World of Worries Wednesday – Emerging Markets, Trade Wars Weigh on Markets
by phil - September 5th, 2018 8:34 am
Wheee – this is fun!
Congratulations to those of you lucky enough to get the PSW Report yesterday, where we told you about our Gasoline (/RB) Futures Shorts at $2.05 as we plunged all the way to $1.98, which was good for 0.07 per contract and, while 7 cents may not sound like much, it was actually a huge one-day move and, at $420 per penny, per contract, it was good for profits of $2,940 for each contract – what a great way to start the month!
Of course we began shorting /RB on Friday, at $2 so our average (as we doubled down) was $2.025 so we only picked up net 0.045 for $1,890 per contract gains but it was on 2x so it all works out in the end! Silver (/SI) was also a huge winner as it popped back from $14.13 (even lower during the session) to $14.20 for an 0.07 gain and /SI contracts pay $50/penny so $750 gains per contract there as well. As I said to Investing.com yesterday:
“From here, we’re expecting RBOB to go down to between $1.80 and $1.85 over the next month and stabilize there…There’ll be the traditional pre-Thanksgiving run up, where it could get a little higher, and we’ll be shorting it again at that time.”
In Davis’ logic, gasoline’s surge to 3-1/2 year highs of $2.2855 in May, matching US crude’s rally, was fundamentally flawed.
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Tuesday Trade War Worries and Toppy Trading Patterns Persist
by phil - September 4th, 2018 8:34 am
Welcome back!
I hope everyone had a nice vacation. Seems like nothing particularly blew up over the holiday weekend yet the market gave back 100 Dow points early this morning and we're back at 25,900 on the /YM Futures and below 2,900 on the /ES Futures and let's not forget that 2,872 is where we topped out in January and that too was a big run up but then we completely collapsed back to 2,532 for a quick 10% drop in just two weeks. The high came on Jan 26th, to be exact, and that was AFTER Trump declared a Trade War for the first time that Tuesday.
This week, Trump has "fixed" Mexico, though many "fake news" analysts say it's not fixed at all and still no deal with Canada and supposedly (also you have to believe what Trump says) we will be adding another $200Bn of tariffs to China, which would more than double all the tariffs put on all countries combined to date! Yet the market seems generally unaffected – for now.
That Thursday (Jan 25th), I marvelled at the fact that only 7,826 (11.4%) out of 68,119 investors polled were bearish on the markets as we tested record highs. Now it's down to 6,243. This week's news cycle will be taken up with Kavanaugh's Supreme Court nomination hearings but it's a pretty big data week with ISM and Construction Spending this morning, Auto Sales tomorrow, Productivity, ISM Services and Factory Orders on Thursday and the Big Kahunah, Non-Farm Payroll on Friday.
September, of course, closes out the 3rd quarter and we have a Fed meeting on the 26th where the Fed is very, very likely to hike rates. As you can see on this chart, the Fed is still a hike below the average prediction of 2.25% by the end of the year and next year, the target is more like 3.25% so there's a lot of hiking ahead of us – usually not great for the market.
Trade still seems to be dominating the market talk at the moment. According to Bloomberg, Trump even gave us a day…
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Friday Failure – China Trade War Heats Up While Canada Cools Off
by phil - August 31st, 2018 8:39 am
$200Bn more in tariffs.
Now are you paying attention? The market sure did yesterday when Trump said he wants to move ahead with his plan to impose $200Bn of additional tariffs as soon as next week, just two days after tweeting that he and President Xi would work out their trade deal, which drove the market to new highs. Companies and members of the public have until Sept 6th to submit comments on the proposed duties, which cover everything from selfie sticks to semiconductors. The President plans to impose the tariffs once that deadline passes.
Trump cut off negotiations with China because of what he perceives as Beijing’s lack of cooperation in nuclear talks with North Korea, one of the people said. The president wants to squeeze China, believing the U.S. has leverage over Beijing, that person said. Trump also threatened to pull out of the World Trade Organization as they have not been behind his illegal sanctions so far – that alone threatens to unwind the entire Global Economy but, thank Goodness, noboday takes the President seriously when he says insane things like that.
Trump also said (yes, he just keeps going) that the EU offer to scrap auto tariffs "is not good enough" meaning – well let's not pretend to know what he means but if NO TARIFFS are not good enough then I guess he wants the EU to offer incentives for their people to buy American cars? I was going to say that's Batshit Crazy but then I thought that was going to far but then I looked up the definition of Batshit Crazy and yes, Trump is BATSHIT CRAZY!
