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Terminal Tuesday – Markets End October at Halloween Highs

Happy Halloween!

Clearly no one is spooked about the markets as we're drifting along at the highs into the monht's end – as well as into tomorrow's Fed meeting and maybe the traders are right and there are no economic monsters under the bed or even in the closet and maybe the President isn't an uncontrollable monster but a nice orange man who is here to grant all of our wishes – like a giant Oompa Loompa...

As I mentioned last week, Keebler Elf-man Warren Buffett gave us a great reason the markets will hold up through the holidays – the promise of lower taxes but that will require the GOP to hold things together while the indictments are flying around Washington.  If the investing public gets w a whiff of fear – it could start a stampede out of equities.  Money is already flying out of oil longs as the Oil ETF (USO) recorded it's 3rd consecutive week of outflows – even as the price of oil has risen 5%, from $49 to $54.  Gasoline (UGA) has risen 10%, from $1.55 to $1.70 – oupacing oil by 100%, even as we enter the slowest time of year for demand.  

Not only does that not make sense (OPEC has been talking up oil so speculation is driving the price, not Fundamentals) but the quantity of

open orders at the NYMEX has never been higer, with 1.3 BILLION FAKE!!! orders in the front 4 months alone.  Consider how ridiculous this is when the US only imports 7Mb/d of oil so these orders, over 120 days, would deliver 10.8Mb/d to Cushing, OK alone – a terminal that can handle, at most, 50M barrels in a month.

Click for
Chart
Current Session Prior Day Opt's
Open High Low Last Time Set Chg Vol Set Op Int
Dec'17 54.16 54.18 53.75 54.06 09:09
Oct 30

 


-
0.16 152063 53.90 597839 Call Put
Jan'18 54.35 54.37 53.96 54.28 09:09
Oct 30

 


-
0.19 28075 54.09 320656 Call Put
Feb'18 54.45 54.45 54.07 54.39 09:09
Oct 30

 


-
0.21 9066 54.18 130886 Call Put
Mar'18 54.45 54.45 54.18 54.43 09:09
Oct 30

 


-
0.22 8537 54.21 254030 Call Put
Apr'18 54.30 54.46 54.17 54.43 09:09
Oct 30

 


-
0.23 7353 54.20 84852 Call Put
May'18 54.30 54.40 54.10 54.38 09:09
Oct 30

 


-
0.25 3634 54.13 61062 Call Put
Jun'18 54.25 54.28 53.96 54.24 09:09
Oct 30

 


-
0.23 7931 54.01 204539 Call Put

But Cushing is full and less than 20M barrels are actually delivered to them in the average month so the other 577,839,000 barrels worth of orders (1,000 barrels per contract) are FAKE!!!  It's a total scam – all the trading, all the hand-wringing – is nothing more than a scam used to drive up the prices you pay at the pump (see "Goldman's Global Oil Scam Passes the 50 Madoff Mark").  Notice how flat the curve is on the chart above – all the way into June it's still $54/barrel.  

In fact, oil is only $50.32 per barrel in June of 2021 (/CLM1) and all of 2020 and 2021 are under $51, in fact.  That means we can buy 597,839 June 2021 contracts now for $30,083,258,480 and sell (short) 597,839 Dec 2017 contracts (/CLX7) for $53.90 ($32,223,522,100) for a $2,140,263,620 credit and, if oil goes lower (which we expect), we will make instant money on our short contracts or, if oil goes higher, we can just roll our shorts forward to longer months, knowing that we have delivery covered at a much lower price in 4 years.  That's going to be my Trade of the Week – we'll see how it plays out.  

We also added an Ultra-Short Oil (SCO) Spread to our Options Opportunity Portfolio yesterday – that's another great way to play oil short up here and you can follow our trades right HERE on Seeking Alpha.   

Who says you can't make money in this market?  3 Tuesdays ago (10/10), we expected a 4% correction on the Russell (IWM), taking us back to 1,490 on /TF.  We tried to play it with the TZA Nov $12 calls but TZA didn't make the move we expected (too much decay) and they ended flat but the Futures shorts, from 1,515, made a nice $1,250 per contract.  

Keep in mind though, if 1,490 holds, then that's simple a strong retrace that was predicted by our 5% Rule™ and it means we're likely to see another attempt at 1,515, which is more likely to be successful this time so possibly more record highs in store – if 1,490 holds.  If not, then it's a bearish signal with a possible drop all the way to 1,440 with some support at 1,470 and 1,455 (which would be the bounce lines off 1,440) – so that's what we'll watch for.  

Also in that Tuesday's Report, I laid out our case for shorting Tesla (TSLA), which was $360 at the time and now $320 with earnings tomorrow.  This morning, in our Live Member Chat Room, we discussed the following DANGEROUS earnings play:

  • Sell 6 TSLA April $350 calls for $23 ($13,800)
  • Buy 6 TSLA April $370 puts for $65 ($39,000)
  • Sell 6 TSLA April $320 puts for $34 ($20,400) 

That nets you into the $30,000 short position for $4,800 with a $25,200 (525%) upside potential if TSLA is below the current price of $320 in April.  It's a lot of margin ($15,465 ordinary margin) and a lot of risk – if TSLA gets back to $380, you will have to pay the short caller $18,000 but we'd roll them along to higher, longer months.  Of course, if TSLA does well then maybe our oil play does well (more electric cars) and that one we can make $2Bn on!  

The markets will open up again today as HSBC upgrades Apple (AAPL) to a buy with a $193 price target.  Analyst Erwan Rambourg calls Apple a “luxury stock” on par with Louis Vuitton or Prada and notes that “Consumers are buying the spirit of the brand and the way it makes them feel about themselves and in society.”  After a month of bashing the IPhone 8 and pushing Apple's stock down into earnings, reviewers are falling over themselves to praise the IPhone X and sales will only be limited by how many AAPL can make.  

That's going to give all the indexes a pop and we'll see how the trading goes today but most likely still kind of flat into the Fed tomorrow. 

 

Provided courtesy of Phil's Stock World.

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