Wheeeee, what a ride!
I already sent out an Alert to our Members this morning and I tweeted it so since it's Webinar day and it's a good way to get new Twitter followers (giving out free money with great trade ideas). Already the Nikkei is off 50 points from our 15,500 shorting target and the short Futures play (/NKD) is up $250 per contract and the Egg McMuffins are paid for.
There will still be a chance to pick up the EWJ puts we discussed in yesterday's post and maybe (if we are bouncy) even the TZA spread from Monday – plenty of good hedges to choose from!
As you can see from Dave Fry's SPY chart, the Fed Minutes gave us a sharp dip but maybe it was just us selling as my immediate comment to our Members was "Oops, Fed Minutes not giving people the warm fuzzies." at 2:01 and then, at 2:04, I said:
Dollar over 81 on Fed minutes, now we know why Bernanke wanted to put such a doveish spin into these.
Nothing to rally over but nothing really like a smoking gun on tapering. Seems to me like they have no idea what to do and are all arguing with each other (quick read) and everyone is proposing a different plan for various possible scenarios. On the while, the gist of this is they don't think QE is working anymore – THAT is what you should take away from these minutes!
Game on for Dow (/YM) 15,950 short position.
That led to a very nice 100-point drop in the Dow for a $500 per contract gain intraday but the volume wasn't very heavy and we took our profits and ran into the close on our aggressive shorts – giving the dip buyers a chance to do their dippy buying thing so we can re-position for the next leg down (if our bounce levels don't hold). And what are our bounce levels? Glad you asked:
- Dow 16,000 to 15,850 is 150 so 30 is 15,910 (weak) and 15,940 (strong)
- S&P 1,800 to 1,776 is 24 so 5 and a round off is 1,780 (weak) and 1,785 (strong)
- Nas 4,000 to 3,910 is 90 so 18 is 3,928 (weak) and 3,946 (strong) and we'll call that 3,950 as a goal.
- NYSE 10,200 to 10,080 is 120 so 24 and rounded is 10,100 (weak) and 10,130 (strong)
- RUT 1,120 to 1,098 is 22 so 5 and a round is 1,105 (weak) and 1,110 (strong).
What an exciting day to have a Webinar, right? You can sign up for our NOON Webinar right HERE and the theme of the day is BE THE HOUSE – Not the Gambler, which is our theme for the quarter at PSW. Aside from going over the basics, we'll also keep an eye on the indexes and maybe catch ourselves a nice ride to give ourselves a little extra lunch money today!
Oil has, of course, been fabulous for us, as we've been relentlessly short since the August peak but now note we are heading for some very serious support at $33 on USO, which is about $92.50 on oil, which is our long-standing target for this run. We caught another nice $1,000 per contract dip on yesterday's inventories ($94.50 to $93.50) and that one was a target right from the morning post – free to all – so don't whine if you missed that one…
We would love to see the markets pull back a bit more so we can bring a little cash off the sidelines but we're not running in with the rabid dip-buyers, who think every 50-point pullback in the Dow is a reason to buy it back up to new highs. GMO & Company, meanwhile, think the fair value for the S&P is 1,100 – 38% below the current price!
"The U.S. stock market is trading at levels that do not seem capable of supporting the type of returns that investors have gotten used to receiving from equities," Ben Inker wrote in a report titled "Breaking News! U.S. Equity Market Overvalued!"
"Combining the current P/E [price-to-earnings ratio] of over 19 for the S&P 500 and a return on sales about 42 percent over the historical average, we would get an estimate that the S&P 500 is approximately 75 percent overvalued," he said.
I'm not sure if I'm quite as bearish as BMO but I certainly think things are a bit overdone at this point. Bloomberg pointed out today that the market we have is exactly the market we requested back in 2008, when the last bubble began to collapse in earnest:
WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.
"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."
Sadly, that article was from The Onion, a humor magazine. Too bad our Federal Reserve took them literally…
