Testy Tuesday – Looking for a Market Bounce
by phil - February 25th, 2020 8:01 am
Wheeee – that was fun!
As you can see, we made great money on our Russell (/RTY) Futures shorts on the way down ($5,410) and, this morning, I sent our a special alert to our Members at 6:30 am, saying about the Dow (/YM) Futures:
We failed at 28,200 and back to 28,000 on /YM, which is playable for a bounce but super-tight stops below. Lined up with 3,220 on /ES, 9,100 on /NQ and 1,630 on /RTY – I'd make sure 2 are over at least and get out if there are any failures at all (in other words, the others should cross over shortly, not fail).
We're hoping to catch a strong bounce up to the 28,280 line and that would be good for $1,400 per contract but once we're over $1,000 we should put a very tight stop on half our contracts and then stop out the rest at $750 to lock in average gains of $875. If we do fail at the weak bounce line – look out below! Once we're over the weak bounce line – that becomes our stop.
We can go bearish below our lines with the same rules we went bullish with – that's what's fun about the Futures – our stops had us risking very little to make what is already (8:07 am) over $600 per contract – not bad for 97 minutes work!
So far, this market has bounced back from everything so today will be a good test to see if its still got its mojo. Still, we set our stop here at $500 per contract ($1,000) as that's nice gains for a morning so it would be silly to lose those just because we're greedy, right? We already failed our first attempt to take back 28,200 at 3am (the EU open, Asia close) so the selling pressure is likely coming from Europe and may ease off when they close at 11:30 – we'll keep an eye on that as the day progresses.
The WHO said China’s unprecedented lockdown may have averted hundreds of thousands of cases. The United Nations agency also said that Gilead Sciences…
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Monday Market Mayhem – Virus Suddenly Matters
by phil - February 24th, 2020 7:21 am
833 infected.
What? That's low! Well, that's just South Korea now and Italy has 215 cases, 154 in Japan and 89 in Singapore. Even the US has 35 people infected now. As I said last week, just because China seems to have things under control (though that is debateable), doesn't mean we won't get fresh global outbreaks in countries that will have a much harder time locking down their citizens to prevent the spread of the virus.
As you can see from the big chart, however, we "only" have 79,524 total cases and 25,163 have recovered so big progress in China – we just have to hope these other hot spots don't get out of hand.
The market crashed hard on the news as the Futures came back on from the weekend break last night – dropping 2.5% across the board in the US but we chose to go long on the Dow (/YM) Futures as they tested 28,200 in our Live Member Chat Room this morning – as that's the 2.5% line and should be bouncy by at least 0.5% or about 150 Dow points which would be good for morning gains of about $750 per contract if all goes well.
Anything less than that is a weak bounce and, if so, it will be a strong indicator that the market wants to head 2.5% lower by Wednesday. All in all though, it's just a minor correction in a massive rally that's been going on since early last year. We've been very cautious with our entries so far and this is a nice sale the market is throwing so we can go out and do a bit of bargain shopping – if the virus issue isn't getting worse.
Of course, Corporate Profits will be worse in Q1 and some countries may spiral into a Recession – because not every country gets to print money the way the G7 can. China's President Xi warned yesterday that the virus epidemic is “still grim and complex,” calling for more efforts to stop the outbreak, revive industry and prevent the disease from disrupting spring planting of crops which, as I mentioned last week – is our next looming disaster (a year of hunger from missed farm production).
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Faltering Friday – Weak Week Ends in a Whimper
by phil - February 21st, 2020 8:30 am
What happened to our highs?
We had a nice rally Wednesday and Thursday, after the Fed Minutes but that's gone now and we're back where we were on the 10th – two wasted weeks in the market. You can blame the virus or blame Bernie Sanders (who Leon Cooperman says is worse than the virus) or blame Donald Trump (the list is endless) but, for whatever reason, we're having trouble going significantly higher than we were on Jan 15th (3,320), before we fell back to 3,200 when the virus first broke out.
NOW we have some guidance and, generally, it's not good. Obviously, no one is saying the virus is going to be a boon to business – outside of mask makers and a few Pharmecutical Companies hoping to have a treatment of vaccine. BUT, on the other hand, the Coronavirus is costing the Airline Sector $30Bn and $30Bn is A LOT of money – even these days. In 2003, SARS cost the Airlines $7Bn so – inflation. Losing $30Bn, however, when you are trading at 15x earnings means you are losing $450Bn in market cap or 0.5% of the entire global market.
