Tricky Tuesday -- The Stock Market Facade Quickly Fades

Wheeeee, what a ride!  

Already this morning we're down about 2.5% in the Futures after a very disappointing close yesterday when the FAKE rally began to unwind ahead of schedule.  This is what we warned you about on Friday, so don't act all shocked to see it actually happening today - especially since yesterday, right in the moring post, we gave you a Nasdaq hedge (SQQQ) that would make 160% on a small sell-off like this one.  

This morning, SQQQ will be up around $27 - up 10% from our entry and the net $2,300 spread is $5,000 in the money already (over 100%) - not bad for a day's work!  As it stands this morning, our bounce lines are holding up but still a bit iffy and we will need to get more bearish if those weak bounce lines begin to fail at (using Futures levels, not the BS closes):

  • 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).

That is 5 more red boxes than we had yesterday morning - NOT GOOD!  3 of 5 is our rule to get more defensive and that's why, at 2:27 in our Live Member Chat Room, I said to our Members:

Since the Long Term Retirement Portfolio is at $660,226.50 (+32%) and that combines to a new record $956,930.40 and that is up 59.5% in 21 months – I will have to reiterate my usual call that the CORRECT thing to do here is cash out at least half – whether you like the positions or not – because making 30% per year for two years is NOT USUAL and we generally like to play for what usually happens. 

Amazingly, our Short-Term Portfolio finished the day even higher, up an additional 50% from our review just 10 days ago - without changing a single position.  Needless to say, we were well-positioned for last week's market insanity but, as I also said to our Members, when you make 50% in a week, no matter how GOOD you think you are - you have to recognize there's an element of LUCK involved and it's often best to just TAKE THE MONEY AND RUN.  Often enough that it's simply good policy to do so.  

We don't KNOW that the market will catastrophically collapse - hopefully it will find a base around here and consolidate for a while but China is still a HUGE problem and Japan is probably worse but no one is talking about their 250% debt to GDP ratio - as if is somehow going to go away instead of getting worse - THAT bothers me a lot!  It should bother you too:

Servicing the interest on the debt is now taking up 25% of Japan's Government Revenues but even that is misleading because "revenues" includes the sale of additional government bonds (ie. more debt) which, according to their own Ministry of Finance, are 48% of the "revenues."  That means that, when looking at actual Tax and Stamp Revenues, debt service is more like 47% of Government intake while Social Security in the World's Oldest Economy is another 62%.  That's 109% and they haven't even turned on the lights yet!  

F'd is not a word economists should use lightly but I'd can't think of a better way to put it than to tell you Japan is F'd and, if Japan is F'd then we're probably at least a little screwed too, since Japan is the World's 3rd largest economy and maybe 2nd - once the dust settles in China.  

Japan is not doing anything any other country has been doing - they have simply been doing it longer (since they crashed in 1990) and surprise, Surprise, SURPRISE - after 25 years of QE - it turns out IT DOESN'T WORK.  That's not to say they won't double down on it - after, all, what else can they do at this point?  

Oh, I'm sorry, that's not entirely true.  Quantitative Easing does work - it works because it's the most insidious way to transfer the wealth of a nation from the people who worked to build it to the Top 1% that has ever been devised.  It rains money on the Top 1% through asset bubbles and artificially low-interest loans while underpaying the Bottom 99% for their wages, retirement and cash savings, which the Banksters then use to make even more money for themselves and their Corporate Masters.  While the debt burden is placed on 100% of the citizens, only 1% of the citizens actually reap the benefits of these programs. 

When you destroy the purchasing power of the bottom 90% of your people, the economy cannot thrive.  No matter how rich the top 10% get, there is only so much they can consume.  That's why you are seeing Commodities collapse while Luxury Goods do well - you don't need to sell a lot of $3,000 handbags to make a living but you do have to sell, literally, TONS of gold or silver or copper or steel or corn or wheat and, when people cut down - well, there's only so many gallons of gas on private jet can consume and it's not enough to make up for 50M people who spend their vacations at home because they can't afford to travel.  

The sale of $10M homes is hitting new records but, Nationally, new home sales are not even half of what they used to be.  How many $10M homes does it take to make up for 5M unsold $250,000 homes?  The answer is 1.25M - and there just aren't that many ridiculously rich people around to pick up the housing slack.  

Bernie Sanders is right - we need to RADICALLY reform this country because it's not going to be fixed by doing more of the same.  Even Billionaires like Peter Georgescu. Paul Tudor Jones and Ken Langone are waking up to the reality of the situation.  

We are creating a caste system from which it’s almost impossible to escape,” Georgescu wrote, not only trapping the poor, but also “those on the higher end of the middle class.”

He issued a clarion call for his corporate peers to reverse the dangerous and ever-widening gulf of income inequality in our country by increasing the paychecks of America’s workaday majority. “We business leaders know what to do. But do we have the will to do it? Are we willing to control the excessive greed so prevalent in our culture today and divert resources to better education and the creation of more opportunity?”

If only they'd listen, THEN I'd feel better about our odds of turning things around from here...

Meanwhile, into today's open, we can play our index lines for a bullish bounce at the 2.5% line, which would be over 16,100 on the Dow Futures (/YM), over 1,920 on the S&P Futures (/ES), over 4,150 on the Nasdaq (NQ) and over 1,130 on the Russell (/TF).  If ANY of those indexes are below - it's a no play but we can expect at least a 0.5%, maybe 1% bounce before any volume selling takes over - kind of like last Monday.  

Also, we have a Live Trading Webinar today at 1pm (EST) - all are invited.