Non-Farm Friday - Is America Working? **Trade Review**

We're waiting on the Non-Farm Payroll Report

Yesterday, we got the happy talk we expected from Minneapolis Fed Governor Kaplan and, he did such a good job goosing the markets at 11:30 yesterday, that he's speaking again today at 10:45.  Of course he'll say the same thing but will the markets react the same way?  That depends on the jobs report and how FAKE this low-volume rally we've been having really is.  

As you can see from Dave Fry's SPY chart, volume yesterday was a pathetic 94.8M and the spikes of volume on the way down were most of the up day's trading.  On the whole, we opened the year on Jan 4th at 200.49 and dropped to a low of 181.09 (down 9.6%) intraday on Feb 11th and now, March 4th, we're back to 199.78 which is just over a 10% gain from the low (199.19).  

According to our 5% Rule™, after a 10% run we expect a 2% pullback as we retest the highs and a bit of consolidation.  Today's NFP report will either pop us over that top or, more likely, give us that 2% drop test we've been looking for.  We shorted the Russell yesterday at 1,065 and after a very small drop, that trade failed but then, in our Live Member Chat Room, we shorted it again at 1,070 an hour later (10:44) and the 2nd time was a charm as it dropped back to 1,066 and we took a $350 profit off the table at 1,066.50 an hour later.  

This morning, ahead of the NFP report, it's a bit too dangerous to bet the Futures so we're just waiting to see what happens for now.  We headed downhill after last month's NFP report but, as I mentioned the following Thursday (2/11), a lot of that has to do with scaring people into buying bonds each month - so people won't notice that no one actually wants to buy notes that pay 2% interest, let alone 0%!

Nonetheless, in our Live Trading Webinar that week, we called a long on Nikkei (/NKD) futures at 15,700 and this morning they hit 17,050 for a gain of 1,350 or $6,750 per contract.  For the Futures impaired, our options trade idea was:

We haven't done much gambling in the STP lately so let's see if we can turn $2,200 into $3,300 bucks real fast buy buying 40 EWJ March $10 calls for 0.55.

EWJ finished yesterday at $11.40 and should be $11.50 this morning and those $10 calls will be $1.55 for a $1 per option gain at $6,200 (+$4,000 on 40 contracts) - not bad for 3 week's "work".  In that same post, we also mentioned staying long on oil at $30 with a $35 target by July but we hit $35 yesterday already for a $5,000 per contract gain there as well.   This is just the stuff we give away for free folks - you're welcome!  I even reiterated that call when CNBC interviewed me on Wednesday that week.

On Wednesday, Feb 17th, we reviewed our SDS hedge (still on track despite the rally) and we discussed our Dec 2nd's Institutional Newsletter's trade idea on WYNN, where we sold the 2018 $45 puts for $8.50 as they were still playable at $7.60 (+10%) but now they are $5.15, up another 32% in three weeks and well on track for our full 100% gain (isn't this stuff easy?).  The next day (18th), as we got more confident in the rally, we called for a very aggressive bullish trade (TNA).   

Buy 10 TNA March $41 calls for $3 ($3,000)

Sell 10 TNA March $44 calls for $1 ($1,000)

Sell 1 BA 2018 $80 put for $7 ($700)

TNA is a 3x ultra-long on the Russell and it's blasted up to $52.76 as of yesterday's close and already the bullish spread is at $2.25 ($2,250) while the short puts have dropped to $5.50 ($550) so net $1,700 is up $400 already (30% on cash) on a 10% gain in the Russell but there's no reason to think we won't collect the full $1,700 (130% back on cash outlay) if we're patient.  

The next morning (Friday, Feb 19th) we called for long Russell Futures (/TF) at 1,000 and with the Russell now at 1,075, that's up $7,500 per contract but, of course, we flipped short yesterday with the contracts only up $6,000.  As it was a weekend we talked about adding more hedges but nothing specific in the morning post but we did also call a long on oil again at $32.50 but those contracts are only up $2,500 at our $35 goal (sorry).  

Monday, Feb 22nd, I was doing a presentation at the NY Trader's Expo and I gave our morning readers an advanced look at our PowerPoint presentation which concluded that FCX was bottoming at $6.92 and our trade idea using an options spread was:

  • Sell 10 FCX 2018 $5 puts for $2.16 ($2,160) 
  • Buy 20 FCX Jan $5 calls for $3.15 ($6,300) 
  • Sell 20 FCX Jan $10 calls for $1.25 ($2,500)

FCX has already blasted up to $9.11 as of yesterday's close and should be over $9.50 this morning on news they are spinning out a copper mine, so that train has left the station (but you can subscribe here and never miss these trade ideas again).  The aggressive spread is well on track to pay off the full $10,000, which will be an $8,360 profit on the $1,640 cash committed (509%).  That one will take all year to finish, though, at the moment, it's only up to $3,700 or a 125% return on cash in 2 weeks.  

