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Falling Thursday – Fed Fails to Firm Up Markets

Comic: Stocks Jump As White House, Fed Stimulus Sparks Rally By ...We got the Fed's mintues yesterday, they were not helpful.

“Members agreed that the ongoing public health crisis would weigh heavily on economic activity, employment and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.” – FOMC

Federal Reserve officials left interest rates unchanged near zero at their July session and continued to buy Treasury and mortgage-backed bonds at a pace of about $120Bn a month.  At a press conference following the meeting, Fed Chair Jerome Powell said the path forward for the economy was “extraordinarily uncertain” and would depend on containing the virus. Results on that front have been mixed, with infections rising in several U.S. states, potentially weakening the recovery.

Altair Insight: Seeing The Way Back (1Q20) - Quarterly Market ReviewOfficials had a long list of worries about the outlook, ranging from new waves of virus outbreak disrupting growth and crimping credit conditions, to waning fiscal support, as well as disruptions to foreign growth from the pandemic. Importantly, “several” said the long-run impact of the pandemic could result in business restructurings that may “slow the growth of the economy’s productive capacity for some time. Uncertainty is quite high. And I think uncertainty matters a lot for players in the economy and consequently for the economy itself,” said Thomas Barkin, president of the Federal Reserve Bank of Richmond.

He also said "The Fed is doing a lot to support the economy right now and we’re committed to continuing that support."  I'm sure there are some (the people you can fool ALL of the time) who will take that as a positiive sign but, as I said in yesterday's Live Trading Webinar, there's simply too many negatives to just focus on the positive in this market.  We're heading into a period of great uncertainty and the best thing we can do right now is get to CASH!!! 

We went over our Long-Term Portfolio Positions and decided which ones will stay and which ones will go and we'll be taking a knife to our other portfolios as well.  We are officially flipping much more bearish here – after being generally neutral for the past couple of months, since the S&P first hit 3,200 in June and we thought that was too high.  Now we're close to 3,400 and that is definitely too high, so what better time to sell our long positions than when they are over-extended at the top?  

‘The S&P’s new highs are a tale told by an idiot, full of sound and fury, signifying nothing about the hardship of millions of people on food stamps, or the millions about to be fired from service jobs, or the homeless, or the people who are just huddled at home waiting for the vaccine, which currently feels a lot like waiting for Godot.’ – Cramer

That’s CNBC’s Jim Cramer summoning his inner Samuel Beckett to talk about the disconnect between equities and the harsh reality of what’s going on in the U.S. economy.  “We’ve had a magnificent V-shaped recovery in the stock market, but the stock market’s not a great reflection of the broader economy anymore.  You don’t need to be a rocket scientist to figure this out,” Cramer said. “Just look the stocks that have brought us to these levels — they’re not the recovery plays. In fact, they are the opposite. They are stocks that tend to do well, because of what we call secular considerations,” Cramer said, agreeing with my comments in yesterday's webinar.

The winners in this market are the companies that are most divorced from the underlying economy,” Cramer said on his own “Mad Money” show last night. “The actual economy is in precarious shape, especially now that the government’s stimulus package has run out and Congress went home for the summer rather than trying to come up with a replacement.”

I don't often agree with Cramer but, at the moment, we're both saying SELLSELLSELL.


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  1. Can someone tell me what index to follow to track the thousands of small businesses that are going BK now? The CEO of Target was saying that people are spending in his stores now because they can't spend money going out. 

  2. stjeanluc

    if there was such an index trump would declare it against national security and de list it.

  3. Good morning!

    Small business/StJ – Well the Russell is a bit more of a realistic indicator though most of those companies are still over $1Bn, which seems small these days…

    Europe is more like the Russell than the S&P:

  4. TOS platform same shit

  5. SQQQ / Nasdaq

    Nasdaq back in the green and SQQQ Jan 21 35C are a dollar cheaper than yesterday. Unbelievable !

  6. Small Business/StJ,Phil - The Russell Microcap Index is a slightly better representation actually (Ticker: IWC) – it is the bottom 1000 of the Russell 3000, and the 1000 next smallest companies (so the bottom 2000 of the Russell 3000E index). 

    But with the Fed buying JNK, I am not sure if shorting IWC is the way to go…

    I wonder if the overperformance of large cap over microcap is still the way to go (so long SPY short IWC)…

  7. Good Morning.

  8. Index / Phil – So no MAP (Mom and Pop) index there…

  9. Phil, I know we're not day traders but I initiated your trade for SQQQ yesterday and can close it out today for a 100%. Would you ever do this knowing you're intending to initiate this trade again in the future?

  10. The rotation from momentum to value seems to be fading, value has been weaker for the week. We still have a few days of Aug, maybe we see that 5% drop in the indices before its over.

  11. ToS/Yodi – Try downloading the new version, they seem to have fixed it.

    IWC/Rn – Good point.  I never use them as there are too many scammy companies in there but I guess it is an indicator.  Those companies don't generally get to sell junk bonds.  

    SQQQ/Swamp – Well any time you make 100% in a day, you know that's silly and should take it off the table and then just look for something else to buy.  Unless you make 20,000 a year on a regular basis, any day you make 100% should be taken advantage of.  At least sell half so you are left with a free hedge.

    Drop/Kustomz – I can feel it in my bones.

  12. Thanks Phil will see how it works tomorrow.

  13. Phil/ hope that isnt arthritis.

    I have an upside target of ES/3385, a break above would be bullish.

  14. Butterfly Portfolio Review:  $312,459 is up about $20,000 (10%) from our July 19th review and we'd be up a lot more if our short AAPL calls weren't killing us at the moment.  We had a lot of changes last month so now we have very few changes to make but let's make sure we don't mind riding out a crash with this group.

