Thursday Thrust – Markets Rocket to Strong Bounce Lines

Wow, what a recovery!

In yesterday's morning post we were looking for 11,250 on the Dax and they finished at 11,265 so big check there and now we'll see if they can make it to 11,500 (strong bounce for them) and they are halfway there this morning at 11,376 BUT that's up just 1% after yesterday's 2.5% pop so the momentum is already slowing and that means it's likely to fail to get over that 11,500 line – even with Greece being "fixed" again.

That's right, once again fixing Greece was a good enough reason for a rally, even though this is the 12th time it's been fixed in the last 6 months. As PT Barnum pointed out – you can fool some of the people ALL of the time. As noted by Dave Fry: Stocks rallied right from the opening bell first on a rumor, later clarified, that Germany’s Angela Merkel was willing to make concessions to Greece.

As indicated later, Germany clarified by stating per Reuters,“Germany will only accept a cash-for-reform deal between Greece and its international creditors that has the approval of all three lending institutions”.

Meanwhile, our US indexes took off like a rocket, posting 1.25% gains on a 0.6% drop in the Dollar – so it would have been a weak bounce if our weakening currency hadn't goosed the numbers. In any case, we want to see those strong bounce lines hold up into the weekend and they were:

Dow 17,850 (weak) and 18,000 (strong) – recalculated as we never went lower to complete the bottom.
S&P 2,190 (weak) and 2,100 (strong)
Nasdaq 5,025 (weak) and 5,050 (strong)
NYSE 10,970 (weak) and 11,050 (strong)
Russell 1,250 (weak) and 1,260 (strong)

The Nasdaq and the Russell have already hit our strong bounce lines, which is technically impressive though flawed as the S&P Spider (SPY) volume up in one day was only 135M vs the 10 of 12 down sessions that preceded it with over 1.5Bn shares in the downtrend. A good example of this kind of action would be an ice cream truck selling fudge pops for $2 but no one is buying so he charges a nickel less each day for 10 days and the price drops to $1.50 on the 10 pops he did manage to sell. Then, on the 10th day, it's hotter so he gets $2 for one pop but then no other customers.

If you were asked how much money the next 10 pops will sell for, would you say $2 or $1.50 or somewhere in between? If you would say $2 – then congratulations – you understand how stocks are priced! No matter how many millions of shares are traded – the price of the last share traded is treated like it values the other 100M correctly. We teach our Members the fallacy of this pricing model and how to take advantage of it to pick up bargains and to get top price when we're selling.

We knew there was going to be a bounce, as we were hitting key technical supports across the board PLUS we know that "THEY" are pulling out all the stops to keep the plates spinning for as long as possible. Still, yesterday's pop caught us by surprise and our Short-Term Portfolio took a $15,000 hit, dropping back to $225,596 and now up just 125.6%.

Fortunately, our bullish Long-Term Portfolio offset that with a $10,000 gain so, on the whole, we're about net $5,000 too bearish in a 1.25% market rally in our paired portfolios. We'll be reviewing all 4 of our Member Portfolios in our Live Chat Room today as we'll have to consider the repercussions of this stronger than expected bounce. Of course, with the weekend coming up, I'm not going to be too keen on making changes without more hard data.

Retail Sales were up 1.1% for May and that's a strong showing but not so much coming off a weak April number (0.1%), especially considering a lot of it was due to the rising price of gasoline, which accounted for 0.4% of the total. Still, we know better than to analyze more than the headline so the market will take this as a bullish sign and pop the Futures and THEN we can short for the pullback at 2,110 on /ES (S&P Futures) and 4,500 on /NQ (Nasdaq Futures) as those are both great stop lines to use if we pop over.

If we don't pop over, we'll be looking for those weak bounce lines to hold up, otherwise we'll be forced to get MORE bearish into the weekend when we go over our portfolios today. We did add a sort of bearish trade idea yesterday in our Short-Term Portfolio, taking advantage of the idiotic pop in NFLX on rumors (likely true) that they will be doing a stock split.

Sold 3 July $700 calls for $26 ($7,800)
Bought 2 2017 $760/840 bull call spreads for $24 ($4,800)

That trade gave us a $3,000 credit and the bull call spread protects us for up to $16,000 should NFLX fly higher. As it stands, we caught a nice top on the stock (NFLX is not AAPL!) and the July $700 calls finished the day at $20.90 – up $1,530 in just a few hours! This is how we amuse ourselves while waiting for the market to make a decision….

We'll see if Consumers are Comfortable at 9:45 (Bloomberg Index) and Business Inventories come out at 10 and Treasury has $13Bn worth of 30-year notes to peddle at 1pm. Tomorrow morning we'll see the PPI numbers and get the Michigan Consumer Sentiment report, so much better insights into consumers than today's Retail Sales numbers.

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