Japan GDP Jolts Markets to Start the Week

We told you so!  

Last Wednesday, right in our morning post, I told you how you could benefit from SUBSCRIBING to our newsletter because we would give you great trade ideas like this one, which we featured for free in that morning's post:

I also mentioned shorting EWJ in the morning post but, for our Live Chat Members, I sent out a Top Trade Alert specifically on the Jan $12 puts at 0.52 to go along with our call to short /NKD (Nikkei Futures) at 17,500 at 8:22 am (also in the morning post) and by 11pm last night we were close enough, at 17,490 and, already this morning, we're back at 17,100 – for a $1,950 per contract gain – all overnight and all "according to plan".  

As you can see from the chart above, we had a fantastic chance to reload on the Nikkei futures (up over $2,500 per contract at the moment) as well as the EWJ puts, which should be up about 50% today – but we think we can do better than that as Japan's GDP was even worse than we thought it was going to be – declining 1.6% in Q3 and officially putting the economy back in Recession.

"None of the 18 economists surveyed by The Wall Street Journal had forecast a contraction; the median forecast was for a 2.25% expansion." – That's why we were able to make so much money betting on it – we're smarter than the WSJ's 18 economorons!  

Another trade idea we gave away FOR FREE in Wednesday morning's post was a TZA hedge, using the Jan $12/16 bull call spread at $1.20 and already on Friday, TZA closed at $13.46, putting the spread $1.46 in the money, which is up 21.6% in the money if TZA closes there – not bad for a 2-day hedge…  Of course the potential for the hedge, if the Russell keeps falling, is $4, a 233% gain, which is what makes it such a good hedge for a bullish portfolio.  As I said on Wednesday:

So please, don't complain if, a month from now, we're talking about how the 200% gains on our hedges saved us from suffering during the nasty November market correction and you wonder why you never heard of that hedge. 

Will Japan be the straw that breaks the back of the bulls or will they shake this off, like thay have all bad news since mid-October?  We're just happy to be watching from the sidelines, having cashed in our Income Portfolio last week (there's no income to be made into the end of this year) and moving to mainly cash in our other 4 Member Portfolios.  

It's not just we at Philstockworld who are concerned, either.  UK Prime Minister David Cameron  is worried enough to have written this weekend "Red Lights are Flashing on the Global Economy" for the Guardian, saying:

As I met world leaders at the G20 in Brisbane, the problems were plain to see. The eurozone is teetering on the brink of a possible third recession, with high unemployment, falling growth and the real risk of falling prices too. Emerging markets, which were the driver of growth in the early stages of the recovery, are now slowing down. Despite the progress in Bali, global trade talks have stalled while the epidemic of Ebola, conflict in the Middle East and Russia’s illegal actions in Ukraine are all adding a dangerous backdrop of instability and uncertainty.

I'm actually relieved that Cameron can see the red lights flashing as I was beginning to think I was crazy when I look at the numbers and I look at the news and I simply do not see a market that should be trading at all-time highs.  All-time highs are for markets where things are great and likely to get even better down the road – is that really how you see the current economic conditions?  

If not – consider joining us in excercising a bit of caution into the holidays!  

As you can see from Dave Fry's USO chart, we're getting a small bounce off support so far (we are long here) but let's not mistake a technical correction for an indication that the Global Economy is picking up – Japan, China, Australia, Korea, Indonesia and Europe all tell us that's not the case yet.  It's going to be a low-volume week and next week is Thanksgiving and I can't say it often enough:

CASH!!! is King!  

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