And, while we don't have the exact figures, I know when I go on a trip, the airfare is generally less than 1/3 of what I spend overall so we can assume another $1Tn of capitalization damage to the travel, entertainment and restaurant sectors so now we're chopping 1.5% off the Global Markets. China's auto sales dropped 92% in the first half of February in the World's largest car market, accounting for 25% of global sales.
We're getting horror stories from manufacturers all over the World, including Apple (AAPL) and Proctor and Gamble (PG), the World's two largest consumer products companies.
"China is our second largest market – sales and profit," PG's COO Moeller said in a statement that was also included in an 8-K filing. "Store traffic is down considerably, with many stores closed or operating with reduced hours."
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Thrilling Thursday – The View From the Top of the Market
by phil - February 20th, 2020 8:26 am
Everything is fine.
Hubaei (center of the virus outbreak) has asked firms not to resume work until March 11th. It's Feb 20th so that's only 3 weeks from now – why should that concern anyone? I'm sure things are fine. Chinese companies (as I predicted, thank you) have been unable to pay their workers, delaying paychecks and cutting salaries. That's fine. Shopping malls and restaurants are empty; amusement parks and theaters are closed; non-essential travel is all but forbidden. Fine.
“A week of unpaid leave is very painful,” said Jason Lam, 32, who was furloughed from his job as a chef in a high-end restaurant in Hong Kong’s Tsim Sha Tsui neighborhood. “I don’t have enough income to cover my spending this month.”
He's fine. “The coronavirus may hit Chinese consumption harder than SARS 17 years ago,” said Chang Shu, Chief Asia Economist for Bloomberg Intelligence. “And SARS walloped consumption.” That's fine. Without full, regular paychecks and few places to spend them these days anyway, Chinese consumers could cut spending in some categories to zero, said Shu. And it may not bounce back: For example, she said, if you skip your daily latte for two months, you’re not likely to make up for those missed drinks later in the year. SBUX is fine.
Rick Zeng, deputy general manager at the Lionsgate theme park in Zhuhai, said they’ve been shut down on government orders since the end of January. Starting next week, some staff will need to go on unpaid leave. In the southeastern city of Fuzhou, hotel manager Robert Zhang said all but two or three of his 100 rooms are vacant on average nights. Two-thirds of the employees are effectively on furlough, getting some salary but not as much as they’re used to. They're fine.
South Korea's number of virus cases went from 31 yesterday to 104 this morning (up 235% in a day) and they had their first death from the virus this morning. …
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Wild Wednesday – More China Stimulus Brings Back the Highs
by phil - February 19th, 2020 8:34 am
Virus, what virus?
75,282 infected, 2,012 dead, 15,030 recovered and last Wednesday we were at 45,204 infected, 1,116 dead, 5,085 recovered and the Wednesday before that it was 24,607 infected, 494 dead and 988 recovered so, in the past two weeks infections jumped 83.7% and 66.5% and deaths jumped 126% and 80% and recoveries surged 414% and 195%. Overall then, it does look like we're SLOWLY getting things under control but even "just" 33% more infections next week brings us over 100,000 – I would not say we're out of the woods by any means.
Nonetheless, if more infections is bullish for the markets, we need to learn to play the market that way, right? So far, the more people are infected, the more stimulus China provides and that's what's lifting stocks this morning as China’s Ministry of Industry and Information Technology said the government would connect factories with technology companies to identify weak links in their supply chains.
What does that actually mean? No one knows but it SOUNDS good and that's all it takes these days to rally the markets. “‘There will always be someone to save us’--that is the outlook from investors at the moment,” said Lewis Grant, a portfolio manager at Hermes Investment Management. That seems to be the typical attitude of people who are managing other people's money – just keep buying!
The Nasdaq (/NQ) Futures are back at 9,680 and 9,687.5 was our high on Monday and, in our Live Member Chat Room yesterday afternoon, I said:
That's why I went flat earlier but time to short 2 /NQ again at 9,638. We fell from 9,675 on Friday and I'm happy to DD if we test 9,700 to average around 9,660 on 4 short. But yes, shorting is a fool's game in this market.
As you can see, we're down $1,685 so far (can't win them all) and it's very tempting to double down here at 9,680 but that makes the commitment too heavy ahead of the Fed minutes this afternoon so we'll stick with the plan and patiently wait for 9,700 and we'll see how things are going this afternoon, when we have our Live Trading Webinar at 1pm.
