We ALMOST had a correction but, fortunately, dip buyers prevailed and we pulled a sharp reversal right after the bell yesterday and finished the day only down about 0.4% and about 2.5% down for the week (so far).
I do hate to be nit-picky about these things but – can we REALLY call it a reversal when, in fact, declining volume on the NYSE was 2,275,176,430 while advancing was only 834,544? That's 3:1 declining! In fact, of the 3,241 shares on the NYSE, only 964 were positive yesterday – also 3:1 against. The same on the broader Nasdaq too.
Still, as the great President Bush once said: "fool me once, shame on — shame on you. Fool me — you can't get fooled again."
Of course, an even greater President, Lincoln (who had himself shot when he found out he was a Republican) actually said that you can, indeed fool some of the people all of the time and the stock market is certainly evidence of that as dip buyers rush in on anything that even looks like it might be a rally – no matter how much of a charade it actually is.
As Dave points out, we're still down 4% for the weak and all yesterday's action really was was a WEAK bounce off a 5% dip (1,200 to 1,140), which is EXACTLY what our 5% Rule™ predicted would happen.
Those TZA August $14 calls I told you about on Tuesday, when they were .91, topped out at $1.82 in the morning for an exact double – very good money for two day's work and a great offset for a quick dip. The main purpose of our hedges is to allow us to ride out a quick downturn and see if there is, indeed a real trend in play. So far, there isn't – not on the surface anyway.
And it's all about appearances in this market – no one seems too concerned about HOW we make our levels – as long as we make them. Fundamentally, I expect a full correction on the Russell back to 1,100 by the end of the month, but I am willing to revise my bearish prediction should earnings come in better than expected, especially retail. Speaking of retail – we shorted XRT two different ways last Tuesday, in our Live Member Chat Room, with me saying at 10:33 am:
XRT/DM – Thank you, I did want to add them. $88 is too beaucoup for XRT (and $50 was too beaucoup for GPRO it seems) and I like 5 Aug $86 puts at $1.10 in the $25KP and, in the STP, let's pick up 10 of the Sept $93/88 bear put spreads for $3.20 ($3,200) with $1,800 of upside (56%) if XRT simply stops going up here.
As you can see from the chart, our entry was well-time and the Aug $86 puts are already $1.60, up $200 (45%) on 5 contract in our $25,000 portfolio – where we specialize in small, affordable trades that fit in anyone's budget. The $3,200 spread is very much "on track" for the full $1,800 gain – as long as XRT does not recover $88 by September. Already the spread is $3.70, also up .50 per contract ($500), but just 15% on the more conservative, longer-term play (so far).
Our more aggressive Long-Term Portfolio (also $500,000) is down just a bit this week but still up 18.8% for the year and it is hedged by our $100,000 Short-Term Portfolio which offset the LTP's losses nicely and finished the day up 8.2% – which is exactly how they are designed to work together. Our Butterfly Portfolio ($100K) really doesn't care what the market does, and it's up 20.4% at the moment while the aforementioned $25,000 Portfolio is up 10.5% so far.
BALANCE is the key to enjoying your trading experience. As Mr Miyagi said:
Better learn balance. Balance is key. Balance good, trading good. Everything good. Balance bad, better pack up, go home. Understand?
Well, that's sort of what he said. Words to live by nonetheless.
Have a great weekend,
- Phil
Tags: IWM, Portfolio Management, SPY, Stock Market Newsletter, Trade Ideas, TZA, XRT
This entry was posted on Friday, July 11th, 2014 at 8:31 am and is filed under Immediately available to public, Uncategorized. You can leave a response, or trackback from your own site.
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