Just look at this chart – we're breaking every level. THIS time is different – not only are we going to go on to 1,450, we're going to 1,500 and 1,550 and then 1,600 and then we're going to 1,700 and 1,800 and 1,900 and then we're going on to take on 2,000 – yeeeeeergh!
Sorry, I was channeling my inner Dean… Now that I've calmed down, I realize that this chart that got me so excited was actually the chart from March 5th and, as you can see from my end of February headlines like "Sell in March and Go Away," "This is the End – But For Who?" and "Fake-Out Thursday (March 8th) – Dollar Sacrificed on an Altar of Lies" – where I pointed out that rumors of more Fed easing (by John Hilsenrath of the WSJ, of course) had dumped the Dollar to 79 and that was accounting for the 1% gain in the S&P that day so – don't be fooled!
The ECB had just dropped $712,800,000,000 in fresh stimulus on the 29th and I asked "Will Another $712Bn Buy Us Another Day at 13,000?" Was I early? Yes. Did we miss the end of the rally? Yes. In fact, our $25,000 Portfolio at the time was so bearish, we were down almost $8,000 with huge bearish bets like 10 Short XRT March $55 calls, 10 short GLL March $17 puts, 10 April SCO 31/39 bull call spreads and 10 SCO short March $34 puts, 5 short FAS $88 calls, 5 March TZA $18 calls, 10 short SQQQ June $14 puts, 40 USO April $40 puts, 5 short FAS March $75 calls, 10 long FAS March $85 calls and 10 short FAS March $89 calls (a bearish spread), 10 TLT March $114/115 bull call spreads and 10 DIA March $129 puts.
Just as the MSM had been whipped into a "you just can't lose" buying frenzy back in March (which we made fun of), by early June they were in a selling frenzy and I noted, June 4th: "Monday – "Markets in Turmoil" According to CNBC – Must be Time to Buy!" We were so bullish in that post, we were even long on oil (at $82) and AAPL hit our buy-in point at $555 and we went short on TLT at $130.36, long on TQQQ at $41.96 and XLF at $13.50 – right in that morning's post.
We did a lot of bottom fishing in June and, after a choppy start, things were good enough that we started 2 new $25,000 Portfolios for our Members on the 21st – catching that ongoing rally very nicely. Last Friday, I published our $25KP positions and we were up about $14,000 at the time and very bearish. Thankfully, ahead of Draghi – we took our own advice and added the aggressive bullish trades I suggested on Wednesday and the FAS spread I suggested that morning – the Oct $108/120 bull call spread for $2, selling XLF 2014 $14 puts for $1.55 for net .45 is now net $1.78, up 295% (which was our goal – 300%) in 2 days. That's not a bad way to offset your bearish bets!
The GS puts dropped to .70 already, so up 53% and, from a cash basis, it was $2,000 for the 10 spreads less $750 for the sale of the GS puts for $1,250 and now the spread is $4,000 and the puts are $400 for net $3,600 – up a quick 188% playing it that way. We also grabbed 10 EDC Oct $97 calls at .80 and they short up to $1.30 yesterday (up 62.5%) but that's nothing as today the Hang Seng jumped 600 points (3%) and Shanghai is up 4% and India is up 2% – thank you Mario!
The real question is – do we keep those trades open or take the money and run? I'm inclined to take the money and run but our $25KPs are VERY bearish and it would be very painful for us if the rally continues next week and we don't have our longs (and just that FAS trade can hit $10,750 in total profits at FAS $120) so we'll probably kill EDC and the short GS puts but leave the FAS spread as a compromise, which will put us fairly short again going into the weekend.
Obama didn't talk about jobs. Since he had today's ADP report, I have to think it's going to miss this morning. That could lead to a sharp reversal of yesterday's move but, on the other hand, the bulls may (as usual) take the bad news as good news because it green-lights Uncle Ben for another money drop.
So, unfortunately, we may still be a bit early on our shorts but we made our adjustments and we offset with good longs and it's QE3 or bust next week so let's all be VERY careful out there!
Have a great weekend,
- Phil