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Fallout Friday – Reality Hits the Markets

Wheeeeee!  

What a ride we had yesterday with the Dow Jones Industrial Average falling 1,861.82 – just a bit under 7% in a single day, erasing all of June's "incredible" gains in a single day.  Of course, keep in mind that "incredible" means "impossible to believe" and we made it very, very clear this week that we did NOT believe this rally at all.

Monday Market Momentum – Up into the Fed Meeting

Of course, we're up today because Europe and Asia are up and they are up because we were up 2.5% on Friday and they are just catching up but that doesn't stop our pre-market traders from seeing a rally in Europe and trying to catch up to that – even though their rally was a reaction to our rally and yes – it's all total BS but that's the way the market works, so don't whine about it

…See, it doesn't matter if it's FAKE!!!, as long as you WANT to believe it then you are happy to hear the BS – even if you know it can't possibly be true.  Trump had his usual slew of lies in that press conference but the most insulting was the one about Black Unemployment, which was the only category of Unemployment that went up in May – even with the FAKE!!! numbers.

I do realize, by the way that every time I criticize the President or the Administration it sounds like some kind of Liberal rant and I do apologize to our Conservative readers who would rather not hear that sort of thing but this President, his policies and the blood-sucking corporate jackals he surrounds himself with really do SUCK and they are destroying this country through their policies and inactions so I say these things as both a Patriot and as an Analyst, more so than a Liberal (which I also happen to be. 

Coronavirus cartoons: Trump's ratings jump amid big job lossesTesty Tuesday – Infections Up, Markets Down Ahead of the Fed

I don't want to be your Cassandra, my "gloomy" outlook costs us the subscribers who like to hear BUYBUYBUY to confirm their bullish bias and, these days – there's a lot of them!  Still, like the prophet, I am cursed to utter truths, yet I am rarely believed.   

…Instead, we squandered $6.7Tn, didn't fix anything or cure anything and now we are recklessly re-exposing ourselves in an economy that is only 1/2 open BECAUSE WE DIDN'T REALLY FIX ANYTHING and, at some point, the death toll will become so great that we'll have to shut everything down again.  Yes, I'm pissed off!!! 

Without the PPE and without simply saying to certain businesses like Amusement Parks, Movies, Sporting Events, ect (sorry DIS) - we are NOT going to get on top of this virus and, ultimately, that is NOT going to be good for our economy.

Did you know I am my own favorite author?  I have a terrible memory so I'm as surprised as you are to go back and see what I said about things and I'm just as surprised as anyone when I get it right!  Or, in this case, just as sad…

Which Way Wednesday – Nasdaq 10,000 Edition

You've got to short the Nasdaq at the 10,000 line!

The first time we hit 5,000 on the Nasdaq was back in 2,000 – and we all know what happened then!   It took us 17 years to get back to 5,000 and that was good consolidation and we popped right over it and stayed there.  Well, we didn't stay there – the Nasdaq took off like a banshee and gained another 50% in 18 months and now, another 18 months later, another 33% move higher and we're at 10,000.

Even a small retracement from here can spell big money shorting the /NQ Futures, which pay $20 per point, per contract.

Sometimes the things I say can make you a lot of money!  

Now skipping back to last Thursday:

3,100 Thursday – S&P 500 Tests Our 10% Line

So TECHNICALLY, the markets are in good shape but let's keep in mind that it cost us $6.7Tn to buy this technical rally and it's likely to cost another $2.3Tn to keep it going and that will put the National Debt around $28Tn more than 3 TIMES the $9Tn of debt we had in 2007 – before the Financial Crisis.  $10Tn was added during Obama's 8 years in office and now another $10Tn is being added during just 4 years of Trump (so far) – that's a much faster pace than Covid was spreading back when Trump said we shouldn't worry because we only had 5 cases in the US!

Image

So the running cost of papering over a Recession seems to be about $10Tn but I'm not sure we're papering over this Recession – so far we're just boosting the market DESPITE the terrible economy.  The Atlanta Fed's GDP Now Forecast shows a projected 52% drop in Q2 GDP while the range of private forecasts projects only a 25% decline.  

That's a huge discrepancy – usually they are off by no more than 1% but it will take until July 30th before we get our first official estimate of Q2 GDP so, until then – let the speculators have their fun.  

We made some aggressive adjustments to our Short-Term Portfolio, which hedges our Long-Term Portfolios and, so far, it seems to be holding up.  The key to having good hedges is that, on a day like yesterday – we were even – with the STP gaining pretty much the same as the LTP lost.  Having that balance means we don't have to panic out of our perfectly good long-term longs just because traders start getting nervous.

We will do full reviews of all or our Member Portfolios next week.