This is a HUGE point that we teach our Members at Philstockworld:  You do not have to take aggressive positions to make aggressive returns.  Our "Be the House - NOT the Gambler" strategy video has been viewed 450,000 times on YouTube and we have taught this system to thousands of traders and again, THESE ARE JUST THE FREE TRADE IDEAS from our recent morning posts.  

In that same post, we also went with a short put sale on Fitbit (FIT) into earnings, selling the May $13 puts for $2.  Earnings were a disappointment and the stock fell below $13 to $12.47 as of yesterday's close but, because we were BEING THE HOUSE and selling earnings premium, the short puts are only $2.20 now - down 10% for our first loss of the month but, of course, if FIT did hold $12.50 into May, the puts would only be worth 0.50 for a $1.50 win so we're down but not out by any means (and yes, I still like that trade)!  

That Tuesday (23rd) I bitched about debt in the morning post and no free trade ideas and Wednesday (24th), I reiterated my long calls on Russell (/TF) and Nikkei (/NKD) futures, so we won't count them twice but we will count S&P (/ES) Futures at 1,900, as they were a new call and now up $4,500 per contract at 1,990.  I also noted we still liked the SDS and SQQQ hedges as well and it's a good rule of thumb, in an extended rally, to start putting 25-30% of your daily unrealized gains into aggressive downside hedges to lock in your balance.  

Thursday (25th) it was all about natural gas and we talked about our Trade of the Year on UNG, which is NOT off to a good start and down $4,215 (46% on cash) in our Options Opportunity Portfolio but we're more likely to add to the position than bail on it (see post for our logic).  We also liked LNG, the company that is physically exporting the natural gas, and they've already popped from $30 to $37.05 for a very nice 23% gain in two weeks and, of course, we had an option trade but I didn't post it for the public (sorry).  I also mentioned our bullish take on Ford (F), which was $12.08 that morning and is already $13.54 (up 12% in two weeks).

Another trade idea that day was our Apple (AAPL) Trade of the Year from 2015, which was still in progress and up only $1,500 ($9,500) that morning.  That trade was:

  • Buy 20 AAPL Jan 2017 $90/120 bull call spreads for $13.50 ($27,000) 
  • Sell 20 AAPL Jan 2017 $85 puts for $9.50 ($19,000)

AAPL went on a tear since then and is back on track and now the bull call spread is $12.80 but the $85 puts are just $6.50 for net $6.30 and $12,600 on the spread, up $3,100 (32%) in two weeks - another example of how powerful our "Be the House" strategy can be, even in the short-term.

Obviously, with all these gains, we wanted to lock in our profits so, on Friday, Feb 26th, we added a short hedge using the ultra-short Russell ETF (TZA) but we offset it by selling puts on FCX, which we were still in love with.  That hedge was:

  • Buy 10 TZA April $52 calls for $7 ($7,000) 
  • Sell 10 TZA April $57 calls for $5.50 ($5,500) 
  • Sell 5 FCX 2018 $5 puts for $2.10 ($1,050)

TZA has fallen to $48.79 and the April $52 calls are now $3.29 ($3,290) while the short $57 calls are $1.89 ($1,890) but, fortunately, the short FCX puts are $1.55 ($775) so the net on the trade is $625, amazingly still UP $175 (38%) from our $450 cash outlay - even though TZA went completely the wrong way.  How does that happen - by Being the House - NOT the Gambler!  

8:30 Update:  OK, enough of that nonsense, the Non-Farm Payroll Report is out!  In our Live Member Chat room right at 8:33, my comment to our Members was:

I think we need (and I know I said this) just under 200 to be in Goldilocks mode.  Too far over will be too strong and puts the Fed on the table, too low will show weakness that scares people.

Oops, here it is – blowout with 242,000 jobs AND +30,000 revised to last month.  It's too hot with a Fed meeting coming up but hourly earnings down 0.1% so maybe not so bad.  

Labor Force Participation down yet again so maybe the gains are BS but, on the whole – I don't see this as being enough to pop 2,000 so I like /ES short at the lone watching 17,000 on /YM, 4,350 on /NQ and 1,080 on /TF and 17,200 on /NKD.  If ANY of them are over their lines – I wouldn't short but I would short /ES for sure below 2,000 with tight stops.

Sure enough, the indexes are already heading south, so a bit late for the free readers but, hopefully, you have that excellent TZA hedge to protect you!  Still, I do like this number, even if the market does not, as it indicates a robust recovery and maybe the Fed will put the brakes on but we can afford it so they should and maybe Corporate margins will contract a bit (about time) but it's all worth it if we finally get a rise in household income that can bring the consumers back to the table.

Don't forget Kaplan gets to spin this back at 10:45 so don't get too attached to these short plays - it's just nice to lock in some quick profits (about $500 per contract at the moment) to pay for some weekend fun and trust in the TZA and SDS hedges to be our main protection.  This might even help bring back our natural gas contracts (/NG), which are trading at $1.62 this morning.  

Have a great weekend,

- Phil