"Down in the pleasure centre,
hell bent or heaven sent,
listen to the propaganda,
listen to the latest slander.
Pump it up until you can feel it.
Pump it up when you don't really need it." –Elvis
S&P 2,728 again – they can't keep us over it but they won't let us go under it either.
Today marks two weeks at the strong bounce line and an optimist would say we're consolidating for a move up but a pragmatist would say this is all being done on low-volume BS pump jobs that are faking market highs by holding up the headline stocks while the broad market sells off – leaving the retail suckers holding the bag when the bottom ultimately falls out.
Notice how, nearly every day, we hit a high early in the day and then sell off? That's how you catch big game fish, you give them a little line and then you reel them in and then give them a little line and reel them in again – over and over until they are exhausted and you can haul them onto the boat and gut them and have them for dinner. That's what's happening to Retail Investors at the moment and the Top 1% are baiting the hooks.
Yesterday the market blasted higher on the release of the Fed Minutes, which didn't really say much other than the addition of the word "symmetric" but it was used in regards to INFLATION, not rates. Here's the context of the statement that got the market "so excited" yesterday afternoon:
"Participants generally expected that further gradual increases in the target range for the federal funds rate would be consistent with solid expansion of economic activity, strong labor market conditions, and inflation near the Committee'ssymmetric2 percent objective over the medium term. Participants generally viewed the risks to the economic outlook to be roughly balanced."
Now, keep in mind this a 5-minute chart so it took less than 5 minutes of reading the minutes for traders (bots) to decide that the minutes were doveish and blast the market higher – with the S&P gaining a quick 1% on a volume spike that lasted all of 5 minutes, followed by another volume spike right into the close to max us out at 4pm – to give the global retail suckers the impression that all is well in US equities.
If you want to see something really entertaining, check out the replay of our Live Trading Webinar, where my Nasdaq Futures (/NQ) shorts got crushed in the rally and I stubbornly stuck with them on the way up, scaling in to a larger position and, eventually,a $2,000 loss. Fortunately, we hung onto them overnight and theyended up making $2,000+as the Nasdaq dipped overnight - but it was a rough ride for a while!
There's another chance to short the Nasdaq (/NQ) this morning at 6,950 but let our rough ride yesterday be a cautiouary tale – they don't always go your way so use very tight stops above the line if you don't intend to scale in to a larger position (which can get very expensive, very quickly – as demonstrated!).
Of course, this is still just the same Nasdaq shorting cycle we began last week at 7,000 and we already took a $2,000 per contract profit off the table last Wednesday and again from Tuesday's call to short the Nas at 6,950, which made usanother $2,000 per contract profityesterday morning. So you'll have to forgive me for triple-dipping on the Nasdaq but it's our intention to keep shorting it until we get back to our 6,500 target – and that's still $9,000 away!
Remember – I can only tell you what is likely to happen in the markets and how to profit from it – the rest is up to you!
Of course we use our Futures trades as hedges, which is why we prefer short entries to long. On the long side, we have many robustly bullish plays in our 5 Member Portfolios and they make TONS of money when the market goes higher – far more than enough to offset a $2,000 loss – if it were to stick. As noted yesteray, our main, paired LTP/STP gained $12,997 for in the first two days of the week (the LTP had $500,000 in 1/2 and the STP had $100,000 to hedge against it) so it was that gain we were looking to lock in by shorting the Futures as they popped.
It's still all about the NYSE and whether it's over or under that 12,800 line but I remember a time when the Dow and the NYSE would run completely neck and neck. That has gone completely out the Window as the headline index has been jammed 17% higher since Donald Trump was put in power by the USSR so thank you Putin – I guess…
The NYSE is right where we expected the market to be given that tax cuts, repatriation of capital and buybacks that have boosted the indexes over the past year plus. On the other hand, the Dow is silly and the Nasdaq is sillier and we're back to a 1998/1999 market, where Fundamentals don't matter (for now) and people are paying ridiculous forward multiples for stocks in the belief that this party is never going to stop and there's no piper to be paid. Is this time different? Don't bet on it!
What we can bet on is our Trade of the Year on Limited Brands (LB), which is taking a hit today as guidance was brought down to the $2.70-$3.00 per share for 2018, which we knew was going to be a rebuilding year. Here's how we're playing it from our Live Member Chat Room last night:
LB – Oh no, they will only earn $2.70 per $34 share?!? Why God, why???? Holy crap people, the reason we like them is because people are idiots and don't know how to value a company – don't go run and join them as soon as we hit a bump in the road!
Same with GE, back at $14 again, where it's a screaming buy.
These are INITIALLY 2-year trades and sure, it would be great if, like THC or IMAX or SPWR or VRX or CMG they took off in the first Q and blew through our targets without any trouble but it would be juvenile to expect that to happen every time – as much so as it would be completely irrational and ignorant of the working of Finance to think that it's easy to make 300% returns on trades just because that's your opening ask when you set up a spread.
If it were that easy – then the premiums would be such that we'd only be able to get 20-40% initially, since the odds so strongly favored a winning outcome.
We're down net $11,000 on our LB position in the LTP, worse tomorrow and it looks like this:
Currently it's a $30,000 spread and is currently valued at $4,725. At $2.70 per share, let's say they are worth 14x so $37.80 and at least 12x so $32.40 is very fair (on low end of guidance with each 0.10 beat adding $1.20) for Jan 2020. Since our calls are $30s, it doesn't make sense to stay in for $32.50 so we have to decide whether to fold with a $15,000 (guessing) total loss tomorrow and lose 1/3 of a $50,000 allocation block which we can easily make back if we have a 1/4 investment ($12,500) that does make 300% – so one winner wipes out 3 losers.
Or we can spend $5 to roll the $30 calls to the $20 calls ($15,000) and buy out the 15 short $40 calls for $2.50 ($3,750) and then sell 20 of the $35 calls for $4.50 ($9,000) so we've spent net $9,750 to be in the 2020 $20/35 bull call spread with the short $37.50 puts. Since we think it's ridiculously low, we could sell 15 more of the $30 puts for $6 ($9,000) and then we're back to our original $11,000 loss on the $45,000 position that's $36,000 in the money at $32 and, since we still have 10 calls uncovered, we can begin selling 10 July $35s for $1 ($1,000) and, if we do that 10 times, we erase $10,000 in cost and drop our net on the $45,000 spread back to $11,000.
Yes, we have to work at it and yes, we're committing $20,000 to make $45,000 instead of $11,000 to make $30,000 we originally hoped for but now we have a wider spread that's 90% in the money with a very good chance of success and a in a good position to generate a bi-monthly income while we wait.
This is not a flaw in the strategy – IT'S THE DESIGN!
As a new spread, that would be:
- Buy 30 LB 2020 $20 calls for $6 ($18,000)
- Sell 20 LB 2020 $35 calls for $4 ($8,000)
- Sell 15 LB 2020 $30 puts for $6 ($9,000)
That would be a net $1,000 CREDIT on the $45,000 spread so the upside potential is $46,000 at $35 and 33% of your gains aren't even capped (but it is our intention to sell some short calls as they recover). The ordinary margin on 15 short $30 puts is about $5,000, so this is a very margin-efficient way to make $46,000 and, since it's our Trade of the Year, if you sign up for a newPSW Annual Premium Membership ($9,995)by May 31st and this trade doesn't return more than $10,000 by May 31st of next year (or your renewal date) - I will give you another year for free! You don't even have to make the trade – just subscribe (and stay, of course), so you either pay for the year with profits from the trade or you get two years for the price of one.
How's that for a trial?