Have a great weekend,

- Phil

 


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  1. Good morning…..


  2. Gonna wait and see what happens before changing lines again! It's becoming a full time job…


  3. Greatest market ever except for the previous president:

    Image


  4. Things are getting so irrational that Hertz is thinking of a stock offering before entering Chapter 11. Basically a GoFundMe for their shareholders:

    https://www.wsj.com/articles/bankrupt-hertz-wants-to-sell-up-to-1-billion-in-new-shares-11591917121

    Image

    Complete insanity!


  5. And this administration is using terms like thugs for people looting TVs and Playstations from stores:

    They are looting $500B from the US taxpayers! They will need a blanket pardon when they leave or they will need to cheat big time to stay in office. So much crap will be uncovered…


  6. Good Morning.


  7. Went ahead and closed out my 45/50 VIX spreads. Should have done it yesterday but I can't cry about making 20% on an 8-day trade, although 45% would have been better. 


  8. Quiet today…..   


  9. BDC

    I am not touting APOG. I will say that someone in our neighborhood talked with our "solid waste collector", and he said the collected over 80,000 pounds of glass recently. This thread has been pretty funny. I can remember when we ran into at a restaurant and my son asked me; "Dad, are we going to meet any more of your old girlfriends' fathers?"


  10. Hmmm the open is being faded fast it seems!


  11. /ES 200-day moving average is around 3000. Under that I don't see resistance until 2850-ish.


  12. Good morning!

    Let's not forget (already):  "Red Badge Wednesday – Trump Says He’s Honoring Us With 1.5M Infections" Sadly, those concerns were very accurate.  

    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.

    Trump is saying the best way to combat racism is to make the economy stronger???

    The president said expanding school choice would lead to improvement in education. “Access to education is the civil rights issue of our time,” Trump said.  

    That is the exact opposite of improving the education system.

    The president’s decision not to focus on racism and brutality among police is likely to fuel the perception that he remains unwilling to grapple with difficult racial issues. Trump has limited his comments on the topic recently, focusing instead on his call for a return to “law and order” amid incidents of violence during demonstrations

    On Wednesday, Trump convened a meeting at the White House with black conservative commentators who praised his response to the unrest. One Republican political consultant at the event, Raynard Jackson, claimed liberal journalists on television were “putting more poison into the black community than any drug dealer” and “killing more black folks than any white person with a sheet over their face” by “spreading lies” about the president’s economic record.

    Big Chart – What a difference our old targets made:

    The current levels reflect our expected range for the year (which we're back to), the new range (right above) was our capitulation that maybe we'd hold up above those 10% lines but, as you can sell – ALL of the 10% lines are failing now.

    Today's strong bounce is failing – 400 points is the weak bounce. 

    Hertz/StJ – I don't even know how car rentals survive with Uber.  What kills rental cars is hotels that charge $25/day or more to park – that means renting a car for a week costs an extra $175 to park it vs spending $5-20 for an Uber whenever I need it.  If Hertz were smart, they'd make parking deals with hotel chains.

    Ouch, indexes looking very weak – can turn into panic. 

    Sorry, phone ringing off the hook this morning.


  13. Is everyone just exhausted after yesterday?

    Weak bounces are not holding, does not bode well for next week.

    People are still nervous.

    STP $567,000 up $67,000 from yesterday!  Because we use spreads, they don't kick in when the VIX is high as much as you'd think but now we're getting more realistic pricing.


  14. Phil/ buy list

    good afternoon!

    where do I find the buy list for which we hope to sell puts at the right time?

    thanks


  15. Phil / Hedging

    Have done the following hedges. 

    100 SDS 15/30 Jan 21 Calls and sold 50 SDS 25 Aug for net of $23,150. 

    I assume that covers $150K.

    Also, did

    100 SQQQ 10/20 Jan 21 calls and 
    50 SQQQ 13/20 Jan 21 Calls for net of $27,250.

    I assume that covers another $150K

    I didn't do TQQQ. 

    I need more coverage. What should I do for each $100K.?


  16. Yeah, this has been an exhausting week – slowly buying back bear call spreads here and there, waiting for lotto ticket VXX spreads to (maybe) pay off. 40/50 call spreads were pretty cheap a couple weeks ago.


  17. Good morning!

    I apologize for missing the close but I had to run out to help my Mom and I thought I'd make it back but I didn't and then it was too late and then I hung out for dinner….

    WATCH (not Buy) List/Maya – Here it is from 6/2 with updated charts:

    So, what is a Watch List for?  It's a list of stocks we'd love to own if they get cheap, right?  We did a ton of buying in March and April so a lot of these are now in our portfolios but the main idea here – in a rally – is to look for the laggards and see who can still be played (and should be played – given the changing circumstances).