We'll be reviewing our Member Portfolios this week and…
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Turn Back Tuesday – Virus Fears Heat Up over the Weekend
by phil - February 18th, 2020 8:30 am
Now Apple (AAPL) has warned they will miss on revenues.
We went from 64,456, 1,384 and 7,115 Friday morning to 73,336, 1,874, 13,054 so that's 13.7% more infected (that ship is a nightmare), 35.4% more dead (we knew that was coming) and 83.4% more recovered – there's a bright spot but almost 2,000 dead is certainly not. SARS killed only 744 in a much longer period of time.
At some point, investors are going to start taking this seriously, I think. 130+ S&P 500 companies have mentioned Coronavirus as affecting them somehow but only 40 guided down over the issue but now AAPL is one of them so it's making things interesting. Fortunately, in Friday morning's PSW Report (which you can subscribe to here), we shorted the index futures over the weekend and that was good for a total gain of $6,622.50 – a great way to start the week!
We're done with them for now as we expected the indexes to snap back a bit into the open (I called that in this morning's Live Member Chat Room) but we'll either look to re-load or add some more index shorts to our options portfolios later today as there's no reasn not to have protection in this volatile evironment.
Germany looks like they are heading into a Recession and now Japan is at the brink with 9 out of 14 Economists seeing the economy shrinking in Q1, after already shrinking sharply in Q4. As we were discussing last week, Japan is about 300% of their GDP in debt and if we combine that with a shrinking economy, we can get Greece 2008 on steroids.
Economists now see the virus preventing a rebound this quarter and keeping the economy in reverse. The immediate impact of the epidemic has been to stop hundreds of thousands of Chinese visitors to Japan, the biggest source of tourist income. The outbreak could also further curtail dismal spending by Japanese consumers, as they avoid crowded places after reports of some infections in Japan’s biggest cities.
Japan, in fact, had a huge jump in infections over the past week, from 28 last Wednesday to 66 this morning – that's…
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Valentine’s Day Virus – Dow has 30,000 in Site
by phil - February 14th, 2020 8:31 am
Happy Valentine's Day!
64,456 people are now infected, 1,384 are dead, 7,155 (11.1%) have recovered in the month since this virus began. There are over 8,000 people hospitalized in "serious" condition, that's almost 15% of those infected – especially if you include the dead, who were probably considered "serious" at some point as well. Still, the markets are generally ignoring not only the actual virus but the effects it is having on the global economy.
The Nasdaq is, in fact, 5% higher than it was before the virus oubreak and 7.5% higher than it was when it sold off on that news. I guess you can say it simply resumed it's climb, now up almost 20% since December because, you know, that's how the stock market works now.
Unfortunately, that's also how viruses work and I'm not going to bore you with any doom and gloom stuff other than to point out that we are heading into a 3-day weekend in the US (President's Day on Monday) and, even if we are only adding 4,000 new cases per day, that means we'll be at about 80,000 on Tuesday and around 100,000 by next Friday so I'm still very concerned about next week – as people tend to freak out about 6-digit numbers.
Last Friday, there were 31,523 (1/2) infected, 638 (1/2) dead and 30 in Singapore (1/2), 25 in Thailand (.75), 25 in Hong Kong (1/2), 25 in Japan (.86) and 24 in South Korea (.86). That's what we have to watch closely as Singapore and Hong Kong are a huge worry with a 100% gain in a week and, of course, you can see how 100,000 by next Friday is OPTIMISTIC as we're projecting a 50% slowdown from the current pace of the spread.
Even as the virus is mostly contained to Japan, the economic impact is already spreading across the globe with Germany reporting ZERO (0) GDP growth in Q4 and, due to the virus, possible NEGATIVE GDP in Q1 – pretty much a recession with 2 non-positive quarters.
"The impact from the coronavirus on the
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$10,000 Thursday – Hedging Pays off – Again!
by phil - February 13th, 2020 8:22 am
60,329 infected, 1,369 dead.
Yes, that's up 33% from YESTERDAY due to a "reclassification" of certain patients (from alive to dead?) or some would say it's the unraveling of a cover-up in China, where conditions are significantly worse than we have been led to believe by the Mainstream Media – whose primary goal is to keep us shopping at all costs...