    • AAPL – The short puts are hurting but fortunately just the 10 that we rolled last time and our $400,000 bull call spread is 100% in the money but only netting $265,500 so $134,500 left to gain if AAPL stays over $400 so even if we give $100,000 back to the short $350s at $450, they are currently at $119,475 anyway so we'll be in excellent shape.  

    • AMZN – What a lot of legs!  Hopefully they pull back a bit but we're in very good shape as it's a $180,000 spread that's net $150,000 and the short $3,000 calls are 50% premium and, of course, we will roll them if we have to.

    • DIS – This one is on track and I certainly think DIS is a bit high now.

    • F – On track.

    • KO – Went from being very flat at $55 to being very flat at $47 – a perfect butterfly play!   This is just the kind of chart you want to use for this kind of investing (selling short-term puts and calls for income). 

    • MDLZ – Also perfect but doesn't look like it as they've fully recovered but now they can flatline for 2 years.  The short $50 puts will expired worthless and we're aggressively long otherwise so let's sell 10 Sept $55 calls for $2.40 ($2,400) just so we're not negligent in collecting our income.

    • MJ – The premiums we collect on the short positions is incredible on this ETF.  We're also aggressively long in the long-term but I think that's warranted.  

    • WHR – Yes, people still do laundry.  We're in trouble on the $140 short calls but it's a $45,000 spread and it's net $40,000 so let's cash out the bull call spread and buy 25 of the 2022 $150 ($49)/180 ($32.50) bull call spreads for $16.50 ($41,250) so we have a bit more to gain on the new $75,000 spread if WHR stays this high as our next move would likely be rolling the 7 short Jan $140 calls to 10-12 short something highers.   Like the other trades above, once WHR finds a new channel and calms down, we should be in good shape.  

  15. Dividend Portfolio Review:   $194,202 is down 2.9% and that's a 7.2% improvement from last month so nice comeback – especially for a portfolio without any internal hedges.  We rode out a downturn once and I hope we don't have to do it again but, like the Butterfly Portfolio, these are super-solid, battle-tested positions I would hate to part with.

    • PFE – Up too much to leave it on so we'll close this one.
    • CHL – Just paid us a very fat dividend so no reason to sell them and they are even on track with the short puts and calls.

    • ET – Also right where we want them.
    • MO – A bit lower than we hoped but on track and paying our dividends so it's fine.  
    • SPG – Right on track.  This one makes for a good bullish bet at this price.

    • TWO – On track.
    • F – Suspended the dividend but we still love them at 1/13th TSLA's price.  
    • M – Also no dividends being paid but I'm still hopeful on the recovery.

    • SIG – Suspended dividends.  We're aggressively long and hopefully they are consolidating for a move up.

    • SKT – Suspended dividends and we're aggressively long.

    • T – Still paying a dividend.  We have been buying T at $30 or less ever since PSW started and it's still a great thing to do.  They paid us 0.52 on July 9th, that's $4.08/yr on a $29.74 share – that's 7% dividend AND you get to own T at $29.74.  How can you people say there aren't things to buy when there are things like this to buy?

    For the T-less LTP, let's add the following:

    • Sell 25 T 2022 $28 puts for $3.25 ($8,125) 
    • Buy 75 T 2022 $28 calls for $3.40 ($25,500) 
    • Sell 75 T 2022 $33 calls for $1.40 ($10,500) 

    That's net $6,875 on $37,500 spread so there's $30,625 (445%) of upside potential if T can simply move up 10% over the next 18 months and, since our worst case is owning 2,500 shares of T for $28 ($70,000) + $6,875 if we're wiped out on the spread, that's about $30, which is the current price so our worst case is owning T and collecting 7% dividends - not a bad worst case

  16. Well, as silly as it is, we have no choice but to protect ourselves on TLSA in the STP.  We're going to buy back the 3 short Jan $1,080 puts for $40 ($12,000) and sell 6 Jan $1,500 puts for $133 ($79,800) and we'll use that money to roll the 5 short Sept $1,250 calls at $740 ($370,000) to 8 short Jan $1,900 calls at $400 ($320,000) so no cash out of pocket and about the same margin but more breathing room.  

  17. Phil / TSLA,

    I am trying to understand the TSLA trade you referenced above. Are you betting on TSLA being in the 1500-1900 range in January?

  18. TSLA/Jij – We are already burned on the short calls so the short puts are just a balance.  I don't believe TSLA is worth $1,500 even but we can't not balance the the trade a little bit as we're bleeding cash otherwise.  If we have to roll the short puts, at least the short calls will have gone worthless.

  19. after the split won't you then have 40 short calls? — sounds pretty dangerous — the leg sweep will come at some point but margin may get you first

  20. Future is Now Portfolio Review:  This one is easy…

    This was June 19th:  

    This was July 8th:

    This is today:  

    • See how easy that is?  The S&P 500 is up 10% and we're up 20% so all is well but let's buy back the short puts as we're done with them and we'll look for new, fun things to sell.
    • ARNC – The $8/12 spread is $7,700 out of $8,000 possible so that's done and the short puts aren't worth keeping
    • BYND – The $40/65 spread is $21,000 out of $25,000 and the short puts aren't worth keeping either.
    • SPWR #1 – Actually our newer one and a better spread.  This is a $20,000 spread at $11,000, that's a keeper.  Not worried about the short puts.
    • SPWR #1 – This is a $28,000 spread at $14,000 so also a keeper.  Good for a new trade if you aren't too bored with just a double in 18 months.
    • TOT – $7,000 on a $7,500 spread is not worth keeping and we may as well kill the whole thing.

  21. TSLA/Coulter – Well I should hope the margin drops too but they just punched over $2,000 so this thing may never stop.

  22. 2020 DNC live updates: Topic turns to health care and pandemic; Biden to accept nomination tonight

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