Now things will get interesting.
As you know, we've been making a very public call to short the Nikkei through EWJ (short at $12, using Jan $12 puts at 0.55 as well as /NKD Futures short at 18,100) and today you've officially missed your chance as the Nikkei plunged back to 17,900, down 200 points from the open on a downward-revised 2nd quarter GDP report that clearly puts the World's 3rd-largest economy in a rapidly deepening recession.
Since Japan is an EXPORT economy, that means that other people are not buying their stuff – despite the fact that the Yen is down 36% in the past 24 months and down 15% since just the end of August. That makes Japanese goods cheaper abroad and increases the amount of Yen taken in by the exporters when they sell goods in foreign currency and it's STILL not enough to pick up the sagging GDP of Japan.
That should scare people yet, strangely, it doesn't. In fact, investors have never been LESS scared – as measured by runaway Bull/Bear Ratios and a ridiculously low Volatility Index (VIX) that is somehow indicating that a Dow that has climbed 1,500 points in 60 days is NOT volatile.
I suppose, if you take the very narrow definition of volatile to be "liable to change rapidly and unpredictably, especially for the worse" then no, the market is not very volatile as it only goes up. HOWEVER, the primary definition of volatile is the one I'm worried about (probaly because my step-father was a chemist) and that one says "easily evaporated at normal temperatures." THAT is my concern about this "rally" – it could easily all vanish in a puff of smoke.
Outside of the US, the rest of the World sucks and the Global markets (see chart above) are reflecting that with a fairly flat performance for the year. Hell, the S&P would be in the same boat had not we magically been saved in October and we're still not quite sure what exactly happpend to turn our particular local markets so gung-ho bullish – outside of the generally conspiratorial theme of "Manipulation."
Still, at Philstockworld, we don't care IF the markets are manipulated as long as we are able to play along side the manipulators (legally) and that we were able to do last week when we began shorting the Nikkei at 17,900 on Thursday, catching a nice move back down to 17,750.
We set up for this trade in Tuesday's Live Webinar (replay link here) and we were in and out of the position all week, rasing our entry point each time the Nikkei gave us a higher open. My instructions for generally playing the /NKD Futures to our Members on Wednesday were:
/NKD – I have (and you'll notice I've been up at midnight commenting) as they tend to pop (so you have to have a conviction short you want to add to) at their open (8pm – 11pm) and then dip into the close (3am), so that's the best time to go short and get out. Then they tend to get jacked up again in the EU morning, where we catch a short again between 6 and 8 am. Still, it's a VERY dangerous short that can very quickly burn you for $1,000 per contract – always keep that in mind.
Notice how we were just under our 18,100 target at 10:30 last night and already, this morning, we're bouncing off our first support line at 17,900. 200 points on /NKD is $1,000 PER CONTRACT – not bad for a night's work. As I noted in Thursday's post, overall we're expecting a 900-point correction, back to 17,300, which would be good for a total of $4,500 per contract – but there's more than that to be made by getting in and out of the position than trying to ride it out.
As I mentioned above, if you are Futures challenged, you can still make nice money playing options (we have 50 Jan $12 puts on EWJ at 0.55 ($2,750) in our Short-Term Portfolio) or just a straight short on EWJ.
The next Asian market we want to short is China, with FXI now over our $42 target after yet another big day in the Shanghai Stock Exchange (up 2.8% this morning) but we're not going to stand in front of a moving train – let it slow down a bit first…
As you can see from the chart on the left, we're testing that 3,000 mark for the first time since 2011 and there have been some pretty harsh rejections up here before – that makes the shorts a good probability play but the rule changes on the Chinese markets are an X factor that makes us a little nervous jumping in – so we haven't pulled the trigger yet, tempting though it may be. Don't forget, going up 9.5% in a week is not considered volatile by today's standards – yeah, right!
Meanwhile, I'm not going to bore you with all the negative news – I already tweeted out our morning news report so you cheapskate non-subscribers can get an idea of what we do for our Members inside PSW. Our Member Portfolios (reviewed this weekend) are well up for the year and we're already mainly in CASH!!! ahead of the holidays, which are right around the corner.
One of the main reasons we like trading for a living (or a hobby) is to have a bit of extra cash so we CAN enjoy our holidays and take time off for vacations or just to be with our families. If trading is a stressful, full-time occupation for you – you are doing it wrong!
Aside from teaching our Members sensible, long-term investing strategies and Smart Portfolio Management™ techniques, we also like to teach the value of CASH!!!, which is just another way of staying flexible in uncertain markets. Traders tend to forget that cash is an asset class too, as well as a valid investing strategy – rather than feel like you are failing when you don't have a lot of positions – consider yourself in control and ready to act.
There's always going to be something to trade. Last week it was /NKD and EWJ, this week it will likely be FXI – but you're not going to miss anything if you decide not to trade at all and go and take some time for yourself and your family. Don't forget to enjoy the lifestyle you are trying to save for along the way!
