In perfect isolation here behind my wall
Waiting for the worms to come – Pink Floyd
We're going to skip all the socio-economic commentary while we wait for our beloved Central Banksters to make their statement at 2pm, followed by The Bernank's penultimate press conference this afternoon at 2:30, followed by wild market gyrations that, likely as not, will all reverse themselves by next Tuesday, when all of this will be forgotten and we're off to specualte about the next Fed meeting (Jan 29) and what they might say.
We haven't had a meeting since October 30th, when the market was topping on near-certainty the Fed would not be tapering and they only talked about it very briefly. First the S&P dropped from 1,772 to 1,755 on Nov 1st, but then we jumped back to 1,772 on the 6th, all the way down to 1,747 on the 7th and up and up and up for 6 of the next 7 sessions – all the way to 1,800, which is, of course, the 12.5% line on our Big Chart (ie – a normal "overshoot" of the 10% run from 1,600).
We had a bit of a pullback since, but still haven't re-tested 1,760 though we know the pattern and, in Monday's "Bouncy Pre-Fed Edition," during Member Chat we laid out our expected bounce levels for the indexes into the Fed meeting, which were (and still are):
- Dow 16,100 to 15,750 is 350 points so 70 more is 15,820 weak and 16,000 strong (rounding)
- S&P 1,810 to 1,775 is 35 points (hmm, computers synching much?) and 7 more is 1,782 weak and 1,790 strong
- Nasdaq 4,075 to 4,000 is 75 points and 15 more is 4,015 weak and 4,030 strong
- NYSE 10,200 to 9,950 is 250 points and 50 more is 10,000 weak and 10,050 strong
- RUT 1,140 to 1,100 is 40 points and 8 more is 1,108 weak and 1,116 strong.
It should be noted that the Russell Futures are right on the 1,116 line, so we're not overly impressed just yet. In general, we need to see 3 of 5 of our STRONG bounce levels taken back in less time than it took to fall (2 days) so this is, so far, a fail but (and it's a Big But) the Fed is a huge wild-card – you never know what those crazy MoFos are going to do!
As I keep saying, though, we're in CASH, so we don't care, but you guys pay me to come up with trade ideas and we're already very bearish in our Short-Term Portfolio because, given the 50/50 outcome of the Fed Meeting, there is overhead resistance from our Strong Bounce lines but, to the downside, we can make some VERY SERIOUS MONEY – so it's simply more fun to play the downside at the moment – clear?
IFF, however, the Fed comes through and changes the right 11 words since their last statement to take the market back over Dow 16,000, S&P 1,800, Nasdaq 4,000, NYSE 10,000 and RUT 1,100 (ALL 5), THEN we need to bite out tongues and go with the bullish flow until 3 of 5 of them break down again (maybe never?). So, with that in mind, we made another round of bullish picks yesterday and I discussed a couple of them in detail during yesterday's Webcast (replay available here) and today, at Noon (12 EST), we will be doing a Special Webcast of our "Top 5 Macro Picks for 2014," which brings us to today's topic. Picking up from where we left off yesterday:
Yesterday we looked at some commodity plays, some dividend plays as well as reviewing our "5 MORE Trade Ideas That Can Make 500% in an Up Market," which gave us the idea to press our bet on T in yesterday's Webcast, so that trade is officially added to the Webinar's model Long-Term Portfolio. So was CLF (one of our commodity ideas). I did promise 5 ideas though, so let's press on.
We left off with Real Estate/Financial and I almost included Sears (SHLD) in that group as they have more value as a real estate play than they do as a Big Box Retailer in decline. Still, we'll call this section the Consumer Group with AAPL ($555), BKW ($21.30), CMCSA ($49.05), FTR ($4.78, 8.7% dividend), GILD ($70.80, it's our only Pharma), SHLD ($44.45) and SO ($40.31, 4.8% dividend). All are fine companies but our top 4 are:
- Buying AAPL (last year's pick of the year) 2015 $500/650 bull call spread for $44.30, selling 2016 $400 puts for $30 for net $14.30 on the $150 spread for a 949% upside if AAPL makes the $650 goal and holds it to expiration. I guess this will be our pick of the year again!
- Buying FTR for $4.78, selling 2015 $4 calls for .90 and selling 2015 $4.50 puts for .55 for net $3.33/3.92
- Selling GLD 2016 $55 puts for $7.50 for a net $47.50 entry ($5.60 in net margin)
- Buying SHLD 2015 $40/55 bull call spread for $5.50, selling 2016 $30 puts for $6.65, for net credit of $1.15.
AAPL, of course, blows the curve on our $10,000 allocations but we could swing 1,500 shares of FTR, 4 short contracts on GLD and let's call SHLD 5 contracts as it's also so cheap down here. With AAPL, you can go for one contract and that's still net $41,430 if assigned, gobbling up $20,000 worth of buying power but, if you're going to own one big stock, AAPL is the one. Otherwise, AAPL trades Mini contracts, that have the same prices but trade in blocks of 10, rather than 100 so you can trade each contract and be obligated to own just $4,130 of AAPL per unit against the potential $1,357 upside at $650 (at least 64% on margin allocation).
As we are now approaching the opening bell, we're going to wrap up with our remaining trade ideas (we like all these stocks for next year – providing our levels are holding – of course, we're simply working our way down to our favorites) by kitchen-sinking the remaining ones: BKW ($21.31), DE ($88.30), F ($16.70), IRBT ($34.80), PBR ($13.53) and TITN ($15.41). Let me know if I missed any, but I think that covers it. Of this group, I have to go with IRBT, as it's our stock of the Century but it also eally took off since I picked it yesterday morning:
- Buying F 2016 $13/20 bull call spread at $2.65, selling 2016 $15 puts for $2.60 for net .05 on the $7 spread (13,900% of upside at $20).
- Selling IRBT June $30 puts for $2.50 for a net $27.50 entry (21% off).
- Buying PBR 2015 $13/20 bull call spread at $1.85, selling $13 puts for $1.80 for net .05 on the $7 spread (13,900% upside at $20).
- Buying TITN June $12.50/17.50 bull call spread for $2.20, selling $15 puts for $1.70 for net .50 on the $5 spread (900% upside on cash at $17.50 in June).
Wow, two 13,900% trade ideas in the same group. And at the same strikes – very interesting. Well, tune in later and we'll see who makes the final cut but, keep in mind, I'm not very interested in picking these up until AFTER New Year's. Allocation-wise, we could commit to 5 contracts on all 4 as they are all in the teens.
See you later,
– Phil
