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Testy Tuesday – Bouncing off S&P 4,000

We're finally here!

After making the dreaded "Death Cross" way back in mid-March, we have finally hit our goal of S&P 4,000, which is the 20% pullback line we've been expecting since the fall.  Now we'll have to see what kind of bounce we get off this bottom but fortunately we are still using the same lines predicted by our flawless 5% Rule™ since we first drew the chart.  My note to our Members at the time was: 

As we predicted in our Live Trading Webinar last month, we're about to hit that "Death Cross" on the S&P 500 and that is BAD.  Even though we could see it from literally a mile (and a month) away, it will still come as a surprise to traders and analysts, who use TA completely wrong on a mass scale.  As I said at the time, if you understand HOW a chart is made, then you can predict what it will look like in the future.  If you are GUESSING where the market will go based on the chart you see - you're doing it wrong.

Very simply, the 50-day moving average changes slower than the 200-day moving average and "slower" isn't just some vague notion – it does, in FACT, change at a pace that is 25% slower than the 50-day moving average so every day the market closes below the 200-day moving average, it drags the 50-day moving average 4x lower than it does the 200-day.  Therefore, we KNOW how many days it will take before we get our crosses long, long in advance.

What does the Future hold?  Well we have the Fed Meeting next week and inflation is out of control so it's not at all likely they don't hike at all and the market expects 0.25% and 0.5% would be a big negative – so there's no likely positive there.  We also have PPI, Retail Sales, Housing Starts, Industrial Production and the NY and Philly Fed – hard to see any of those things popping us over the 200 dma so, if we assume we have another 7 trading days below the 200 dma – that is likely to pull the 50 dma below 4,450 – where we'll get our cross into Q1 Earnings – which are not going to be very positive either. 

Meanwhile, we watch and wait for the market to resolve itself but that looming Death Cross means it's not likely we'll be jumping off the sidelines in the next two weeks.  We went over our hedges yesterday and they seem adequate but I do keep thinking I'd rather be in CASH!!!

Notice instead the S&P popped off that Fed meeting, where they did a 0.25 hike but that rally didn't last long and, fortunately, we took that opportunity to get more aggressive with our hedges, while they were cheap to acquire. We had a two-week head-fake but fortunately we realized the Fundamentals hadn't changed so we remained cautious and, at the end of March, things had started to collapse and now here we are in May – still looking for a bottom.  

As you can see from this S&P 500 monthly chart, we did not build much of a base at 4,000 on the way up – so it's not going to provide much support on the way down if sentiment doesn't improve.  800 points (20%) below here, we have very nice support at 3,200 and 2,400 is fantasic support, but that's 60% off the top so, hopefully, we don't see that again.  Keep in mind though that we've seen plenty of big stocks drop 60% recently – so it's not out of the questiion.

A 60% drop, back to 2,400 would take us back to our pre-Covid/pre-Stimulus lows or "back to normal".  Still, I think the case can be made that all the liquidity (seen via inflation) the Fed dropped into the economy ($11Tn with Congress, which is 50% of our GDP) is not going to simply go away – so Old Economy + 20% doesn't seem so crazy – and that brings us back to 3,200 as a likely base.  Unfortunately, that makes 4,000 more likely a top than a middle and that means it's more likely we're going to have only a weak bounce (4,160 on /ES) and then move back into a range more likely around 3,600 to 4,000 until next quarter. 

We're back to 73,000 people a day catching Covid, that's on track for another 8% of the country (26M people) catching it this year but you know what happens with that pesky virus when 1 out of 12 of us is infected, right?  Look around you – if you see 12 people – you may have a problem!  I'm keenly aware of that as I'm in Las Vegas, where very few people are wearing masks and those people are everywhere!  Not only that but they all get together and watch shows and touch each others cards and chips, ect – seems like a recipe for disaster.  

Cases in Nevada are, in fact, up 83% in May and more than double the +49% rate nationwide.  If Nevada is an experiment in opening back up – it's not going all that well…  What should concern us most is that's the spread WITH 80% of the people having been vaccinated although that is the number of people who've had just one shot – only 2/3 of us are fully vaccinated.  Still, that's 200M more people vaccinated than last May so, HOPEFULLY, it will be enough for us to go out to concerts and movies and clubs this summer without turning into another disaster this fall.  We are certainly rolling those dice.