You know, after 8 years in office and millions of photos, there are NO pictures of Obama snarling at anybody or about anything. Not even Bush II has any snarly pictures but he may tie Trump for dumb-looking pictures. No snarly pictures of Clinton either and I couldn't find many Bush I pictures as he's pre-internet but I'm sure he snarled at least once so let's say you have to go back at least 30 years to find a President who even looks like…
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Thursday Thoughts – Window-Dressing Flatlines Markets into the Holidays
by phil - August 30th, 2018 8:35 am
We've gotta hold those highs, right?
There's nothing Fund Managers and Brokers hate more than to have their clients talking about pulling money out of the market around the barbeque. With a holiday weekend approaching, we can expect all the stops to be pulled out to maintain our record highs but what happens when the big boy traders come back from their summer vacations is anyone's guess.
At the moment, as you can see from the SPX chart with volume, there is a huge surge, like clockwork, at the end of each trading day, that pushes the index higher into the close and even higher overnight (when there is no volume at all) and that has accounted for about 1/2 of the S&P 500s gains for the week. The rest of the gains came from a new trade deal with Mexico that's worse than our old trade deal (NAFTA) and now Trump says he will have a deal with Canada tomorrow, probably also worse – so of course the markets should be higher…
It's all nonsense, of course but Alice in Wonderland was all nonsense for 90 minutes and then she woke up. It's hard to say when investors will wake up but they usually do at some point but, as I noted yesterday, things can get a lot sillier before they get saner.
Oil (/CL) is hitting our silly target of $70 this morning and we discussed shorting at this line in yesterday's Live Trading Webinar and I reminded our Members in Chat this morning that we are shorting below the line only, with tight stops above but I'm willing to lose a few Dollars while wating for the nice, post-holiday pullback we're expecting.
Oil and Gasoline (we're short that too) are things that are bought by the masses, not just rich folks and, although our GDP is expanding at 4.2% in Q2 and people like us (who have enough savings to be able to play with stocks) are feeling pretty good, economically, a new study by the Urban Institute reminds us that 4 out of 10 Americans are struggling to pay for their basic needs such as groceries or housing. It's a problem even "Middle-Class" households confronting.
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Will We Hold It Wednesday – Record Highs Edition
by phil - August 29th, 2018 8:37 am
Up and up she goes!
As I noted in yesterday's report, we're very likely in the late stages of a bubble rally but you could have said that at any point in 1999, when the Nasdaq rose from 1,750 to 3,750 and you would have been right in early 2000, when it kept going all the way to 4,816 because it went far below that over the next two years but you also would have missed a hell of an opportunity on the way up – as long as you knew when to take a profit…
I misseed a lot of the rally in 1999 as I thought a double at 3,000 was a bit much and I sat there with my arms crossed, cluck-clucking at all the fools who rushed in for the next 1,800 points but a lot of those guys got very, very rich chasing those crazy stocks and some of them got out ahead of the crash but my takeaway from that was to just be patient, make a bit of money on the way up but I find I'm far more comfortable using that money at the bottom to pick up value stocks for the long-term.
On the whole, I'd rather own a stock at a great price for 10 years and make constant streams of money than jump in on a momentum stock and try to time my exit. It's a difference in style and it's important to know what kind of trader you are – especially in a rapidly moving market like this one. While you can make some very nice money buying AMZN for $1,932 and selling it for $2,000 we STILL have a lot of the trade ideas that we played since the 2009 crash like:
AIG at .40, BAC at $4, CY at $5, F at $1.68, FAS at $4.76, GE at $8, GOOG at $350, HCBK at $9.50, HOV at .80, IP at $5.62, IWM at $37, JPM at $16.80, UNH at $20, VNO at $30, WFC at $12, X at $10 and dozens of others that were detailed in that week's wrap-up
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THOSE are the kind…
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Toppy Tuesday – S&P 2,900 so it’s 3,000 or Bust!
by phil - August 28th, 2018 8:31 am
Wow, just wow!
As you can see from the chart on the right (click for bigger view), people have been saying this rally is going to end since it started – and that was about 10 years ago at this point! I'm included in those people as, on several occasions, including this year – I have wanted to cash out and, in fact, I did cash out my kids' college accounts into the Summer (still in cash) and our Hedge Fund is mainly in cash as well as we wait for the market correction (and buying opportunity) that never seems to come.
