As the great John "Hannibal" Smith used to say: "I love it when a plan comes together."
Click to enlarge chart
Of course Smith's plans usually involved a great deal of mayhem culminating in things blowing up - very apropos considering the massive market blow-up this week. The plan in Monday morning's alert to members, which was titled "Cashing in Longs and Back to Cashy and Shortish" was pretty straight-forward:
If you want to play this rally for more upside, you can still short the VIX (we did the Aug $19 puts on Friday for $1, now 1.20) or play gold down with the GLL Aug $22s, that are still .35 or the GLD Aug $155 puts at .72 BUT I’m not really believing things are fixed so these are SPECULATIVE plays to follow the rally – WHICH I DON’T BELIEVE IN. Clear?
USO Weekly $38 puts are .44, 20 of those in the $25KP for $880! (longs are, of course off).
Let’s be straight about that, all the short-term long, including the ones in the income portfolio – are DONE. This was the pop we hoped for and now it’s done and back to cash!
The VIX puts are, of course, dead with the VIX now at 31.66 but the Aug $22 GLL calls are still .15 (down 57%) and the GLD Aug $155 puts are now .95 (up 32%) thanks to that same rise in the VIX. Not bad for trades I did not believe in. As to the trade ideas I did believe in: The DIA Aug $119 puts are $6 (up 400%) and the SQQQ Aug $21/23 spread is now $1.60 while the Sept $19 puts have dropped to .15 for net $1.45, which is up 483% for the week and the USO weekly $38 puts are now $2.64 (up 500%) with 20 of those netting $5,280 off an $880 investment. THAT's what I mean when I say "I LOVE it when a plan comes together!"
On Tuesday afternoon I happened to be live on the Business News Network at 3:20 and I laid out the macro plan for the viewers. It's just the condensed version of what the members and I had been discussing for weeks and it all came to a head yesterday morning when the BOJ disastrously picked that morning to manipulate the dollar higher, which sent the PRICE (but not the value) of U.S. equities falling off a cliff.
Note that this is the kind of advice Phil Pearlman has banned from Stock Twits (he not only turned off the account we were freely giving away but he ERASED ALL RECORDS OF OUR TWEETS) which I think were much better than the advice they sell you, a lot of which was pro oil while I was anti oil so how many billions of dollars did Phil Pearlman cost StockTwit readers by banning the free, alternate viewpoint with oil over $100 (now $86)? Can a company be sued for censoring information by their readers? Good luck with that IPO Mr. Twit! Anyone interested in setting up a competing service - please contact me!
Anyway, back to the markets. So our followers on Facebook and LinkedIn and Seeking Alpha were all aware of the trade ideas that were banned from Twitter and we took many bearish positions during the week, up to and including yesterday. Our logic is that, even if the jobs numbers are good (8:30 update - up 117,000), they won't be enough compared to last month's 18,000 and "good" jobs numbers push QE3 back off the table and the economy is STILL a disaster so this does not "fix" our overall problems.
Nonetheless, we did play the futures up this morning as my 3:30 a.m. alert to members suggested oil futures could be played over the $84 line (now $86.80, up $2,800 per contract) and gasoline could be played over $2.70 (now $2.78, up $3,360 per contract). As chat moved on we went long on the S&P over the 1,200 line (now 1,207, up $700 per contract) and the Russell at 720 (now 730, up $1,000 per contract) and finally, we picked the Nikkei long off the 9,300 line and they spiked up past 9,400 on the jobs report before stopping out (up $500 per contract). So, as usual, you get, BY FAR, the most bang for your futures buck from oil and gasoline but they are very, very dangerous contracts to trade!
We are in "take the bullish money and run" mode in the futures, of course, and will be at the open if we get a good relief rally. As I said at the top of this post, it's 2% or bust today as that's the WEAK bounce we expect off the 10% drop in our indexes. Europe turned around a 3% gap down at the open and, at 9 a.m., we have the FTSE and DAX down less than 1% and the CAC up 1% - we'll see if that lasts into their close at 11:30. The dollar fell from a high of 75.65 yesterday (Yentervention) to 75.20 today so that's half a point that our markets SHOULD be up based on price alone. That makes the little 0.7% pop we got off the jobs numbers less than impressive so far.
We are also taking the bearish money and running as our goal is to get cahsy and neutral this weekend because CASH IS FLEXIBLE and we will have a lot more information next week to place our bets on. I will be updating our very popular income portfolio as well as our $25,000 portfolio (around $60,000 virtual dollar now!) over the weekend and we will discuss our strategy going forward but, for today, let's be happy to get back to cash and not try to force things. That was our plan when we topped out at the end of June and now we are - HOPEFULLY - at the bottom of our range - but we won't know that until these levels hold up through Tuesday's Fed announcement.
Until then, a wise prognosticator knows when NOT to prognosticate!
Have a great weekend.
Additional disclosure: Positions as indicated but subject to change. Our goal is to cash out into the morning spike.