Toppy Tuesday – Trouble at 2,950 – Again
At least it's not 2,800.
The S&P is back up 150 points from our DOOM!!! line, which didn't turn out to be very doomy when we failed it27 days ago. In fact, we bottomed out at 2,740 and now we're up 210 points (7.66%) and we tested 2,860 and failed that but never came close to the +15% line at 2,990. 2,925 is the +12.5% line so we'll keep an eye on that but if the Russell (/RTY) can't get back over 1,550 – there's really nothing to be bullish about.
7,750 on the Nasdaq (/NQ) and 26,800 on the Dow (/YM) are the other lines to watch and we've made good money – over and over again – shorting the Dow Futures at that spot. We got some good market news this morning as AbbVie (ABBV) is buying Allergan (AGN) for $63Bn, which is 50% over yesterday's closing price. When investors see one deal like that, they assume the whole sector is undervalued. ABBV may be overpaying as AGN only has $15Bn in revenues and has lost money consistently and is a bit of a one-trick pony with Botox, which is more than half their total sales but they were supposed to turn things around this year and they did make $2.5Bn last quarter ($5Bn profit projected for 2019) – so I guess they saw something others did not in their due diligence.
Meanwhile, tensions with Iran continue to heat up as Iran's President Hassan Rouhani called the White House “mentally retarded,” dismissing the Trump administration’s latest round of economic sanctions as pointless and declaring that Iran would not be intimidated. Rouhani’s personal attacks on Trump are especially significant. In the context of the Iranian political system, Rouhani is regarded as a moderate who is relatively open to negotiations with Washington, and the insults from Rouhani further diminish the already-remote prospects of talks between the two sides.
Oil (/CL) is hovering around $57.50, which is up 15% for the month so you can thank President Trump when you fill up your gas tank next week. Gasoline (/RB) is at $1.86 and that's up 12% – so far and we may see $2 for the July 4th weekend at this rate. Of course that's right on target for the trade idea from our June 19th PSW Morning Report, where we said:
Speaking of justifications,OPEC is acquiescing to Russia's demands to move their meeting to July 1-2 in Viennaand OPEC will do ANYTHING to get the Russians to join them in cutting production – just in time to screw American drivers over the July 4th Holiday. If you believe in OPEC+, you can play the September Gasoline Futures (/RBU19) long off the $1.65 line ($1.62 has been the lows so I'd plan to DD there for a $1.635 avg and stop below $1.60) or you can play the Gasoling ETF (UGA) and I'd go with:
Sell 10 UGA July $28 puts for $1.40 ($1,400)
Buy 20 UGA July $27 calls for $1.70 ($3,400)
Sell 20 UGA July $29 calls for 0.75 ($1,500) That's net $500 on the $4,000 spread so $3,500 (700%) profit potential in just 30 days and your worst-case scenario is ending up long 1,000 shares of UGA at net $28.50 (assuming your spread is wiped out). Trump wants the Dollar weaker, which is also good for Oil and Gasoline prices and OPEC certainly wants Oil higher and Tesla (TSLA) may collapse soon as Q2 deliveries end up disappointing people after all – all possible positives for UGA.
UGA is already at $29.75 so we're on our way to thefull 700% gainwith 24 days to go (you're welcome) and those /RBU19 Futures have blasted up to $1.78, which is up 0.13 and Gasoline Futures pay $420 per penny, per contract – so we're talking about$5,460 PER CONTRACT gainssince last Wednesday – not bad for a week's "work"!
Or, you could have just played the Gasoline ETF (UGA) long at $26.75 last week and you'd be up $2 (7.5%) so for $26,750 you could have made $2,000 or you could have used $4,620 per contract of margin on an /RB contract and made $5,460 or you could have used $500 in cash and $4,214 in margin on the option spread to make (so far) net $1,400 – THAT is why we teach our Members how to play the Futures – it's a very valuable tool to have in your trading toolbox!
Meanwhile, at net $1,400, that UGA play still pays $3,000 if all goes well through July 19th so still a gain of $1,600 (114%) to be had – even if you were slow to join the party (but the path looks more certain now as a trade-off). There are lots of ways to make very nice returns in the market – even a crazy, rumor-driven market like this one. The Iran situation was a bonus for Gasoline Bulls – we still have that OPEC meeting coming up.
Also coming up today is a speech by Fed Chair Powell at 1pm, just 24 hours after President Trump accused him of behaving like a "stubborn child" in refusing to lower interest rates. Traders are now pricing in a 100% chance of a July reduction in the Fed Funds rate, and a 73.3% of two more cuts between now and the end of the year, so the only thing Powell can do in this speech is disappoint so, once again, we'll be looking to short the Dow (/YM) on any cross under the 26,800 line – with very tight stops above.
Watch for the Dollar to bounce off the 95.50 line and put some downward pressure on stocks and commodities unless Powell and other Fed speakers, come up with new ways to describe how doveish they can be.
Be careful out there!