I was bearish in 1999 and the market went up 100% that year before it collapsed and I was bearish in 2007 and the market went up before it collapsed (about 10%) and I have been bearish most of this year – well, after we did a lot of buying during the February dip. Even our Big Chart is still full of the old Must Hold levels that there's little chance of re-testing. Granted they were the levels we set in 2015 for our expectations of the end of 2017 but we never changed them because we kept thinking the move 20% above our lines would correct – that was incorrect…
Being cautious hasn't stopped us from making money but we certainly could have made more money if we hadn't hedged (and yes, we just put more money into hedges yesterday). Still, that's not the right way to play but we do need to make some realistic assumptions about where the bottom of this new range should be and it's probably not 2,200 on the S&P – which would be a 24% correction from here.
Without getting into the whole "fair value of the S&P" which we do when we are setting our major Must Hold Levels, what has really changed since 2015? Well mostly we have higher wages, a stronger GDP, lower unemployment and much lower taxes – mostly good things for the bottom line of S&P 500 companies. Good but not so good they should be trading at 35x Cash Flow…
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Monday Market Movement – NAFTA “Fixed”? Of Course, that calls for a RECORD HIGH!
by phil - August 27th, 2018 8:34 am
Another record high!
We're finishing August off with a bang as ANY news is good news these days, even making progress on keeping NAFTA, which Trump promised to throw out and was enacted almost 25 years ago (Jan, 1994) so the only reason there's an "accomplishment" to fixing it is because Trump broke it in the first place. Of course the Administration will say they won big concessions but so will the Mexican Administration and, so far, Canada isn't even playing with Trump – so it's not really "fixed" at all.
It doesn't matter though as the Dow (/YM) is up 140 points (25,927) and the Nasdaq (/NQ) is up 35 points (7,530) in the Futures along with 2,887 on the S&P 500 (/ES) and 1,730 on the Russell (/TF), which also well above the June high of 1,708, depsite the weakening Dollar and rising oil prices ($69), which are considered bad for small-cap stocks.
Word of progress on NAFTA lifted Asia's stocks as it's seen as more likely the US will begin to negotiate with Japan and China and China's Central Bank took steps over the weekend to strengthen the Yuan, sending their market up 2% overnight – another reason our Futures look so good at the moment. That's despite the fact that China's Industrial Profits continued to cool off, down to $75Bn in May from $93Bn in June. There's also some alarming internals as Producers and Refiners of raw materials like oil companies and steel mills have accounted for roughly 2/3 of the gains this year. Smaller firms are facing much tougher business conditions that are squeezing profit margins.
Despite this morning's 2.5% rally, China's Shanghai Composite still has a long way to go before recovering, after falling 25% from 492 to 379 since topping out in January. It will take 5% just to make a weak bounce off that so 390 will be the line to watch and then 410 would be a real recovery at the strong bounce line.
For the purposes of our 5% Rule™, it's a 100-point rejection (20%) from 500 to 400 and a 20% overshoot to 380 which…
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Trade War Friday – US China Talks Collapse With No Resolution
by phil - August 24th, 2018 8:21 am
As we predicted, trade talks between the U.S. and China failed to produce any visible sign of progress, reducing the prospects of a deal soon, people closely tracking the talks said. The statement was significant for what it didn’t say as well, people said after the talks. There was no discussion of follow-up talks or any accomplishments.
For now, the U.S. continues to turn to tariffs to pressure China. As negotiations wrapped up on Thursday, the U.S. put in place $16 billion in tariffs on Chinese goods, raising the total to $50 billion. The Chinese have matched them dollar for dollar. Public hearings continued on U.S. plans to hit another $200 billion in Chinese imports with tariffs as high as 25%, which would place levies on about half of Chinese imports. If the U.S. continues on the same schedule as in the past, those tariffs could start to take effect in September.
As I explained in yesterday morning's report, Trump has no interest in ending the Trade War with China as these "tariffs" are nothing more than a 25% tax on consumer goods purchased by the average American which fund tax cuts for the above-average American, who are better than you because they have more money – so don't complain!
