Go on, take the week off.
Really, these markets are just stupid - there's no point trading them. The volume on the S&P ETF (SPY) yesterday was 58M, one of the lowest levels of the year - including half days! We opened at $205.51 and closed at $205.21 with a high of $205.84 and a low of $204.99 so a narrow range of 9 S&P points during the day and then, at 3am, we magically race back up 12 points - on no volume at all.
It's a manipulated joke of a market and, while we enjoy playing the game, I hear from far too many people who take this nonsense seriously and are worried about what to do in the face of all this uncertainty. The only trade we added in our Live Member Chat Room yesterday was a neutral butterfly spread on TGT, using our BE THE HOUSE stratgegy of selling premium over time against a long-term position. That's how you make money in this market - take it from the people who think they know which way it will go!
We're hoping for a nice rally so we can add back Nasdaq Ultra-Short (SQQQ) positions, now that Apple (AAPL) has bounced a bit. Of course you are sick of me saying "I told you so" but I did tell you so, right in our Friday the 13th post, where I said:
Also, if you'd like a quick stock play – we picked up Apple (AAPL) at $90 yesterday and we leveraged it with the May (expire next Friday) $87.50 calls at $3.15, which closed yesterday at $3.25, which is net $90.75 and we think AAPL can at least bounce $1 or two and that should take those calls to $4, which is a very nice, quick gain into the weekend.
With AAPL closing at $95.22 on Friday, those calls expired at $7.72 for a very nice $447 (137%) per contract win in 7 days. That's the kind of trade idea you get just for having a PSW Report Membership ($99) as it was right in my morning post. Of course, if you subscribed to our higher-level Memberships, you would have gotten this Top Trade Alert at 9:44am and, in that one, our AAPL trade idea was:
In the Butterfly Portfolio we have 5 long 2018 $100 calls at $9 (down $7) and 5 short 2018 $130 calls at $2.60 (up $6.15) and let's buy those back and buy 10 2018 $85 calls for $15.70 ($15,750) and no short call sales yet.
Though it's still early innings, the 2018 $85 calls have already shot up to $18.95 ($18,950) as of yesterday's close and that's up $3,200 (20%) in 11 days so we'll be watching AAPL closely as our next move will be to re-cover and re-establish our original bull call spread - only now at lower strikes with better prices. That's what our Be the House strategy is all about - let other people pay the risk premium while we INVEST in having good positions to sell against.
Notice that, even in our short-term play, we took the $87.50 calls for $3.25 when AAPL was trading at $90 so those calls were $2.50 in the money with an additional 0.75 in premium. We don't like buying premium so, when we have to, we minimize it - that's how we got such fantastic leverage.
We're doing a similar sort of thing with our SQQQ calls, where we sold a lot of short-term premium and our plan is to now buy some long-term positions with less premium that we can sell more calls against. That keeps us in a spread that can still make good money if the market declines - but won't hurt us too much if it doesn't.
To offset the cost of the spreads, we like to sell put positions on stocks we'd like to own if they get cheaper (presumably selling off with the market). This strategy is useless if you don't have plenty of CASH!!! in your portfolio to execute the buys with - but I may have mentioned once or twice that I think we should be very much in CASH!!! this close to the Summer Holidays.
We'll have to call an audible in the Chat Room today as we don't know how long they can keep up this low-volume rally but, as noted above, about 4,400 on the Nasdaq Futures (/NQ) should at least be resistance and we went bullish at just the right spot so we don't have to be perfect with our cover - as it's all bonus money now:
As long as AAPL keeps plugging higher, the Nasdaq should be in good shape but, of course, AAPL should hit some resistance at $100 too. The news continues to be pretty bad but also totally ignored so we'll just enjoy the rally while it lasts and set ourselves up to profit from the chaos to come. For the moment - let's just review a few headlines to motivate you to make those hedging trades during the rally (while they are cheap) - as well as to remind you to cash out some of those bullish positions that have run their course (we'll do a full portfolio review this week):
- Fed’s Harker Sees Two to Three Hikes in 2016 as Prices Gain
- The Fed Is About To Make A Massive Mistake" Saxobank's Jakobsen Warns
- Complicated U.S.-China Dance Could Be Headed for Rough Turn
- Massive Bailout’ Needed in Debt-Saddled China, Analyst Chu Says
- A Rare Look Inside China’s Central Bank Shows Slackening Resolve to Revamp Yuan
- China's Junk-Like 'AAA' Bonds
- Kyle Bass Was Right: SocGen Does The Math On China's Staggering NPL Problem, Issues Dire Warning
- Oil’s Recovery Under Threat as Tankers Run in Circles Off China
- The worst for crude oil may not be over
- The CME Admits Futures Trading Was Rigged Under Old System
- Iron ore price hits 10-week low
- Equities Coil Despite USDJPY Turmoil As Bullish Stock Speculators Hit 16-Month Highs
- German investor confidence skids in May
- Moody's Downgrades Deutsche Bank's Debt Two Notches Above Junk
- Deustche Bank facing another mortgage-related probe
- Agriculture downturn will last years, analyst says
- Best Buy lower after guidance disappoints
Those are just today's highlights! Ignore and soar is the market mood this week and that's easy to do when the entire volume (60M) on SPY ($205) is just 0.003% of the market's value. A Billion here and a Billion there and you can make the market dance like a monkey if you want to - and who doesn't want to when they can make many more Billions from their manipulations?
There are several article right above that outline some of those who got caught manipulating the market (and here's 16 more under investigation) and BankAmerica (BAC) just appealed their way out of their now "alleged" fraud in the MBS market so it's GAME ON for others who can make hundreds of Billions manipulating the market while risking, at worst, what amounts to a slap on the wrist if they get caught and, even then - endless appeals!
Are the Federal Judges suddenly ruling in favor of big corporations auditioning for the still-empty seat on the Supreme Court? We report - you decide...