Are we having fun yet?
In Wednesday's Live Trading Webinar, we discussed using $58.50 as a shorting line for Oil (/CL) Futures and we had a couple of small dips but we finally caught the big one this morning. We don't need to be so quick to jump back on and re-short as we'll certainly get a strong bounce AND it's a holiday weekend — so "THEY" are as likely to drive us back to $58.50 as they are to panic out and sell.
That's why, last Friday, we went with the Ultra-Short Oil ETF (SCO), picking up the March $9 calls at 0.65 — to play for the post-holiday drop without having to worrry about the Futures over the weekend. Those calls dropped to 0.55 on Thursday, as oil topped out, but finished the day at 0.72 and we have 35 days left to play, looking to make 0.25 x 50 contracts at 0.90 is $1,500 on our $3,250 outlay (50 contracts in our Short-Term Portfolio).
Similarly, we played the Russell (/RTY) Futures short at 2,300 (as noted Tuesday in: "Tuesday Trouble at 2,300 on the Russell 2000") and, so far, that's been good for $1,250 per contract but were up $2,500 per contract on yesterday's dip and we should have taken that money and ran — but we didn't. Though I still like them for a nice, weekend hedge.
Keep in mind that it's only a hedge when you have long positions that will gain as much or more than your potential loss on the (in this case) short position if the market goes higher — otherwise it's a BET and BETTING on the Futures is a very dangerous thing to do.
As noted on Tuesday, according to our fabulous 5% Rule™, we've had a 10% run in 10 days on the Russell from 2,100 to 2,310 and that's 210 points so we expect a 20% (weak) retrace of that run or 42 points — back to 2,268 or a strong retrace back to 2,226. If the weak retrace holds (has so far), then we may be consolidating for a move higher but, if the strong retrace fails — then it's very possible we go all the way back to 2,100 – which would give us some very exciting gains!
Remember, the 5% Rule™ is not TA. TA can only tell you what did happen while the 5% Rule™ tells you what is likely to happen next — that is much more useful for trading purposes! Of course the 5% Rule™ can only tell you where the resistance lines are, not which way the market will go but, in cases like this — on Tuesday we determined that the alternative (going higher) would be silly — it made the downside bet very obvious.
At this stage you can eyeball it but it looks like, so far, we have just a weak bounce off the weak retrace line at 2,268 and that means we're more likely consolidating for a move down than up. We then look to the news to see if there is anything that is likely to give us a lift into the holiday weekend to check our premise:
- U.K. Economy Suffers Biggest Slump in 300 Years
- Close, Reopen, Repeat. Restaurants Don’t Know What Covid-19 Will Dish Out Next.
- Yellen Is Creating a New Senior Treasury Post for Climate Czar
- Biden Says U.S. Struck Deals for 200 Million More Vaccine Doses
- Chinese New Year Comes In With a Whisper
- Another Remote-Work Year Looms
- When Will Life Return to Normal? In 7 Years at Today's Vaccine Rates
- 2021 Looks Like a Black Hole for Battered European Tourism
And I'm not cherry-picking. Those are all front-page stories from the WSJ and Bloomberg this morning. Just read them out loud and add "sending the markets to record-highs" and, if that doesn't sound right to you — then you should be shorting!
See how easy investing is?
Have a great weekend,
– Phil