President Trump is complaining that Twitter, Facebook and others are cracking down on Russian Hackers, White Nationalists, Hate Mongers and Bots which spread Fake News in Social Media (often from Russian Troll Farms). It may be difficult for Republican Congresspeople to get elected without all the fake news and fake supporters and, of course, it's a fantastic distraction as the real news flow is turning towards articles of impeachment as more and more of Trump's inner circle is convicted or "flips" on him – something else he's been complaining about.
Obviously, people who are not guilty do not complain of their associates "flipping" on them and they don't decry plea-bargain agreements and they don't screem for the Attorney General to halt investigations – especially when they are effectively uncovering many, many, MANY crimes. No, this is what guilty people do – especially when they are the heads…
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Trade War Thursday – US and China Sitting Down Gives Markets Hope
by phil - August 23rd, 2018 8:32 am
"U.S. Seizes on Chinese Economic Vulnerability in Trade Talks."
That's the headline in the Wall Street Journal this morning and, frankly, that's NOT the way to enter into a negotiation. Of course the WSJ has drunken all of Trump's Kool-Aid and they think he's a master negotiator who gets the upper hand by bullying and insulting the people he is dealing with so that, when he makes even the smallest concession, they are thrilled to accept it. That may work in real estate, where you can burn bridges and move on but this is Geopolitics and those are the same countries you need to do business with tomorrow – you can't just screw everyone over without repercussions.
As the "failing" NY Times (BOO, fake news, BOO!!!) noted yesterday, Chinese state media has been putting out videos depicting Trump as a bumbling bufoon of little consequence, releasing one video thanking President Trump for helping make China stronger. It shows him in unflattering poses, his brow furrowed and his mouth agape. Its sarcastic title: “Thanks Mr. Trump, you are GREAT!” “They sense his (TRUMP's) increasing domestic weakness and see a chance to pile pressure on,” said Kerry Brown, a professor of Chinese politics at King’s College London.
Sadly, I had to insert "(TRUMP's)" in that quote because SOME people in this country are so brainwashed that they don't even know Trump is weak or that he's already expended all of his political capital and may be taken out of the oval office in handcuffs in the near future and they actually believe it's possible that Trump is the one negotiating from strength. It's amazing, but it's true!
Keep in mind, this is China's state-run TV that's mocking Trump – that is not something they are likely to do if they are about to bend over for him in trade talks this afternoon more tariffs have already been put into effect as of 12:01 this morning! More likely, today's negotiations will go something like this SNL classic from the Obama years.
Xi Jinping has been the President of China since 2012 and before that was the Governor of Fujan Province (1999) and Zhejang Province (2002) before…
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Which Way Wednesday – The View From the Top of the Market
by phil - August 22nd, 2018 8:38 am
We did it!
For a minute anyway – that's how long the S&P 500 held its new record high (2,873.23) for before falling steeply back down to the 2,850 mark and, this morning, we're bouncing back to around 2,860 as more Members of Team Trump are convicted of crimes that the President knew nothing about and didn't discuss and doesn't believe and WITCH HUNT!!!
I think, usually, in a "witch hunt" the prosecutors don't find so many actual witches, do they? Webster's actually defines "Witch Hunt" as: "The searching out and deliberate harassment of those (such as political opponents) with unpopular views." That's not quite the same thing as the actual uncovering of a culture of graft and corruption as well as uncovering evidence of collusion indicating possibly treasonous actions against the United States of America carried out by a political candidate and his family in an effort (successful) to steal the Presidency.
This is serious stuff folks! No one "did the nose" here – these are real crimes that have been committed and, as Michael Cohen testified yesterday "at the direction of Donald Trump." Yes, Cohen was the assassin but Trump is the mafia don who ordered the hit – and those guys go to prison too! And it's not just Manafort and Cohen. Michael Flynn, Rick Gates and George Papadopoulos have all pled guilty and are currently cooperating with prosecutors. The case is, of course, still building (you have to be beyond 100% certain if you are going to charge the President of the United States with Fraud or Treason) but here's what we know so far:
The President claims these 71 connections between himself, his people, Putin and Putin's people are all just fabrications by the Liberal Media and they must have photoshopped all the pictures and fabricated all the evidence and, of course, made up their own facts. The funny thing is, it's working. Trump's relentless campaign against The Truth has caused "facts" to be confused with opinions and, like many dicators who destroy the free press or make them the enemy, it allows his followers to ignore all the evidence against…
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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
