Checkmate, don't be late
Take another pull
That's right impossible
When you got to be yourself
You're the boss of the toss
The dice, the price
Grab yourself a slice
Know where to draw the line – Aerosmith
That 2,100 line is shaping up to be quite the battleground.
Both bulls and bears are annoyed at the failures the S&P has had right at this mark and now the 50-day moving average threatens to death cross under the 200-day moving avergage right at this point of contention, which would tip the scales firmly in the bears favor so all stops are going to be pulled out this week for a big finish. Will it be enough to pull the 50 dma off it's collision course with the 200? It's all very exciting stuff…
This morning the markets are being propped up, as the often are, by a 1% drop in the Dollar, back to 97.50 and we'll see if they can make that stick but it should be bouncy based on yesterday's statement by Fed Gov Lockhart, who said yesterday that "there's a high bar for not acting in Sept," indicating rate hikes are coming sooner than later. That knocked us down yesterday and, of course, we turned that into an opportunity and I said to our Members (2:37):
Good reason to take a long poke on /TF at 1,225 and /RB at $1.685 and /CL at $45.50 and /SI at $14.50 – all with tight stops below.
We've had a great run since and the Russell (/TF) Futures are already at 1,235 for $1,000 per contract gains, Gasoline (/RB) is at $170.5 for +$840 per contract, Oil (/CL) is at $46.25 for $750 per contract gains and Silver (/SI) is at $14.58 and that's up $400 per contract. Understanding the relationship between the Dollar and stocks and commodities is the key to good Futures trading – as is knowing Fed BS when you hear it…
So we're done being bullish and now, expecting a Dollar bounce off 97.50 until the next statement, we're back to playing the S&P Futures (/ES) to fail at 2,100 and Nasdaq (/NQ) short at 4,600 and we'll watch the Russell (/TF) below 1,235 and the Dow (/YM) at 17,600 to confirm weakness and stay bearish and very tight stops over the lines – in case we move a bit higher than expected.
We're still expecting a big pullback in the S&P, possibly to as low as 1,850, which would be 12% down from 2,100 and that would be a good and healthy correction. AAPL already corrected 12% and we're really just waiting for the rest of the market to follow it lower. As you can see from this handy JP Morgan Bear Market Chart, the only time we've gone this long without a correction was the last time we had a two-term Democratic President bring us prosperity. Hopefully his wife will be elected and we'll have 8 more years of market growth before one of those 17 Republicans gets a chance to mess it up again (see tomorrow's debate for details on their evil plan):
We've already discussed how the "rally" has been very narrowly based and most stocks are already in a correction, held up by high-flyers like Netflix (NFLX), who is looking like a Chinese stock this year with their run from $47 to $125 (up 165%) and the last $15 has been thanks to a huge upgrade by Guggenheim, who called NFLX a buy and put a $160 price target on the stock, timed with the day the company announced they would begin rolling out the service in Japan.
$160 is $30 (20%) above the average analysts estimate for NFLX and would represent a market cap of $70Bn on all of 0.33 earned per $160 share in (p/e of 480 x earnings). Thank goodness Guggenheim doesn't have any conflicts of interest in boosting NFLX – other than the fact that NFLX is their Investment Banking Client, of course. To be fair, CNBC did give the above graphic 8 seconds out of a 4-minute interview but didn't actually mention this HUGE conflict of interest and neither did 99.9% of all other mentions of Guggenheim's call.
Barron's ran an article titled "Why Netflix Shares May Reach $160" and not only didn't acknowledge the glaring conflict of interest (other than the usual disclaimer at the bottom that there MAY be one) but you have to be a cynical bastard like me to notice the Guggenheim WROTE the article and placed it in Barron's. Don't you wish you had that kind of power to manipulate the market?
We apparently have a conflict with reality as we are shorting NFLX at $110, so this hurts at the moment but even $110 is extremely generous for a stock that, after being in business 8 years, can't crack 0.50 per share in earnings. You have to be expecting some EXTREME growth in this stock to come even close to getting a return on your investment during your lifetime at these levels. And yes, Japan this and China that – kind of like AAPL's game plan until they just plunged 15% when China sales went sour on them. What if NFLX opens in Japan and the subscribers don't flock in?
If you want to short NFLX at these lofty levels, it's the January earnings that should finally disappoint investors as Asian growth isn't enough to make a profit and we're running out of countries for NFLX to not make money in. You can buy the March $90 puts for $4 and it's not that we think NFLX will fall below $90 but that the March $4 puts were $8 last week and could easily be again for a 100% gain. That limits your risk (to $4), but not your upside, should reality set in over the next 9 months.
