Weakening Wednesday – We Are Loving Our CASH!

Sharing is Caring!

by Phil

Don’t say I didn’t tell you so…

If you don’t cash out when the markets are making silly highs then you end up having to scramble like an idiot to cash out when everyone is panicking and you get MUCH WORSE PRICES for your stocks and options.  The same thing goes with hedging – as it’s MUCH CHEAPER to hedge when the market is going up and no one thinks it’s going to fall.  You have to have a bit of contrarian in you if you want to learn to be a good investor, following the herd all the time just makes you one of the sheeple.

The wolves who read yesterday’s PSW Morning Report not only picked up the $2,000 per contract-winning Nasdaq (/NQ) short but also $500 per contract gains on the Oil (/CL) and $500 per contract on the S&P (/ES) (and, if you’d like to get these trade ideas pre-market, you can SUBSCRIBE HERE) based on these very simple instructions:

Since the Dollar has been holding things up, today is a good day to short Oil Futures (/CL) at $72.50 for a quick dip but get out before the API report this evening.  We’re just looking for a quick win with VERY TIGHT STOPS above the $72.50 line.  The whole key to trading the Futures is having a good backstop so you can limit your losses.  6,950 on the Nasdaq (/NQ) is also a good line and 2,740 on the S&P (/ES) makes a good stop line with shorting below as we’re at 2,738 this morning and it’s my contention that 20 points of that is due to the Dollar so we’ll look for at least a 10-point drop, to test the strong bounce line at 2,728 again – and that’s up $500 per contract against the $100 risk at this level.

This morning, we’re way down at 2,708 and that’s a 30-point drop on the S&P at $50 per point, per contract so $1,500 gains if you stuck with that hedge overnight.  In addition to those pre-market plays, we also picked up shorts on the Russell (/TF) and we double-dipped on Oil (/CL) later in the session.  All in all, it was a great Tuesday and now an epic Wednesday for our Futures Trading and the great thing about Futures is you can get right back to CASH!!! and go get yourself a nice, relaxing breakfast without worrying about what the markets are doing.

Do you know how many times I said CASH!!! in the past two weeks?  Seventeen (17) times I said it was a good time to get back to CASH!!! (18) and walk away from this silly market.  I have said that my kids’ college accounts are in CASH!!! (19) and even our Hedge Fund is 90% in CASH!! (20!) and, of course, we just did a review of our 5 Member Portfolios and, guess what – mostly cash!  (only one !, doesn’t count).

I can only tell you what the market is likely to do and beat your head in with the cash club telling you to protect your capital – the rest is up to you!  

Today’s excuse for a sell-off is the off-again trade agreement with China and also the North Korea deal seems to be falling apart (along with Trump’s Presidency) and, of course, Italy, the World’s 9th largets economy ($1.9Tn) is imploding but MAINLY, it’s the Dollar, which popped back to 94 against that macro mess and pushed the price of everything else lower – except Gold (/YG) which popped into the panic and Natural Gas (/NG), which could care less what the rest of the World is doing as the LNG Future is finally here (something else we’ve been banging the table on for ages).

See also  Possible Long Track Derecho & Tornadoes Wednesday for MN, WI, NE IA, N IL, IN, MI, OH

In fact, the Natuarl Gas ETF (UNG) was our Trade of the Year in 2016 but we cashed that out a month early in December, when it spiked back to our goal after a very disappointing fall – so we didn’t want to risk the holidays.  Since then, we’ve been staying away from UNG but Chesapeak Energy (CHK) was a 2018 Trade of the Year Finalist back on Nov 28th, when they were down at $3.81.  We CASHED (doesn’t count) out of our Portfolios in December but, in our new Member Portfolios this January, CHK was one of our first ads and, in our Options Opportunity Portfolio, the trade looks like this:

Long Call 2020 17-JAN 3.00 CALL [CHK @ $4.54 $0.00] 25 1/8/2018 (604) $4,500 $1.80 $0.43 n/a     $2.23 $-0.08 $1,075 23.9% $5,575
Short Call 2020 17-JAN 5.00 CALL [CHK @ $4.54 $0.00] -25 1/8/2018 (604) $-2,375 $0.95 $0.43     $1.38 $-0.06 $-1,063 -44.7% $-3,438
Short Put 2020 17-JAN 4.00 PUT [CHK @ $4.54 $0.00] -25 1/8/2018 (604) $-3,000 $1.20 $-0.20     $1.00 $0.06 $500 16.7% $-2,500

We’re only up $512 from our net $875 credit entry (58%) but that’s NOTHING as this spread will pay $5,000 if CHK is over $5 in Jan of 2020 so there’s a potential additional $5,363 (1,477%) from the current $363 credit balance that you can make towards the cost of a PSW subscription on this trade idea if you’d like.