This map shows us places in our country where the most people have had Covid.  The darkest red spots tend to have 1/3 of the population catching Covid and 1/100 people dying of Covid while orange (where I live in Florida) is around 1/5 of the population catching Covid and 1/300 dying from it.  Light yellow, in those liberal nanny states, has roughly 1/6 catching Covid and 1/600 dying and no, Nebraska isn't really good at fighting Covid – the just don't report their statistics.  

So you can see how we got to 1M dead in America (so far) and you can see where the bodies are piling up.  As we saw in a recent Gallup Poll however, only 4% of the people think Covid is a major problem – so problem solved, I guess….  

 


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  1. what do you think of this hopeful spin on inflation backing off soon that barrons and the media are spinning this morning?

    isnt that the same  kind of thinking the caused fed to wait so long to act?


  2. Good Morning.


  3. Phil is this not in reverse to what you say, as the 50 day moves faster than the 200 day?

    Very simply, the 50-day moving average changes slower than the 200-day moving average and "slower" isn't just some vague notion – it does, in FACT, change at a pace that is 25% s


  4. Altria down 5%… I don't see any news


  5. COIN + SOFI earnings tonight


  6. Phil/The Bug – it's not the shows, clubs, etc that are the problem so much, but businesses where the middle managers are tired of having nothing to do, so they're making employees return to offices. If those offices are in areas with hot, humid weather, buildings that use air conditioning and are energy efficient – so the air doesn't circulate much – it'll be surge time again. It's all about ventilation.


  7. rn273

    Altria shares are trading lower after Bernstein downgraded the stock from Outperform to Market Perform and lowered its price target from $58 to $53.

    Altria shares are trading lower after Bernstein downgraded the stock from Outperform to Market Perform and lowered its price target from $58 to $53.

     


  8. When rolling the dice, the House usually wins.


  9. Good morning!

    I have a breakfast meeting today (noon, EST) but then I'll be back.

    Nothing impressive about S&P up 50 when it needs 160 to make the weak bounce, which gives us a chance of a V-shaped recovery.  Very simply, the more days we take to hit the weak bounce, the more we pull the right side of the V lower so by day 3, we've pretty much wrecked any chance of getting back to the highs.  Not that we expect to get back to the highs anyway but that then means we don't expect a quick weak bounce – so just as we expected so far…

       

    Of course, the monthly views paint a different picture:

       

    Every picture tells a story, don't it?

    The Dollar is still very strong, if we're going to have meaningful progress, it has to come back a bit:

    Looks more like it's consolidating to go higher, doesn't it?

    So, short story is we're watching right now to see if the bounces are failing and any move below 4,000 and the other lows would be – BAD. 

    Reverse/Yodi – I had that backwards.  Would have been nice to catch that two months ago!

    MO/Rn – I see nothing on them other than a downgrade.  Seems like an over-reaction.

    COIN/PMan – Fingers crossed on them.

    Down another 2% this morning.  Of course, they get killed when BTC gets killed but they are an exchange – it's like selling Nasdaq stock just because the index drops.  $81.50 is $18.3Bn and they should be good for about $1Bn going forward and great growth if NFT trading becomes a thing too.  Last year, they made $3.6Bn but this year they are spending money and will only make $250M.  $3.7Bn in cash over debt is very healthy so I do like them

    COIN is single-handedly wrecking the Future is Now Portfolio with $90,000 in unrealized losses.  We have 10 2024 $180 calls and 5 short $200 puts – it's going to be a long road to recovery and, although we do have $104,775 in cash, I'm not sure I want to use it to fix COIN.

     Ventilation/Snow – Good point.  

    And what Randers said!


