As I told you in the morning post, the "rally" was nothing more than a prop job to allow a full day of selling right into the close. Now that the markets are closed, the S&P is being propped back up – 0.3% as of 7:30 am. May the farce be with you!
Of course, this morning, there may actually be something to get excited about as the 2nd Quarter GDP Report will come out at 8:30 and economorons are expecting a full reversal of Q1s 2.9% dive with a 2.9% gain forecast for Q2.
I don't know what numbers they are looking at (assuming they even bother – from their usual performance, they would be better off using darts) but I'm not seeing a big resurgance in Consumer Spending, which is 70% of the US economy. I don't see how our Trade numbers improved, although we did import less oil (to create artificial shortages and drive up prices for the consumers).
Business Investment seems to be up a bit and Inventories are a real wild card where a build will be a huge plus – even though, to me, it sort of indicates they are not selling anything and it's piling up on the shelf.
So we'll see if the GDP can get the rally back on track and, if not, it will be up to the Fed this afternoon (2pm) to pump up the jam and get the party going again with their statement. It's very possible the Fed timed their announcement on the afternoon of the GDP release BECAUSE they know they'll have to make a save in the afternoon. Also, it's no coincidence that Treasury is pushing $44Bn of 2-year and 7-year notes between GDP and the Fed – just in time to get a good price on those rates!
We are already "Cashy and Cautious" in our Member Portfolios but still leaning bullish in our positions although that will change quickly if one of the major indexes joins the Russell (our old main hedge) below the 50 DMA line.
On July 8th, our play (right in the morning post, which you can have Emailed to you every morning by subscribing here) was to add TZA Aug $14 calls at 0.66. TZA has since shot up to $15.69 and those calls are now $1.67, which is a very nice 153% gain on a 4% drop in the Russell – THAT is how you hedge!
That's enough to protect a $500,000 porfolio from a 5% correction and there is still plenty of upside should we head lower. I don't point these out to brag (you can reveiw all of our past trades anytime right here), I do it so that, when I tell you about the opportunity in SQQQ, you can see how a similar trade recently worked.
Of course we already flipped BULLISH on the Russell (with Futures trades) at the 1,130 line and now we're looking to see if they can retake 1,145 and prove it's more than a bounce. As I said, that 200-day moving average MUST HOLD and no one is going to be too impressed until the Russell is over the 50 DMA at 1,158. If GDP is a miss, however, none of that is likely to happen and down we go again.
We are going to ignore the fact that -2.1% + 4.1% averages to 1% and pretend (in order to be like the masses) that it's all about the one 4.1% gain since -2.1% was so 3 months ago. As we thought, increasing inventories added 1.66% to the GDP, giving us the huge beat. That means we can go long on those /TF (Russell) Futures over the 1,145 line and also /YM (Dow) Futures over 15,700 to tilt more bullish pre-market.
This is why we take our profits after 5% moves in our indexes and look for fresh horse to ride for the next leg. The new SQQQ trade will take far less damage than the old TZA trade would have on this move.
We are going to take advantage of this rally to add a few hedges ahead of the Fed this afternoon. We had a nice short yesterday on the Nikkei off the 15,700 line in our Live Trading Webinar that netted $350 per contract in the afternoon and today we should get a crack at the 15,750 line (/NKD) for another nice short opportunity. Japan had HORRIFIC Industrial Output numbers this morning – down 3.3% on a slump in consumer spending – only the strong Dollar and GDP expectations kept them up overnight – now it's time to "sell on the news."
So enjoy this little rally while it lasts – I very much doubt it will take us to new highs and, if not, then it's just a pause in the larger correction but we are going to watch our levels and not get too bearish because it seems there's always somehting to prop these markets back up – for now.
This entry was posted on Wednesday, July 30th, 2014 at 8:02 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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