    HBI still cheap. 

    MO still cheap.

    NLY still cheap.  

    /KC cheap again.

    SPWR still my favorite down here.  

    MT still cheap.

    FCAU still cheap – especially at $18.7Bn (p/e 4) vs $164Bn for TSLA (p/e infinity and beyond!)

    VIAC still my favorite down here (I'm torn)

    AAL I don't trust airlines anymore and ALK is better.  

    OVV good if you WANT a gas play.  

    ING still cheap. 

    SAN may be too cheap to resist.  

    MUFG – I can't believe is still $4

    MU – Still cheap

    KHC – Told you so!

    UBS – Good if you want a bank.

    LYG – The made a nice bottom, I like the risk/reward now.

    X – Still not sure we're really through this all yet.

    M – Still a favorite

    MYL – Still cheap.

    ADS – Q1 earnings were $0 but lack of damage is encouraging.

    TECK still cheap.

    NRZ – Still cheap

    GPS – About to get away

    GT still cheap

    TWO – Another cheap REIT we like.

    AGNC -  Another cheap REIT we like.

    BSM – Still cheap

    HFC – Good side play on oil coming back.

    So there are still PLENTY of good values out there which is why I would rather sit back and be very picky for now.  The kind of stocks that are "getting away" are not generally ones I want to chase (as we already bought all the good ones).  

     


  18. FTR – I just received their Chapter 11 bankruptcy filing.


  19. Phil / Hedging,

    I had a question on hedging Friday afternoon. Would like to get your views when you get a chance before Monday. 

    Thanks. 


  20. Hi tpsquest: Thanks for responding to that very bad article by David Stockman from Contra Corner blog. I removed it. Stockman has really deteriorated over the years, and I don't think he knows much about viruses, COVID-19, etc. While ZH has many timely, interesting articles on the markets, almost anytime a ZH contributor (there are many) gets into politics, it's garbage, and I try to remove those waste-of-time articles from the queue. ~ Ilene 


  21. You’re welcome, Sk!


  22. Phil / Hedging

    Sorry to ask again. 

    I have hedged based on SDS / SQQQ. I didn't do TQQQ. 

    I need MORE hedging. 

    What would you recommend more? SDS, SQQQ or TQQQ or something else. 


  23. Hi SK!  Sorry but I did write a brilliant instructional about hedging and it seems to have been lost somehow.

    The gist of it was that you are not as hedged as you think with SDS as it's a 2x ETF and you need a 50% gain (25% drop) to be $150K in the money.  So realistically, it's a $100,000 spread that cost you $23,150 but you also sold the short calls, which is a good way to get free insurance at some point.  

    On the SQQQ side, though it's a 3x ETF, you are 100% away from goal so Nas would have to fall 35% to get you to $20.  I'd consolidate the long calls and roll them down to the $5s at $4 so about $1.50 buys you $5 more AND increases your Delta from 0.60 to 0.86.  You can pay off the roll by selling 50 (1/3) the July $10s for $1(ish) – those should not be hard to roll and now you've bought $75,000 more protection for $22,500 and made your long calls more powerful (offset a bit by the short calls).  

    Indexes still looking weak, Dow down about 400, RUT down over 2%, /ES lost 3,000 (again), /NQ barely holding 9,500 – didn't get much use out of my 10,000 hat.  Who'd have thought?   Oh yes, it was ME!  

    Which Way Wednesday – Nasdaq 10,000 Edition

    You've got to short the Nasdaq at the 10,000 line!

    The first time we hit 5,000 on the Nasdaq was back in 2,000 – and we all know what happened then!   It took us 17 years to get back to 5,000 and that was good consolidation and we popped right over it and stayed there.  Well, we didn't stay there – the Nasdaq took off like a banshee and gained another 50% in 18 months and now, another 18 months later, another 33% move higher and we're at 10,000.

    Even a small retracement from here can spell big money shorting the /NQ Futures, which pay $20 per point, per contract.  At the moment, the Nasdaq is over 10,000 so we play it when it crosses back under and use the 10,000 line as a stop line.  We're just looking for psychological resistance or profit-taking at this point – there's no particular Fundamentals behind shorting the Nasdaq – especially if Apple (AAPL), which makes up 15% of the index, is heading towards $350/share.  

    Without taking into account a very slow 2nd quarter, which winds down this month, the price/earnings ratio on the Nasdaq is now over 30 times earnings vs 23 times earnings last year so, even without the damage done by the virus, the Nasdaq has gotten 30% more expensive to buy now. 

    Remember, I can only tell you what's going to happen and how to profit from it – the rest is up to you!  

    cool