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Phil's Stock World

Daily stock picks and option trades, market analysis, and investing strategies for investors and traders of all types.

Last Build Date: Tue, 22 Aug 2017 20:46:51 +0000


Tempting Tuesday – Fools Rush Us Towards the Strong Bounce Lines

Tue, 22 Aug 2017 12:47:45 +0000

(image) We're getting there.

The S&P 500 Futures (/ES) are only at 2,431.50 at 7:49 and yesterday, in our PSW Morning Report, we predicted a weak bounce to 2,430 while the strong bounce line is still 0.5% away at 2,442.50 and, if we don't get over the strong bounce line today, odds are this has just been the pause that refreshes for the bears, who are consolidating above -2.5% line (2,418) for a proper break-down – but we still have faith as those dip-buyers are well-trained, aren't they?

We haven't made any bearish bets yet but we'd love to see 5,850 tested on the Nasdaq, but it's not likely we get that high today.  Nor is 1,377.50 likely on the Russell but the Dow (/YM) is over its strong bounce line at 21,670 and failing that line will be the signal we're looking for to add some shorts to the indexes.  These are the handy charts I made for our Members in yesterday's Live Chat Room:


The S&P Chart was already posted in the Morning Report and let's not give the Dow too much credit as we were looking to confirm a more bearish channel, from 22,000 to 21,450 (-2.5%) but, in reality, the drop was only from 22,100 to 21,600, which is 500 points so our 5% Rule™ says to expect 100-point bounces to 21,700 and 21,800.  The 22,670 line confirms that the Dow is failing within a longer-term, weaker trend we believe is in progress.  The short story is, the Dow has to hit 21,800 before we consider it in proper recovery.  

(image) If you want an upside hedge right away, try the Nikkei (/NKD) which tested a major bottom at 19,300.  Once they cross over 19,400, that line can be used for a bullish bet with tight stops below 19,400 and, of course, the Nikkei loves a strong Dollar (good for exports), and the Dollar is nice and low in its channel at 93.35 so a higher Dollar gives us a greenlight on that bounce play.  

With the Nikkei falling from 20,300, a 5% pullback takes them to 19,285 and the low was actually 19,265, so a bit of an overshoot

Monday Market Momentum – Halfway to 5%

Mon, 21 Aug 2017 11:17:20 +0000

(image) Well, you can't say I didn't tell you so.

Back on Aug 3rd our PSW Morning Report was titled: "Thursday Market Folly – You Need an AAPL a Day to Maintain Dow 22,000" and we began looking for AT LEAST a 500-point (2.5%) correction in the Dow as well as a 2.5% correction in the other indexes.  My logic was that, without some market-moving stock like Apple (AAPL) pushing up every day, at this point we'd have a tendency to drift lower.  We went over the monetary physics of the problem in this weekend's PSW August Portfolio Review as well.

(image) As we approach year 4 (11/26) for our paired Long-Term/Short-Term Porfolios, we are well on track to making 40% compounded gains off our original $600,000 investment, which should take us to $2.3M but next year – to make another 40%, we need $922,000.  This is not a sustainable model because the economy isn't growing at a 40% pace yet the broad market is not that far behind us, having turned S&P 666 in 2009 to S&P 2,450 in 2017 – up 267% in 8 years which is a straight average of 33.37% a year.

If the US market cap is now $85Tn, then a 20% gain requires $17Tn – that is just shy of the US's entire $18.5Tn GDP that needs to go into the stock market, just to feed a significant slowdown in growth.  The market has become too big to succeed and that is why it's a bubble – we simply don't have the economy to feed such a beast!  

The net effect is that every market misstep is now magnified and we're already seeing that as individual earnings reports are routinely sending companies down 10-25% if they displease.  That's why I said in that 8/3 Report, to stay away from Tesla (TSLA), who are back below $350 and to buy Copper (/HG) instead, along with "Graphite, Nickel, Aluminum, Lithium, Cobalt and Manganese – that's what electric cars are made of."  As you can see, copper has done well this month, adding 0.12 at $250 per penny, per contract and that's good for a gain of $3,000 per contract playing the better hedge of…

TGIF – Market Ends Week on a Rough Note

Fri, 18 Aug 2017 12:33:02 +0000

(image) Wheeee – this is fun!  

As you can see from JackDamn's index chart, the Russell Small Caps have now given up ALL of their gains for the year and, even a little bit lower and we won't be looking at a small correction anymore.  Generally, we like to "short the laggard" – or the index that has fallen the least but the Nasdaq is a strange animal and all of it's outperforming gains are due to Apple (AAPL) - and we think AAPL deserves to be at $160, so we don't see it as particularly overpriced compared to the Dow or S&P, though there are certain components in the Nasdaq (AMZN, NFLX, TSLA) that have ridiculous values and those may correct and drag the index down with them.  

As you are well aware, we've been discussing options hedges and futures shorts all month so I hope you enjoyed yesteray's dip as much as we did.  Our two key shorts in our portfolios are the Ultra-Short Russell ETF (TZA) and the Ultra-Short Nasdaq ETF (SQQQ) and the Nasdaq is 4.5% off the top and the Russell is 7% off.  By the way, we have the SQQQ hedges, not because we thought the Nasdaq would drop more but because our biggest long position is AAPL – so it gave us the best protection to lock in our gains.  

In fact, we just did a review of our Options Opportunity Portfolio, which is up an impressive 211% as of our two-year anniversary (8/8/15 was our start date with $100,000) and it is, by far, the best-performing portfolio in the Seeking Alpha Marketplace.  That portfolio has the following AAPL position that, if successful will, by itself, make us $180,000 by Jan 2019.  


Our net entry on the trade was a $5,600 credit, mostly in June and, though the short puts obligate us to buy 2,000 shares of AAPL for $130 ($260,000), which would use $130,000 of ordinary margin, AAPL is already far enough out of the money where the net margin requirement in the short puts is just $20,000 – so it's a non-issue in our now $311,000 portfolio.  


Faltering Thursday – CEOs Quit Trump, Markets Start Noticing the Mess

Thu, 17 Aug 2017 12:31:31 +0000

(image) Wow, that was a fun day!  

After bragging about how easy it would be to replace departing CEOs, Trump ended up disbanding what was left of his Business Council as we finally found a group of people in America with the backbone to stand up to the President.  From our point of view, we don't care what news brought the market down, as long as the market goes down and, once again, our index shorts were big winners.  In fact, we made almost $1,000 for our Members in just over an hour during our Live Trading Webinar alone (you're welcome!). 

Our 5:49am call to short the Futures was linked pre-market in yesterday morning's PSW Report and now would be a good time to review the calls after the fact, so we can get an idea of how our 5% Rule™ operates in the wild:

The Dow had a 400-point run (1.8%) to 22,050 so 80-points back is 21,970 and then all the way back to 21,890 but I'm only expecting a weak retrace for now.  


As you can see, we pretty much nailed 21,970 (weak retrace).  90-pont drop from 22,000 (our shorting line) was good for gains of $450 per contract.

/ES had a 30-point run to 2,470 and that's 6-points back to 2,463 and then 2,457 if it's so inclined to fill that gap.  


Again we have the weak retrace and a 10-point dop on the S&P Futures (/ES) is good for gains of $500/contract.  What we're looking for…