  10. Yellen is not helping much testifying to Congress.  


  11. Future Fuel (FF) down about 28% this morning


  12. SOFI   not good, but we have till 2024


  13. More than 580K pounds of frozen chicken breast recalled


  14. We are On the Brink of a Global Downturn




  15. Well, this is not good and not much news driving it – simply more sellers than buyers. 

    FF/Dave – They lost $12.4M (0.28/share) on flat $42.3M in revenues.  Last Q they made 0.51 so why?  Seems like Nat Gas prices killed them as that's "feedstock" for them.  

    We navigated this challenge by producing and inventorying summer quality biodiesel to sell later in the year using feedstock that would generate positive margins. In an environment where fuel prices have risen significantly during the first three months of the year, we reported a loss on our derivatives position at the end of the quarter that would have been offset when we later sold our inventory. However, since that time, unprecedented volatility towards the expiry of the New York Mercantile Exchange May heating oil contract, caused FutureFuel to incur approximately $12 million of realized derivative losses during April, and it is uncertain what additional costs will be incurred subsequently. These costs likely will not be fully recovered when the physical inventory is sold.

    Clearly they need to work on their hedging game but there's nothing wrong with the company – just a very volatile market.

    In the first three months of 2022, FutureFuel paid a regular quarterly cash dividend in the amount of $0.06 per share on our common stock. The remaining quarterly dividends of $0.06 per share will be paid in June, September, and December.

    Capital expenditures were $977 in the first three months of 2022, compared with $146 in the same period in 2021.

    Overall, it's just a great chance to get in for people who missed them:

    FF Short Call 2022 20-MAY 10.00 CALL [FF @ $6.85 $-3.03] -15 11/16/2021 (10) $-113 $0.08 $-0.05 $-1.02     $0.03 $-0.33 $75 66.7% $-38
    FF Short Put 2022 20-MAY 10.00 PUT [FF @ $6.85 $-3.03] -15 11/16/2021 (10) $-3,000 $2.00 $1.05     $3.05 $2.50 $-1,575 -52.5% $-4,575
    FF Long Call 2022 19-AUG 7.50 CALL [FF @ $6.85 $-3.03] 50 12/22/2021 (101) $4,900 $0.98 $-0.23     $0.75 - $-1,150 -23.5% $3,750

    SOFI/Stock – Another disappointment. 

    SOFI is a smaller position, so I'm happy to add to it.  They are down because UPST got crushed and people are just selling both.

    SOFI took a hit when Biden extended Student Loan deferrals as that's SOFI's target market.  I do like them long-term, very different than UPST.



  16. Sony’s Profit Surges on Healthy Film, Game, Music Growth


  17. Phil / SWKS at 100 now….. I think 130 to 135 in '24 is a good target…..   They have great Cash flow, Margins and a great CEO….  thoughts?   AAPL is their biggest company but they are diversifying into IOT / Auto ( EV)… that have 50% plus growth…   What do you think of the '24 100 130 BCS with a. 100 putter


  18. I'm back!

    Things have not gotten any better, I see but "not too much worse" is a victory today.

    Oil below $100:

        

    Still too crazy to call. 

    SWKS/Batman – $100 is $16.4Bn and they drop $2Bn to the bottom line, so I'd say it's a bit oversold.  I do not see 50% growth but you don't need it with their earnings.  So yes, I agree it's a buy. 


  19. Phil / SWKS – the 50% growth is in the new busiemnss. market segment. in IOT and EV.  the rear is growing at a 15% clip as they are winning slots in apple products as well as Samsung products….


  20. This week is looking like the same scam as last week . fake market pop on powell s words. i listened to the whole thing it didnt sound bullish to me.



  21. Looks like we’re going to squeak out a win into the close.  
     

    MSFT with a nice bounce.  MAR, DASH, QCOM, AVGO, ADBE, NFLX, NVDA, AAPL, AMD, AMAT, CRM, HLT, TXN, FB….  It’s good to see if we can start finding bottoms in some of the beaten up big names.  If things start to firm up, we can pick up the laggards.  


  22. Nope, here come more sellers  


  23. they can't get out the door fast enough


  24. hopefully all those home owners with big piggy banks didnt invest their houses in tech stocks at the highs or they wont be feeling as rich about now.


  25. COIN just disappointed.