Flailing Thursday – Markets Look Toppy and a Money Talk Portfolio Review
by phil - March 7th, 2019 8:03 am
This is sad:
We've been going nowhere for a month and there's nothing wrong with healthy consolidation but, if you listen to the Financial Media, you would think you are missing out on some huge rally. FOMO, or "Fear of Missing Out" is the new driver for market behavior though I can't imagine what it is people fear, when you consider the S&P 500 is up 1,000 points 55% in the last 3 years though we're actually lower now than we were a year ago.
That's why we've been "Cashy and Cautious" since we cashed our our 5 Member Portfolios in December of 2017, when I decided the risk of holding through the holidays wasn't worth it after a year of such spectacular gains. I was a little early with that call but we got a great sell-off last January and we jumped in with our new Virtual Portfolios and now they have made ridiculous gains – especially our skeptical Short-Term Portfolio, which we use to hedge our Long-Term Portfolio.
I went over the STP and gave my thoughts on it in yesterday's Live Trading Webinar (replay available here) and we feel our current hedges adequately protect us from what we think will be a minor (2.5-5%) correction that shouldn't take us lower than 2,640 on the S&P (/ES), which is the 20% line on our Big Chart, which is still using the 5% Rule™ calculations we applied way back in 2015 so we're right on track but we also need to adjust those brackets 10% higher (Dow, Nas and S&P only) to account for the new, lower, Corporate Taxes and their effect on large-cap earnings.
Despite expecting a sell-off, we're still very bullish in our Long-Term Portfolio as well as our other Member Portfolios. Our public portfolio, the Money Talk Portfolio, which we only trade live on that BNN Show once per quarter, is self-contained, unlike our paired STP/LTP combination, so the hedges are baked in. Our last adjustment came on Jan 30th and we added an IBM trade that's already up $1,185 (182%) against our $650 cash outlay and the whole portfolio, at the time, was up 111.7% at…
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Which Way Wednesday – Beige Book Edition
by phil - March 6th, 2019 8:09 am
More Fed data.
That's what we're waiting for today as the Fed will release their Beige Book, which covers the end of the shutdown period and should give us a read on how damaging the shutdown has been to Q1 earnings. As you can see from the chart, the Atlanta Fed's estimate of growth in Q1 is pretty close to zero while the "consensus" estimate of leading economorons is just under 2% – that's a pretty wide gap and it's going to matter A LOT which way that line begins to bend.
For the moment, the markets are hanging onto hope that the US and China have finally worked out their differences and that the Governement won't shut down again this year and Brexit won't be a total disaster and, of course, that all those warning signs that have been flashing in the economy are temporary (from our self-inflicted wounds) and we will get back to growth very quickly. Despite my skepticism, that is how we've been playing the market as our Member Portfolios are generally bullish – with a few hedges – "just in case".
I would still be happier if the market made a nice 10-20% correction and stayed down long enough to consolidate for a proper move up but it doesn't look like the powers that be are willing to let that happen – and that includes China – who went to great lengths to prop up their own markets this week as well.
The OECD cut it's Global Outlook – again – and warns more cuts may be ahead, reducing the Global Groth Rate from 3.5% to 3.3% and Australia's GDP just missed their growth forecast by the same 0.2%, at 2.3% vs 2.5% expected. Italy has given up on the US and Europe for that matter and has joined China's "Belt and Road" trade initiative – making them the first G7 Nation to economically defect to greener pastures in China while China, however, has not trouble trading with the US – sending a record $419.2Bn worth of goods to America in 2019.
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Testy Tuesday – Trouble at 2,800 – Again!
by phil - March 5th, 2019 8:31 am
In yesterday's PSW Morning Report (subscribe here) I said:
7,200 on the Nasdaq (/NQ is a good shorting line for today as is 1,590 on /RTY, since that's the 200 dma – tight stops above!
As you can see, the Nasdaq (/NQ) shorts were good for gains $2,000 for each Futures contract shorted while the Russell (/RTY) fell to 1,565 and that was good for gains of $1,500 per contract – not a bad way to start the week. In case you are wondering – in our Live Member Chat Room, at 12:16, I also called the bottom, saying:
Hopefully that will be it, 2,780 though is a terrible fail of 2,800 and down 100 points on the Nas is a quick $2,000 and /RTY 1,568 should be support but, if not, could see 1,550. Tight stops in any case but I'm happy with these gains!