Fortuntately, our paranioa is paying off and the Nasdaq (/NQ) hedges we suggested in yesterday morning's PSW Report (and reiterated in our Live Trading Webinar, of course) are already up over $7,000 and the S&P 500 (/ES) hedges are up $4,550 as of 7:30 AM. We'll put a stop on the set at $10,000 (3,350 on /ES and 9,550 on /NQ) to lock in those gains and we'll just add it to our CASH!!! pile because, as I said in the Webinar – I don't want to run out and buy things until next week, when we will hopefully have a clearer picture of what's going on in China.
Unfortunately, the picture we have today is NOT GOOD:
Let's just say that uptick on the chart is "disturbing" but I'm more disturbed by the very slow climb in recoveries (green) as that's a very long slope, between infection and recovery and 6,017 recovered and 1,369 dead is not the best survival percentage (81.5%). If the common flu was only 80% survivable – do you think you would change your habits? Again, I don't like to be an alarmist but no one else seemed to be alarmed this week so my concerns sounded alarmist – but I'm just being CONSERVATIVE – which I hear is quite in fashion these days…
My other concern in China, as I noted yesterday as well, is their looming debt bomb and Bloomberg picked up on my theme and wrote a good article summarizing the situation but I think this chart says it all – WORSE THAN JAPAN!
300% of their GDP is debt and half of it has been added since the Financial Crisis (10 years) so we're talking about $23…
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Worry-Free Wednesday?
by phil - February 12th, 2020 8:33 am
Not much point in even tracking the virus, which is now called Covid-19, since it doesn't seem to be able to affect the markets or, as Powell said yesterday, whatever economic damage is done, China will make it up with stimuls because – STIMULUS FIXES EVERYTHING!!! At least that seems to be the 21st Century's answer to all economic ills, why worry about anything when we can just print more money?
As you can see from the chart above, the real virus that's infecting the World is FREE MONEY and just the Big Four Central Banksters have printed $25 TRILLION in the past 10 years and you know China, India, Australia and others were not slacking off at their printing presses either. Overall, roughly 5% of the entire Global GDP for the past decade has come from Central Bank printing presses – all designed to make you think your Government is doing its job and growing the economy – even though it's really just growing the balance sheets of the Central Banks, which is really a hidden form of debt.
The non-hidden forms of debt have jumped up $50,000,000,000,000 in the past decade and that's another 5% of Global GDP added in debt each year as well so of course it FEELS like we're doing great – just like your children feel like you are doing great when you put a trip to Disneyland on the credit card – it's the time of their lives for them and you have to deal with the bills when you get home.
Of course the great thing about adding $100Tn in debt to prop up the Global Economy is that EVERYBODY's doing it and no one is paying the bill. With no responsible adults in the room, we are all partying like it's 1999 – only 150% more in debt than we were then. Japan is, in fact, over 250% of their GDP in debt so it does seem like there's no actual limit to how much debt a country can go into – as they still seem to function.
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Take Off Tuesday – Crisis, What Crisis?
by phil - February 11th, 2020 8:05 am
43,138 infected and the Nasdaq don't care.
It's more like the Nasdaq is excited about the Coronavirus. It did care for a minute, back in January but, after two whole days of going down, right back up and then one more down day to end the month but everything has been coming up roses in February, so far.
It's kind of strange as Senator Tom Cotton (R-Ark) is on CNBC right now telling viewers that this virus is a threat to our American way of life and was, in fact a Chinese Bio-Weapon that was being developed in a lab in Wuhan and he should know – because he's on the Senate Intelligence Committee (you can find that under the term "oxymoron").
You know it's true because Tom Cotton has now CHALLENGED "The Chinese" to prove him wrong and, guess what? They haven't! That's certainly guilty enough for me and you, right?
And why are we rusing to villify China for having a bug when the Swine Flu started in the US and no one accused us of doing anything other than catching a cold? Well, China is a fantastic scapegoat that plays well with the Republican base and they need a villain to rile up support in an election year and Joe Biden's son didn't work out so well, so on to China!
Blaming China gives Trump another reason to keep his Slush Fund (tariffs) going during the election year so he can hand out goodies to his pals – like Tom Cotton of Arkansas! Trump already picked Tom Cotton to head the CIA and his own party rejected the idea as too crazy – even for Trump. But that was back in 2017 – I wonder what would happen if Trump nominated him today?
Tom Cotton says we could win a war with Iran with just "two strikes, the first and the last" – like he seems to think we did in Iraq (where we still are, 17 years later). Cotton has called his potentially fellow CIA department heads "insolent and obstructive" and he KNOWS the Ukraine interfered with the 2016 election, not…
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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.