Wheeeeee!
That could not possibly have gone better for us. We've been preparing for the bubble pop all week and we got a perfect 1.25% drop in the S&P with no bounce so far and, as all our 5% Rule™ insiders are well aware – that's is a good indicator of lower levels dead ahead.
As I have been saying for weeks – any idiot can make money in a relentlessly up market – the trick is making money in a down one – that's when you want to preserve your cash so you can bargain-hunt for stocks you will own for decades to come (our planted trees).
Yes, I called for cash a bit early but I'd rather be early than late any day – wouldn't you? While other people (over 90% of the sentiment was bearish) were freaking out in various market maven chat rooms, Scottmi summed up the mood at PSW saying: "Damn. Yesterday and today best two days for me in over a year!" I'm always in a good mood when Fundamentals reassert themselves as it suddenly makes all our picks turn "right" for a change. Having convictions can be very expensive in irrational markets but very rewarding in rational ones…
For example, we shorted FAS (ultra-short Financials) Nov $78 calls at $3.30 in our Short-Term Portfolio in Member Chat on 10/18 and it became a nail-biter as FAS popped to 80.58 just days later (we do have a long hedge) but now it's looking good to expire worthless and hand us a 100% gain for the month. That's the way we BE THE HOUSE!
As you can see from Dave Fry's XLF chart, the Financials are now breaking below their long-held channel and, if that isn't taken back pretty quickly, it's going to be a huge drag on the indexes – especially the now more financially-weighted Dow Jones Industrial Average.
See, there's a point to all these boring macro discussions we have about the Dow components and how they affect the index and JPM's fines and everyone's earnings. It was the stupid, bullish reaction to early bank earnings that led us to go contrarian and short the Financials in the first place. This is how you can use FUNDAMENTALS to make really excellent short-term trades!
Just yesterday, I mentioned our SCTY Nov $62.50 puts right in the morning post – FOR FREE – and they opened at $8.50 and finished the day at $13.50 (where we took our money and ran, since we were in at $7) for a very nice 58% gain on the day – even if you missed our original entry. Do you think trade ideas that make 58% in a day can enhance your portfolio's performance? If so, try one of our Subscription Services!
Twitter hit our shorting goal at $45, almost hitting $50 during the day and we can't wait for options to begin shorting them with leverage! Of course the BIG MONEY yesterday came from our Futures trade ideas, where (again, for free in the morning post, which even our Report Members get delivered at 8:30 each morning) we picked 1,110 as a short on the RUT (/TF), 1,770 for the S&P (/ES), 15,750 on the Dow (/YM) and $95 on Oil (/CL).
How did those do? Well the Dow futures fell below 15,550 into the close for a $1,000 PER CONTRACT gain on the day, the S&P failed 1,745 and that index pays $50 per point for $1,250 per contract, the Russell hit 1,075 for a whopping $3,500 per contract gain! I know Futures Trading sounds scary but that's why we're having a seminar on it in Las Vegas this week.
The margin requirement for the Russell Futures is $4,730 per contract but it only costs $5 to go in and $5 to get out and it's more liquid than options and there's very little bid/ask spread so it's an ideal vehicle for day-trading and, as you can see from months and months of our Trade Reviews, it's very, very profitable in up or down markets.
Like any new skilll, Futures Trading takes time and practice to master but shame on you if you call yourself a trader and you are avoiding the Futures out of fear! If you can't make Las Vegas (starts Sunday) this week, then we'll be doing another seminar in Atlantic City in April – don't miss that one! This morning in Member Chat, we already shorted the Dow (15,550) and Russell (1,080) Futures ahead of the Non-Farm Payroll Report because, as I said to our Members yesterday – I don't see any outcome that will be bullish.
For the Futures challenged, we had Monday's TZA spread, which was also provided free of charge in the morning post. We liked the ultra-short Russell ETF at $21.04 and our spread idea was the April $17/22 bull call spread at $2.10, selling the April $18 puts for $1.60 for net .50 and a 900% gain potential at $22. It's only 4 days later but TZA is already at $21.95 this morning and the spread is almost 100% in the money at net $1 – up 100% on the week already! That's a nice hedge….
As promised, we had many more trade ideas in Member Chat but let's just look at the free ones (and our Members should keep in mind they can refer their friends to free trials here) from the morning posts. I gave my Fundamental reasons for shorting WYNN on Tuesday at $166.50 that morning, thay are at $159.50 this morning, down 4.2% in 3 days (who says you can't make money on boring stock picks?). DXD was our hedge of the day at $31.26 and we leveraged it by making an April $29/32 bull call spread at $1.30 buying 16 of those for $2,080 offset by the sale of 3 CAT 2016 $65 puts for $5.30 ($1,590) for net .30 on each DXD spread.
Today the DXD spread is already $1.50 ($2,400) and the CAT puts are $5.40 ($1,620) fo net $780, up 49% from our $490 net entry in just 3 days! DXD is at $31.32 already and, if it gets over that $32 line into April expirations, that spread will return $4,800 less whatever obligation remains on CAT, which is a non-issue if you REALLY want to own CAT at $65 (now $83.65).
Wednesday I liked the TSLA Jan $120 puts, which opened at $2.40 despite the earnings drop and they are already $6 (up 150% in 2 days) and we've already added several new TSLA shorts since then in our Member Chat Sessions. We liked the VIX long at $13.27 and that ETF is $13.91 this morning for a 4.8%, 2-day gain but I'm sure you can see that we're hardly thrilled to make just 5% in 48 hours when there are so many cool options and Futures to trade…
Yesterday, we added the TSLA Jan $165/155 bear put spread at $5.50 and those are already $7.40, which is up 34% in 24 hours – not bad, right? I already mentioned our SCTY puts above, also in the morning post that you or your friends can get at 8:30 each day, and we also featured those Futures short ideas, which were very easy fills as the market pretended to be bullish in the morning.
So thanks to all who joined us in this very exciting week. Next week we have expirations on Friday but, more importantly, you can join us for the audio portion of our Live Trading Seminar from Las Vegas in Member Chat on Monday. I'm looking forward to getting together with those of you who are able to join us in Vegas – it's an exciting time to be discussing the markets!
Have a great weekend,
– Phil