Keep in mind that we are Fundamental, not Technical Traders. We call these tops and bottoms based mainly on the news cycle – even intra-day and the only Tecnical Indicator we follow is the 5% Rule™, which we invented to neatly summarize all the TA BS into one simple formula that FUNDAMENTALLY accounts for TA as a factor in our market calls. Turns out, it also does TA better than any other system I've seen – but I still think TA is BS.
It doesn't matter if it's BS though, because – as long as millions of people follow something – it becomes a Fundamental factor anyway. If crows flying east caused people to sell Apple, we'd be tracking crow migration as a Fundamental Indicator but not enough people trade on crows to make it relevant but enough people follow Elliot Wave, Ichimoku Clouds, Bollinger Bands, etc. to make it a signal we do pay attention to. When we see the news flow coincide with support-resistance lines for Technical Traders – THAT is when we like to make our Futures calls.
Meanwhile, the big call is WTF is going on with the S&P 500 at 2,800? Yesterday was the 4th time since October we've been rejected at that line and, earlier last…
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Despacito – How to Make Money the Old-Fashioned Way – SLOWLY!
by phil - March 4th, 2019 11:27 pm
Are you ready to retire?
For most people, the purpose of investing is to build up enough wealth to allow you to retire. In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.
Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic – to say the least – with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives. A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.
Still, the stock market has been better over the last 10 (7%) and 20 years (6.7%) than any other investing vehicle and, if that keeps up, a stock market portfolio may give you the best chance of obtaining a functional retirement. At 7% a year, if you want to generate a $70,000 annual income, you need to have $1M invested but it would be a tragedy if the market dropped 30% and then you had $700,000 and 7% of that is only $49,000 so you have less money coming in AND not enough to live on – keep that in mind when coming up with your "Comfort Number" and, by all means – speak to a Financial Professional who can help you plan by taking into account your own circumstances!
While some investors shy away from stock options because of their reputation for being akin to gambling, we disagree. Stock options are an important tool for supplementing your stock investing. Options, when used correctly and strategically, allow you to “Be the House, NOT the Gambler”. While no one in the casino always wins, the odds favor the dealer. We’ll show you how to structure your investments to keep the odds in your favor, like the dealer in a casino.
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Monday Market Moves Up (again) on Trade Progress (again)
by phil - March 4th, 2019 8:34 am
Yay, I guess.
The crisis we created may be over! The US and China may lift tariffs by March 27th – after President Xi finishes a trip to Italy and France, where China may buy both countries under the EU's new BOGO Program. Meanwhile, to appease Presdent Trump, President Xi has agreed to buy $18Bn worth of Natural Gas (/NG) from, specifically, Cheniere Energy (LNG), the US's largest exporter of Liquefied Natural Gas.
Of course, this kind of concession is completely meaningless as Natural Gas and Oil (/CL) is what they call a "fungible" commodity, meaning that it's essentially irrelevant WHERE China buys it's Oil and Nat Gas because they will simply replace another buyer here and the guy who used to buy it from us will buy it from someone else or, perhaps, forced Chinese buying of our Natural Gas will create a shortage and artificially raise prices for all Americans.
Of course LNG has been spending big to boost exports ($15Bn, in fact) as if they KNEW this deal was coming or maybe it's because the deal already came and Trump is just acting like he did something (not surprising) as LNG already signed a deal with China National Petroleum in November, to buy 1.2M tonnes of LNG a year and a tonne of LNG is 48.7Bcf so 58.44Bcf of Natural Gas is 3.6% of the entire US supply of Natural Gas, which is already in the low end of the 5-year range.
We talked about why we like Natural Gas just last Wednesday and we played the /NGV19 October Futures at $2.75 and Wednesday they were already $2.85 for a $1,000 gain per contract and today they are $2.97 so up another $1,200 per contract but of course not everyone is ready to play the Futures so our suggestion as a stock play was Chesapeake Energy (CHK), where we went with the following trade idea:
As a new trade on CHK, I'd go for:
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TGIF – Trade Talk (Again) Pops Us into the Weekend
by phil - March 1st, 2019 7:50 am
Back to 2,800!
As you can see from the chart, S&P earnings are down about 1% since September but the S&P itself it up 1%, back to the critical 2,800 line (again) and we'll see if it sticks but the /ES Futures are a fantastic short below that line with very tight stops above. What I find most interesting on this chart, however, is the "value" of the S&P 500 stocks now bushing $67Tn and I'll tell you why that is important.
