How many stock market newsletters make you $10,000 in 3 days?
Last Friday, we talked about hedges for a market correction and, as I do on occasion, I shared a trade idea from our Member Chat Room (and you can join right here) to short the Natural Gas Futures (/NGH4) saying:
In our Member Chat Room this morning, we shorted Natural Gas Futures (/NGH4) at $6.25 and Oil Futures (/CLJ4) at $102.50 but those are day hedges. We also shorted UNG (Natural Gas ETF) in Tuesday's Live Futures Trading Workshop, so those are great hedges for day-trading and short-term covers.
I also tweeted that one out (follow me here), just to make sure no one missed it.
Yesterday, we had the biggest single-day drop in Natural Gas in 5 YEARS and each one of those /NGH4 contracts made $10,000 at $5.25 while our UNG short position from Tuesday's Live Trading Webcast (and we have another one today at 1pm EST) was cashed out in that same dip in an Alert Message I sent out to our Members at 2:51pm with a 67% gain in less than a week.
This stuff isn't an accident. We spent a week discussing WHY we were going to go short on /NG, as well as how to time it (into the contract expiration) and yesterday afternoon, I said to our Members:
Interesting to see how high Nat gas will bounce into the close. It's like the end of trading places – where Eddie Murphy and Dan Aykroyd have to square up all their sells with buys.
This morning we flipped long on the new contract (/NGJ4). Today is still going to be choppy, but the point of this post isn't to give you a Natural Gas Trading Seminar, rather to emphasize why it's important to understand the FUNDAMENTALS of investing, so that you can take control of your trading and learn to "plan and act" – not "panic and react".
I also made a strong call this morning, in another Alert (no, we don't do them every day) to get back to cash, especially on short-term bullish positions. This is something I mentioned doing into last week's rally but, as you can see from Dave Fry's SPY chart, yesterday's low-volume pump and dump scheme reallly bothered me.
Of course, this was also predicted last week, which is why Friday's post was titled "5 New Trade Ideas that can Make 500% if the Market Falls" – like any good Cub Scout, we like to BE PREPARED. As usual, I gave my Fundamental reasons for taking the position and we're happy to stop out of our downside hedges if we see 3 of 5 new market highs (that hold for 2 days). Until then, what goes up MIGHT come down.
The NYSE McClellen Oscillator is a generally reliable indicator of overbought conditions and, at the moment, we're back to where we were in late December, when I also called for CASH!!!, ahead of that 100-point drop in the S&P (5.4%).
We went on a bullish buying spree when the S&P was down 100 (see our January Trade Review), because we didn't expect a big drop and we're not expecting one now, probably back to 1,750 again. So, it's not worth cashing in our Long-Term Postions but, short-term, we will likely have more fun to the bear side.
I don't get into big explanations of why we're taking positions in the morning posts – we do that in our Member Chat Room live, every day. The idea of the morning post is to give you a quick overview of what I think is worth paying attention to for the day and, as I often remind our Members – "I can only tell you what is likely to happen and what trades may profit from it, the rest is up to you."
For example, yesterday there was a note in Bloomberg about DNN (Denison Mines) possibly being a takeover target, along with several other small uranium producers. Our favorite uranium play, CCJ was mentioned as a possible buyer and there was also a note in the WSJ that Japan is moving closer to restarting their 48 closed nuclear reactors. This was inevitable (too many reasons to mention here) and this is why we were playing CCJ long-term but this news is a great upside catalyst, so my trade idea, with CCJ at $21.19, is:
CCJ Jan $20/25 bull call spread at $2, selling 2016 $17 puts for $1.80
That's a net entry cost of .30 on a $5 spread that's starting out $1.19 in the money. If CCJ just flatlines along, this trade makes $89 per $30 invested (296%) and, at $25, the trade would net back $500 on $30, for a 1,566% gain. The worst-case scenario is being assigned CCJ for net $17.30, which is an 18% discount to the current price. That's how we're going to play the news out of Japan and also a great example of all the wonderful things we can do with cash!
Come Join us for today's Live Trading Webcast (1pm) – last week we had a Futures Trading Workshop featurning Natural Gas which worked out really well. Today we're going to discuss options hedging strategies.