Our other Trade of the Year finalists are all doing well.  They were Macy’s (M), General Electric (GE), Cleveland Cliffs (CLF), Chipotle (CMG) and Hanes Brand (HBI), which took the place of our Limited Brands (LB) pick because LB had already taken off by November but now both of those retailers are cheap again with 20 months left to trade.

Short Call 2020 17-JAN 23.00 CALL [HBI @ $18.23 $0.00] -10 3/15/2018 (604) $-2,100 $2.10 $-1.03 n/a     $1.08 $-0.05 $1,025 48.8% $-1,075
Short Put 2020 17-JAN 18.00 PUT [HBI @ $18.23 $0.00] -5 3/15/2018 (604) $-1,300 $2.60 $-0.05     $2.55 $-0.00 $25 1.9% $-1,275
Long Call 2020 17-JAN 15.00 CALL [HBI @ $18.23 $0.00] 10 5/1/2018 (604) $4,000 $4.00 $0.40     $4.40 $-0.07 $400 10.0% $4,400

All of those trade ideas, of course, found their way into our Member Portfolios – there’s not one we don’t have at the moment, which is why we’re not in the least bit concerned about a little dip like this one.  Today’s pullback is nothing and is as likely to be reversed this afternoon as it is to continue lower (depending on the Fed minutes).  Though we did not cash out our teaching portfolio, we do have them locked down with hedges and, in fact, our paired Long-Term ($500,000) and Short-Term ($100,000) Portfolios, which began the year at $600,000 and were at $773,776 (up 28.9%) as of Friday’s close, closed yesterday at $786,773 – up another $12,997 (2.1%) for the week – as we are tilted slightly bearish and yesterday was a very good day for us.

Image result for market sentiment cycleThat’s how we can relax and have fun while the market stampedes the sheeple in and out of positions.  When you learn how to properly hedge your portfolio, you remain balanced as the market goes through it’s gyrations and, because you have CASH!!! (21) when you need it – you are able to buy when things are cheap and sell when things get expensive.  THAT is how you learn to consistently win in the markets! 

See also  Possible Long Track Derecho & Tornadoes Wednesday for MN, WI, NE IA, N IL, IN, MI, OH

By the way, notice how this market sentiment chart is exactly the same as this week’s Dollar chart?  Interesting…

People are predictable so markets are predictable and, even more so, Robots are predictable and my Father wrote early versions of the trading programs the banks use to this day.  That’s where our Fabulous 5% Rule™ comes from – my own observations of how the various “unique” trading programs tend to behave once they get out in the wild.  The more we have a bot-driven market (over 80% these days) the better our 5% Rule™ performs.   That’s why we’re able to tell you what the Futures are going to do before they do it and why we’re so good at picking trading ranges.

Of course, none of that is worth a damn if we don’t pay attention to the underlying Fundaments but, fortunately, my Grandpa Max was a Warren Buffet style Fundamental Trader or, more accurately, Warren Buffett is a Max Davis style trader as Grandpa Max was making his first fortune selling dresses door to door in the Depression, at 27, by the time Buffett was born (1930).  I learned to invest on my Grandfather’s lap and both of us were always dubious of these new-fangled trading computers my Dad was working on but, to me, they are just another predictable sheep we can stalk and exploit whenever we’re hungry!

As you know, we are still trading in the same predicted ranges we discussed last Tuesday (and dozens of Tuesdays before that!) and it’s the NYSE that we need to watch closely as it will give us a very clear bull or bear indicator as it moves around the Must Hold line at 12,800 – which it failed yesterday (12,766).

As I said last Tuesday:

If the NYSE is below 12,800, then bearish bets make the most sense and, when it’s over, we can get a bit more hopefully bullish but the trend is not our friend the longer 12,800 acts as overhead resistance.  When the NYSE is lagging, it indicates the other indexes are not broadly rallying, which means those rallies can be very, very fragile.  Of course, if the Dollar keeps going up (global tensions), then commodities might collapse and that’s been the NYSE and the S&Ps best sectors so – oops!

Understanding these relationships and understanding the channels the indexes (and stocks) tend to move in is the key to making short-term money in the market.  Generally, we’re long-term, Fundamental Investors and we don’t really care about this nonsense but, while we are waiting for our long bets to pay off – we like to have fun betting against the suckers who think the market is about to make a new high – or a new low.  Usually, it doesn’t so we place our bets on those lines with tight stops if they break and that keeps our risk low while our rewards can be very, very high.  See – easy!



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