It's time for Congress to act.
Not our clown show of a Congress, silly, I mean The National People's Congress of China where 3,000 elected officials will unanimously vote to agree with President Xi Jinping. What's more important is what Foreign Minister Wang Yi has to say about trade relations and possibly Donald Trump, who has used China as a whipping post in his rhetoric without, so far, much response from China.
The People's Congress will set targets for economic growth and budgets and China recently was rocked by a budget scandal in Liaoning Province (rust belt) that has forced them to admit that yes, they have been faking their economic growth data (as we've been saying for years). Given that this is now on the table – it's possible we will see a downward revision in China's GDP targets for the first time – ever.
Also on watch will be the size of China's budget deficit, which, like Japan, is approaching 250% of their GDP. It will be difficult for China to control their deficit and fund promised infrastructure spending but perhaps they have learned from Donald Trump that you can just pretend you are going to do both. Unfortunately, that may not work in China – because people there understand math!
There will be no quick answers to these questions, the NPC usually runs close to two weeks and, interestingly, they should be done right about the same time the Federal Reserve (our ruling body) makes it's official rate decision on March 15th. Janet Yellen speaks today and, as noted yesterday, the Atlanta Fed slashed their GDP forecast by 28% to 1.8% for Q1 and that was, finally, enough to shock the markets out of making another new high – giving us the worst day of 2017 (so far).
We had a fun trading day yesterday as the Dow Futures (/YM) shorts we featured in Wednesday's Live Trading Webinar (replay available here) at 21,110 dropped all the way to 20,950 for a gain of $800 per contract – just enough to get us out of trouble on our prior entry (we had other winners that offset). In fact, 20,938 was our break-even from the earlier entry!
We're making nice money on our Nasdaq shorts (/NQ) 5,367, which fell to 5,350, which was good for a $340 per contract gain but nothing near as dramatic as the Dow, which was our key short. We did make a long on Natural Gas at $2.77 and already we're passing $2.82 on the recovery (because it's cold in NY today, which is all these lazy traders know) and that's good for a $500 per contract gain already. These are 2-day gains folks – not hard work!
The primary hedge we selected in Wednesday's Webinar was using the Russell Ultra-Short (TZA) and our trade idea was:
- Buy 30 TZA Oct $15 calls for $4 ($12,000)
- Sell 30 TZA Oct $23 calls for $2 ($6,000)
- Sell 5 GILD 2019 $60 puts for $5 ($3,000)
The net cash outlay for that spread is $3,000 and the upside potential is $24,000 if the Russell falls about 10% (see replay for full explanation). Obviously, there's no payoff based on yesterday's 12-point drop in the index (0.8%) and, in fact, we still like the hedge very much going forward as TZA is at $17.84 so the spread is $2.84 in the money ($8,520) and only loses money if the market goes higher (or if GILD goes much lower). It doesn't have to be Gilead (GILD) for the offset, of course – we just happen to like them.
We also like Silver (/SI) and, as you know SLW was our 2017 Trade of the Year (see "Secret Santa's Inflation Hedges") and it's always great when our Trade of the Year gets cheap again so a good time to get in if you missed it and, this morning, in our Live Member Chat Room, we made a call to go long on the Silver Futures (/SI) as they bottomed out at $17.77, after having a horrific day yesterday ($17.66 was the low), dropping all the way from $18.50 (4.5%) for reasons that are still unclear.
/SI contracts are nasty to trade as they move $50 per penny – so the money comes and goes very quickly – be very careful if you play them and keep tight stops below $17.75 ($100 loss) and, if that fails, we'll look for the next support, probably $17.50.
Oil, of course, fell all the way to $52.50 before recovering and that was ANOTHER $500 per contract gain on top of the first $1,000 per contract gain from yesterday morning's report so you are welcome again – especially those of you who caught our Live Trading Webinar short at $54! We actually flipped long on Gasoline (/RB) at the $1.65 line in anticipation of the usual BS run-up into the weekend because, remember – IT'S A SCAM!!! It's a rigged market and, as long as you understand the riggings – you can make a lot of money.
Speaking of rigged markets, once again the Futures are moving higher on no volume and it's going to be a good time to pick up that TZA hedge or more Dow (/YM) shorts (21,025 at the moment) because Emperor Trump clearly has no clothes and the little boy has pointed it out and now the crowd is beginning to murmur and soon all the kingdom will be laughing though, unfortunately for us, he's our King and we will be embarrassed right along with him.
We'll see what Janet has to say at 1pm but the die is already cast and either the Fed hikes in two weeks (3/15) or the lack of a hike is another signal that this economy is too weak to sustain one and that too will spook investors out of buying more stocks at their all-time highs. Still, the traders are gonna trade, trade, trade and, if you feel the urge – shake it off!
Have a great weekend,
– Phil
