Phil's Stock World
All posts from Phil's Stock World
Phil's Stock World in Phil's Stock World,

Will We Hold It Wednesday – New Highs Again?

Up and up she goes.  

Now we're watching that 6,000 line on the Nasdaq (/NQ) Futures which is up 33% in 18 months and up 40% from the lows of Jan, 2017.  We barely paused at 5,000 and didn't pull back at 5,500 but our first attempt at 6,000 was rejected and, if we call it a 1,500-point run from 4,500, then the "weak" reatracement, according to our 5% Rule™, would be back to 5,700 – and it was.

Holding the weak retracement is a sign of strength – indicicating that it's more likely we're consolidating for a move up than making a sustained move down and now we're testing 6,000 again but now we have to raise the bar and cannot accept more than a 150-point correction (5,850) to stay bullish on the Nasdaq and failing 5,700 would signal the start of a broader correction, down to 5,400 or possibly all the way to 5,000 before stabilizing.  That's why we pressed the hedges in our Short-Term Portfolio (which protects our Long-Term Portfolio) as well as our Options Opportunity Portfolio, though we still didn't find many long plays we wanted to take off the table.

That leaves us, so far, net bullish and more bullish than we thought as we "only" have about $300,000 of downside protection in our Short-Term Portfolio against a Long-Term Portfolio that gained $200,000 (17%) in the past 30 days – very aggressively bullish.  The Nasdaq is up 300 points (5%) since our last LTP review and that in itself calls for at least a 1% correction (60 points), back to 5,840 but that would then be below 5,850 – so you can see why this is such a tricky spot.  

Not much to do but see how the week plays out.  In yesterday's Live Member Chat Room, we took the money and ran on our Tesla (TSLA) short position and we added a long on Chipotle (CMG) towards the close as their sell-off has just gotten silly.  I'm not supposed to be giving away trades but this is such a juicy one I'll tell you what I said to our Members at 2:37:

"CMG Aug $370 calls are $14.30 and were $47 two weeks ago.  Those are a fun way to play for the bounce and you can also, if you are brave, sell the $360 puts for $12.30 to net into the $370s for $2 or CMG for $362 – depending which way it goes."

You're welcome, by the way, for the $600+ per contract gain from the oil short we gave you in yesterday morning's PSW Report.  In the morning report (costs $3/day to subscribe – seems worth it, right?) I said:

"The weak Dollar is also boosting commodites and Brent Oil (/BZ) is at $49.40 while Texas Oil (/CL) is $47.15 and back below the $47 line is a great place to short (with tight stops over) as Ecuador has broken ranks with OPEEC and will be pumping more oil AND, much more important, the EIA projects record US shale output in August that will add another 3.5Mb to our bloated inventories."

This stuff isn't rocket science folks – we read the papers and we make a trade – that's all there is to it!  

We'll be doing a Live Trading Webinar for our Members tomorrow including Futures Trading Techniques – I hope you can join us…  

Our other Futures trade idea in yesterday's morning Report was to short the S&P Futures (/ES) at 2,457.50 and we almost got a 10-point drop for $500 per contract profits but let's call it a 7.5-point drop for $375 per contract profits – also in just two hours "work".  Thanks to yesterday's prop job into the close, we're back to the same level and we like the same short for the same reasons watching the same check-points on the other indexes.  Again, this stuff is not complicated!

The Dollar has stopped dropping so the markets will have to find something else to support them this morning.  If it's not going to be strong earnings then surely the faith we all have in our President and Congress to steer this country correctly will…  Oh, sorry, I was laughing so hard that my coffee came out of my nose…  Anyway, Earnings better be good because our Government is a complete disaster and Europe is in a bit of turmoil and we're waiting for the Bank of Japan to make a rate decision very late tonight and the ECB goes tomorrow with Draghi speaking around 8:30 and Friday we are likely to get a TERRIBLE May Retail Sales Report (based on recent conference calls) so, really, what is there to be so bullish about?

The stronger Dollar can take the markets down, poor retail sales can take us down, low oil prices can take us down, political scandal can take us down (this is nothing so far, the investigation is just starting and you see all this smoke), poor earnings can take us down…  Lots of things can take us down and the only thing keeping us up is Free Money from the Fed (which is going to stop) and dumb money pouring into ETFs.  Have I mentioned how much I like CASH!!! lately?  If you want CASH!!!, by the way, call Reed Hastings (NFLX) – he seems to hate it, saying:

"The irony is the faster we grow, and the faster we grow owned originals, the more drawn on free cash flow that will be," Hastings said. "In some senses the negative free cash flow will be an indicator of enormous success."

See, he measures his success by how much money he loses.  By that logic, instead of being in jail, Bernie Madoff should be put in charge of Treasury, right?  Netflix is, sadly, too scary to short (and that's coming from a guy who shorted Tesla!) but we won't be able to resist as they test resistance at $200 – so we're rooting for another 10%, where we will short the crap out of them. 

Speaking of companies that will ultimately fail – there were 89 banktruptcies in the Energy Sector last year and, according to Bloomberg, we may pass that number this year and, what you have to realize about that number – is that the small, weak companies tend to go BK first – it's the next round that gets worrying and, when you see the number of bankruptcies accellerating over a long period of time – you have to be REALLY worried about the sector.  

Moody’s warned that oil and gas drillers and service providers face a debt load of $110Bn maturing by 2021.  Next year alone, the industry would have to repay $21Bn.  By 2021 this will grow to 29Bn.  What’s more, Moody’s said, 65% of that debt is speculative-grade, or junk.  If oil goes back into the low $40s, all Hell is going to break loose in the energy sector, which in turn will put pressure on our indexes and, of course, if the oil companies start going down, they might drag the banks down with them.  Fun, right?

Unfortunately, shale drillers have entered a vicious circle, succinctly described by oil analyst Michael Fitzsimmons. They boost production because they need to make money to repay their debts. This production growth fuels the global glut and pressures prices, so the drillers actually make less money than they would otherwise. Debt-servicing expenses rise, so drillers need to continue pumping more to make up for lower profit margins.

You have to be quick on your feet in this market and I'll be over at the Nasdaq this morning to discuss a few short-term trading strategies but you already have some of our Futures trading ideas above – we also do stocks and options during the day.

Be careful out there.

- Phil


Provided courtesy of Phil's Stock World.

Would you like to read up-to-date articles on the day they are posted? Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE - Not the Gambler!