You can look and look and look but you can't find a good number on the total Profit of US Corporations because they, and the Government, work very hard to obscure that information from the public. Why? Because if the public understood just how much money Corporate America was makin and how little they are paying in taxes – there would be lynchings – and NOT the kind the GOP like!
$67 TRILLION is a good clue about corportate profits because you know that the S&P is trading at roughly 22x forward earnings so, if the valuation is $67Tn, we divide that by 22 and find that profits must be $3.05Tn. That makes sense becuase Apple alone makes $60Bn and they are about 2% of the S&P so 50 x $60Bn is $3Tn also. Well that's settled then, JUST the 500 companies in the S&P 500 make $3Tn and figure $3Tn for the other 5,500 public companies is $6Tn and than whatever all the private companies (Cargill, Koch, Deloitte, Pricewaterhouse, Mars, Publix, Bechtel…) make has got to be at least another $2Tn so that's about $8Tn in PROFITS for our Corporate Masters and let's see what they paid in taxes last year:
$297Bn??? WTF??? That's just 1.5% of our GDP and Corporate Profits are 40% of our total GDP – they are barely paying 10% of their profits in taxes! 165M wage-earners making $50,000 a year get paid $8.25Tn – about the same as the corporations make in profits, yet they paid $1.6Tn in Income Taxes (20%) and another $1.2Tn (15%) in Payroll Taxes.
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GDPhursday – Trump Finally Goes to Vietnam – And Loses
by phil - February 28th, 2019 8:39 am
No deal!
Trump called an early end to his long-awaited summit with Kim Jong Un last night, 2 hours before the two were scheduled to have a "joint signing event" to conclude the negotiations. Our deal-maker in chief said they reached an impasse and "We actually had papers ready to be signed, but it just wasn't appropriate." Now I guess that sounds fine to a farmer in Iowa but anyone who's been top management at a company knows that when you schedule a closing for deal and people fly around the World to get it done and then it blows up at the last minute – that there was some seriously incompetent crap happening beforehand.
What really bothers me about North Korea is the implications it has for the China Trade Deal as that may end up not happening just as easily as Team Trump was assuring us up to the last second that North Korea was in the bag and Japan's Shinzo Abe has already nominated Trump for a Nobel Peace Prize for "Bringing Peace to the Korean Peninsula" – which hasn't actually been at war for 50 years – but who's counting. Despite that very low bar of making it through year 51 – Trump has failed – capping off a very bad day where Trump's lawyer provided Congress with a list of Felonies committed by the President, including: Bank Fraud, Tax Fraud and Campaign Finance Violations.
My working theory remains that Trump does not want a trade deal with China because he's taxing AMERICANS hundreds of Billions of Dollars a year in order to balance the tax cuts in his budget. In other words, the tariffs are nothing more than Trump's way of robbing the poor to give to the rich and, even though Farm Loan Delinquencies have skyrocketed to 19.4% of all loans – despite the $7.7Bn Socialist Government hand-out – yet Trump's base is still too dumb to connect the dots!
This morning, we see how the overall economy has been affected by the Trade War and it looks like Q4 GDP is…
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What Now Wednesday? Suddenly India and Pakistan are Shooting at Each Other!
by phil - February 27th, 2019 8:01 am
It's always something!
Early this morning, India and Pakistan shot down each other's planes and now what used to be the World's most likely place for nuclear war to break out is once again the World's most likely place for nuclear war to break out – which says a lot since Trump's finger is still on the button but he's been bumped to #2 by this new tussle.
This is still backlash from the terror attack on India, which killed 40 people we didn't care about on Valentine's Day and India retaliated and bombed what they claim was a Militant Base inside of Pakistan. We still sell arms to both countries, so this war is great for us! Actually, Pakistan already pissed off Trump and the GOP by switching to China as their main weapon supplier (much cheaper).
The Futures are already recovering from a sharp drop this morning as Nuclear War is way down on this Planet's list of things to worry about what with the planet boiling us alive and all the insects dying. If that doesn't bother us – what's a little background radiation going to do?
