Falling Friday: Fed Fails to Inspire Confidence

Wheeee - this is fun!  

Remember, I can only tell you what is going to happen and how to profit from it - that is the extent of my powers - the rest is up to you.  Yesterday afternoon, for example, I sent out this tweet (from our Member Chat Room) that we had decided to short the fake-looking Fed rally at Dow (/YM Futures) 16,800 and Russell (/TF Futures) 1,190.  

As you can see from this chart, we NAILED the top at 1,190.  This example had 2 contracts at an average of $1,187.80 and we caught a very quick ride down to 1,175 where the profit on two contracts was $2,500 on /TF and $2,000 on /YM and I sent out another tweet at 3:30 noting we called for taking the quick gains off the table - making $2,500 in 25 minutes - nice work if you can get it.  

But that's the point - you CAN get it all the time.  On July 25th I published "Using Stock Futures to Hedge Against Market Corrections," where we discussed this very strategy for taking advantage of volatile swings like we had yesterday.  In fact, just this Tuesday, we had a Live Trading Webinar (replay available here) where we talked about Futures Trading Techniques (and we shorted the S&P!).  

You can also protect your portfolio with options and ultra-ETFs of, our preferred method - options on ultra ETFs - as we discussed in Sept 4th's "Hedging for Disaster" (you know, the one we're having now) as well as, of course, yesterday's morning post, where we told you the Fed would not be easing and we discussed the very obvious Gold ETF (GLD) spread, which ended the day at $2,830 - up $640 (29%) for the 2nd day in a row (you're welcome).  

Of course our TZA, SDS and SQQQ hedges (also discussed in yesterday's post but from the 4th) are all doing great, of course - and it looks like they'll be doing even better today as the Futures indicate down another 1%.  The good news is though, that we can still use the bounce lines we predicted for you way back on Aug 26th - just after the last crash - using our Fabulous 5% Rule™.  Those lines are:

  • Dow 16,200 (weak) and 16,650 (strong) 
  • S&P 1,900 (weak) and 1,950 (strong) 
  • Nasdaq 4,550 (weak) and 4,700 (strong)
  • NYSE 10,050 (weak) and 10,300 (strong)
  • Russell 1,130 (weak) and 1,160 (strong). 

See - nothing to worry about so far.  We're just testing those strong bounce lines (colors include futures moves) and, if they hold up - it's actually a healthy test and we may be inclined to do some more buying.  If the S&P, Nasdaq and Russell join the others in failure, however - look out below!  

It's already DOOM!!! on Germany's DAX as they fail to hold the 10,000 line (see "Monday Market Movement – DAX Incredible!" and "Testy Tuesday – German Investor Confidence Crashes with the DAX") because the other time they failed it was August 24th - and that was a bad, BAD thing.  

Unless the DAX can get back over 10,000, it would be foolish to expect any better from our indexes but it is a Quad Witching Day for options and futures contracts (they all expire), so CRAZY things can happen (aside from the 1% pre-market drop).  We'll have to keep on our toes and go with the flow but we pulled a perfect Jenga play in our Option Opportunities Portfolio yesterday and cashed in the winning leg of our Dow ETF (DIA) spread and left the short calls - turning our portfolio instantly bearish right at the top and protecting our 10% gains on day 40.  

Europe is down 2.5% heading into their afternoon and we have to deal with them until 11:30 but, after that, I think "THEY" will try to prop the markets back up as best they can to engineer a not so terrible close.  The Dow, in fact, is the best bet for a bounce on the EU close because it has Apple (AAPL) in it as well as other stocks that are well priced at 16,350 so /YM Futures are fun to poke at down there (and S&P, /ES Futures over the 1,950 line, but very tight stops, of course, as we may have a major meltdown on our hands.  In fact, 1,950 can be a shorting line below too!) and we may flip our Option Opportunities Portfolio long - or at least back to neutral, from that level (adding a less aggressive hedge into the weekend).  

That's our plan and I'd love to say we're sticking to it, but not likely on a quad-witching Friday - we'll have to play it by ear in our Live Member Chat Room!