If it's Monday, the Futures must be higher.
It's very easy to get the markets going in thin weekend trading and usually we peak out of Meaningless Mondays or Testy Tuesdays and then we resume our normal shorting activities. Last Tuesday, we called for shorting the S&P Futures (/ES) at the 2,480 line and we caught a ride down to 2,435 for 45 points at $50 per point per contact – a profit of $2,250 per contract (you're welcome) and that was a very poor 2nd to our Russell Futures short (/TF), which fell from 1,430 all the way to 1,370, which was good for a profit of $6,000 per contract.
It's really not hard to follow these trades, we laid out the levels and the details in Tuesday Morning's PSW Report and delivered it to the inbox of our subscribers by 8:35 on Tuesday morning, an hour before the market opened and that day's $3 investment in our newletter was paid back 2,000 times on the Russell alone. Subscribe here if you'd like to catch the next 2,000x winner!
Rembember – I can only tell you what the market is likely to do and how to make money playing it, that is the extent of my powers – the rest is up to you…
We also put up an options spread on SPY for those who aren't able to trade the Futures (though it's really not hard, we teach Futures trading to our Members in our Live Weekly Webinars) and that trade was:
We've been talking about hedges and a good way to hedge the S&P, other than simply shorting /ESFutures with tight stops above, is a bear put spread on SPY options, which we can accomplish with the following:
- Buy 20 SPY Sept $247 puts for $2.50 ($5,000)
- Sell 20 SPY Sept $242 puts for $1.35 ($2,700)
- Sell 5 TEVA 2019 $20 puts for $4.40 ($2,200)
That spread is net $100 and pays $5,000 (up 4,900%) if the S&P drops below 2,420 (2.5%) into Sept expirations. You have an obligation to buy 500 shares of TEVA for $20 ($10,000), but that's a stock we really love at this price so, essentially, free money for promising to buy it. Ordinary margin on the short puts is just $900, so it's a very margin-efficient way to raise cash but you can use any stock you REALLY want to own as an offset.
The $247 puts finished the week at $5 ($10,000) and the $242 puts jumped up to $3.13 ($6,260) but TEVA got worse and those $20 puts are now $5.10 ($2,550) but that's still net $1,190 for a $1,090 (1,090%) profit for the week and THAT, my friends, is how you hedge! The S&P may not stay down and, if it doesn't – then we don't need the hedge money but we're thinking this is just a bounce – as we predicted would happen in Friday morning's report, when we flipped bullish (so the above trade was cashed but can be re-entered on the bounce).
On Friday the Dow (/YM) bounced to our exact goal of 21,800 and gained another $400 per contract before failing into the close. We also played the Russell (/TF) long at 1,370 and we called for a 10% correction on the VIX, which is in progress this morning as well.
Today, what matters is whether or not the bounce lines hold and, to sum up our morning call in Live Member Chat on the bounce lines, we were looking for: Dow 21,900, S&P 2,451, Nasdaq 5,850 and Russell 1,390 and those will be our shorting lines but NOT if DAX (Germany) is over 12,000 and we're well over that this morning so we're back in watch and wait mode for the moment and we'll have to play it by ear in live chat but if two cross back below we'll certainly want to short the laggards as they cross (with tight stops).
On the whole, it seems that nothing is going to faze this market. North Korea is still a thing but people seem bored already – nuclear was is nothing compared to the Khaleesi's use of dragons aginst the Lannister armies. Trump was on a rampage and so were his far-right buddies, who rioted in Charlottesville over the weekend – though the President was quick to point out both sides were to blame – the neo-Nazis AND the people who oppose neo-Nazis…
When a Muslim driver runs over tourists in England, that's considered an act of terrorism but when a white nationalist runs over liberal protesters in Virginia, that's considered "an aggressive opinion." Oh boy, America is getting so great again! In fact, President Trump’s Saturday comments were cited on the neo-Nazi website the Daily Stormer as evidence of “no condemnation at all” of such groups by the President. That site has now been hacked by Anonymous, apparently.
It took the original colonies 5 year to escalate from the Stamp Act in March of 1765 to the founding of the Sons of Liberty in July to the Towshend Acts of 1767 to the August 1768 boycott of British goods to that October's occupation of Boston Harbor by British warships and then two more years until it escalated into the Boston Massacre on March 5th, 1770. In the US, Trump has only been President for 7 months and our citizens are already killing each other and Virginia has had to call a state of emergency. This does not bode well…
Nonetheless, the Futures indicate that investors could care less about rising political tensions, disappointing China growth, the meltdown in Venezeula, a possible trade war with China or nuclear war with North Korea and Elon Musk says that is NOTHING compared the threat that is posed by Artificial Intelligence and it amazes me how people think he's a genius and listen to him about everything – but this.
“Until people see robots going down the street killing people, they don’t know how to react because it seems so ethereal. AI is a rare case where I think we need to be proactive in regulation instead of reactive. Because I think by the time we are reactive in AI regulation, it’s too late.”
“Normally the way regulations are set up is while a bunch of bad things happen, there’s a public outcry, and after many years a regulatory agency is set up to regulate that industry. It takes forever. That, in the past, has been bad but not something which represented a fundamental risk to the existence of civilization. AI is a fundamental risk to the existence of human civilization.”
The fundamental risks to the markets are a withdrawal of stimulus that's been driving us for 8 years. While the Fed Funds rate has climbed back from 0.25% to 1.16% in the past two years, the Fed is still putting $60Bn/month into the markets through their QE program and no one knows what will happen when they pull off the training wheels. We have Fed Minutes at 2pm on Wednesday with two Fed speakers (Kaplan and Kashkari) on Thursday at 1 and 1:45 and then super-dove Kaplan has the last word Friday at 10:15 so the Fed's support continues in this low-data week, which makes any kind of pullback far more concerning.