What's really concerning is the S&P's repeated failure to hold 2,800, which still has us wondering if this whole rally is topping out 5% below the September highs (2,940) and, of course, the Russell is still unable to crack the 1,600 mark – which we said last week was a big problem. In fact, I also said in last Wednesday's Morning Report:
We had an in-depth look at /RTY in yesterday's Live Member Chat Room where we concluded:
So, that being the case, we would expect the 5% Rule to be obeyed between 1,440 and 1,800 which is 360 points so 72-point bounce lines to 1,512 (weak), 1,584 (strong), 1,656, 1,728 (weak retrace – where we failed before) and 1,800. So expect good resistance at 1,584 and no more than a strong retrace of that run from 1,440 (if we're bullish) which is 144 so 29(ish) down to 1,555 (weak retrace) and 1,526 and we'll see how that goes.
In other words, our 5% Rule™ predicted a run to 1,584 and now
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Turn Down Tuesday – Trump Crimes and Fed Testimony Reverse the Rally
by phil - February 26th, 2019 9:07 am
Criminal conduct!
Trump's former lawyer, Michael Cohen will for the first time publicly accuse the President of criminal conduct while in office related to a hush-money payment to a porn star. According to the Wall Street Journal: "The President’s ex-lawyer will tell House Committee he witnessed Trump’s ‘lies, racism and cheating,’ role in hush payments." This is contrary to Trump and the GOPs position that his payments to the porn star he was cheating on his wife with were perfectly legal and just a normal part of any campaign process and, of course, he's already been given a pass by the Evangelicals who support Trump 100% in all of his exrtra-marital affairs.
Criminal charges are new and that opens up a whole new avenue of investigations for Trump – even if there isn't enough evidence to prove that he's a Russian Agent, placed in power through a coordinated effort that clearly came from Russia and Putin, with money that clearly came from Russia and Putin following through on an agenda that is clearly benefitting Russia and Putin BUT – we can't PROVE that he's purposely doing all this to pay back Putin or if it's just a cooincidence that his staff has already been found guilty of conspiring with Russia and none of that has anything to do with Trump himself.
Sure, that's the ticket, right? Well, the market has been willing to move along, even as Russian State TV on Sunday listed potential US cities that they could strike first with their new Hyppersonic Missiles. The report came days after Russian President Vladimir Putin warned the U.S. against deploying intermediate-range missiles in Europe. You would think the President (any other President) would be outraged but there was not a single tweet as Trump was busy calling for "retaliation" against Saturday Night Live for making fun of him and touting his trade progress with China, which boosted the markets yesterday.
While I know most of you reading this think this is all some sort of Liberal attack against the President (and yes, I am a Liberal), I don't really see how that disqualifies me from being concerned when the Russian Propaganda Network has a whole…
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Monday Market Melt-Up – Trade Talk Progress Pushes Us Higher
by phil - February 25th, 2019 8:31 am
"President Trump said Sunday he would delay an increase in tariffs on Chinese goods set to take effect at the end of this week, citing “substantial progress” on issues including intellectual property and technology transfer after a weekend of talks. In a tweet, Mr. Trump wrote that should progress continue, the U.S. would plan a summit with President Xi Jinping of China to “conclude an agreement” that would settle a yearlong trade fight between the two nations.
While Trump’s tweets didn’t specify how long the extension of a trade truce would last or any date for a potential summit, we are halting the tariff increase on $200Bn worth of Chinese goods that were scheduled to go from 10% to 25% as of March 1st, so that's $30Bn already not being collected and I'm pleased with just that as my primary fear was that trump wouldn't be willing to give up the $360Bn budget offset those tariffs represented (but even his thick fans were starting to notice that they were the ones paying the tariffs, not the Chinese).
The key concession Trump seems to have gained from China is a promise to buy $300-400Bn more goods per year from the US to "balance" the trade and mostly that will come in the form of farm and energy products (you didn't think the Chinese would actually want our manufactured goods, did you?) and that's already giving our Natural Gas (/NGV19) trade a nice bump (we talked about that in last Wednesday's Morning Report) and, of you missed that one, try going long on July Coffee Futures (/KCN19), which are still down at $102.45 as that's been very depressed all winter.
Oil prices are off a cliff today as the Trump, feeling all-powerful this morning, decided it was time to declare "Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!". Keep in mind that Trump had room for another 200 characters, so he didn't need to sound like a cave man but it's possible he's working on some new type of Haiku.
Oil is actually 10% lower than it was last year but now it's lower than that, dropping 2.5% this morning back below $56 but we knew it was too high on Friday and I had made a call for…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site