  ish… 

     any feedback on the above?


  32. America / Phil – It all comes down to leadership! It's easy to say we got none but in fact, we have worse than none, we have leaders who pretend to lead by lying to us. We might be much better off if Trump would play golf and shut up… 

    I can only imagine if Obama was…. oh, forget about it!


  33. Circuit breakers should start kicking in soon…..   if we keep up at this pace


  34. Got into July DIA 210p on 6/10 for 0.65 and now 2.39. Might close these EOD but I have front week 263 calls so do I just let it ride through Friday?


  35. VIX, F Yeah!

    Put selling gets tempting again.  

    Geeze, down 6% now, 7% on the RUT.  

    Just gotta get used to the new normal:


  36. 1000 Nov 45/50 VIX spreads, should I sell them today do you think?


  37. Phil/put selling?

    pray tell which ones and at what levels?

    does it look like a one day event to you? More like the -10% levels to be seen?


  38. Predicting another ugly front month oil expiry, how do we play it (without using futures)?


  39. This should put the fear of dog into retail traders….at least for a few days. WHEEEEE!


  40. Stick Save into close


  41. yeah, maybe Dow 25750


  42. VIX/Dawg – Net 0.70?  I can't imagine you have much profit but I can't imagine what you are playing for either.  The July (33 days) $45 ($3.70)/50 ($2.40) spread is $1.30 so, if all goes REALLY well and the VIX is REALLY high in October (and a sustained VIX that high for 4 months means the World is ending), THEN you might double your money.

    Put selling/Maya – Too early to tell and not into the weekend but, if we have a nice 10% down move – well, we do have a Watch List for a reason, right?  

    Oil/BDC – No thanks!  Don't forget USO blew up last time so I don't know that's repeatable.  Of course US now $26 so pretty close to = one barrel which means it will move pretty equally (down $2.30 today) and the July $25 puts are $1.44 with oil at $35 and down $3.85 so 1/2 x move in USO to /CL(ish).

    So if oil goes to $30 it's 20% down and USO drops 10% to $23.50 and the puts have an 0.40 delta so you can make $1 (70%) – that's a good way to play.  


  43. I wonder if we are going to get any more tweets about how incompetent the Fed is… Trump really has no luck – all his efforts are being stymied by the worst Fed ever!


  44. In the meantime FU markets – I need to go back to my new old new charts!


  45. Dumb questions I know but I'm still working to learn options. In this trade:

    Buy 30 SDS Jan $15 calls for $5.80 ($17,400)

    Sell 30 SDS Jan $30 calls for $2.20 ($6,600) 

    Sell 30 SDS Aug $25 calls for $1.30 ($3,900) 

    Is the Aug $25 a naked call? Everything I read talks about the major risk associated with that or do you own 3000 shares of SDS already to cover this? 


  46. The Naz is back to where it was 9 days ago (June 2nd). Dow May 29th. That's not much of a pullback considering we're in a global pandemic. If there's no follow through the rest of this week this pullback will be long forgotten in short order.


  47. Phil / Hedges

    Thank you. I bought some additional SDS hedges to supplement the one's I had. The ones in my portfolio weren't enough to cover a day like this.


  48. LOL StJ!

    SDS/Jbiz – Technically, it's a naked call but it's really covered by the fact that your $15/30 spread would be $30,000 in the money before you owe the callers back a penny and then you can roll the short calls to, for example, the Sept $35 calls, which are $1.20 and, if SDS is at $35, then they market will be once again collapsing and you will owe the short calls $30,000 while collecting $45,000 from your long spread (still a profit) but then you could roll them to the Jan $50 calls, which are $1.20, while cashing in your $45,000 and buying another $45,000 2022 $40/$55 bull call spread for $6,900 to cover that for another year.  Meanwhile, at those levels, the World would be ending so it would be the least of your worries…

    This is why people don't hedge properly – fear of the unknown.  I suggest paper trading or just doing a couple so you can see how to manage it over time.  A blowtorch seems pretty dangerous but some people are really good welders – that's what we do with options! 

    And, of course, it would be silly not to spend another $10,800 (because no additional short calls sold)  for another $45,000 of protection at this point where SDS goes over $30 and your original spread is ready to be cashed in at full value – you don't actually just wait all year.  


  49. Check out last Thursday's adjustments to the STP – the market was going up and we invested in hedges – like we are supposed to.

    • SDS – Let's roll down all 300 SDS long Jan $20 calls at $3 to 300 SDS Jan $15 calls at $5 for net $2 ($60,000) so we are picking up $5 in position ($150,000) and increasing our upside Delta on the longs from 0.55 to 0.85.  That will firmly lock in our recent $180,000 in LTP gains for $60,000 (1/3) – exactly the way we are supposed to.  
    • TQQQ – Let's roll our 50 Jan $80 puts at $16.50 to 50 Jan $90 puts at $21.50 so we're widening the spread by $50,000 for $25,000 and let's buy back the short June $75 puts for $1.55 ($3,100) as that's an $8,300 profit that helps pay for the roll and we'll pay for more on our next sale (but let's stay uncovered into the weekend to boost our hedge).  

    Oh yeah – that's going to pay well!  


  50. Speaking of hedging – both of our hedge funds are taking on new money to start Q3 so, if you want to follow the Butterfly Portfolio strategy or a more aggressive LTP/STP type strategy – money must be in by June 26th but PAPERWORK FIRST – otherwise have to wait at least until late Sept for next entry (we don't do it every quarter).  

    Contact Greg at philstockworld dot com if you haven't gotten paperwork already.


  51. VIX 45% profit right now probs should have closed them. We'll see what tomorrow looks like. 


  52. Thanks for the thorough explanation!